An eight-month investigation by the KING 5 Investigators reveals millions of tax dollars deceptively obtained through a program designed to help minority and women-owned contractors get a better chance of landing work on large transportation projects.
Through analyzing thousands of public records and conducting dozens of interviews, the reporters found that state officials have known about the abuses for years, but ignored red flags, skirted federal laws, and allowed companies that cheat the system to stay in the program.
The projects involved include major ones like the 520 bridge replacement, the Alaskan Way Viaduct, Seattle’s Bored Tunnel and Sound Transit’s Light Rail. The abuses added to the costs of these and other projects at a time when governments at all levels are struggling to balance their books.
Federal law states that a certain percentage of small, minority and women-owned contractors -- those certified as a Disadvantaged Business Enterprise, or DBE -- must be hired on any job funded with federal dollars. In Washington, the Washington State Department of Transportation (WSDOT) is responsible for administering the program. WSDOT contracts with a small state agency, the Office of Minority and Women’s Business Enterprises (OMWBE), to certify DBE’s that qualify and to remove DBE’s that cheat or become too big.
The KING 5 investigation found some DBEs, which haul in millions of dollars worth of government contracts, should never have been allowed into the program by OMWBE in the first place. The reporters found other contractors blatantly gaming the system by obtaining contracts because of their minority status, only to have larger companies perform the actual work. When state officials let this activity slide, it prevents legitimate, struggling DBE’s from getting a piece of the work.
“Schemes to defraud the Dept. of Transportation’s DBE program cheat not only the government and taxpayers, but also cheat those small, minority owned businesses that the program is intended to help,” said Special Agent George C. Venizelos of the FBI.
Star of the DBE program
A case involving a former Seattle Seahawk epitomizes the problem.
Back in the early 1980s the Seahawks roster included a local stand-out, defensive lineman Fredell Anderson of Toppenish. After the NFL, Anderson moved from the end zone to the construction zone, where he launched another successful career as founder of Leajak Concrete Construction, based in Mountlake Terrace.
For 20 years Anderson has been a leader and mentor in the minority construction community. In 2007 the Puget Sound Business Journal named Leajak the fastest growing minority-owned business in the region. Anderson is a frequent donor to community causes such as diversity programs. His company has given teens in need the break they need by providing construction internships.
Leajak was a star of the local DBE program, winning lucrative contracts on some of Washington’s biggest construction projects. Since 2008, general contractors hired by WSDOT, Sound Transit and other municipalities have awarded Leajak more than $8 million in government work.
In each of these jobs, Leajak’s DBE status helped the general contractor to reach its mandatory DBE goals.
Victor Valdez, program pirector at Community Capital Development, which helps minority companies achieve success, said obtaining a DBE certification through OMWBE opens doors that historically have been shut for women and minorities.
“(The DBE program) is key. To be able to at least be invited to the dance in order to compete for work,” said Valdez. “It does allow them access to opportunities that otherwise they would be excluded from. No doubt about it.”
The KING 5 Investigators found Anderson, a stand-out in the DBE program, took unfair advantage of it. On top of that, state officials at OMWBE knew about the abuse, but looked the other way, the KING investigation shows.
In the last three years general contractors have hired Leajak for concrete pump work to count toward their DBE mandatory goal. Leajak says it added concrete pumping - a specialized type of concrete work- to its business in 2009. It says it did so with full approval from OMWBE. But out on the job site, Leajak's a no-show, according to a long trail of public documents reviewed by KING 5.
In 2009 the large general contractor PCL awarded Leajak a $180,000 contract to pump concrete on the Spokane Street widening project in Seattle. But a WSDOT investigation concluded that while Leajak collected thousands of tax dollars to do the job, there was “no evidence Leajak performed any of the work."
WSDOT was conducting a Commercially Useful Function (CUF) Review, which is required by federal statute. A CUF is governments speak for: Is the DBE doing the work the company was hired to do?
In their report, issued last year, the WSDOT investigators wrote: “It appears he (Anderson) knowingly disregarded federal requirements and conspired to conduct business as a DBE firm with full knowledge and intent…”
The WSDOT investigators found Leajak didn’t have the equipment, employees or the expertise to perform concrete pumping. Federal law mandates that the DBE owner must possess technical competence and experience directly related to the type of work they’re hired to do.
