Potential Port tenant, and 600 jobs, to leave, blaming officials
Korry Electronics cites better deal
Friday, March 21, 2008
Last updated 3:47 p.m. PT
By KRISTEN MILLARES YOUNG
P-I REPORTER
By the time the Port of Seattle came around to offer Korry Electronics Co. the Interbay lease it wanted, it was too late.
Too late to keep Korry's 600-plus jobs in Seattle, despite the city's newly strengthened zoning laws meant to encourage industrial development here.
Too late to salvage the Port of Seattle's reputation as being more intent on remaking its 99 acres north of Terminal 91 at Interbay into a mixed-use development branded as "North Bay" than in preserving industrial land for industrial jobs.
"It became a pretty uncomfortable, disheartening situation with the port," Korry Electronics President Dan McFeeley said of his company's decision to move to a 14-acre property outside of Seattle in an as-yet-undisclosed location. "It's not for lack of wanting to stay, but it just got too scary and too risky."
Since 1937, Korry has been manufacturing parts for airplanes in Seattle. Now a subsidiary of Bellevue-based Esterline Technologies Corp., which specializes in aerospace and defense, Korry continues to be a major Boeing Co. supplier.
For the past several years, Korry's management has been eyeing the 2011 end date of its lease on a 189,000-square-foot building on Dexter Avenue North. Sources close to the transaction say that nearly two years ago, Korry approached the port through its representative, Craig Kinzer of Kinzer Real Estate Services, only to be put off by proposed lease rates more suited to downtown office space than to manufacturing.
By Feb. 27, the port had a better offer: a 250,000-square- foot building on 10 acres for $2.30 to $2.50 per square foot. After matching Korry's list of lease requirements, the port waited for a response from Korry that never arrived.
Tired of wrangling, Korry had found a better deal.
"I can't speak to the port's intentions, just their actions: The delays were endless enough that we lost faith," McFeeley said. "They rarely had decision makers at the table with us ... and it led to roadblocks."
McFeeley said the only difference between the port's offer and that of his new landlord is that the new deal offers lower lease rates -- and the promise of more reliability.
Port spokeswoman Charla Skaggs said the public agency -- which oversees 4,000 acres of land, including its seaport terminals and Sea-Tac Airport -- is "deeply saddened" by Korry's decision.
Industrial advocates said the port's contrition is poorly timed.
"They lied to us, telling us that there was no industrial interest in the North Bay property when there was a lot of interest," said Eugene Wasserman, president of the North Seattle Industrial Association.
"They want to play real estate gods or something and do other kinds of development, which I don't think are part of the reason they exist."
Dave Gering, the executive director of the Manufacturing and Industrial Council, said Seattle's losses of Korry and of the Ballard-based aerospace company University Swaging indicate that reform is needed.
"The message that's been sent with the Korry episode ... is that it took two years, and they couldn't get it done," Gering said. "It is very hard for outsiders to put much faith in the port" -- though he wants to give the port's new, widely respected chief, Tay Yoshitani, a chance.
McFeeley said his new landlord will have completed the pending lease within 45 days of opening the dialogue, in contrast to his company's 18-month- long negotiation with the port. A Seattle resident, McFeeley said he was unhappy about leaving the city but had made up his mind by December that he needed to begin looking elsewhere.
Korry had spent the previous summer helping the port lobby the City Council for mayor-backed zoning changes at the North Bay property, which would allow for large-scale office and retail development in addition to the manufacturing uses already allowed there. McFeeley supported the overlay but said the port tied signing the lease to its passage.
The City Council nixed the overlay, citing Seattle's extremely low vacancy rates on industrial land and the importance of manufacturing to the city's jobs and tax base. While the city wanted the port to sign Korry, the deal remained undone.
Within that tightly squeezed market yawns the port's 57 acres of vacant property north of the Magnolia Bridge at Terminal 91, next to existing major tenants Trident Seafoods and City Ice Cold Storage. That is likely to continue for the foreseeable future: Port Commission President John Creighton said the port, which has spent more than $7 million to redevelop North Bay, is no longer anticipating building a biotech hub as once envisioned by retired port Chief Executive Mic Dinsmor
Transportation
Monday, March 24, 2008
Port of Seattle drives another major business out of the city
Saturday, March 15, 2008
Dialling for Dollars in Seattle
Seattle eyes other sources to pay for big road project
Left without $323 million in cash because a ballot measure failed, Seattle is looking to sources like private landowners to finance the widening of Mercer Street and the Spokane Street Viaduct.
