Problems with MWH have also been reported in Cape Coral, Florida. Formal audits have documented a number of concerns, and Cape Coral Mayor John Sullivan is currently calling for a new audit by Kessler International, a firm that first investigated the activities of MWH and its business partners in 2006. Findings from that audit included numerous alleged irregularities, including issues with contract bidding procedures, billing, and obstruction of Kessler's efforts to obtain information from contractors and city employees.
Residents of Morro Bay have frequently voiced concerns regarding their wastewater treatment plant (WWTP) project, and have identified similarities between their concerns and issues raised in neighboring Los Osos. In a November, 2010 Journal article, "Is the Morro Bay/Cayucos WWTP Project Already 'Another Los Osos'?," it was noted that, "For both projects, residents have cited issues with out-of-control costs, the presence in the project areas of Chumash and Salinan archaeological sites, and allegations of inappropriate ties between government officials and Montgomery Watson Harza (MWH)."
MWH business practices in Cape Coral and New Orleans have been reviewed by highly-trained professionals. Allegations of wrongdoing in those cities are detailed and extensive, and have been presented in formal audit reports. Los Osos and Morro Bay residents have not yet had the benefit of a professional investigation of their concerns, but have conducted their own research, documenting and reporting the results in complaints to the authorities and in local news sources.
Most of the key problem areas identified are common to all four cities and include RFP and contract award issues, allegations of billing irregularities, problems obtaining records for independent audit and review, and allegations and implications of inappropriate ties between MWH and city officials and staff members.
RFP and Contract Award Issues
In Los Osos, Morro Bay, Cape Coral, and New Orleans, there have been allegations of improprieties in way that MWH was awarded contracts. In all cases, concerns regarding possible public employee bias and favoritism have been either implied or directly stated. In addition, there are concerns regarding the way in which MWH has brought subcontractors into its projects.
New Orleans: The first finding in the New Orleans Inspector General's report states, "The city selected MWH through a flawed procurement process that failed to produce meaningful competition." The report further states, "After issuing three separate RFPs and selecting seven firms for contract awards, the City inexplicably changed course and negotiated a contract with only one of the chosen firms–MWH. The city provided no documentation to show how or when the decision was made to eliminate the other six selected firms from consideration in favor of directing all the work to MWH." And, "After MWH was selected, the parties entered into private negotiations over a four-month period that resulted in a major contract estimated at the time to be worth up to $48 million."
The report also states, "We asked city officials in an interview to explain the rationale for awarding a contract for up to $48 million on the basis of a proposal with a maximum cost of $150,000. The city officials said that the evaluations of all three RFPs were considered in the selection of MWH for the contract. This explanation does not alleviate the problematic character of this procurement. A basic tenet of fair competition is that the rules for proposal evaluation must be clearly stated and all proposers must be treated equally. Competing firms were not informed that responses to other RFPs would be factored into the selection process. MWH was the only firm to respond to all three RFPs and therefore received unequal treatment when the city considered all three."
The inspector questioned the rationale for awarding MWH the contract, given his finding that its rates were not competitive: "A review of contract billings showed that MWH charged the city substantially more for labor than either Burk-Kleinpeter or Regional Management Group would have charged for personnel with comparable qualifications. Total MWH billings for program managers, engineers, architects, construction managers, and other identified classes of labor were more than 20% higher than the cost of the same services at the rates proposed by the two other firms. In addition to charges for these identified labor categories, MWH billed substantial sums under categories with vague, non-descriptive titles.
For example, MWH charged more than $4.5 million for personnel described only as "professional," with no indication of their qualifications. The fees proposed by those two firms are compared with fees the city negotiated with MWH in Figure B on page 12. Both Regional Management Group and Burk-Kleinpeter proposed substantially lower fees than those negotiated with MWH, yet all three firms received the same score for cost (15 points) for the Construction Management Services RFP, as shown on Figure A on page 9. The relative scores for the Public Infrastructure Management RFP were even more irrational, with Regional Management Group receiving 10 points for cost compared with MWH's 20 points. After receiving the highest possible score for cost, MWH was allowed to negotiate higher fees than those proposed by its competitors. These results show that the scores awarded for cost were meaningless."
