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Auditors to expand review of State Highway Administration

Maryland auditors will expand their review of State Highway Administration spending after an initial report revealed a range of ethical, and potentially legal, issues with the way contracts worth more than $30 million were awarded.

The audit found the SHA circumvented its normal review process when vetting applicants for a pair of $16 million contracts. Those were awarded just months before the winning bidders made donations to a charity sporting event promoted by a company part-owned by an SHA official. And other former SHA employees took jobs in the private sector that positioned them to work on contracts they helped craft during their time with the state.

Former employees and firms involved were not identified in the audit, but the three companies are named in Board of Public Works documents detailing contracts that match those described in the report.

The findings have already been sent to Attorney General Douglas F. Gansler’s office for review, and the Department of Legislative Services plans to release its follow-up audit “within a few months,” according to top auditor Bruce A. Myers.

“It depends on what we find,” he said. “There are 17 contracts similar to these two we looked at. And we didn’t even finish looking at these two.”

The multi-year construction management and inspection contracts total $146 million, and had a balance of $64 million remaining at the end of 2010.

Transportation Secretary Beverley K. Swaim-Staley wrote in her response to the audit that the issues raised “are being taken seriously and are not acceptable practices.”

Acting SHA Administrator Darrell B. Mobley “has the mission of fixing what is broken — putting in place an effective system of checks and balances governing the procurement and contract management process in the future,” wrote Raquel Guillory, Gov. Martin O’Malley’s press secretary.

The special audit, prompted by calls to the DLS fraud, waste and abuse hotline, centered on two $16 million contracts awarded in October and December 2010 and two former SHA employees who worked on them.

The audit found the SHA did not follow its normal protocols when reviewing bids for the contracts.

The firms that received the contracts were not named in the report. But, according to Board of Public Works documents, the state spending panel awarded a contract fitting the descriptions in the audit to Baltimore-based Rummel, Klepper & Kahl and KCI Technologies Inc., of Sparks, on Oct. 15, 2008, and another to Sparks-based Johnson, Mirmiran & Thompson Inc. two months later.

JMT Chief Operating Officer John Moeller confirmed Tuesday that his company was one of the contractors referenced in the audit, but said JMT did not have an unfair advantage in winning the state business. RK&K officials did not respond to requests seeking comment.

According to the audit, a senior SHA official who part-owned a company that promoted an April 2009 charity golf tournament solicited donations from JMT, RK&K and at least five other SHA contractors.

Auditors said the official urged procurement staffers to “get this contract out ASAP as it’s LONG overdue … we want to get it resolved.”

The official may have solicited money from SHA contractors for other events in other years, according to the audit.

“We made a $150 donation to put our sign up on one of the golf holes, and we had a foursome that played in the tournament,” Moeller said. “With Red Cross and United Way and all the rest, we give a couple hundred thousand dollars a year. Do they think this would buy influence?”

Another SHA employee, according to the audit, left the agency in December 2008 and joined a contracting firm less than 12 days later. That employee had approved the SHA decision to seek outside construction management services, as well as the scope and amount of the $16 million contracts.

Within 10 months of retiring from the SHA, that employee approved two invoices to the agency for $96,896 that was covered by one of the contracts, according to the audit.

SHA policy prohibits former employees from working directly on projects they dealt with during their time with the state, and prohibits firms from hiring former SHA employees to work on such projects within a year of their leaving state employment.

Auditors also found money allocated for the two $16 million contracts were redirected to different projects to hide cost overruns, effectively “circumventing Board of Public Works oversight and approval.”

According to the audit, the SHA official with the sports promotion business asked a co-worker if the agency could “rob some funds” — between $400,000 and $800,000 — from one contract to pay another of the firm’s contracts that had run out of funds.

The second former SHA official, the one who joined a contracting firm less than 12 days after leaving the agency, accepted the proposal from his position as an executive at the firm, according to the audit.

In her response to the auditors, Swaim-Staley said she has referred some of the findings to the State Ethics Commission, reminded contractors about state rules regarding former SHA employees, and will review its procurement procedures.

One comment

  1. Maryland Esquire

    No one familiar with SHA bidding and contracts would be surprised that the two firms were RK&K and JMT.

    This is what happens when you are lax in your enforcement of procurement laws, regulations, and ethics. What is disheartening is that, among the Maryland state agencies, SHA has traditionally done a better job at ensuring fair and open competition than a lot of agencies.

    What needs to happen is more money spent upfront on procurement through the hiring of Assitant AGs and others whose primary functions and duties are focused on procurement matters. However, good procurement practices tend to be a long-term value, not necessarily the short-term, immediate gratification types of results that a lot of people want to see.