The Nickels administration proposes to tap part of its recently enacted parking and employment taxes to help make up the shortfall.
Voters in November rejected the Proposition 1 roads and transit ballot measure, which included funding for the Mercer and Spokane projects and a railroad overpass on South Lander Street.
All three projects were justified as ways to improve street-level traffic flow during construction to replace the Alaskan Way Viaduct. Looking for support, administration officials said Friday they're focusing on finding more money for the Spokane and Mercer projects, though Lander remains a priority.
Of the newly estimated $192.9 million cost of the Mercer widening, the city now hopes to raise $36.2 million from private sources in the neighborhood, possibly from mitigation fees or providing needed property or construction easements. Officials said they've not proposed a specific method yet.
Bob Powers, deputy director of the city Department of Transportation, said the plan is to raise another $70.6 million in bonds using money from the 2006 street-improvement tax levy and from city parking and employment taxes, which officials said are producing more cash than anticipated.
Another $26 million, for utility relocation and improvements, would come from city agencies, and the city will seek $51.7 million in additional state and federal grants. About $8.4 million already has been secured.
The Mercer cost estimate has increased $78 million since late last year, chiefly because of inflation and advanced design work that now includes property costs. The project would widen Mercer between Dexter Avenue and I-5 but not include reconnecting streets above Aurora Avenue.
Some $78.9 million has been secured for the Spokane widening, now estimated to cost $168.5 million, which includes $3.4 million from the Port of Seattle; new ramps would connect the Spokane Street Viaduct to the waterfront.
The new plan, subject to approval by City Council members, is to find another $40 million from state and federal sources and $49.6 million from the street-improvement, parking and employment levies. Inflation and advanced design have increased the estimated Spokane project cost by $16.2 million since the last quarter of 2007.
The $26 million in utility costs for the Mercer project would be paid for city-wide. Officials said that's normal practice. They also said the new plan wouldn't take money from other street work to be financed by the 2006 transportation levy.
A city study said the Mercer widening would decrease some travel times and increase others. Powers said it will improve transit service and "benefits all modes of transportation."
Seattle City Council President Richard Conlin and Transportation Committee Chairwoman Jan Drago both said they were pleased the administration had developed a plan. Conlin wouldn't predict approval before reviewing it. Drago said her committee will discuss the proposal April 1.
Monday, March 10, 2008
Port to pay for workers legal fees in fraud probe
Seattle Times staff reporter
The Port of Seattle wants to pay the legal fees for employees drawn into the federal Department of Justice probe of possible fraud in Port construction projects.
The elected Port Commission will be asked next week to approve the payment of legal-defense fees, which is allowable under state law and something the Port has done to defend employees against past suits.
The Port believes it's important to support its employees during interviews with prosecutors and make sure they understand the investigation process, said a Port spokeswoman.
"The Port does not want employees to bear the financial costs of legal representation necessitated by their employment at the Port, nor should they go without representation if they cannot afford it," said the Port's Charla Skaggs.
The Port won't cover employees if it finds out they acted badly or outside their duties.
The Department of Justice announced its investigation last month after a state audit found the Port violated state contracting procedures, misled commissioners and wasted $97 million in public money. The audit said the Port was vulnerable to fraud because of lax contracting practices.
Port Commissioner Gael Tarleton said the vast majority of Port employees are not implicated by the audit "and are now pretty much in shock." The Port has told all employees to cooperate fully with the investigation.
"We have a moral obligation to show them that they are not out there by themselves," Tarleton said.
The Port's position is not unusual among public employers; but it's not universal, either.
The University of Washington has provided legal defense for employees facing federal investigation. And a UW policy mirrors the Port's — the UW will provide legal defense for employees facing lawsuits and criminal investigations if they acted in good faith and within their job duties.
The city of Seattle, however, would not pay legal fees for police officers under federal investigation, said Rich O'Neill, president of the Seattle police officers union. When officers at the West Precinct were questioned by the FBI several years ago about alleged misconduct, they had to pay their own legal fees, even though they were never charged with a crime, O'Neill said.
Federal prosecutors have not yet interviewed any Port employees or asked for interviews, Skaggs said.
But the Port administration also is lawyering up, hiring the Seattle firm Danielson Harrigan Leyh and Tollefson, at a minimum rate of $400 per hour, and a lawyer from Yarmuth Wilsdon Calfo.
Port employees would be represented by Jon Zulauf, a longtime Seattle lawyer specializing in white-collar criminal defense.
The Port doesn't have a budget for legal defense, Skaggs said. Employees can hire any lawyer they want but the Port will only pay for Zulauf, Skaggs said, because of his "significant experience in this area of law."
