LA GRANDE — The state Board of Higher Education Friday approved the sale of $200 million in state-backed bonds to build a 12,500-seat basketball pavilion at the University of Oregon, the nation’s most expensive such facility.

“It’s a great relief and a matter of really rejoicing for the institution,” said U of O President David Frohnmayer.

The pavilion would replace McArthur Court, in use since 1928.

The 11-member board voted 7-0 with four abstentions on four separate votes: one approving the use of the bonds and three concerning Oregon’s intent to bypass open-search rules and hire contractors hand-picked for the job.

Questions arose about the lack of competitive bidding.

The Oregon University Systems bond lawyer, Harvey Rogers, called the arena financial plan one of the most thoroughly reviewed he had seen.

The vote came after board members were given a letter from construction manager Hoffman Construction of Portland saying the arena can open as scheduled in 2010, even with the university being required by the city to get a conditional use permit, if the permit is obtained by Nov. 30.

On Wednesday a Eugene hearings official overruled the city planning director and said the university needs the permit, which will require a new permit application and a public hearing to determine what must be done to ensure the arena is compatible with its surroundings.

Frohnmayer said he was dismayed by that decision and said he hasn’t ruled out an appeal.

Although the arena won’t generate enough revenue by itself to cover operating and debt costs—debt payments alone could be $17 million a year—the university will have revenue from its Athletics Legacy Fund to keep the athletic department, which must shoulder the arena costs, above water.

That fund was started with a $100 million pledge from Nike chairman Phil Knight and his wife, Penny. The UO has vowed to increase it to $150 million with additional fundraising and said it already has $111 in total pledges.

The board expressed concern over the university’s request to use a sole-source contract to allow Hoffman and its designers to continue to manage the project without putting the job out for public bid.

Frohnmayer said that is necessary because the firms already have put in several years of work on the project that would be wasted if the job was bid.

Board members Tony Van Vliet and Dalton Miller-Jones abstained, saying they were bothered by the lack of a public search for contractors but didn’t vote against the project because they didn’t want to derail it.

Critics have asked if Oregon needs such a costly facility and why Knight made his pledge contingent on the university securing public financing rather than using the money he donated as a down payment.

Instead, the public will bear the risk at a time of financial uncertainty. Knight has declined repeated requests for comment.

Melinda Grier, the university’s chief lawyer, said the firms were originally hired by National Championship Partners, a subsidiary of the nonprofit UO Foundation with substantial connections to Knight.

NCP hired Hoffman as the project manager four years ago when it was envisioned that the arena would be built with private donations then given to the university.

Grier said all the subcontracts would follow the state’s competitive bidding rules.

Frohnmayer said he told the board in November of his intent to seek a sole-source contract.

Board member Paul Kelly said he wished he had given it more thought then.

Board member Jim Francesconi called for a complete review of the project to determine what can be learned, especially on projects involving a major private donor.

He said he worried that it could set a precedent against competitive bidding on public projects.

“We’re creating an exception that can drive a truck through the spirit of the public contracting law,” he said.

Hoffman said the project could be delayed if construction cannot start by Nov. 30. A delay of an additional month would add up to $500,000 in overtime costs but still allow the arena to be ready for the 2010 basketball season, he said.

The letter said if construction is delayed until March, the arena could be ready by January 2011.

Even so, the co-chairmen of the Legislature’s Joint Ways and Means Committee want the university to appear June 25 to explain the recent changes to the financial plan.

When the committee approved use of state bonds in February the plan called for the bulk of the financing to be with tax-exempt bonds.

Since then, the treasurers office determined that it will be better to use taxable bonds, which have a higher interest rate but fewer potential conflicts with the use of the Legacy Fund to backstop arena losses.

Treasury officials said the financing plan still works because the rates on taxable bonds are at historically low levels. The bonds are expected to be sold later this month.