Park City School District awarded an inappropriate contract to a general contracting firm that later violated state law while acting on the district’s behalf, according to a new audit.

The district agreed to cover project costs and pay an additional percentage of those costs to Hughes General Contractors, according to a Wednesday report by the Office of the Utah State Auditor. That type of payment model is prohibited by the state’s procurement code.

“You have an incentive to inflate the cost because then percentage of cost is a bigger number,” Utah State Auditor John Dougall said Wednesday.

Hughes General Contractors, headquartered in North Salt Lake, subsequently violated state law, the audit states, by awarding a sub-contract to upgrade the school district’s LED lighting systems without following the procurement code’s requirements for competitive third-party bids.

“Those general contractors are supposed to follow the rules when they go out for competitive bid,” Dougall said, “as if the district were bidding it out.”

The audit includes a prepared response from Andrew Caplan, president of the Park City School District Board of Education, who wrote that the district is “generally in agreement” with the audit’s recommendations.

But Caplan pushed back on the characterization of the district’s arrangement with Hughes General Contractors and the need for remedial actions. The district’s contract with Hughes expires on Dec. 31, he wrote, and taking immediate action might prove more costly than is warranted.

“Any future contracts will obviously be carefully reviewed for compliance with the Procurement Code,” Caplan wrote.

District spokeswoman Melinda Colton told The Salt Lake Tribune district officials would have no further comment.

Dougall said his office did not prescribe remedies to the district, but instead offered steps to ensure compliance with state law in the future and to determine if service providers were overcompensated.

“We’ll clearly follow up after a few months to see what actions took place,” he said.