Metro Washington Airports engaged in rampant nepotism, crony contracting, sloppy management - USDOT auditor finds

A 50 page audit report by the USDOT's inspector general (IG) Calvin Scovell finds there is rampant disregard for rules at the Metropolitan Washington Airports Authority (MWAA) - operator of the Dulles Toll Road - and many examples of crony contracting, high paid no-work jobs for board directors, and hiring of family and friends. The law governing MWAA (Airports Act) and its lease agreement with the US Government that gives it control over federal airports for example provide that "to the maximum extent practicable" contracts over $200,000 should be competitively bid. However Scovell found that almost two-thirds of such contracts are not competed.

The MWAA's contracting manual is "frequently" disregarded, Scovell reports. Contracts are routinely abused by "out of scope" work orders, meaning that the contract provides for say, grassed berms but midway through the contract the MWAA orders instead concrete retaining walls for which there is no contract pricing. A price is simply agreed to. Even a competed contract can end up mostly payments for task orders and out-of-scope work that bears little relation to what was bid.

"MWAA board members and senior officials set the tone for a lax internal control culture," the report says, board members themselves bypassing the Procurement and Contracts Department, and initiating work before a contract is awarded, awarding sole source contracts without reference to the rules, or helping favored bidders with information not provided other bidders.

In a two and a half year period (January 2009 to June 2011) MWAA awarded 190 contracts exceeding the threshold for competitive procurement but only 68 were in fact competed. 117 were awarded citing "categorical exceptions" to required competition. Five more were sole source awards that never got board approval in direct contravention of the requirement in the Airports Act and in the lease agreement that all contracts receive board approval.

The five never-approved contracts were for $6m. (see pie chart)

The Scovell report says MWAA claimed the contracts were granted without board review on grounds of urgency, but the IG says that three lacked any evidence of being urgent. They were awarded to the same contractor (unnamed) three years in succession each for a year's work - about $1 million's worth.

In one case the MWAA board ordered an engineering review contract for Firm A whose project manager was a former MWAA employee.  The former employee however moved to a second engineering firm, Firm B. The MWAA board then transferred the contract to Firm B.

The USDOT IG found the MWAA used categorical exceptions for one-on-one negotiated contracts without providing adequate justification or being able to show it was in the best interest of the Authority in over half the cases reviewed. This contravened US Government procurement rules, the IG report states, although the MWAA is not legally subject to those rules.

The IG report is also critical of the MWAA's sporadic public notification of contract opportunities, which it says denies many contractors the opportunity to bid. In addition the reports cites how the board of MWAA bypassed the procurement  department in cases to award and amend uncompeted contracts.

The staff of MWAA in turn bypassed the board in significantly amending contracts with 'out-of-scope actions' - task order changes and contract modifications. Staff couldn't cite a single case where contract modifications were referred to the board for approval.

Contract grew from $8m to $147m by additions

An example cited was a contract for the expansion and renovation of Dulles Airport main terminal building awarded originally for $8m in 1989. The contract was modified and extended and amended over 22 years without any board review and ended up last year as involving $147m of payments to the contractor. MWAA in discussions with the USDOT IG defended its administration of this contract as proper, because all the work was within the vague original terms.

The IG: "Adding work that had not been originally contemplated or solicited prevents qualified contractors from competing for the new work. By issuing out-of-scope contract actions that could have been competitively awarded, MWAA has missed opportunities to maximize competition and obtain better value."

A specially favored contractor is identified only as Contractor A:

"Over the past 8 years, MWAA awarded more than 80 percent of work under three groups of multiple-award contracts to a single contractor (“Contractor A” in table 2). However, the contractor’s rates were often higher than the other multiple-award contractors’ rates. For example, the contractor’s rates in a 2012 contract were between 28 percent and 234 percent higher. While MWAA may have had non-price related reasons for selecting Contractor A, this unbalanced distribution of work to a single contractor with significantly higher rates appears contrary to the purpose of multiple-award contracts and could further compromise MWAA’s competitive environment."

"Appearance of favoritism"

In another set of multiple-award contracts, one of five firms competing received over 38 percent of work. The favored firm was owned by a former board member. The IG comments mildly that this "could create the appearance of favoritism."

Procurement authority at MWAA is vague with many procurements bypassing the official procurement and contracts department. The authority was unable to provide any list of officials with contracting authority because it did not track this.

"MWAA has not kept track of who has been delegated this authority and could not give us an accurate count of all of its employees authorized to award MWAA contracts."

However the USDOT IG found 28 employees who had authority to contract outside contracts department channels. One was an unidentified general counsel. He personally awarded a $100,000 legal services contract, apparently a one-off affair.

Contractors at MWAA regularly begin work before contracts are completed and signed, the IG reports.

$572/hour work to attend 5-hour board meeting

"In some cases, work was started even before the contracting officer was aware MWAA management wanted to award a contract…. Of the 709 contracts MWAA awarded between January 2009 and June 2011, contractors started work on 27 percent before their official award dates. For example, MWAA paid one contractor $572 per hour to attend a 5-hour Board meeting on January 6, 2010—during which the Board of Directors approved the selection of the contractor. The contract was not officially awarded until July 13, 2010—188 days after the work began."

Unnamed "top management" initiated some of these amazing contracts.

The USDOT IG found $34m of contracts never approved by the full board.

"Based on our findings, we project that MWAA spent $83.6 million - 37 on contracts without Board approval—14 percent of an estimated total of MWAA’s contracts awarded between January 2009 and June 2011. This practice keeps the Board from being fully informed of critical business decisions."

