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Seaside High School graduation, 2013

SEASIDE HIGH PROJECT DRAGGED ON AND ON, EXPENSIVELY

Like all California school districts involved in bond measures, the Monterey Peninsula school system has a citizens oversight committee. Oversight committees generally meet quarterly and confine their role to rubber-stamping whatever the district administration says about construction work financed by the latest bond issue.

But one project financed by the district’s $110 million Measure P of 2010, a new heating and air conditioning system for Seaside High School, proved to be so problematic that the committee made a special plea to the administration to be allowed to conduct a special study of the cost overruns and numerous other troubles.

Cost estimates had been exceeded and ultimately ignored. Administrative corners had been cut to speed up the project because students were shivering in unheated classrooms but everything was way behind schedule anyway.

Overseeing the project was Harris Construction of Fresno, which is now embroiled in a criminal investigation involving $117 million in school construction it performed in Fresno under a no-bid contract arrangement that has since been ruled illegal by an appellate court. It was a no-bid “lease-leaseback” bid contract arrangement much like its contract for the Seaside High work and several other contracts Harris was awarded by the Monterey Peninsula Unified School District.

Initially, the oversight committee’s request to investigate was ignored by then-Superintendent Marilyn Shepherd. But the committee persisted and, soon after she left the district, the school board authorized a special inquiry. The result was a special oversight committee report in March 2015, a remarkably pointed and candid report that found “utter disregard of contract provisions”and “blatantly obvious … lack of contract review.” (To view the report, click on this link, and when that opens, click on the “download now” button,)

The project was budgeted to cost $2.5 million but the price ran considerably higher because of general cost overruns and additional work that was not approved by the school board. Among other things, the contract that originally called for heating and air conditioning work morphed into one that included a new tennis court and repaving of outdoor basketball courts.

Rick Heuer, who chaired both the oversight committee and the subcommittee at the time, said it was impossible to determine the actual final cost to the district.

According to the report, “District staff did not inform the board of the project phasing, the increased scope of work, increased architect’s fees, increased cost estimates, scheduling or justification for the type of heating system selected. Design started in January of 2011. The board was kept in the dark about architect’s fees and phasing until August of 2013. Staff seems to consider this to be only a minor oversight.”

‘URGENCY’ PROJECT STALLED FOR NO GOOD REASONS

The report continues:

“Nowhere in the staff report was there any indication that the total value of the project would be. As a result no flags were raised regarding the potential overall cost of the project and its impact on the overall bond program and since no overall Bond Program Budget had been created there was no ability to assess the impact of what the total cost might be.

“It appears that little attention was paid to the accuracy of the contract documents. Besides the facts that not all provisions were enforced and contract amendments were not signed nor dated, the contract cover sheet was dated October 29, 2009, while the contract wasn’t executed until March 16, 2010 … .”

The report repeatedly complains that the school board was not kept up to speed on the work, the modifications or the increased costs.

“The inclusion of items totally unrelated to the heating system at Seaside High such as allowances for the tennis court, special education modernization and repaving of the basketball courts inflated the cost and were never reviewed in the context of the overall bond program. The title of the agenda item the board reviewed was ‘Discuss & Approve the Harris Construction Guaranteed Maximum Price for Seaside High School HVAC Upgrades, Paving and Various Related Projects.’ First, the items are not ‘related’ to HVAC upgrades. Second, the only place the costs of these add-ons are reviewed is in the contract itself.”

 Here’s the text of the Sept. 20, 2013, letter the MPUSD Citizens Bond Oversight Committee sent to the Board of Trustees requesting permission to investigate the cost overruns at Harris Construction’s Seaside High School project:

Dear Members of the Board:

At our last oversight committee meeting we were briefed on and briefly discussed the large cost overrun at Seaside High. Since that meeting we know that the board has been briefed on the overrun and it has been the subject of controversy. We continue to have questions about how it came to be, its impact on other bond projects and how we can ensure something such as this does not occur again. We would like your permission to do a full analysis of what occurred with this project, document for the public the entire process, make recommendations regarding any procedure changes which may improve the process and report back to you the results of our investigation. We feel this would allow for an objective review of this project and hopefully quell rumors and speculation.