Cape Coral: MWH did not bid for the contract to perform work for Cape Coral. According to the Kessler report, "In April, 1999, the city entered into a five year contract, with Kellogg Brown & Root, Inc. (KBR), a division of Halliburton, to complete the first phase of the UEP. In August 2002, the contract was assigned to MWH Constructors Inc. (MWHC). While we were informed that this was allegedly due to KBR's inability to provide the necessary bonding, a separate agreement between KBR and MWHC indicates that KBR declined to provide the "requisite construction performance and payment bonds."
Kessler investigated to determine if there were any ties between MWHC and KBR. The audit report states, "Kessler learned that MWHC utilized the address of 2503 Del Prado Boulevard, Suite 420, Cape Coral, FL 33904 on invoices and supplied it to vendors and has found bills addressed to MWHC at this address. The Halliburton website indicates Brown and Root Services is located at this same address. The MWH website lists its office at 2503 Del Prado Boulevard, Suite 430, Cape Coral, FL 33904. It is noteworthy that documentation submitted to the city by MWHC would indicate a mailing address that is actually the address for Brown and Root services."
MWH has denied any connection between the firms. In a letter written to John Sullivan, Mayor of Cape Coral, Joseph Adams, President of MWHC said, "Our work on the UEP began when MWH took over the city of Cape Coral's contract with KBR in 1999 because KBR could not obtain a construction bond. MWH is not owned by or affiliated with KBR or its former parent company, Halliburton. We are an independent, employee-owned, private company."
With regard to the manner in which KBR was awarded the contract that it subsequently assigned to MWH, the city's website, at the time of the audit, included this statement: "The selection of Kellogg, Brown & Root as the 'Construction Manager at Risk' was done in accordance with Florida Statutes (F.S. 287.055). The statute provides for the competitive selection of an engineering firm based on qualifications, not price. (For example, you probably want the best-qualified builder to build the Shuttle and not the lowest bidder, so you select the most qualified and then negotiate prices.) Eight of the top engineering firms in the country submitted packages. The three top firms were interviewed . . . "
The Kessler audit also identified problems with the manner in which subcontractors were hired. One of the reported problems was the way that KBR/MWH advertised for bids for the subcontracts. There were concerns that the law was violated and, according to Kessler, a communication from the Florida Department of Environmental Protection (FDEP) to the city indicated that the procurement of subcontractors was flawed. The communication included this statement: "the CM's procurement of pre-qualified construction contractors and negotiating practices may not be consistent with our (SRF) philosophy of open competition."
Other subcontractor procurement issues documented in the report include this statement: "The process used by Public Works and the CM to select subcontractors is dubious at the very least and requires further investigation by an agency capable of compelling testimony and subpoenaing records." Kessler recommended that its findings with regard to subcontractor procurement "be turned over to the U.S. Attorney's Office, Anti-Trust Division as well as the Federal Bureau of Investigation so that further investigation could be pursued."
Los Osos: Alleged improprieties related to MWH contracts awarded in Los Osos include bias and favoritism shown by public employees, awarding of contracts without legally-required competitive bidding, and ineligibility issues. Former Los Osos Community Services District President Lisa Schicker's October 21, 2010 New Times article, "Sewer Project Would Dispossess Many Los Osos Homeowners," reported several contract-related issues: "MWH designed the failed project for the Los Osos Community Services District (LOCSD); an expensive downtown project that voters rejected. They had a habit of securing reasonable contracts that were repeatedly "amended" into millions of dollars of additional costs—essentially no-bid, no-competition. Their last so-called "amendment" with LOCSD was a no-bid contract for $7.48 million dollars—one they recommended for themselves. Paavo Ogren was the LOCSD's first manager. He arranged MWH's first contract. Bruce Buel came next. A 2006 letter from second-manager Buel to third manager Dan Bleskey stated that after his arrival, manager Ogren requested that he backdate (isn't that illegal?) LOCSD's first contract with MWH; Buel complied with Ogren's request."