Friday, March 7, 2008
Feds look into Fraud at the Port of Seattle
Last updated January 7, 2008 11:16 p.m.
Audit alleging waste, fraud catches U.S. attorney's eye
The U.S. Attorney for Western Washington is conducting a criminal investigation of the Port of Seattle based on a state performance audit of the port's construction management, which found the port wasted $97.2 million during contracts active from 2004 to 2007.
While the FBI did not corroborate that it is taking part in the investigation, Special Agent Robbie Burroughs said the agency investigates cases for the U.S. attorney, who prosecutes those cases.
Emily Langlie -- spokeswoman for the U.S. Attorney's Office in Western Washington, a division of the Department of Justice -- would not comment on which federal enforcement agencies are investigating the matter.
"The letter needs to speak for itself," Langlie said. "Federal law enforcement is very well-skilled, and they will be handling it. ... Generally, they come to our office with what they've discovered, ask us to look at it and then we would determine whether laws have been broken and what should be prosecuted."
Sonntag said representatives from several overlapping federal agencies -- including the FBI, the Justice Department and the Office of the Inspector General for the U.S. Department of Transportation -- "have had some preliminary meetings with some of our folks, to begin asking questions because they want more information and are asking for some of our work papers."
Langlie declined to comment on what shape the U.S. attorney's criminal investigation will take. But Jeff Coopersmith -- a criminal defense attorney with DLA Piper, which he joined after serving as an assistant U.S. attorney -- said the U.S. Attorney's Office "has obligations to look into violations of federal law," such as mail or wire fraud.
Without commenting on the audit findings, Coopersmith said the federal investigators would likely be "looking to see whether in this situation, there have been misrepresentations of material facts, intentional omission of material facts, whether there were kickbacks or bribes. That is the stuff that criminal investigations are made of."
Black's Law Dictionary defines fraud as "a knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment."
The federal investigators can use a grand jury to subpoena witnesses and documents, said Coopersmith, who added that proving fraud doesn't have to mean catching someone in the act of pocketing money.
"A scheme of fraud could be depriving others of their intangible right to honest services," said Coopersmith, who said that "employees hiding facts so that people make decisions in a certain way" could qualify.
Above all, the audit found that the staff misled the five commissioners elected to oversee the port, leaving details out of memos that accompanied briefings, which are supposed to inform the commission so it can take action. On Tuesday afternoon, the commission is slated to review a 1994 decision in which it delegated much of its contract oversight to the port staff, which the audit described as proceeding to abuse the power through omission and misrepresentation.
The audit found that former Port Chief Mic Dinsmore and Aviation Director Mark Reis broke state law by negotiating a $125 million third-runway embankment contract with a TTI Construction principal at a steakhouse, keeping its cost within the port's procurement policies through cosmetic changes in order to avoid notifying the commission that the sole bid was vastly over the port's estimate -- and leaving the commission of the loop.
If the federal investigators or the fraud auditor the port plans to hire find fraud, new Port Chief Executive Tay Yoshitani has said he will "deal with it swiftly and appropriately." But on Monday, he said he has no plans to discipline those employees who violated state laws.
"We will be clear on expectations, and if people violated those expectations, we have clear rules going forward, and then we would take severe disciplinary action," Yoshitani said. "But to go back to these people who were working in that environment" -- which he earlier described as "get it done now, worry about the paperwork later" -- "and to take any disciplinary action against them would be, I think, unfair."
On Monday, Yoshitani sent a letter disputing some of the audit's central findings, saying what the audit described -- the port wasting $60.5 million by padding its staff with consultants on a contract that grew from $3.5 million to $129 million without a bidding process -- is consistent with "best industry practices."
During an interview, Yoshitani said he did not mean to say in December that the port agreed with the audit's findings, but rather that it would proceed with the recommendations -- regardless of whether port staff accepts the basis for them.
In its written response to the audit, the port fought, sidestepped or ignored major parts of the auditors' analysis, reserving its most strenuous objections for the audit's identification of 47 different situations that could be indications of fraud.
"The $60 million -- the allegation that that was wasted -- is just unfair and inaccurate," Yoshitani said.
In late December, Yoshitani described how the 1998 contract with Parsons Transportation Group allowed the port to use consultants to complement its staff and fill the gaps of uneven project timing during the third runway's construction.
But the audit's criticism of the port's practices did not deal only with the fact that the contract was reupped annually without competition for 10 years with the approval of the port's five-member elected board of commissioners, who again voted to expand the contract to $136 million in December. The auditors also lambasted the port for paying Parsons for overhead such as office space, as well as general and administrative expenses that the port was already subsidizing.