Sincerely, Rich Heuer, Chairman

The report was available online, but never received outside attention. However, one of the committee members, Carole Dawson, says the situation has improved dramatically with Shepherd’s departure and the hiring of her successor, PK Diffenbaugh.

“The biggest improvement was getting a superintendent who is really good,” said Dawson, who now chairs the district’s bond oversight committee.

While Diffenbaugh has inherited some problematic contracts from the $110 million Measure P bond, he has improved oversight of the various processes and created an effective facilities advisory committee, said Dawson and others.

CONSULTANT TERRY BRADLEY WORE CONFLICTING HATS

Ironically, Diffenbaugh was hired in 2014 as the result of an executive search headed by Terry Bradley, the former Clovis school superintendent who was largely responsible for hiring Harris Construction and the Fresno architectural firm, the Teter Partnerships, that were responsible for the cost overruns on the Seaside High project. Bradley maintained his office at Harris Construction and also was a partner for a solar company that did considerable work for Monterey Unified, but it isn’t known whether he disclosed his various roles.

CDawson

Carole Dawson

Bradley was recently fined $50,000  by the U.S. Securities and Exchange Commission for leaking confidential information from five school district clients to a bond firm, Keygent Advisors. Though Monterey Peninsula Unified School District was not one of the five districts, Keygent did serve as the lead financial adviser for Measure P and Bradley worked from January 2011 to January 2016 as a general financial adviser for MPUSD.

(While working on the superintendent search for the district, Bradley visited the Monterey Herald, ostensibly to question editors about the type of superintendent they would like. He spent most of the time, however, pitching the idea of a new bond measure to improve conditions at Marina High School, which he said was one of the worst school facilities he had ever seen.)

The special oversight subcommittee produced a remarkably comprehensive report on the Seaside H.S. with numerous suggestions for improving the district’s overall performance on renovation work. The committee itself was also remarkable, consisting of three people with particularly strong credentials.

Dawson is a retired civil engineer who worked in the public works departments for the cities of Monterey and Seaside, serving as project manager for several infrastructure improvements. She has been president of the California Society of Professional Engineers and has been highly active in neighborhood issues for the city of Monterey.  She has degrees in philosophy from the University of California Santa Barbara and in civil engineering from California State University Sacramento.

Heuer is a hotel consultant in Monterey and an active member of the Monterey Taxpayers Association. He has served on the Monterey planning and architectural review commissions. He holds degrees from the Monterey Institute of International Studies and the Fisher Graduate School of International Business.

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Alastair Rodd

Committee member Alastair Rodd of Marina works as an international education consultant, primarily in Third World countries on projects involving education reform, decentralization and education financing. He holds bachelors degrees in economics and economic and social history from Bristol University and a masters in economics and African studies from Johns Hopkins University. He also has taken advanced studies in accounting.

School districts promoting bond issues invariably put heavy emphasis on the existence of a citizens oversight committee, creating the impression that a group independent of the district will be monitoring or even directing key decisions involving use of the bond money. In fact, such committees are generally relegated to simply certifying that the spending is legal. Heuer, who also has served on a bond oversight committee at Monterey Peninsula College, calls them “toothless.”

“If they spent $100,000 on a toilet, we couldn’t do anything about it,” Dawson said. Usually, such committees meet four times a year and are presented with little more than a list of spending in the previous quarter and a rubber stamp.

A MILLION HERE, A MILLION THERE

For the Seaside High project, however, the committee saw quickly that much more scrutiny was needed.

Dawson said the district staff early on informed the school board that the $2 million effort was going to cost at least $4 million, “but the explanation was just seven sentences. No detail.”

She recalled that the fees for Teter, the Fresno-based architect, “just kept going up and up, and they say, ‘Oops,’ it’s $400,000 instead of $250,000’ and ‘Oops, the project is $4 million instead of $2.5 million’ and ‘Oops, this urgency project, this the-kids-don’t-have-any-heat urgency project is going to take four years.’”

