Minority contractors are up in arms over the Port of Seattle's $1.39 million investigation into allegedly fraudulent contracting practices by Port employees and managers.
Ten separate instances of civil fraud were cited by an investigator hired by the Port, including that of a staff member who changed contracting rules to ensure that all minority contracts would go to only one company – a company identified by the U.S. Department of Justice in 1996 as a "sham minority business."
Port officials refused last week to fire the staff responsible for the fraud, or to file any criminal charges against them.
An FBI investigation is reportedly still pending.
"It's still an ongoing controversy — a lot of people still dissatisfied," says business owner Eddie Rye Jr. "There have been some personnel actions taken such as, two of the people resigned, here's a lawyer, a deputy executive and all these folks get a week's suspension without pay — they saw this stuff, they knew what was going on."
Rye, a member of The Community Coalition for Contracts and Jobs and host of the Urban Forum Northwest Radio Program on KKNW 1150 AM, says the fraud at the Port is more than just a small disciplinary matter.
Over the years, as minority and women-owned businesses struggled to win Port construction contracts – as McKay's investigation shows, in vain – the situation became a major stumbling block for businesses of color.
"It took seven years for the Port to do anything, they slapped two of the folks on the wrist, and the little folks they messed over lost everything they owned," he said.
McKay's investigation was triggered by a performance audit report issued in December of 2007 by Washington State Auditor Brian Sonntag.
The audit examined Port contracts awarded between January 2004 and March 2007, and served as a ringing indictment of Port employees, who allegedly "blocked or compromised" the auditor's staff, and changed documents before turning them over for examination.
"Some documents were updated after being requested by auditors, making it difficult to determine how well the records were maintained under normal circumstances," the audit said.
Two months after the release of Sonntag's audit, the Port hired former U.S. Attorney Mike McKay to launch an investigation into the fraud accusations.
McKay spent 10 months and more than a million dollars re-examining the case, releasing his report Dec. 3.
While he uncovered specifics of fraudulent dealings by high-ranking staff members, he says none of the fraud was serious enough to warrant criminal charges.
In one case, McKay reported that the Port's construction services general manager steered all minority contracts to 3A Industries, Inc, "to augment the perception" that the Port was giving contracts to a diverse roster of companies.
Not only did the manager consistently pressure his employees to only give contracts to 3A Industries, Inc., according to the report, but also in one instance, he changed the rules to ensure 3A would get a contract.
"When 3A Industries began its interview, it became apparent that they had a misunderstanding because they thought they were only there to sign the PSA (work contract), not to be competitively interviewed," McKay's report says. "According to PCS (Port construction services) staff, after the General Manager was informed that 3A Industries' interview was a 'disaster' and that 3A Industries was not in the 'top two' companies interviewed, the General Manager changed the procurement plan and ordered that PSAs be awarded to the top three contractors instead of two."
3A Industries was named the third qualified contractor, and got a work contract.
After McKay's report was released, Port construction services general manager Larry McFadden quit, as did project manager John Rothnie.
History of Fraud
According to a U.S. Department of Justice news release dated Jan. 2, 1996, given to The Skanner by Rye, 3A Industries and others were sued by federal officials for violating the D isadvantaged Business Enterprise Program.
After a federal government investigation lasting several years, officials charged that 3A Industries was a front for General Construction Company, which used 3A in order to meet participation goals on the EPA-funded Tacoma Waste Water Plant.
"3A, which was supposed to do $3 million worth of steel and concrete construction, was found to have little more than small tools, brooms, and shovels at the site," the release said.
"I think the biggest thing about this story is that it further illustrates that it's been business as usual with a blatant disregard for the law, and there's been no enforcement from the agencies to actually look and see what's going on," Rye says.
"Back in the late 80s they told us indictments were imminent, but in '96 two large companies were slapped on the wrist, and in terms of monetary fines, they never missed a payday — their companies grew while the small firms, the African American and minority firms that were denied opportunities because they used pass-through and front companies dwindled and died, a lot of these people lost all of their possessions, homes and everything else, and there was never any justice done."
Rye says he's angry that the Port's new report apparently soft-pedals numerous cases of fraudulent dealings at the Port, without any criminal charges being filed.
But he says that with the new presidential administration coming into power – and the results of the newest federal investigation still on the way – maybe it's not too late for accountability.
"It's really a wait and see," Rye says. "We're just hoping the right thing is done."