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A Washington trucking company has collected nearly $40 million in state contracts since 2008 under a program intended to benefit disadvantaged businesses, despite the fact that several state employees, including investigators and auditors, raised serious concerns about whether the company should qualify for the program designed to help to firms owned by minorities and women.

The company in question -- Mukilteo-based Grady Excavating -- managed to win state designation as a Disadvantaged Business Enterprise (DBE) even after state investigators originally denied its application for DBE status.

Securing a DBE certification opens the door for attaining lucrative government contracts. All public works projects in Washington state that are funded with federal dollars must involve a certain percentage of minority and women-owned businesses. The state receives approximately $1 billion per year from the U.S. Department of Transportation. A condition of receiving federal dollars is administering the DBE program in good faith.

The Grady case is an example of how the Washington agency charged with refereeing the minority contracting program has failed to do its job. While the Washington State Department of Transportation (WSDOT) is ultimately responsible for administering the DBE program, it has an inter-agency contract with the Office of Minority and Women s Business Enterprises (OMWBE) to evaluate whether companies meet the requirements for DBE certification. The agency also is tasked with deciding which firms should be removed from the program if it s found the company is cheating the system or has become too big to qualify.

State investigators familiar with the case suspect Grady Excavating's ownership structure skirts the DBE program rules. On paper, it is owned and run by a woman, Kim Grady. But state investigators are suspicious that Kim's husband, Joe Grady, is the person who actually calls the shots. Joe Grady has years of experience in trucking and construction through his family's multi-million-dollar construction company, Mukilteo-based KLB Construction.

Since landing DBE status three-and-a-half-years ago, Grady Excavating is an example of how the minority contracting program can lead to big success for a firm. Grady Excavating got $14 million in work on the 520 project, and $7 million more for the Seattle tunnel project. Since 2008, state records show the company has landed more than $38 million in government contracts.

Grady Excavating shouldn't have qualified for DBE status, said JeNais Radabaugh, a former investigator for OMWBE.

Suspicious application

The company's DBE application paperwork was extremely suspicious, Radabaugh said. That case has haunted me since I left the agency.

According to documents obtained by KING 5, Grady Excavating's DBE application listed Kim Grady as the owner and the person solely in charge of all governing persons functions, including supervision of field operations/bidding & estimating/purchasing major equipment, etc. But the reporters found Kim Grady had no experience with such work. Her resume listed past jobs at companies involved in very different kinds of business: Nordstrom, L.A. Ski and Sun Tours, and Pacific Food Service.

You can't have somebody who's worked in, say, retail sales for years and years and years, who has never been on a construction site, and knowledgably bid a government job, Radabaugh said. Nor can you run that business without help from somebody else.

The DBE program rules are clear: The minority owner must be in charge of the business.

The suspicion is that it is the husband running the show, Radabaugh said.

Based on Radabaugh's recommendation, OMWBE denied Grady Excavating's entry into the DBE program in May 2008. I ... drafted the letter to deny and met with the owner face to face to tell her I didn't think she was eligible, Radabaugh said.

At least one other state agency later reached the same conclusion. In a 2009 audit of the company, the WSDOT Office of Equal Opportunity concluded that there was no clear explanation for how Grady Excavating obtained the funds to buy its trucks. WSDOT also noted that Kim Grady had no trucking experience and concluded that her company should never have been certified as a DBE.

Grady gets in

Soon after completing the Grady Excavating review, Radabaugh left OMWBE for another state job. She was gone when Kim Grady applied again for DBE status, which OMWBE granted in October 2008.

It s unclear what changed between May and October. Kim Grady did not provide any additional evidence of having a background or expertise in the trucking industry, which federal law requires for DBE certification.

Documents reviewed by KING 5 show that an OMWBE Certification Committee reviewed the Grady case on October 28, 2008, and ruled that the company should not have been denied DBE status. On the next day, OMWBE sent a letter notifying Grady Excavating of its decision to reverse its prior denial.

The Certification Committee was comprised of three state employees: Cathy Canorro, who was the OMWBE Agency Support Manager at the time and is the current Agency Director; Clarence Gillis, former deputy director of OMWBE; and Eileen Oliver of WSDOT s Office of Equal Opportunity.

I was sickened (when I found out what happened). I was sure they were not eligible, and I thought it was inconceivable that they got certified based on the paperwork that I had seen, Radabaugh said.

One of the early concerns state investigators had about certifying Grady Excavating as a DBE was the possibility that KLB Construction -- the company owned by Kim Grady s in-laws and which employs her husband -- would show a pattern of sub-contracting with Grady. That s what s happened.

A KING 5 analysis of state contracts shows KLB hired Grady Excavating 14 times since 2008 -- more than any other general contractor in Washington state.

The little guy suffers

Four years after OMWBE's first decision in the Grady Excavation case, and nearly three years after WSDOT's own audit concluded the company shouldn't have DBE status, Grady Excavating is still in the program. Just two months ago the company started a $6,960,750 job on the SR 99 Tunnel Project in Seattle.

What does that do to the little guy? It closes the little guy down, Radabaugh said. It blocks him from getting any of the contracts which is why the program and certification was created in the first place.

One such little guy is Kirkland-based Washington State Trucking. Owner Elton Mason said his company is struggling to land state work.

It s always been a challenge to get work. It s always been a challenge to work on state public projects, he said, But (my trucks) have been sitting for four to six months. No work at all.

Like Grady Excavating, Mason's company has DBE status, but he said Grady's ability to scoop up lots of state contracts is hurting his company's chances of landing that work.

They've let us down, Mason said of OMWBE. They continue to certify companies that don't belong in the program and it s putting legit minority-owned businesses out of work.

Experts consulted by KING 5 News say Mason has a point: Many more DBEs could have benefited if they had been able to land a portion of the nearly $40 million in contracts Grady Excavating has obtained in the last few years.

It's become more and more of a reality that I'm at the verge of losing my business, Mason said.

OMWBE declined KING 5's request for an on-camera interview to answer questions about Grady Excavating. Kim Grady also declined KING 5's request, citing an ongoing investigation into her company.

KING 5's reporting on the DBE program prompted Gov. Christine Gregoire to call for a criminal investigation.


Read the previous installments of Susannah Frame's Fraud on the Job series:

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