The backdating referred to by Schicker was reportedly recognized by the district attorney as being a case of falsification of records, but he declined to pursue the matter, stating that the statute of limitations had run out. According to a March 6, 2006 letter to Steve Brown, Senior Deputy District Attorney from Julie Hayward Biggs of Burke, Williams and Sorenson, LLP, the fact that the backdating was not discovered until 2005 meant that the case could still be pursued. Biggs quoted California Penal Code Section 803 as follows: "(c) A limitation of time prescribed in this chapter does not commence to run until the discovery of an offense described in this subdivision. This subdivision applies to an offense punishable by imprisonment in the state prison, a material element of which is fraud or breach of a fiduciary obligation the commission of crimes of theft or embezzlement upon an elder or dependent adult, or the basis of which is misconduct in office by a public officer, employee, or appointee, including but not limited to, the following offenses: 1) Grand theft of any type, forgery, falsification of public records, or acceptance of a bribe by a public official or a public employee." The District Attorney still declined to pursue the matter.
In her article, Schicker further commented that, "Last March, without explanation, the county eliminated a top-ranked engineering team guaranteeing a 20-percent savings over competitors for building the wastewater project. Instead, they selected the giant multinational firm Montgomery Watson Harza (MWH) as one of three short-listed firms for both major contracts. The interview panel recommending MWH was comprised of county employees and consultants, selected by Public Works Director Paavo Ogren." Los Osos residents have often alleged that Ogren has close ties with the firm, making his participation in the contract award process inappropriate. Ogren once worked for an MWH subcontractor, and has been involved with MWH in Los Osos since 1998.
A Rock of the Coast article, written by Ed Ochs, addresses MWH's eligibility for a specific contract they were awarded in Los Osos: "Montgomery Watson Harza was favored with their own outdated (2004) gravity sewer design, even with an apparent violation of California Public Contract Code 20133, that specifically states, 'Any architect or engineer retained by the county to assist in the development of the project specific documents shall not be eligible to participate in the preparation of a bid with any design-build entity for that project.' "
Morro Bay: Contract-related concerns regarding Morro Bay's wastewater treatment plant (WTTP) project are similar to those identified in the other three cities. Allegations of wrongdoing include a flawed RFP process, public employee bias, and failure to adhere to the city's Municipal code.
The July, 2010 Journal article "A Tale of Two Cities' Wastewater Treatment Plant Projects" reported residents' concerns, including the posting of an invalid RFP issuance date on the city Web site. The project schedule posted by the city indicated that the RFP was to be issued on May 31, 2010. However, it was actually issued October 1, 2009, 8 months ahead of schedule. At least one firm was reportedly relying on that schedule to time its entry into the competition for the contract, and was thus shut out of the formal RFP process.
Some residents' concerns focused on potential conflicts of interest. Dylan Wade, the city's Capital Projects Manager, is a former MWH employee. Yet, he was allowed to be on the committee that selected MWH for the WWTP design contract. Residents also noted that one of the MWH subcontractors listed in the firm's proposal as a "teaming partner" was local firm RRM Design Group. The Chief Financial Officer of RRM Design Group is Gregory Peters, brother of Janice Peters, who was Mayor of Morro Bay at the time the contract was awarded.
Other reported concerns included the city's inability to produce evaluation forms rating the bidders for the WWTP design contract. The Journal reported one resident's attempt to obtain the forms: "She was initially told that they either did not exist, or were exempt from disclosure. She complained to the City Council and was subsequently told that the completed forms had been retained by individual evaluation committee members and were not available. No explanation was given as to why they could not be obtained from the individuals who were said to have retained them. Completed evaluation forms are considered by RFP experts to be a critical component of the audit trail necessary to ensure that an RFP process has been conducted fairly. "
The MWH bid was the highest of the five received for the design contract. Its acceptance violated the city's municipal code which requires selection of the lowest bidder. As did staff of Cape Coral, Morro Bay staff claimed that the city was forced by law to choose the vendor it considered most qualified, rather than basing its choice on the amounts of the bids and selecting the lowest one. However, some legal experts have stated that in such cases, both state and local laws can be satisfied by first identifying a group of qualified bidders, and then choosing from among them the one with the lowest bid. Documents contained in city files indicate that all five bidders were considered qualified for the job.
