Washington state transportation officials on Monday ordered Seattle Tunnel Partners to take definitive steps to include more minority and women-owned businesses in the $1.3 billion Viaduct replacement project.

WSDOT informed STP that it is in breach of its contract with the state. The state's Secretary of Transportation, Lynn Peterson, said that finding means the two international contractors that make up Seattle Tunnel Partners, Tutor Perini and Dragados U.S.A, may have a harder time working in the state again.

A breach of contract finding is a very serious finding and so just that finding alone will have severe impacts on their ability to do business (in WA state), said Peterson.

At this point, the agency is not taking additional advice from an expert it hired to investigate STP and to advise on what punitive steps WSDOT should take against its contractor. A special attorney general, Seattle attorney Richard E. Mitchell, recommended that STP be fined and held responsible for the state's investigative and administrative costs. He noted that the state has the power to impose civil penalties of up to ten percent of the amount of the $1.3 billion contract for each violation -- which translates to up to $130 million for each. A portion of Mitchell's report released today made clear Mitchell's aggressive stance:

Counsel strongly recommends that WSDOT declare an event of default under the Contract, request assurance of future performance, recover its damages, and assess appropriate financial penalties. WSDOT should also withhold future payments, as necessary, to gain STP's compliance with the Contract's DBE (minority contracting) program requirements, wrote Mitchell.

The issue involves federal requirements that certain small firms -- those designated by the state as disadvantaged business entities, or DBEs -- be guaranteed a percentage of work on major highway projects. Last fall, a KING 5 Investigators series showed that Seattle Tunnel Partners was far behind the goal it is required to meet for awarding work to minority subcontractors. A report issued by the Federal Highway Administration in November concurred, noting that STP had awarded just $7 million to DBEs, well below the $91 million goal set by the state. As of January 2014, $21 million has been paid to small disadvantaged firms.

Mitchell also said WSDOT should require STP to cover the costs of the state's increased oversight of the DBE program and withhold future payments to the company, which STP could gain back if it increased DBE participation above the $90 million goal.

The president of the Washington state chapter of the National Association of Minority Contractors, Bob Armstead, said WSDOT should have listened to its expert and issued fines immediately.

We had anticipated and hoped for a stronger response (from WSDOT), said Armstead. Until something is specifically done to show prime contractors that there's a price to pay for violating contract terms and conditions they will continue to do it.

WSDOT telegraphed its likely approach to holding STP accountable when it issued its first response to the FHWA audit in late November. For the first time ever, WSDOT said the state's top transportation official, Secretary Lynn Peterson, and other top agency staff would play a direct role in overseeing how the minority contracting program is operating state-wide.

Following through on the November promise, WSDOT on Monday outlined tough, mandatory actions for STP, including allowing WSDOT to monitor all activity related to subcontracting policies and procedures, and meet quarterly participation targets set by the state. WSDOT will require STP to prepare monthly reports on minority contractor participation in the tunnel project and create a formal plan and outreach initiative to get more DBEs involved -- including hiring a full-time DBE program monitor to oversee STP's efforts.

The state told STP that it does not plan to impose monetary penalties at this time. Rather than initiate one or all of the various monetary remedies provided in the Contract at this time, WSDOT would prefer to assist STP in developing procedures that will ensure the future performance of STP in meeting the DBE requirements of the Contract, wrote WSDOT Secretary Lynn Peterson.

What is most important is that we all work together so that the many qualified, certified DBE
firms in Washington receive work and economic opportunities generated by this project, and
agency and contractor efforts are best invested in ensuring that outcome, Peterson said.

Meanwhile, WSDOT is kicking off a series of workshops across the state to educate minority contractors about bidding on state work. The first meetings are scheduled for 11 locations on Jan. 21.

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