The investigators also found that no one from Leajak was ever on the job. Eighty days worth of City of Seattle project inspector logs show no inspector ever saw evidence of anyone from Leajak at the project.
“They caught him red-handed. There was nothing he could do to say he wasn't doing exactly what they said he was doing," said former OMWBE investigator Melissa Hopkins, who examined WSDOT’s records.
So who was doing the work? Not Leajak. Not another DBE. It was a giant in the local concrete industry, Ralph’s Concrete Pumping.
"There was a Ralph's trailer on site, an office trailer, no Leajak, it was Ralph's. How bizarre is that?" said Hopkins.
PCL had hired Leajak to fulfill its DBE mandate. Leajak in turn hired Ralph’s to do the actual work, then took a cut above what Ralph’s was charging -- adding to the cost of the project for taxpayers.
The KING 5 Investigators analyzed billing records from the project from 2010. A typical pay day looked like this: PCL pays Leajak $1,100 for concrete pumping. Leajak pays Ralph’s $998 for doing the work. Leajak pockets the difference, $112, which is about 10 percent.
In 2010 alone, Leajak collected more than $40,000 for simply lending its name and minority status to the job. That’s $40,000 above what Ralph’s made -- $40,000 wasted taxpayer dollars.
"So we're paying this guy to do nothing? That must be nice. I'd like to get paid to do nothing. Why should we pay this man, for work he's not performing?" said Hopkins.
Six months after the WSDOT Spokane Street investigation, an anonymous complaint came into OMWBE about Leajak. The complainant alleged that Leajak was “not following the rules” on concrete pumping jobs.
Melissa Hopkins was the OMWBE investigator assigned to the new Leajak complaint. It was her job to make a determination on whether or not the company should remain in the DBE program.
"I needed to see if there was a pattern of behavior, if this was his mode of operation. Did he normally not do the work and have other people do the work for him? And if that was the case I needed to prove that to remove him from the program," said Hopkins.
She found Spokane Street wasn't a fluke. The same suspicious set-up appeared to be underway on five other Leajak government jobs, including work on the Alaskan Way Viaduct, the Sound Transit Station at Husky Stadium, and the UW Business School.
"He was a front company. That's what we call it. Someone who gets the contract, and gives the work to someone else and he takes a cut," said Hopkins.
Leajak: No intention of misleading anyone
Fred Anderson declined requests for an on-camera interview. But he wrote an email to KING 5 in which he stated he had no idea he was breaking the rules. Anderson claims OMWBE gave him the go-ahead to operate his concrete pumping business based on a lease-agreement he had with Ralph’s.
“That lease was approved by OMWBE….After getting the notice that Leajak was not operating within the rules, Leajak took immediate action to comply with the guidelines. Leajak has never had any intentions of misleading or misrepresenting itself as a DBE contractor,” wrote Anderson. Leajak says concrete pumping is a small portion of its work, and also claims that concrete pump operators on the federally funded sites were on Leajak's payroll.
But the KING 5 Investigators uncovered more evidence of identical deceptive activity on three more public works projects where Leajak was hired to perform concrete pumping: the Murray Morgan Bridge in Tacoma, East Lake Sammamish Parkway improvements and the South Park Bridge in Seattle.
After the damning WSDOT report, the evidence of a sham involvement on other projects and the wasted taxpayer dollars -- what action did OMWBE take?
They sent Leajak a two-page letter of congrats.
"Congratulations!....Your business has been recertified.... as a Disadvantaged Business Enterprise (DBE) for the Federal program."
The investigator who had the case said she was horrified. "I was furious. I was disgusted. I couldn't believe what had happened," said Hopkins.
What did happen?
Cathy Canorro is the Director of OMWBE. She was appointed by and reports directly to Gov. Chris Gregoire. Canorro declined repeated requests for an on-camera interview. In an email to KING 5, she said her investigator on the job, Melissa Hopkins, blew it by not following protocol on the case and by not gathering enough evidence to remove the company from the program. "The analyst (Hopkins) also did not contend that Leajak should be removed as a DBE because it performed concrete pumping," wrote Canorro.
Hopkins denied Canorro's claim that proper procedures were not followed.
The KING 5 reporters also talked to the owner of Ralph’s Concrete Pumping. He told us Leajak was on the jobs in name only and that his company did all of the work.
Later this week, the KING 5 Investigators will expose what exactly happened in this case and what unusual steps Canarro and other state officals took which led to the company remaining in the program.