At the time, Morro Bay deemed MWH the best qualified of the five bidders, stories of serious allegations regarding MWH business practices in Los Osos and New Orleans were appearing in the news. However, city staff stated they found "no red flags" regarding MWH. After MWH got the contract, a new project scope was negotiated.
Some Morro Bay residents have voiced concerns regarding the manner in which MWH brought its subcontractors into the project. In the firm's project proposal, MWH presented its "project team," noting that, "In selecting our project team, we have supplemented our in-house capabilities with local subconsultants . . . ." Firms listed include RRM, Fugro, EDA, and Ground Up. The proposal failed to indicate whether MWH had conducted any kind of analysis to ensure that these subcontractors would provide the best service at the lowest possible rates. The proposal did state that, "MWH has worked with all of these firms on past projects in San Luis Obispo County."
Allegations of Billing Irregularities
New Orleans: The Inspector General's report contains a number of findings regarding billing practices. Finding six states, "The contract calls for MWH to be paid on a time and materials basis, a form of compensation that presents a high risk of excessive charges." Finding seven states, "The contract calls for MWH to be paid for expenses on a cost-plus-percentage-of-cost basis, a form of compensation that is specifically prohibited under FEMA rules." MWH had been hired to make repairs following Hurricane Katrina; FEMA funds were involved.
Finding nine states, "MWH's Billings for capital projects provide no basis for allocating costs to specific projects or for keeping MWH's fees in line with overall project cost". Finding 10 states, "The city allowed MWH's fees to mount Faster than the rate of progress on capital projects." Elaborating on that finding, the report notes that, "MWH billings through July 2009 far exceeded the rate of progress on the projects. By that point, MWH had already invoiced nearly $18.8 million through July 2009, or 39% of the maximum fees it could charge over the life of the project, based on 8% of
the $597 million estimate. However, the analysis determined that MWH's "calculated progress" on the projects was valued at slightly less than $15.9 million, or only around 32% of the total maximum fee available. Based on these calculations, the analysis concluded that MWH had billed for approximately 118% of the actual value of its work and had over billed by $2.9 million through July alone."
In Finding twelve, the report identifies examples of MWH expenses that appear questionable, including $93,289.20 charge for telecommunications services for a one-month period, gifts for city employees, travel expenses with no apparent connection to New Orleans, apparent double billing for the rental of a corporate apartment, MWH operating expenses, membership costs in professional organizations, MWH employee business cards, donations, 75 polo shirts, and a $10,559.55 expense for professional liability insurance.
Cape Coral: Kessler's report identifies a number of billing issues. Concerns are raised with regard to billings not authorized by formal agreements. The report indicates that the agreement in which KBR relinquished its role as Construction Manager at Risk (CM*) to MWHC states, "Costs incurred as a direct result of this Assignment shall be bourn by contract assignment, any costs incurred as a direct result of this assignment shall be bourn by Kellogg Brown & Root Inc. and/or MWHC and shall not be chargeable to nor reimbursable by the city."
However, the Kessler report goes on to state that, "despite the fact that all costs incurred as a direct result of the Assignment were to be bourn by Kellogg Brown & Root and/or MWHC, MWHC added two additional staff to work with and coordinate activities with the CM staff and charged them to the city." Kessler further noted that within six months of the agreement, a third part-time employee was billed to the city by MWHC.
Kessler identified another irregularity connected to billings by KBR after it assigned the contract to MWHC, one of which was a lump sum subcontract to MWHA. The report says, " . . . these billings included a lump sum subcontract to MWHA for the actual design/engineering work which included a 6% administration fee on all MWHA subcontracts and an approximately 10% estimate of direct costs payable whether it is incurred or not. These billings also included a subcontract to Boyle Engineering for modeling and direct costs which included reproduction and permits.
"Kessler's analysis has determined that approximately 80% of the Tier Two GMP was comprised of lump sum contracts payable to MWHA. Kessler was not provided any documents that the city ever conducted a review to determine the competitiveness of the costs for these design services. This is a significant concern since KBR accepted MWHA's estimate and added 6% as a handling fee."