"As a result, the contractor and its subcontractors are reaping windfalls under this arrangement, and the (port) is paying substantially more than it would need to pay if it had simply hired employees to fill these positions," the auditors wrote. The port is paying as much as 216 percent of what it would have paid to fill the positions with regular staff, the audit found.
Yoshitani said that approving consultants' billing rate increases without reviewing them "needs to be changed," but said of the other "incidentals -- like working in our office -- I view that as part of the negotiations," which took place under Dinsmore.
Dinsmore could not be reached for comment Monday, but he told the Seattle P-I in late December that "I have no doubt that there is nothing of substance in anything that has been alluded to. Let the process show what I just said to be true."
When asked whether he thought the audit contained nothing of substance, Yoshitani said: "I don't know. He was here when all that was happening, and I wasn't, but just based on the findings, on the suggestions that we were vulnerable to fraud, I have to bring closure to it, and the only way I can bring closure to it is to follow up on some of those areas where the auditors suggest vulnerability of fraud."
The audit described a port staff that let money leak from contracts big and small; that failed to rein in late and costly projects and the contractors who ran them; that intentionally altered contracts to avoid state law's public bidding requirements and, when those rules were followed, steered such contracts to preferred bidders, manhandling the rules and the port's own procurement policies to guarantee their reward. It was during the course of those actions that the port may have committed fraud, the audit said.
The audit, the scope of which included examining how well the port kept its records, also found that the port had altered documents needed for the audit, patching holes in records, correcting mistakes and eliminating inconsistencies as it went along.
In his letter Monday, Yoshitani said staff did not alter records but rather "did catch up on backlog filing and documentation."
"The information was not changed, it was updated; it wasn't altered, it was updated," he said. "I guess you could make the case that updating the report is altering the report, but that's not the way we looked at it."
The port's response to the audit's findings does contain "some pushback," Yoshitani conceded. "That's where the cultural change has to take place. In the final analysis, I am the CEO, so they have to comply with what I want. What I want is compliance with statutes, with our policies, and there are certain policies that need to be reviewed."
Sunday, March 2, 2008
Tummy rubbing at the Port of Seattle
Chummy culture at port costs taxpayers
Staffers, contractors may be too friendly, audit says
By JENNIFER LANGSTON
P-I REPORTER
When port employees, consultants and contractors work for years on a complicated project such as Sea-Tac Airport's controversial third runway, it's natural to become friendly.
But a recent state audit found that chumminess got in the way of good business practices, potentially shortchanging federal taxpayers and airline travelers who help fund improvements.
One top Port of Seattle consultant and construction contractor had their own shorthand -- "tummy rubbing" -- for informally negotiating how much the port should pay for unexpected work at the airport, a recent state audit found.
"It's their way of talking about a quid pro quo -- that we're all friends and we'll take care of each other," said state Auditor Brian Sonntag, whose office commissioned the audit.
That coziness didn't always extend to relationships between port staffers and the elected commissioners to whom they're accountable. Auditors found commissioners were easily misled and manipulated, with some staffers expressing open disdain for their governance role, said David Cotton, a consultant who performed the audit.
In one extreme example, a port employee told an aide that a commissioner who had asked for talking points could go "piss up a rope," officials confirmed. He was fired last fall.
Another staffer initially refused to draft a resolution on commission interns until the commissioner who asked for it came back with two more votes in his pocket.
Port Chief Executive Officer Tay Yoshitani has the hard task of changing port culture, which for years, he said, emphasized getting projects done and responding to customers' desires rather than complying with all policies governing contracting rules.
The audit concluded the port's construction program wasted millions, failed to negotiate rigorously with contractors, appeared to favor certain businesses and sometimes broke state law when awarding contracts. A lack of controls created a climate in which kickbacks or bribes could have occurred, the report found. Though finding criminal fraud was beyond the audit's scope, the Justice Department is now investigating that question.
Yoshitani, who took the organization's helm last year, said the findings made more sense when he considered the past 15 years of port history. It was a time of unprecedented expansion to keep the port competitive -- pouring nearly $1 billion into seaport development, cleaning up contamination, upgrading airport terminals and starting the third runway project.
"It's like the boa constrictor that swallowed a baby elephant that's kind of working its way through," he said.
Others link the cultural climate to former CEO Mic Dinsmore, who declined to comment for this story. The hard-charger valued loyalty, disliked bad news, tightly controlled information and often dropped names of his extensive business and social connections, port officials and outside observers say.
