A key subcontractor on the Alaskan Way Viaduct replacement project is facing ejection from the state program that channels a portion of work on big highway projects to minority and women-owned businesses.
OMA Construction of Seattle won a $14 million trucking contract through the program meant to give disadvantaged businesses that have historically faced discrimination a leg up on winning work on federal highway projects. State investigators say OMA Construction never should have been allowed into the program in the first place because of fraudulent business practices. If that assertion is correct, that would mean $14 million worth of work on the project that went to OMA, was taken away from legitimate small businesses in the area.
In a November letter, the Washington agency responsible for policing the minority contracting program sent a letter to OMA Construction, stating the state's intent to remove the company from the Disadvantaged Business Enterprise program (DBE). The DBE program is mandated by the federal government. If federal funding is involved, contractors must hire a certain number of DBE’s as a condition of winning the contract.
The OMA situation is tied to bigger problems with how the main contractor on the project -- Seattle Tunnel Partners -- is adhering to federal and state rules requiring 8 percent of the $1.3 billion project be subcontracted to DBE’s.
Last fall, a Federal Highway Administration investigation found that STP intentionally discriminated against DBEs. The FHWA also found that the Washington State Department of Transportation was negligent in overseeing STP's minority contracting efforts. The violations of US DOT regulations put in jeopardy future federal funding on Washington state highway projects.
OMA Construction is fighting the state’s intention to remove it from the minority contracting program that allowed the company to obtain $14 million in tunnel subcontracting -- a sizeable portion of the $91 million STP is required to channel to DBEs.
After a lengthy investigation that concluded in 2013, Washington's Office of Minority and Women Business Enterprises (OMWBE) told OMA Construction owner Barry O'Young that his company should be expelled from the minority program because O'Young didn’t tell the truth about his finances on his initial application in 1998. The agency also said O’Young continued to withhold mandatory information for several more years.
KING 5 obtained the confidential document outlining OMWBE reasons why OMA should be removed from the program.
“Mr. O’Young failed to provide information regarding significant assets he has held with his wife, other family members, and other individuals as well as on his own,” wrote an OMWBE analyst. “Mr. O’Young has fraudulently and knowingly obtained and retained certification as a (disadvantaged) minority owned business as well as making false statements for the purpose of influencing the certification process by repeatedly providing false statements regarding his assets and the ownership of his firm.”
According to state records, O’Young claimed on at least seven different signed, notarized documents that neither O’Young nor his spouse had an ownership interest in any other businesses. But OMWBE noted Washington Secretary of State business registrations and property records showing O’Young owned several restaurants with his wife, other businesses with associates as well as part ownership in other homes beyond his primary residence.
“On February 23, 2011, OMWBE received a signed and notarized annual update from Mr. O’Young. Mr. O’Young stated nothing had changed to affect his socially disadvantaged status. He did not provide any information regarding any other businesses he or his wife owns,” wrote investigators.
The state agency said it continues to wait for financial records requested as far back as 2011.
“To date, Mr. O’Young has failed to fully respond to OMWBE’s request for additional information dated October 18, 2011, April 22, 2013, and July 17, 2013,” wrote analysts.
O’Young denies OMWBE's allegations and is challenging the effort to remove OMA Construction from the minority contracting program. In a December letter stating his intention to appeal, O’Young said the state’s investigation was sloppy, full of errors and came to inaccurate conclusions.
The state’s allegations "are wholly without merit and are not supported by the state or federal regulations. I am an Asian-American contractor, notably the only Asian-American owned General Contractor bidding on WSDOT or other public works projects in the state, and I fully control and operate my business. Further I have never intentionally failed to respond to OMWBE’s requests or made statements to deceive OMWBE and/or WSDOT,” wrote O’Young.
O’Young said he properly disclosed his business and real estate interests, though he conceded that he failed to turn in all of the tax returns and articles of incorporation because he was unable to locate them. Even with his other financial assets, O’Young said he falls well within the guidelines to remain in the program. Federal rules require the business owner to have a personal net worth not to exceed $1.3 million.
“I am deeply offended by the cavalier manner in which (OMWBE) has investigated this matter and the serious and damaging charges of “fraud” which are based on a haphazard and careless investigation,” wrote O’Young. “We have worked hard at OMA to demonstrate to the construction industry that small disadvantaged businesses are good business partners and to do so we have had to work twice as hard as non-DBE entities to overcome any lingering stigmas.”
One small business owner in the state’s minority contracting program, Eli Mason of Kiawa Trucking, said he attempted to get work on the SR 99 tunnel project, but that STP gave OMA Construction the lion’s share of the trucking work instead. He said his one-truck operation is exactly the kind of business the program is supposed to help, yet he has no work currently.
"Right now it's very tough and we're hanging on by the grace of God basically," said Mason.
Mason said only having one truck shouldn’t preclude him from getting work on a big job like the tunnel.
“One truck is going to keep my business alive. One truck is going to feed my family and that's what the DBE (Disadvantaged Business Enterprise) program was designed for. For small people to come into this industry and be included into what's going on in Seattle and the state," said Mason. “If I was working that one truck, maybe in a year I could have five trucks and employees, paying taxes, helping Seattle out to be the city it was designed to be.”
O’Young told KING 5 he offered work to Kiawa Trucking on the tunnel project as a subcontractor to OMA, but did not get a return phone call. O’Young also told KING 5 that he’s shared work on the contract to several other small, struggling businesses.
“OMA is proud to have subcontracted over $1,000,000 on the Alaskan Way Viaduct Project to certified DBE firms, and is committed to increasing DBE participation on the project by hiring local owner-operated truck drivers who might not otherwise have an opportunity to work on it,” said O’Young.
In addition to the state investigation, KING 5 has confirmed that OMA Construction continues to be under investigation by the FBI and the U.S. Department of Transportation Inspector General for alleged fraudulent activity in the minority contracting program. The federal investigation has been underway for at least two years. O’Young told KING he hasn’t heard from FBI investigators since 2012.
When OMA Construction won the tunnel contract in 2012, both WSDOT and STP were aware of the investigations for alleged fraud. The KING 5 investigators aired a story about it in June, 2012.
This week, a WSDOT spokesperson said its tunnel contractor (STP) had to treat OMA like every other bidder, despite the cloud hanging over the firm.
“Until a company is decertified, STP cannot exclude or treat differently that company from other certified DBE firms who are bidding for work. They must be given the same considerations and treatment as all other certified DBEs. WSDOT is not the certifying (or decertifying) agency,” wrote Lars Erickson of WSDOT.
The latest numbers obtained by KING 5 show STP has awarded approximately $21 million worth of work to small, women and minority-owned businesses -- just 23 percent of the federally mandated goal. It is uncertain what will happen in terms of meeting the goal if OMA were to be removed from the minority contracting program.
“(WSDOT is) not going to speculate on the outcome of this process,” said Erickson.
OMA Construction has asked for a hearing to dispute the state’s intention to remove the company from the program but a hearing date has not been set yet.
From 2012: Susannah Frame's "Fraud on the Job" series.