Kessler summarized the situation by stating, "The fact that the 'Agreement for Construction Management Services' specifically excludes many costs that were in fact billed in labor rates and hidden from the taxpayer, makes it appear as if someone was using smoke and mirrors to hide these costs."
The Kessler report also describes issues related to subcontractor billing by MWH, indicating that its analysis showed, " . . . the CM accepted the subcontractor's full proposal on each occasion without negotiation or inserted the Subcontractor unit prices established during the bidding for the area. This is a concern due to the bidding practices documented earlier in this report. There was no evidence that the city ever attempted or had the ability to compare or negotiate costs to lower pricing. In so much as, the CM charged a 6% fee based on the value of the change orders; there is a built in incentive to accept a higher estimate."
It was also stated that MWH had billed the city for "un-billable" labor. Kessler reviewed a sampling of MWHC time sheets, traced the hours in the time sheets to invoices and found that, " . . . in sixteen of the nineteen instances; they were billed to the city. Kessler calculated the cost to the city for these un-billable hours at $19.494.81 (Exhibit 44)." Since only a sample of time sheets was reviewed, the amount billed for un-billable labor might have been higher.
Los Osos: Allegations of billing irregularities were leveled at MWH by the Los Osos Community Services District in 2006: In an August 14, 2006 letter to Marshall W. Davert, the Los Osos Community Services district alleged that MWH had "knowingly violated numerous contract provisions and failed to correct these deficiencies in accordance with the contract agreement." The alleged violations include submission of invoices not in accordance with the agreement, submission of multiple invoices for the same work (over billing), and submission of false claims.
Morro Bay: The Journal has not found reports of any independent investigation of MWH billing practices in Morro Bay. MWH's work on the design contract was suspended due to substantial project issues identified by the California Coastal Commission.
Alleged MWH Resistance to Providing Records for Audit and Review
New Orleans: In Finding 3, the Inspector General's report states, "MWH has refused to provide evidence that it is honoring its contractual obligation to charge the city its 'most favored customer rates.'" The report indicates that, "Both MWH and the city appear to have disregarded a contract provision titled "Truth-In- Negotiation," that states: As of the Effective Date of this Agreement, Contractor represents and warrants that the rates charged city . . . for the performance of the Services are no higher than those charged Contractor's most favored customer for the same or substantially similar services. In the event Contractor's "most favored customer" rates are reduced during the term of this Agreement, Contractor shall be obligated to promptly notify city of such reduction in writing, and such reduced rates shall apply to any services provided on or after the date that Contractor first reduced such rates." And, "In response to our request, MWH replied: MWH does not provide any of the same services or substantially similar services of which it provides to the city under the project management contract with any other client for which it can provide rate schedules."
"The assertion that MWH's services to the City of New Orleans are completely different from services provided to any other customer strains credibility, particularly in light of representations MWH made in its proposal for the Infrastructure Project Manager contract: MWH has unparalleled experience in managing major infrastructure and building projects, including the interaction between federal, state, and local governments and non-governmental organizations.
"MWH's unwillingness to provide any evidence that it has honored its promise to the city casts doubt on whether the company negotiated the compensation terms in good faith."
Cape Coral: The Kessler report identifies several instances in which its attempts to obtain documentation for review met with apparent obstruction. The report indicates that subcontractors were instructed not to provide documents requested by the audit firm:
"Two written requests for documentation were sent to the five main subcontractors involved in these projects (Exhibit 8). The aforementioned requests sought copies of contracts, submitted bids, invoices submitted to the CM, correspondence and meeting minutes applicable to the projects and a report of all injuries that may have occurred throughout the duration of the projects.
"Kessler discovered that these attempts were stifled by the CM, as reflected in an e-mail exchange (Exhibit 9). As revealed in this exchange, the CM prepared an e-mail (which the city received cc's) to the five subcontractors and instructed them to "disregard" Kessler's requests until the city addressed the need for that request."