The report, authored by Dawson, said, “There seems to be a blatant disregard for completing this ‘urgent’ project in a timely manner. There was no time schedule for this project. The Board approved the Master Contract with Teter on October 5, 2009. The contract with Teter was not executed until nearly five and a half months later. Design did not begin until ten and a half months after that. Therefore, from Board approval to start of design was one year and four months. Then, design (for all three phases) took another two years to complete. Construction took eight months to complete. For this ‘urgent’ project, the total time from Board approval to construction completion for three phases was four years.”

Dawson said she was relieved when Shepherd left the district, following significant controversy, but disappointed that she had not authorized a special inquiry before she left.

CRIMINAL INQUIRY MAKES SENSE

She said the committee hung back on the issue for a time but was motivated to move ahead when Monterey Herald reporter Claudia Melendez Salinas wrote about the delays and cost overrun in January 2014. While the school board was going through the process that would lead to Diffenbaugh’s hiring, the committee sent a follow-up letter to the interim superintendent. He obtained board approval and the special committee inquiry began in April 2014.

Dawson said she was not surprised when she saw news accounts about Harris’ legal troubles in Fresno and Bradley’s SEC problems.

“We always suspected it could be something like this,” she said.

Harris installed air conditioning and heating systems at the district offices and in several schools under the lease-leaseback system, which the courts have now ruled to be an illegal device intended to circumvent the competitive bidding process.

In Fresno, where an FBI investigation appears to be in full swing, the school district hired Harris Construction to build a new middle school. It then leased the property to  Harris, putting the company instead of the district in charge of the project and enabling it to hire and manage subcontractors however it chose. Fresno blogger Mark Arax reported that Bradley, on behalf of the Fresno district, essentially promised construction contracts to Harris Construction in exchange for help financing the bond measure election campaign, which could amount to the type of quid pro quo that leads to bribery charges. Harris and several other firms involved in both the Fresno and Monterey bond measures also contributed to the Measure P campaign.

In Monterey and elsewhere, the lease-leaseback process was altered because schools were being renovated rather than built yet the properties were still technically leased to the contractor and various steps in the normal bidding process were eliminated.

An appeals court in Fresno ruled the practice illegal and the state Supreme Court let that opinion stand. The lawsuit that resulted in those rulings continues and, unfortunately for the Fresno district, the contract it signed with Harris requires the district to pay Harris’ legal fees in addition to its own. At least some of the Harris contracts with MPUSD contain the same provision.

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Hand holding out a stack of money tied to the end of a stick for briberyCAST OF CHARACTERS HERE PERFECTED ‘PAY TO PLAY’ SCHEME IN FRESNO

FRESNO BLOGGER UNCOVERS INCRIMINATING EMAILS

CLICK HERE FOR ARTICLE ABOUT HOW MPUSD GOT AROUND CAMPAIGN PROMISE

For more than a year, the FBI and federal prosecutors have been conducting a criminal investigation of the construction contracting process used by the Fresno Unified School District – and it turns out several of the key players in the Fresno scandal have been involved in a remarkably similar series of transactions at the Monterey Peninsula Unified School District.

In both districts, the construction contracts were financed by huge bond measures approved by district voters in November 2010. In both districts, much of the construction work was awarded to Harris Construction of Fresno, much of the architecture work went to the Teter Partnerships of Fresno and the financial adviser overseeing both bond measures was Keygent Advisors.

Each set of bonds was underwritten by a team of bond firms. In Monterey, they were Piper Jaffray and Stone & Youngberg. In Fresno, it was Piper Jaffray and Stifel, which acquired Stone & Youngberg the next year.

And in both cities, the various entities were linked through one man, Terry Bradley, the former superintendent of the Clovis Unified School District, who agreed last month to pay a Securities & Exchange Commission fine of $50,000 for providing Keygent Advisors with confidential information that enabled the company to obtain bond work with five school districts while he was a paid consultant to Keygent.

Though the Monterey and Fresno bond issues — for $110 million and $280 million respectively — were among the largest that involved Bradley and Keygent, they were not among the districts involved in the conflict-of-interest scheme uncovered by the SEC. Those districts were in the San Joaquin Valley communities of Clovis, Caruthers, Dinuba, Reedley and Sanger, each of which was using Bradley as a financial adviser. (See the previous Partisan article on SEC case.)