"It was all about keeping good relationships with the people you were working with -- it was that kind of clubby atmosphere, and too few commissioners questioned it," said Fletch Waller, an ex-commission candidate who served on port advisory boards over a 15-year period.
In conducting a survey on seaport customer service, he found employees largely concerned about keeping their jobs and not making waves. Sometimes, Waller said, that led to expensive public investments that made little sense but kept shipping companies or warehouse customers happy.
The port has a dual, even schizophrenic, mission: It's a public agency and a competitive economic engine that creates private sector jobs. In the past, Yoshitani said, the pendulum swung too far in the latter direction.
The former executive at ports in Oakland, Calif., Los Angeles and Baltimore said he intends to bring about cultural change in Seattle "very carefully."
"My style of management is not to be a regulator but to be an inspirer," he said. "To keep that entrepreneurial spirit as well as the compliance piece, I need to get them understanding it's the right thing to do, and I need to get them feeling positive about it."
It also involves being clear about rules to be followed and holding people accountable, he said. Part of his approach will rely on restructuring, creating additional oversight of construction projects and standardizing procedures.
Cotton said Yoshitani appears to be trying to change the tone at the top. But defensive responses to some findings make him question the organization's commitment.
"Whether he can change the culture or the culture changes him remains to be seen," Cotton said. "I certainly wish him success."
Among the findings that troubled auditors was the way port staff handled change orders -- additional work created when plans change or unexpected conditions surface.
They're common in large projects such as the third runway. But because contracts already have been awarded, additional costs are usually settled without a competitive process.
Auditors say there should be a negotiation in which engineers and managers review a contractor's proposal and perform independent estimates to make sure prices are reasonable.
In one baggage-screening project, the audit looked at 215 change orders totaling $2,777,552. The final "negotiated" amount was identical to the contractor's proposal 87 percent of the time, it found.
Auditors called it an "extraordinary coincidence" that suggested rigorous cost evaluations and meaningful negotiations hadn't taken place. It's impossible to quantify how much money could have been saved if they had, the report said.
Port officials argued a construction company managing the project handled negotiations with subcontractors, which weren't reflected in port files. Additional documentation largely failed to support that claim, auditors said.
A practical balance has to be struck between reaching a fair price and efficiency, said Steve Goldblatt, associate professor and former chairman of the University of Washington's Department of Construction Management. "To spend inordinate amounts of time or money, or both, to try to get those things precisely nailed down is not in the public interest," he said.
Nonetheless, port officials are now requiring that all change orders be approved by contracting professionals -- an extra set of eyes. It's also requiring staff to fully document negotiations to managers. A strong message has been sent that "tummy rubbing" is not an acceptable practice, said Dakota Chamberlain, who is managing the port's response to the audit.
The port also is following one of the audit's top recommendations -- hiring a chief procurement officer to ensure contract awards, purchasing decisions and subsequent changes follow all policies and law. Yoshitani wants that person to be perceived not as an ogre out to stop work, but as someone who can help other departments with compliance.
The office would add a professional buffer between hired contractors and port project and construction managers. "That will be an excellent check and balance ... so the guys out in the field working day to day with the contractors are not the same people approving change orders," Port Commission President John Creighton said.
Since the audit's release, the five-member port commission has begun to flex its atrophied muscles.
Staff members bent over backward if you wanted a trip to China, former elected officials said. In the past, inquiring about an issue was likely to generate a brief memo, a careful staff briefing or a flood of information that was too voluminous to digest.
"It's the role of commissioner as hood ornament," said former port Commissioner Alec Fisken. "They were to be tolerated and taken on trips and trotted out for receptions."
Keeping commissioners appropriately informed is a balancing act at every port, Yoshitani said. "We're constantly trying to push 10 pounds of information into a 5-pound bag," he said.
The commission is now revising a bedrock document outlining how much money staff members can spend on their own and how often they're required to ask for approvals.
In the past, once commissioners approved a large project, low-level staffers could make big-money changes as long as the project's total cost wasn't exceeded, the audit found. In the future, the commission likely will demand a stronger oversight role.
The commission is currently withholding its approval of large projects -- such as a pending $400 million-plus rental-car facility and garage -- until substantial progress has been made on audit recommendations.
TUMMY RUBBING
Here's how a Port of Seattle consultant with WHH Construction and a project manager for Gary Merlino Construction Co., a Sea-Tac Airport contractor, resolved their differences over how much more the port should pay for unforeseen work on emergency generator enclosures and power systems.