When Kessler requested copies of cancelled checks to subcontractors, in order to verify that the amounts charged to the city and those paid to the subcontractors were accurate," MWHC sent two letters stating that they did not intend on providing Kessler with the cancelled checks payable to subcontractors."
When asked for copies of close-out change orders as part of its work to verify subcontractor billings, MWH offered a sample of ten "selected monthly payments" for review. Further negotiations resulted in receipt by the audit firm of a larger sample, but it was made clear that "there will be administrative costs involved."
The documents Kessler was able to obtain showed some apparent irregularities: "one of the checks which should have been payable to Southwest Utility Systems Inc. was in fact drawn to 'Southwest Utility Systems' and was hand endorsed 'For Deposit Only R. Cowart.' It is unclear why this vendor would receive checks amounting to millions of dollars not payable to the correct corporate entity and why the check would have been endorsed in an individual's name."
MWH refused to provide Kessler with payroll information for time sheet verification stating, "As indicated in our letters dated March 23 and April 7, 2006 we will not be providing raw salary payroll information for time sheet verification. This decision was made for reasons stated in our response above and was a precedent set on the previous audit conducted on a work authorization under this agreement." After pressing the matter with city officials, Kessler was able to obtain a three-months sample of the requested documents – with personal information removed.
Los Osos: The Los Osos Community Services District (LOCSD) made a number of allegations that MWH obstructed access to information on its activities in Los Osos. An August 14, 2006 letter from the LOCSD to Marshall Davert alleged that MWH, "Has had numerous substantive contacts and communications with contractors, regulators, governmental agencies, litigants and other third parties and has not copied the District, despite the District's request for such copies, minutes and transcripts of such contacts and communications."
The letter also alleged that the firm had "Submitted inaccurate, false and misleading information to the District, local and state agencies in support of but not necessarily limited to, regulatory requirements, permits, financing and licenses (Section 10(A) and (B))," had "not provided copies of all electronic data as requested by the District including but not limited to e-mails, data files, CAD data etc.," and had failed to provide a copy of the original Certificate of Insurance, proof of Liability Insurance, and Certificates of insurance evidencing renewal of coverage
Some Los Osos residents have alleged or implied that a theft of MWH records was not a random act, but rather a deliberate maneuver to keep records out of the hands of investigators. A 2005 New Times Article, Los Osos Engineer Reports Theft of Official Records, states that, "Montgomery Watson Harza, project design engineers for the controversial Los Osos sewer, reported Monday that files and computers had been stolen from their local office at Sunnyside Elementary School. The theft coincides almost perfectly with an announcement from the CSD of a resolution to investigate activities pertaining to sewer contracts, spending, and design." The same night, computers were stolen from a Los Osos real estate firm that residents allege was working directly with MWH.
Morro Bay: The Journal has received no reports of residents or officials requesting documents from MWH.
Allegations and Implications of Inappropriate ties between MWH and City Officials and Staff
New Orleans: The Inspector General's report includes a number of findings that might be interpreted as indicating inappropriate ties between MWH and the city. Those include the manner in which the contract was awarded and the way billing was managed. For example, the report says, "The rationale for giving MWH high scores for cost in the absence of fee information is puzzling. The city had no basis for comparing MWH's fees with those proposed by other firms during the selection process because MWH was allowed to avoid providing this information. The lack of any genuine price competition may have resulted in the city paying higher rates than necessary. Communications provided by MWH show that MWH did not submit proposed fees to the city until December 8, 2007, over a month after the parties had entered into exclusive negotiations and only 13 days before the contract was signed. At this stage of the contracting process, MWH faced little pressure to ensure that its fees were competitive".
As previously noted, the report raised concerns regarding the billing methods the city allowed MWH to use and some of the specific items billed for. These reported city failures to protect taxpayers from overcharges have been alleged by some to indicate that city employees and officials were colluding with MWH. Others have claimed that the problem is simply that the city did not manage its finances correctly.
Report Finding thirteen states, "MWH employees sought reimbursement from MWH for gifts to city employees and elected officials." This practice is generally considered inappropriate and is commonly prohibited by law.