Newly surfaced emails subpoenaed by the FBI suggest that while Bradley was helping administer the proceeds of Monterey’s Measure P by helping the coastal district select architects and contractors, he also was the mastermind behind a creative contracting process in Fresno designed to guarantee large construction contracts with Fresno firms that agreed to help finance successful bond measures. The biggest beneficiary of that scheme, focus of the FBI inquiry, was Harris Construction, where Bradley maintains his office.

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Terry Bradley, wearer of many hats

Critics of school bonding practices in California have long complained that it has become a “pay-to-play” system: Companies that cough up money for bond campaigns have a distinct advantage when it comes time to divvy up the bond consulting and contracting work. But according to numerous news reports in Fresno, it appears that Bradley took the system a step forward and created a way to guarantee that big campaign spenders would get their reward in the form of construction contracts. Apparently as reward for contributing to the Fresno bond campaign, Harris was given a contract to build a middle school without having to go through a competitive bidding process. Instead, the district used a “lease-leaseback” method, involving secret negotiations with Harris, in a process that an appellate court later ruled to be illegal.

At the Monterey Peninsula Unified School District, or MPUSD, the 2010 bond measure financed considerable renovation work, not new schools, but the district used the same non-competitive, “lease-leaseback” structure to award several renovation contracts to Harris, some of which were worth more than $1 million.

On its Facebook page in 2011, Harris Construction congratulated MPUSD for its facilities upgrade project and said it was “proud to be part of the Lease-Lease Back team implementing the plan ….”

Based on the number of commonalities, including the timing, it seems likely that the Monterey school district’s Measure P of 2010 and Fresno Unified’s Measure Q may have been sold to bonding and construction companies as a package deal. Harris and the Piper Jaffray bond firm contributed to both bond campaigns, for instance. Keygent contributed to both the Monterey and Fresno bond measures.

Although they sound complicated, school bond measures really aren’t that difficult to understand. In most cases, districts wanting to build or renovate schools ask voters to allow the district to borrow money. Rather than simply go to a bank to borrow cash, the districts hire various bond specialists who invite investors to buy the bonds or, in other words, to lend money to the districts at a pre-determined interest rate.

With California schools borrowing billions of dollars annually, a cottage industry has grown up around the state’s education system – a self-perpetuating, self-dealing cottage industry. Bonds can’t be issued without the approval of district voters, so the districts set up quasi-independent committees to run campaigns to persuade the voters to say yes. Those campaigns are largely financed by the various bond specialists who hope to obtain contracts to handle the technical aspects after the successful elections.

In the case of MPUSD’s Measure P, the committee was headed by Sharon Albert, wife of Dan Albert Jr., who retires this week as MPUSD’s associate superintendent for business and finance. Only three bond firms contributed to the campaign and each received a piece of the action. Those were Stone & Youngberg and Piper Jaffray, which each gave $20,000, and Keygent, which gave $10,000. In other words, the decision on who would handle the bonds was essentially made when the bond companies wrote their checks out to the Measure P campaign. Presumably Keygent didn’t need to contribute as much because it had already been hired as the district’s bond overseer.

The San Francisco law firm of Stradling Yocca Carlson & Rauth contributed $3,000 and was later hired as bond counsel for Measure P.

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Measure P-financed construction work at Seaside High School

Fresno’s Harris Construction contributed $2,500 to the Measure P effort. The Teter architecture partnership in Fresno, closely affiliated with Harris, contributed $10,000 to the Measure P campaign before the November vote and $5,000 more two months after voters enthusiastically approved the measure. Like Harris, Teter received several significant contracts for projects financed from the Measure P proceeds.

Which bond firms get the work matters because lack of competition enables them to charge higher fees and could take away incentives to shop for the lowest interest rate for the district. With such a large amount of money being financed over a long period, even tiny variations in interest rates can cost or save a school district considerable sums. In the case of Measure P, MPUSD officials have said it is costing the owner of a $500,000 property about $150 annually.

The best reporting on the Fresno investigation has been by author Mark Arax, a former Los Angeles Times reporter who now produces a blog, the Arax File. In a post this week, he wrote of a series of emails dating to 2010 in which Bradley apparently hatched his plan to attract bond campaign money by promising construction contracts for contributors.

Arax referred to Bradley as “the man in the middle,” a role he played in Monterey as well as Fresno.