Crony contracting: "We identified 7 former board members and affiliated firms who have been awarded 30 contracts, amounting to almost $2 million since 2003. One former board member was awarded 16 sole source contracts totaling $262,000 over the past 10 years—the first only 3 months after the member left the board."

In response to the IG's criticism the report says MWAA has begun terminating these crony contracts and has adopted a policy of not doing them for two years after board members departure.

The report doesn't name any names, but sometimes refers to titles of offenders.

The vice president of human resources, it reports, managed relatives in spite of a code of ethics specifically barring this practice. A cut-out supervisor was appointed in between so the VP could deny directly managing the two relatives. One of the two was put on payroll weeks before background checks were completed.

Employees "regularly" accept "inappropriate gifts" the report says from an  unnamed contractor including Super Bowl tickets, travel and accommodation over $5,000 in value. A former president and CEO failed to file a key page on his financial interests, according to what the IG called a "cursory review" of financial disclosure filings.

Hiring and compensation at MWAA seemed chaotic to the IG. Standards for hiring were nowhere documented "which allowed senior officials to place candidates into new or existing positions without job descriptions, competition, or completed background checks."

Senior officials "abused" a student employment program by hiring non-students and encouraging false paperwork to be filed on student status.

Crims hired, overpaid too

People with criminal records got hired despite rules:

"MWAA’s lack of oversight also resulted in employees with known criminal convictions working at the Authority in sensitive and management positions for more than a year."

"In addition, MWAA managers awarded excessive salaries, unjustified hiring bonuses, questionable cash awards, and ineligible benefits."

An egregious example cited of a deal for a board member was the granting of a $180,000 annual salary "for unspecified job duties" to a former board member - a reference to Mame Reiley given the job by MWAA president and CEO Jack Potter. After someone blew the whistle to the media on Reiley's non-job earlier this year she resigned it.  But her benefactor Jack Potter stayed on.

The report says that an unnamed human resources manager "deliberately abused MWAA's benefits programs" to continue paying an unnamed person long after they had worked for the authority. The HR manager was disciplined with a  3-day suspension.

The USDOT IG reports a case of a an unnamed board member participating in the selection of a contractor that employed their spouse.

No mention of union official on board

The report does not mention a flagrant conflict of interest in having Dennis Matire a leading construction union official sitting on the board of directors dictating union-only provisions in construction RFPs to benefit the members of his union and in contravention of Virginia's right to work law. (Virginia Governor Bob McDonnell did eventually force Matire's resignation but MWAA paid Matire's legal fees to contest his outster.)

New ethics codes coming into effect December 2012 are supposed to clean up the chronically misbehaving board of directors of MWAA but the IG says of this: "significant attention will be required to ensure that new travel, ethics, and disclosure policies are implemented and enforced."

Directors are appointees of the US President, the Mayor of Washington DC and the governors of Virginia and Maryland. They "serve" 6 year terms unless forced from office or otherwise depart.

MWAA operates the Dulles Toll Road under a 50 year lease from Virginia and the the Dulles International and Reagan National Airports under lease from the US Government. Its major construction activity is a $6 billion commuter rail line running from the established Metrorail system at West Falls Church through Tysons Corner to Dulles Airport and then out into Loudoun County beyond. This rail line and largely in a median reservation of the Dulles Toll Road and Dulles Greenway.

And  it is being substantially financed with the sale of toll revenue bonds although the board of directors recently called their own financing plan "fatally flawed" for its over-reliance on tolls, and the undue burden it said was place on residents in the Dulles corridor.

Such designation of its own financial plan as fatally flawed doesn't however give pause to this amazing outfit's spending and contracting plans. Instead it is a call for more US and Virginia financial grants.

MWAA response to the report

MWAA issued a press release headed: "Airports Authority Welcomes Inspector General’s Report as Aid in Improving Transparency and Accountability and Earning Public Trust: 16-month Audit Notes Progress of Ongoing Policy Initiatives"

Authority board chairman Michael Curto is quoted: "We take all the issues and concerns cited in the report very seriously and will respond to all of the report’s recommendations… We are gratified that the final report acknowledges the actions we have taken since the May Interim Report, as well as our ongoing initiatives, to bring greater transparency and accountability, efficiency, and integrity to our operations and governance. We are committed to strong oversight and internal controls and to making certain that everything we do going forward reflects the best practices of government and industry. We will use this report as a tool in expanding and enhancing our work to increase transparency, strengthen governance and build renewed public trust.”

President and CEO Jack Potter is quoted as saying they are "well into the process of revising our contracting manual and other procedures to reflect best practices and promote fair and open competition.

“In the area of human resources, we are moving forward with a process to ensure that at our hiring processes, our compensation and benefits structures to assure that they are consistent with our goal of best practices (including additional authority to conduct criminal background checks.)

"Some issues cited in the report are one-time or isolated events, which were detected and dealt with when they occurred during the five years covered by the audit. For some other issues, we need to have the details and facts to be sure we have a fair and accurate assessment of the findings. We are asking the Inspector General to share those facts and details with us.”

The investigations as requested by Congressmen Frank Wolf (N VA, Repub) and Tom Latham (Iowa, Repub.)

report of IG:

http://www.oig.dot.gov/sites/dot/files/MWAA%20Final%20Report.pdf

MWAA filing of materials on scandal:

http://www.mwaa.com/4439.htm

TOLLROADSnews 2012-11-02