The report states, "We determined that in at least two instances, the city procured services from other firms by instructing MWH to enter into subcontracts with the firms and act as a pass through for billing purposes. This practice circumvents the requirement for competitive procurement of services through an advertised request for proposals." Some observers have claimed that this practice implies the existence of an inappropriate relationship between city officials and/or staff, and MWH.
Cape Coral: The Kessler report documents several incidents that some have interpreted as indicating that city staff members had inappropriately-close ties to MWH and KBR. In one case, the City Manager told Kessler staff that he was unaware of issues regarding a Kessler request for documents, submitted to the City Clerk. However, Kessler subsequently obtained an email, written by the City Manager several weeks before, that showed that he did know of the request for documents, having received a copy of a request from Kessler for " . . . detailed records from KBR/MWH regarding their employees as well as subcontractors who worked on our Utility Projects." That email had been sent by the City Manager to two MWHC employees and to the Public Works Director.
Kessler also documented problems with the nature of documents that the Public Works Department supplied in response to information requests, noting that, "During the engagement, Kessler was supplied thousands of documents by Public Works however; the majority of the records at the onset of field wok made available by Public Works were not the documents Kessler requested. After a cursory review, it was determined that many of the documents provided were not even applicable to projects included within the scope of this engagement." And "Public Works personnel hindered Kessler's ability to proceed with its assignment by mandating that all document requests and correspondence of the CM must be routed through a Public Works employee."
Incidents like those described above might imply, but are not direct proof of inappropriate ties between city employees and their contractors.
However, at least one allegedly-improper relationship was specifically documented. Kessler's review of internal city emails also found that one high-ranking city employee "socializes and has close personal relationships with many of the key personnel of KBR and MWHC involved in the UEP."
Los Osos: Allegations of inappropriate ties between MWH and local officials have focused on several LOCSD and county officials, including members of the San Luis Obispo County Board of Supervisors, County Pubic Works Director—Paavo Ogren, and on members of the Regional Water Quality Control Board (RWQCB). CSD and RWQCB officials were accused by some Los Osos residents of colluding with the county and with MWH to force residents to accept a project that will allegedly cost residents far more than necessary, and that uses technology that is both outdated and inappropriate for use in sandy soil in an earthquake-prone area. All of the agencies were criticized by some Los Osos residents for refusing to consider other less costly and allegedly-safer alternatives.
In a Grand Jury complaint filed in 2009, a Los Osos resident noted that, "The BOS voted to accept the short listing of an engineering firm named MWH for the waste water design build project–a firm that was interviewed by a panel of its formal business partners (Carollo and Wallace) and who also has a questionable backdated contract involving Paavo Ogren when he served as manager of the LOCSD. MWH was also hired by both Paavo Ogren beginning in in 2006 (without legally required waivers from the LOCSD) and also by their formal business partners Carollo (working for the county–no bid contract) –beginning in 2007–to work on the wastewater project as a sub consultant, a violation of design build code 21033.
"Just as in other departments within the county government who have recently been exposed, Public Works Director Ogren has made it a habit of issuing large no bid contracts to a very "select" list of firms and individuals, which is not how it is supposed to work in county government, nor does it serve the taxpayer, or is it allowed for fair competition in an open market." These allegations have been echoed in local online news sources. The resident who filed the Grand Jury complaint reported that no investigation took place. The resident further stated that although she confirmed that her complaint had been received, when she personally spoke with several Grand Jury members later that year, she was told that they had never seen her complaint.
Los Osos residents have also raised concerns regarding a $10,000 contribution that MWH made to "Save the Dream" –a Los Osos political group. A Los Osos resident discovered the contribution in the group's tax records. The group was, according to residents, formed not only to support the sewer project that MWH was to build, but to prevent the recall of three LOCSD Board members who favored the project. The recall, however, was a success and the Board members were voted out. Shortly after MWH made its contribution, a prominent member of the group donated $10,000 to the political campaign of Bruce Gibson. Some Los Osos residents have alleged that these events indicate that the $10,000 was in fact a donation by MWH to Gibson's campaign.