In Fresno, Arax wrote, “it was Bradley, also acting as a paid consultant to Fresno Unified, who helped persuade the district to convert to a lease-leaseback method of school building. In doing so, the district’s long practice of competitive bidding gave way to a controversial—and ultimately abused— method in which a single favored contractor controlled the construction process from design to turnkey.”

Key to making it all work was getting the Fresno bond measure passed. To do so, the district turned to Bradley, Fresno Mayor Ashley Swearengin and Harris Construction, headed by Richard Spencer, one of Fresno’s most active builders and most generous campaign contributors.

“Persuading taxpayers to pass the bond was no easy challenge,” Arax wrote. “The economy was mired in a deep recession, for one. The school district and its public and private partners—the so-called Citizens for Quality Neighborhood Schools— were trying to raise tens of thousands of dollars for yard signs and radio, TV and newspaper ads.

“As the campaign kicked off, Richard Spencer and his subcontractors were playing hard to get, emails show. Early on, Spencer had committed $5,000 to the Measure Q effort, but weeks passed without a cash contribution from him or his family members ….

“On Aug. 11, 2010, emails show, Terry Bradley stepped forward to assume the role of a broker. For the first time, he informed a member of the Measure Q committee that the Spencers were holding back on campaign cash because they were unhappy with the way Fresno Unified awarded its construction contracts.

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Marshall Elementary School receiving part of its Measure P facelift

“Whether (district officials) knew it at the time, Bradley was a man with divided loyalties. He was wearing—or was about to wear—three different hats: a paid consultant to Fresno Unified on Measure Q, an adviser to an education bond firm based in El Segundo called Keygent and a promoter of lease-leaseback contracts on behalf of Harris Construction.

“This juggling feat, as it turned out, was not only impressive and highly lucrative but a flagrant conflict of interest that would land Bradley, six years later, in the crosshairs of the U.S. Securities and Exchange Commission.”

Arax wrote that Bradley suggested that Harris would hand over more money for the bond campaign if the district would agree to a more Harris-friendly method of awarding construction contracts.

“’If FUSD would use construction delivery methods that Harris has emphasized for the past several years (construction manager with multiple primes and/or lease-leaseback), the contribution would have been much higher,’” Bradley wrote in one email. “’Contractors are reluctant to give large contributions to bond campaigns when projects are awarded on a design-bid-built delivery method with the project always going to the lowest bidder.’”

Additional discussions transpired and, with the bond measure election rapidly approaching, “the Spencers and their subcontractors would pony up tens of thousands of dollars in campaign contributions for Measure Q; Fresno Unified would soon begin to tout the lease-leaseback method in its public presentations,” Arax wrote.

Over the next two weeks, campaign records show, Richard Spencer gave $25,000 to the Measure Q effort. Over the next four years, without competitive bidding, Harris Construction would receive $117 million of the more than $280 spent by Fresno Unified.

SEE RELATED ARTICLE BELOW

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Dishonest businessman telling lies, lying businessperson holding fingers crossed behind his backINSTEAD OF PAYING ADMINISTRATOR, DISTRICT PAYS A CONSULTANT

When Monterey Peninsula school officials were pitching Measure P in 2010, they knew taxpayers were leery of providing perks for school administrators. So they made an important promise.

The entire $110 million being borrowed by the district would be used to improve district facilities but “no money” would go toward administrator salaries. An auditor reviewing the bond documents wrote that it was clear that the bond money would go for physical improvements “and not for any other purpose, including teacher and school administrator salaries and other operating expenses.”

Was the promise kept?

Sort of, in a way. But not really.

Soon after voters in Monterey, Seaside, Marina and Del Rey Oaks approved Measure P in 2010, Monterey Peninsula Unified School District officials realized they were short on the expertise needed to administer an ambitious effort to maintain and modernize most of the district’s campuses. So Superintendent Marilyn Shepherd returned to her San Joaquin Valley roots and hired Dr. Terrance Bradley, newly retired superintendent of the Clovis Unified School District.

The Clovis district was long known for its old-fashioned approach to education – no long hair for boys, no short skirts for girls – and its sparkling facilities with middle schools that look like high schools and high schools that look like colleges.

