PROVIDENCE, R.I. (WPRI) — After months of controversy and public feuding, Gov. Dan McKee is canceling a state contract with the developer leading an effort to rehabilitate the vacant Cranston Street Armory in Providence.

State officials said the decision to cancel the contract with Scout Ltd. comes after state-hired consultant JLL provided a report showing the proposed redevelopment plan would lose $10.5 million over the next 15 years.

R.I. Department of Administration director Jonathan Womer also noted the report shows the plan comes with high fees, little financial risk to the developer and a mixed-use blueprint that makes less sense in a post-pandemic economy where there’s dwindling demand for commercial space.

Watch Governor McKee’s full news conference in the player above.

“There’s a big emphasis in the Scout proposal on office space development, which really doesn’t make a lot of sense right now in the current environment,” Womer told reporters during a news briefing Monday morning. “Based on this assessment, the administration is terminating the contract with Scout.”

But the cancellation also comes on the heels of the governor butting heads publicly with Scout executives, who also became ensnared in a bizarre business trip two former state directors took in March to visit them in Philadelphia.

The Scout officials — Lindsay Scannapieco and Everett Abitbol — wrote an email to McKee and other state leaders after the trip, alleging former state property director David Patten acted “blatantly sexist, racist and unprofessional.” They also accused his then-boss Jim Thorsen of failing to intervene. The allegations spurred a R.I. State Police investigation and a state ethics probe. The botched trip made national news and both directors have since resigned.

McKee, whose administration tried to keep the email secret, has more recently been going tit-for-tat with Scout officials in news reports, as company executives have been critical of Rhode Island’s approach to doing business. The Rhode Island GOP has also filed an ethics complaint, alleging McKee violated the state ethics code when he accepted a free lunch from Scout lobbyist Jeff Britt in January.

Womer and R.I. Office of Management and Budget director Brian Daniels insisted the decision to end the contract stemmed the JLL findings rather than the public-relations disaster. But they acknowledged there wasn’t an effort to revamp the plan with Scout officials, and they weren’t willing to work out some type of compromise.

“It’s so far off that we think all the fundamentals of the current proposal just don’t make sense to continue with them,” Womer said.

Womer added Scout officials would learn of the contract being canceled on Monday. State Purchasing Agent Nancy McIntyre sent a letter to the company and digitally signed it at 9:23 a.m., about seven minutes before the news was shared with reporters.

Scout officials did not immediately respond to a request for comment.

During a news conference later in the day, McKee said he’s been in talks with Providence Mayor Brett Smiley about transferring ownership from the state to the city. The discussions were first reported by The Providence Journal. McKee said the transfer would make sense, arguing the armory is a community project that posed too much of a risk to statewide taxpayers.

“We’ve come to the conclusion that this is a local, community project — not a state project,” McKee said.

Smiley spokesperson Josh Estrella confirmed they have been talking with state officials.

“Any transaction would necessitate a provision for adequate capital improvement funding to ensure effective rehabilitation of the facility, which is critical to future development of the site,” Estrella said in a statement.

Currently, the state owns the building while the city owns the adjacent parking lot and green space.

“We do need to redevelop it,” Daniels said, adding that while the JLL report noted it would cost taxpayers about $7.8 million to raze the armory completely, state officials are not considering demolition as a top option.

The decision to cancel the contract evoked sharp criticism from state Sen. Sam Bell and Rep. Enrique Sanchez, both Democrats, who represent the West Side. Bell accused McKee of canceling the project out of retribution for his ongoing issues with Scout.

“Retribution on this scale makes my stomach churn,” Bell said in a statement. “The culture where state contractors got extorted for kickbacks and would lose the contract if they even dared to speak up about it was one of our state’s greatest shames. That it continues to this day embarrasses not just Governor McKee but the state as a whole.”

Sanchez said he constantly hears from constituents about how important the project is to them, calling the decision to cancel the contract “a slap in the face to the whole community.”

“He could have simply continued to block funding for the project,” Sanchez said. “Canceling the contract was unnecessary. It sends a clear message. He cannot run from the decision to send this message. Unfortunately, all of Rhode Island will pay the consequences.”

Lieutenant Gov. Sabina Matos, who was formerly Providence City Council president and is currently running to replace former Congressman David Cicilline, also expressed disappointment with the governor’s decision to go in a different direction.

“The lieutenant governor has worked towards a community-led redevelopment of the Cranston Street Armory for her entire career in elected office, and vocally supported the vision that Scout proposed in 2019,” Matos spokesperson David Folcarelli said in a statement. “She is disappointed that this specific proposal won’t move forward, but our administration will keep working to help develop this space for the benefit of the West End and the citizens of Providence.”

Scout first came onto the scene in February 2020 when the state solicited ideas to redevelop the armory, which has been mostly empty since 1995 and sits alongside Dexter Park on the West Side neighborhood of Providence.

Target 12 obtained internal documents earlier this year showing taxpayers would pay between $2 million and $3.5 million each year just to maintain the defunct building, which is deteriorating and has substantial structural and plumbing issues.

The maintenance estimates suggest taxpayers could spend between $6 million and $10.5 million over the next three years if nothing is done, which is about the same amount JLL projected Rhode Island would lose over the next 15 years if it moved forward with the Scout plan.

Former Gov. Gina Raimondo chose Scout to lead a redevelopment effort and the state contractor proposed turning the building into a recreational facility, along with office and retail space. The contractor unveiled the plan last year and sought about $56 million in general revenue, which McKee declined to include in his budget.

The governor long cited the pending JLL report as the reason why he decided not to include the funding, saying he was keeping an an open mind and would wait for the analysis. But his tone changed after the email came out and Scout officials became more critical of his administration, saying more recently he didn’t think it would be a good deal for taxpayers.

“Ultimately, the state will make its decision based on what’s best for Rhode Island taxpayers and all viable options will be considered,” McKee spokesperson Matt Sheaff said in a statement Monday morning.

The JLL report concluded the Scout proposal would cost state taxpayers $60.9 million over 15 years and only bring in $50.4 million during that time. The state and city would cover about 80% of the redevelopment cost and Scout would seek tax credits and foundational support to cover the rest. Consultants urged the state officials to renegotiate certain terms of the proposal if they decided to move forward.

“The project as currently proposed does not appear to be in the financial interest of the state taxpayers,” JLL officials wrote.

Tim White and Ted Nesi contributed to this report.