$69M state contract held amid questions about Rahn’s handling of process

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ANNAPOLIS — A $69 million state contract to oversee the largest public-private highway project in the country has been pulled from the Board of Public Works’ schedule after questions were raised over Transportation Secretary Pete K. Rahn’s relationship with the winner of the contract and his handling of the bidding process.

The withdrawal of the contract with a consortium headed by Kansas City, Missouri-based HNTB comes as officials express concerns about the speed of the procurement, the waiving of standard competitive bidding processes and the relationship between the company and Rahn, who previously worked for HNTB.

There are also new questions regarding apparent discrepancies between Rahn’s public statements about his ownership and sale of stock from his former employer and public financial disclosures filed with the Maryland State Ethics Commission.

“Members of the Board of Public Works had questions about the procurement process and the department is going to and should and will address those questions,” said Amelia Chassé, a Hogan spokeswoman. “That is what the Board of Public Works is for.”

Chassé said Hogan “has confidence in Secretary Rahn” and his actions, including his decision to seek an ethics advisory about his involvement in the procurement process only after HNTB had been named the winning bidder. The spokeswoman called Rahn’s actions “proactive and transparent” and said they were not “after the fact” because the Board of Public Works has yet to sign off on the contract.

Chassé said the governor continues to be supportive of the projects and “believes they will be transformative for the region.”

Rahn and state transportation officials had waived their normal procurement rules in an effort to accelerate the awarding of the contract. The winning proposal – subject to approval from the Board of Public Works – is a three-company consortium headed by HNTB that beat out three other proposals.

The secretary also acknowledged chairing meetings in which HNTB and three other consortiums presented their bids. Rahn said he later participated in discussions about naming a winner but had no vote. He acknowledged such participation was unusual, but he said it was justified.

“As secretary, I’m not going to excuse myself from the largest public-private project undertaken in history,” Rahn said Monday.

“I’ve done everything I can to ensure there is a bright line between me and not only HNTB but everybody involved,” he said.

The secretary sought advice from the Maryland State Ethics Commission in early April — on the same day the contract award was scheduled to be taken up by the Board of Public Works and two weeks after Rahn had chaired the presentation meetings and participated in the discussions to award the contract.

Rahn said the ethics advisory vindicated his actions, but the letter cautioned Rahn to be wary of appearances of conflict and “whether the integrity of the agency will be affected in a negative way.”

Rahn downplayed the language.

“I believe my actions speak to appearances as well as actual conflicts,” Rahn said Monday. “I believe the actions that I’ve taken demonstrate there was not a conflict. If there is not an actual conflict how do you have the appearance of a conflict?”

Hogan’s proposals for Interstate 495 and Interstate 270 would encompass approximately 75 miles of highway and potentially affect 500,000 people daily, according to the Department of Transportation.

The governor announced the expansions in September as part of a larger $9 billion highway congestion relief proposal.

State officials have said they want to accelerate the project, and Rahn on March 6 waived the more formal procurement process for choosing a company or group to oversee the project. Officials said the alternative process would get the project started as much as two years faster.

Rahn’s financial disclosures

Rahn in interviews this week said that he owned stock in HNTB prior to joining the state transportation agency in January 2015 but that he sold it that year.

Both the ownership and sale of the stock, which should have been reported in required financial disclosures with the Maryland State Ethics Commission, do not appear in any filings.

In a financial disclosure report filed in January 2015 for previous year, Rahn listed his employment with HNTB but did not disclose owning shares in the company, answering “not applicable” to every question related to stock ownership.

“When the Secretary filled out the report in January 2015, he thought that was for the current status when he no longer owned stock in HNTB,” Erin Henson, a spokeswoman for Rahn, said in an email.

In the Monday interview, Rahn said he initiated the sale of stock in January 2015. Four months later, he said the sale was completed and he took control of “a Schwab account” containing the cash proceeds of that sale. He did not disclose the number of shares, calling it “a small amount.” He also did not disclose the cash payment.

Henson Tuesday said Rahn owned 28 shares that he purchased at $150 each and sold for $74.68 per share.

“The Secretary took a nearly 50 percent per share loss,” Henson wrote. “He bought the stock at $150 a share. The proceeds of the stock sale were held in a Schwab account until rolled into an IRA account.”

The disclosure filed in 2016 for the previous calendar year — which would cover the sale of the stock — shows no stock owned or sold. Again, Rahn answers “not applicable” to each question.

In other years, Rahn appears to continue to report an employment relationship with HNTB. That reporting stops in the calendar year 2017 report.

Henson said the issues arise from what she described as a clerical error on the part of Rahn.

“The 2015 report reflects the Secretary’s final payment from his 2014 HNTB employment in January 2015,” she wrote. “Because there were not any substantial changes in 2016, the Secretary just left the report the same not realizing that HNTB had been listed for the final payment received in January 2015. He was not employed with HNTB in 2016.  It should have been deleted and it wasn’t.”

Damon Effingham, acting director of Common Cause Maryland, said the missing information on Rahn’s financial disclosure forms raise new questions about a project he said is already tainted with an appearance of a conflict of interest.

“This further underscores the questions raised throughout this process and the speed at which it is moving,” Effingham said. “These are glaring omissions that raise further questions about the secretary’s involvement with this company that is getting a very large state contract.”

Chassé referred comments about the disclosure filings to Rahn.

“Obviously the governor has an expectation that the ethics disclosure forms be accurate,” she said.

Treasurer is ‘troubled’

To approve the contract, the governor will need at least one vote on the three-person Board of Public Works from either Comptroller Peter Franchot or Treasurer Nancy Kopp. It is not clear if Hogan, who chairs the board, had the votes going into Wednesday’s meeting if he wanted to push for approval of the contract.

One state delegate from Montgomery County publicly called on the members of the board to reject the contract.

Del. Kirill Reznik, D-Montgomery and a member of the House Appropriations Committee, has raised concerns about the project since Hogan announced it. In a letter to the three board members, the lawmaker described himself as “incredibly alarmed” at published reports regarding the alternative procurement process and Rahn’s relationship with HNTB.

“I realize that MDOT is working on a very short timeline,” Reznik wrote. “In fact, by all appearances, the Administration established a deadline of the first Tuesday of November to publicly demonstrate that this project is moving forward. I would argue that they all feel like their jobs depend on it. However, as the members of the Board of Public Works, who have the responsibility of managing and overseeing the State’s procurement processes and verifying proper conduct, I am asking you to reject this contract award, and restart the process in an open, fair, public, and transparent way, without the involvement of potential conflicts, and only after the public has had an opportunity to weigh in.”

Franchot, a Democrat, has in the past proven to be a fairly reliable vote for Hogan.

A spokesman for the comptroller declined to comment on the story.

Kopp said the proposed widening of both I-270 and I-495 “are important projects.”

“I’m not gainsaying that,” said Kopp. “But I am troubled by the question of the secretary’s participation in what appears to be a very abbreviated process. The normal process does take an extensive period of time. It’s important to make it move as quickly as possible.”

Kopp said she needs answers to her questions before casting her vote.

“It sounds like a lot to go through in one meeting and I’m not sure what holding this up two weeks would do,” Kopp said. “I want to hear the discussion (Wednesday). I’m troubled.”