Bradley had helped the district set a state record for bond financing, borrowing and spending more than much larger districts, and in retirement he was poised to continue mining his contacts in the school finance industry and various education-related organizations.

Shepherd hired him as a financial adviser shortly after passage of Measure P. Dan Albert Jr., who retires this week as the district’s associate superintendent for facilities and business, said Bradley was brought on board largely to help select architects and contractors to carry out the bond work.

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MPUSD Superintendent PK Diffenbaugh and Associate Superintendent Dan Albert Jr., who leaves the district this week and plans a run for Monterey City Council in the fall

So rather than using bond proceeds to pay for “administrator salaries or other operating expenses,” the district had hired a consultant to do the same thing.

The Measure P bond team was largely in place when Bradley officially arrived in 2011. Coincidentally or not, it was made up largely by entities that had created and contributed to the $200 million Fresno school bond measure of 2010, a bond measure in which Bradley was heavily involved (see companion article.) Common participants included the Keygent Advisors and Piper Jaffray bond firms, the Teter Partnership and Harris Construction of Fresno.

Bradley remained on board as financial adviser until January of this year when Keygent advised Monterey school officials that he and the firm were under investigation by the SEC. The investigation concluded earlier this month with Bradley agreeing to pay a $50,000 fine for leaking confidential information to Keygent from five school districts.

Bradley’s consulting contract with MPUSD was rather modest, paying him $24,000 per year for two days work each month. But the contract didn’t limit the income potential created by his work for the district. In 2012, while working as a “strategic partner” for TerraVerde Renewable Partners, he helped the Marin County firm win a series of consulting contracts to help MPUSD install solar systems at various properties. He earlier had helped the company receive a $2 million contract in Clovis.

A year later, MPUSD officials paid a headhunting firm some $30,000 to have Bradley recruit candidates to replace the outgoing superintendent, Marilyn Shepherd.

While the executive search firm has removed Bradley’s information from its website, Bradley remains active with the Coalition for Adequate School Housing, which advocates for school districts, bonding firms and contractors. The group’s legislative director, Tom Duffy, defends Bradley, who has declined to respond to the Partisan’s inquiries.

“We support Terry,” Duffy recently told the Fresno Bee. “He has a great deal of credibility because of his honesty and what he’s done in California for a long, long time. I’m sure that he’ll work through this and so will the SEC. The work that school districts do is some of the most complex work in California because of laws and regulations, and also because of federal oversight when it comes to anything involving bonds. It’s complex and it’s ever-changing, and is a world that requires a great deal of expertise.”

Shepherd’s replacement, Daniel PK Diffenbaugh, said last week that the district has no plans to review Bradley’s work for the district.

Shepherd - Women LeaderThrough a district spokeswoman, Diffenbaugh said, “The projects and related contracts related to Mr. Bradley have been completed. Expenditures related to these projects were part of the MPUSD bond program and as such, were audited by an independent auditing firm annually per the law. The auditors did not identify any findings. These audits were provided to both the bond program’s Citizens Oversight Committee and our Board of Trustees. MPUSD is satisfied with the results and, to our knowledge, the contracts were executed appropriately. We do not, as of now, have any plans to conduct a review, nor do we anticipate utilizing Mr. Bradley’s services or that of Harris Construction in the foreseeable future.”

School districts pitching bond measures often reassure taxpayers by saying that expenditures will be monitored by citizen oversight committees, but Rick Heuer, who has chaired the Measure P oversight committee, said such groups never get into the hiring or compensation of the various firms providing guidance on bonding details. In Monterey, Heuer said, board policy and the actual bond measure language restrict the committee’s jurisdiction to nuts-and-bolts expenditures.

“All bond oversight committees are toothless entities that only review things after the fact,” Heuer said.

When Bradley was hired in 2011, the district did not require consultants or other contractors to formally pledge to avoid conflicts of interest, but language addressing that issue was added to contracts in late 2012. The standard text read: “Contractor does not have, or anticipate having, any interest in real property, investments, business interests in or income from sources which would provide Contractor, his/her spouse or minor child(ren) with personal financial gain as a result of any recommendation, advice or any other action taken by Contractor during the rendition of services under this Agreement.”

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