Morro Bay: Residents have alleged that the RFP process that resulted in the selection of MWH was suspicious in nature. Allegations regarding the process focus on the city's posting of an invalid proposal submission timeframe on its website, the city's inability to produce completed evaluation forms showing how the selection committee evaluated the five bidding firms, and the fact that MWH's bid was not the lowest, but the highest bid received from five qualified firms.
Allegations regarding specific individuals focus mainly on the fact that Dylan Wade, Director of Capital Projects, is a former MWH employee, and the fact that the Chief Financial Officer of RRM Group, a subcontractor named in the MWH proposal, is the brother of Janice Peters, who was the Mayor of Morro Bay at the time MWH was awarded the contract.
Also cited by residents alleging improper city government ties to MWH is the apparent unwillingness of some city officials and staff to seriously consider the offering of PERC Water. That firm was willing to build a WWTP using technology far more advanced than that planned for the MWH-designed project, and to do so for a guaranteed price projected to be millions lower than the expected total for the project favored by the officials and staff. PERC withdrew after city staff refused to sign a non-disclosure agreement to protect its intellectual property, and produced a Draft Environmental Impact Report that excluded the PERC approach.
Allegations Denied
MWH has disputed the allegations of misconduct in New Orleans, Cape Coral and Los Osos; most recently in a letter dated March 14, 2011. The letter, written by Joseph Adams, MWHC president, strongly disputes all allegations of wrongdoing in those cities.
New Orleans: Discussing the Inspector General's findings in New Orleans, Adams states, "After completing our respective reviews, the city of New Orleans provided the OIG with a response which included the MWH response and refuted the numerous misstatements and inaccuracies and demonstrated that: MWH had complied with its contractual obligations; the contract was reasonable and competitively procured; MWH had adhered to its terms; MWH had not billed for any time spent negotiating the contract; and MWH had not conducted any unapproved work."
Cape Coral: With regard to the Cape Coral project, Adams said, "We are proud of the work we completed for the city of Cape Coral. We finished the UEP ahead of schedule and achieved $26 million in documented cost savings to the city of Cape Coral." Adams also stated that the Cape Coral City Manager had, in 2006, said that she had issues with the audit report. The letter further states that MWH hired its own auditing firm, "PricewaterhouseCoopers (PwC), an internationally recognized accounting firm with whom we had no prior relationship" and that in contrast to the Kessler findings, the firm hired by MWH had found that MWH "completed its work according to standards of business integrity and that we met our contractual obligations."
Los Osos: Adams' letter states that, "The California Regional Water Control Board and the State Water Resources Control Board provided very positive feedback on our work. The California Regional Water Control Board said, " . . . your efforts . . . have resulted in a project that is not only technically, environmentally, and economically sound, but also reflects the input, values and support of the community. This is a commendable feat considering the history of wastewater issues in Los Osos." The State Water Resources Control Board stated, " . . . the project recommendation was reasonable and cost estimates were justified." The Los Osos Community Services District Board also publicly praised our work."
Morro Bay: MWH staff members speaking at public meetings have defended the firm's work and integrity.
The Debate and the Conflicts Continue
The contrasts between the allegations made by auditors and city residents and the responses by MWH are clear, and many issues remain unresolved. Joseph Adams' comments with regard to New Orleans conflict with the content of the final report issued by the Inspector General. That report still contains a number of serious allegations. Cape Coral Mayor John Sullivan has recently stated his intention to bring back Kessler to audit MWH work not covered in its initial review, and, according to local news reports, the city may file a lawsuit to recover money from MWH.
Recently, in a stunning and unexpected turn of events, MWH announced that it would not compete for the Los Osos wastewater project contract recently put out to bid. In Morro Bay, MWH's work on that city's WWTP design has been suspended. The California Coastal Commission (CCC) unanimously found substantial issues with the project's Draft Environmental Impact Report, and no further work can be done until the issues are resolved to the CCC's satisfaction.
In all cases, one thing appears certain. The debate will continue; perhaps long after all of the audits and the projects are over and done.
* The term "contract manager at risk" or, "CM," is a project delivery method. The construction manager agrees to deliver the project for a guaranteed maximum price.
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