Contractor's proposal:
$80,000
The port's estimate:
$50,000
On Jan. 18, the consultant e-mailed the project manager to say some costs were OK, but "still laughing at the rest ... (actually you and SE do have something coming so lets figure that out via tummy rub in lieu of you all documenting what is undocumentable.)"
On Jan 25, the contractor wrote: "Gee you're starting to wear me down on this. NOT." He offered $65,000; the consultant countered with $54,500.
The contractor's response: "You're getting closer but not close enough. Total of 62 for the both of them. Write it up and we're done."
The port consultant replied: "If it starts with a '5' we're there."
The change order was made final for $59,999
Sources: Performance Audit Report: Port of Seattle Construction Management; e-mails and port documents
Saturday, March 1, 2008
Astonishing cost increases at out-of-control Port; fraud probe
Feds Investigate Evidence of Fraud in Seattle Port Projects Written By: Amber GunnPublished In: Budget & Tax News Publication Date: March 1, 2008 Publisher: The Heartland Institute |
The U.S. Department of Justice has launched a criminal investigation of the Port of Seattle after a recent performance audit uncovered compelling evidence that fraud may have occurred in some of the port's construction projects.
The port's facilities, including the Seattle-Tacoma International Airport, support nearly $12 billion in annual revenue. Five elected part-time commissioners oversee a 1,700-member staff.
The audit, released December 20 by State Auditor Brian Sonntag, found the port wasted nearly $100 million in taxpayer dollars and violated numerous state laws on projects from January 2004 through March 2007.
No Controls in Place
The audit's findings revealed "no controls were in place to deter, prevent, or detect bribery, kickbacks, illegal gratuity, or bid-rigging schemes." In addition, auditors found the port frequently circumvents competitive bidding requirements and fails to enforce basic contract provisions, "resulting in delays, extra costs, and an inability to defend against claims."
Numerous contracts were awarded without any evidence of competition, and in some cases, the audit found, the port awarded sole-source contracts to former port employees. Auditors also found evidence some employees illegally altered contractor invoices to pay them for work that exceeded maximum contract amounts.
Details of certain contracts were concealed from the port's commission, the audit notes. For example, port management authorized a third runway contract that cost $32.7 million more than the port engineer's original estimate and that the auditors say violated state law.
Astonishing Cost Increases
The audit lists several examples to support the overall conclusion that port construction management lacks cost controls and accountability.
A consulting agreement awarded in 1993 grew without competition from $950,000 to more than $30 million. In another case, a consulting agreement awarded in 1998 increased without competition from $10 million to more than $120 million and is currently being used "to augment Port staffing, unnecessarily costing taxpayers $60.5 million," the audit charges.
Refused to Tell Truth
Auditors claim some port workers doctored documents, delayed responses, and tried to obstruct the investigation.
At least 13 port officials refused to sign standard statements confirming what they had told the auditors was true, among other things.
These normally routine statements included language saying the officials had "no knowledge of any allegations of fraud or suspected fraud" in the port's construction contracts.
Formal Denials Issued
Port officials did not agree with all of the audit's findings.
Port Chief Executive Tay Yoshitani issued a formal statement disputing auditor claims that the port wasted taxpayer dollars (http://www.portseattle.org/about/organization/ceomessage.shtml). He also denied accusations port employees deliberately obstructed the audit investigation or altered information, saying instead they "updated and assembled" information for the auditors' convenience.
"Given the get-it-done attitude of the staff members involved with many of these large construction projects, I'm sure that some employees went on to the next challenge and left the paperwork for later. In the future, we will not let good intentions get in the way of good record keeping," Yoshitani said.
'Abdicated Responsibilities'
Evergreen Freedom Foundation President Bob Williams was disappointed in the port's response.
"This performance audit shows a completely unacceptable level of misfeasance and malfeasance throughout the entire Port of Seattle operation. The elected commissioners, senior management, and everybody else below them abdicated their responsibilities to the taxpayers and customers to a degree that is unimaginable to the average person."
The audit issued three overall recommendations for the port, in order to ensure "a genuine opportunity to reduce the port's vulnerability to loss and to ensure construction projects are completed on time and within projected costs."
- Appoint a Chief Procurement Officer. All procurement authority, including contract awards, approval of contract change orders, and amendments and other related activities should be reassigned to the procurement officer.
- The Port Commission should reassert its responsibility for port management. The elected commissioners should provide stronger oversight of port operations and take back much of the decision-making responsibility that has been delegated to port management, particularly as it relates to capital projects.
- Restructure the port's internal audit function. The individual or individuals in this position should report directly to the port's chief executive and an independent audit committee, not to the chief financial officer.
Amber Gunn (agunn@effwa.org) is a policy analyst for the Evergreen Freedom Foundation's Economic Policy Center.
Friday, February 29, 2008
Audit Recommendations to control Port included in SSHB 3274
Puget Sound Business Journal (Seattle) - by Steve Wilhelm Staff
A flood of laws aimed at limiting the Port of Seattle's authority has dwindled to a pair of measures that appear likely to pass, and would force the port to follow recommendations made in a recent state audit.
Aggressive bills entered early in the legislative session, perhaps numbering as many as 30, proposed among other things stripping the port of its taxing authority and creating a Puget Sound regional port to replace the ports of Seattle and Tacoma.
They followed a state audit that found Port of Seattle staff didn't sufficiently inform the port commission about construction contracts, handed too much control to contractors and failed to follow their own contracting rules, creating potential for fraud and, by some accounting, wasting an estimated $97 million. The audit's findings, released in December, led the U.S. Attorney for Western Washington to launch a criminal investigation.
But the surviving bills are seen as less restrictive than the earlier proposals. SSHB 3274 essentially implements all of the recommendations in the state auditor's report
Monday, February 18, 2008
Did Port break laws to award contracts to cronies?
Did port contracts go to favorites?
Some corrections already made to program, official says
By JENNIFER LANGSTON
P-I REPORTER
Years ago, electrician Harold Wright got good jobs as a Port of Seattle subcontractor, working for other companies on everything from high-voltage lines to lights in Sea-Tac Airport terminals.
But he never had much luck bidding on small contracts granted directly by the port -- a program created in part to help small-business owners such as himself.
Harold Wright, president of Wright Inc. electrical contractors, says he didn't have much luck bidding on small Port of Seattle projects and eventually stopped bothering to bid altogether. "They were giving this stuff to their friends, and that's what I think today."
A recent state audit reinforces long-held perceptions among some small businesses that the port fails to offer a level playing field, finding loopholes to steer business to favored companies again and again.
"The port has always been funny," said Wright, who eventually stopped bothering to bid on port jobs. "They were giving this stuff to their friends, and that's what I think today."
In one example that auditors believe could point to fraud, port staffers awarded a bid to a contractor in a way that may have limited competition. The new contract seems to have allowed port officials to alter invoices to avoid disclosing that three other contracts with that same contractor had gone over budget, the report found.
Port officials have agreed to investigate that case in 2004, as well as how many similar situations may have occurred.
The scathing state audit, which concluded the port squandered $97 million in its construction program and became overly cozy with contractors, has also spawned a federal criminal investigation.
"It may be innocent, and it may be nothing, but they (auditors) see these things, and it gets their attention, and that's why they're looking," said State Auditor Brian Sonntag, whose office undertook the audit.
Port officials say they're legally bound to award competitive contracts to the lowest responsible bidder, meaning the most efficient, experienced companies may be more successful. But the audit found numerous problems with the port's procurement process for airport contracts under $200,000, which don't have to be advertised:
# It was easy to circumvent the process designed to guarantee that the 1,370 companies who asked to be on the port's "small-works roster" get an equal opportunity to bid, the report said.
# Port staffers could add select companies to a "randomly" generated list of seven small-works contractors that were invited to bid on each job.
# During 2004, 87 percent of the port's small electrical contracts worth nearly $3 million went to the same two firms, Prime Electric and SHJ Electric. State law encourages agencies to distribute work equally among contractors "whenever it would not violate the public interest."
# Port staffers appeared to be steering contracts to a small number of preferred contractors, auditors wrote.
Port Commission President John Creighton called the port's handling of less-scrutinized small contracts -- and efforts to provide opportunities for small businesses -- "a vast area that needs improvement."
Though businesses of any size can bid on contracts under $200,000, state legislation was drafted in part to give smaller businesses a fair shot at winning pieces of public works projects.
"Our actions need to match our words," Creighton said. "We're saying the right things, but in my mind, one of our primary missions as a port is to really foster local small business, and we've been falling down on the job."
The port has already made changes to its small-works contracting program, said Dakota Chamberlain, a seaport manager overseeing the agency's response to the audit. To prevent surprise cost overruns, staffers can no longer authorize more work once 90 percent of a contract's funds have been spent. Contract language warning companies not to accept work exceeding the original amount will be strengthened, he said.
Legislators also have moved to close a loophole in state law, which requires most government agencies to notify all qualified companies on a small-works roster of contract opportunities between $100,000 and $200,000. Port districts, however, are exempt.
In October, the Port of Seattle voluntarily abandoned its practice of only sending bid invitations to certain companies on its small-works roster, Chamberlain said. Depending on what kind of job needs to be done, it now notifies every qualified electrician, plumber or underwater diver on the list.
"It eliminates the discussion that we're showing favoritism and that people aren't aware of opportunities," Chamberlain said.
Altered invoices
In August 2004, Port Construction Services created a new contract for open electrical work -- a catchall category that could cover small jobs that cropped up at the airport.
A port project manager manually added Prime Electric Inc. to a list of randomly selected companies that should have been invited to bid on the work, the state audit found.
Prime Electric, a Bellevue contractor that works on everything from Boeing Co. hangars to high-rise condo buildings, previously had won six small-works electrical contracts at Sea-Tac Airport that year, according to the audit.
The contract files contained no evidence that the other eight contractors received invitations to bid, the audit said, though port staffers said those notifications happened automatically.
Documents later provided by the port showed four companies may have been sent a fax on a Friday afternoon requesting responses by 11 a.m. Tuesday, allowing less than two days to prepare bids, auditors said.
Prime Electric was the sole bidder and was awarded the contract in October for $185,000. There was one problem: Port staffers had been stockpiling invoices for work Prime Electric had performed well before October, auditors found.
Those invoices totaling $75,588 would have pushed the work performed under three previous Prime Electric contracts above the legal $200,000 limit for small-works projects, the audit said.
Port employees should have disclosed the unforeseen cost overruns to the port commission, officials have said. Instead, according to the audit, they altered contract numbers on 12 invoices from Prime Electric and issued new work orders so the company could be paid from the new pool of money.
"They overrun the contract amounts and it puts them in a position where they ... steer contracts to the contractor, because they know they have to pay invoices, and it appeared to me to be intentional," said Patti Jones, president of CDR Consultants, one of two auditors who wrote the state report.
Prime Electric officials said they weren't privy to how the port chose contractors or managed its own internal bookkeeping. Any work they performed was covered under a contract they had bid on, and any job they billed for had to be authorized by port employees each day.
"They were the ones who were dictating," Prime Electric President Wayne Tyrrell said. Because the company had experienced employees working at the airport who were already drug-tested and badged, certain efficiencies allowed them to submit competitive bids, Tyrrell said.
But company CEO Eric Reichanadter said for every contract Prime Electric won at the port during the time, it lost three or four others.
"It's our position that not a single scope of work done at the Port of Seattle was awarded or issued to Prime Electric in any discretional manner whatsoever," he said. "We were asked to bid on the work, we accomplished the work and when our contracts were finished we moved on."
In fact, Prime Electric hasn't done any port work for the past 2 1/2 years, Reichanadter said. For a company that does nearly $40 million a year in business -- he said the voluminous paperwork and delays in getting paid at the port weren't worth the trouble for relatively small contracts.
'Same firms doing the work'
Fred Anderson, who has built Leajak Concrete Construction into a $7 million-a-year business, believes the small-works program should be limited to companies even smaller than his.
Most can't begin to compete with a company such as Prime Electric.
"You don't need to feed those guys any more food," he said. "They're big enough."
Small-business advocates would like to see the port take advantage of legislation passed last year, allowing some small-works contracts to be awarded competitively among similar companies with revenues of under $1 million.
An audit last year of the port's small-business initiative adopted in 2003 found the port had not met internal goals to spend 10 percent of contracting dollars on qualified small businesses. Though it varied widely by division, the overall number for 2006 was 6.7 percent.
Two-thirds of port employees interviewed could not describe any successes from the initiative, the audit found.
"Everybody knew it was a joke the whole time," said Eddie Rye Jr. of the local Community Coalition for Contracting and Jobs, which works to increase opportunities for small and minority businesses. Small-business owners surveyed said "the odds are stacked against new faces since the same firms seem to be doing the work" and "it feels like a huge entity that has its contractors chosen already."
To change those perceptions, the port recently hired Elaine Ko, who previously headed the Inter*Im Community Development Association in the International District and the city's Office for Women's Rights, to head its small-business initiative.
Stephanie Harper proves a savvy small-business owner can succeed. Her company -- SHJ Electric -- was the other awarded a disproportionate share of airport electrical contracts in 2004.
She launched her business in 1993 by winning small contracts at the port. Her business now brings in $2.5 million a year. "Our thought process has been to ... charge the port lower rates and get exposure to work on other projects," she said. "That's where we make our money. Alaska Airlines, Southwest, Delta are all our customers now"
