Federal rules put in place nearly 30 years ago require private contractors bidding for public work to make a good faith effort to subcontract some of it, up to 10 percent of it, to women and minority-owned companies called disadvantaged business enterprises or DBEs.
The Minnesota Department of Transportation, by its own measure, has not met the federal goal -- and in many years hasn't even come close. The result is the more than 370 women and minority-owned companies certified by MnDOT have missed out on tens of millions of dollars in work they might have won as subcontractors on MnDOT road and bridge projects over the years.
MNDOT MISSES EVER SMALLER GOALS
The size of the hiring shortfall became clear to MnDOT two years ago, when MnDOT's own consultants found that from 2000 to 2004, the agency and the prime contractors it awarded business to attained just half the federal hiring goal of 10 percent. The agency did not make the study public until Minnesota Public Radio News requested a copy.
Kathleen Meyer, who owns Meyer Contracting, a 25- year old Twin Cities utilities and earthwork company certified as a DBE, obtained a copy of the unpublished study.
"The total DBE percentage contract dollars awarded are approximately 5.5 percent. Out of $2.6 billion, that's a very miniscule amount," Meyer says.
The consultants told MnDOT the number of women and minority contractors in Minnesota makes a 15 percent hiring goal realistic.
Earlier this decade, the agency set a goal of more than 10 percent a year. But when attainment by prime contractors fell far short, MnDOT slashed the goal -- first to 7 percent and then to 6 percent. Even then, in only one year did the agency meet those diminished goals.
There are federal penalties for missing the goals, including the withholding of federal transportation dollars. While the rules are rarely enforced, penalties could cost the state much needed money for highway and transit projects.
THE FEDS ARE INVESTIGATING
MnDOT and its contractors' record on hiring women and minority businesses on two major projects, the I-494 rebuild and the Hiawatha light rail line, has attracted the attention of a federal investigator, according to MnDOT deputy commissioner Lisa Freese.
"We understand the inspector general has been reviewing these contracts, as well as other contracts nationally, involving Granite/McCrossan," Freese says.
C.S. McCrossan is based in Maple Grove, Minnesota. Granite is a California-based construction company.
Granite and McCrossan were partners in 2004 on the $138 million I-494 project -- nearly eight miles of freeway reconstruction and expansion in the southwestern Twin Cities suburbs. Before the 494 project, the companies were partners on the huge $715 million Hiawatha light rail project.
On both projects, MnDOT alleges that Granite and McCrossan fell far short of goals for hiring women and minority-owned companies. MnDOT wanted them to subcontract up to 14 percent of the 494 contract, and up to 15 percent of the Hiawatha contract, to DBEs.
Granite and McCrossan, by MnDOT calculations, came in at half or well below half -- just over 4 percent on 494 and 7.5 percent on Hiawatha LRT.
The federal investigator, George Sullivan, is not commenting on his probe. Sullivan works out of the Chicago office of the Department of Transportation Office of Inspector General.
Earlier this year, Sullivan spent days reviewing records in MnDOT's headquarters. Minnesota Public Radio News talked with several contractors who have also been visited by Sullivan.
AUDIT: CONTRACTORS HIRED FRONT COMPANIES
One of the people he interviewed is Carlo Lachmansingh, a south Minneapolis disadvantaged business enterprise owner who sells outdoor lighting supplies, and was a subcontractor on the I-494 project.
Lachmansingh says the investigator has found that the prime contractors, Granite and McCrossan, hired some women and minority-owned companies that did not do -- or were not qualified to perform -- the work they were paid for.
"A lot of the work that these small businesses did did not classify in their area of expertise," Lachmansingh says.
That's also the conclusion of an internal audit by the Metropolitan Council on the Hiawatha LRT project.
Met Council officials declined interview requests. But they did supply Minnesota Public Radio News with a copy of their internal audit.
The audit asserts Granite and McCrossan hired some women and minority-owned companies as subcontractors who didn't do the work that was claimed, or who weren't actually qualified as DBE disadvantaged business enterprises, quoting the federal investigator.
The audit also cites the federal investigator's allegations that some of the subcontractors on the Hiawatha light rail project were little more than fronts or pass-through companies for contracts worth millions of dollars.
WHISTLEBLOWER CALLS THE ISSUE, THREATENED WITH DEMOTION
MnDOT's former civil rights director, Joanne Wagner, says in 2004 she warned her MnDOT bosses that the contractors, Granite and McCrossan, weren't coming close to meeting hiring goals on the I-494 project.
Wagner, an attorney, says she and her staff recommended against awarding the contract to Granite and McCrossan. Wagner says that's when things got ugly. She says her supervisors yelled at her and threatened her with her job if she didn't change her recommendation.
"There was a huge amount of pressure that was put on -- not only myself but my staff. It was really unbearable, and it was really hard," Wagner says.
Wagner says she felt her employment was threatened.
"There were certain times that not only did I feel my employment was threatened, I was actually told," Wagner says.
Wagner maintains that she had done nothing wrong, violated no MnDOT work rules that would lead to the threats.
Eventually, Wagner and her staff were overruled. Granite and McCrossan won the contract after MnDOT officials entered what they called a reconsideration process. Wagner's supervisors, led by then-Deputy Commissioner Douglas Differt, reviewed Granite and McCrossan's DBE hiring efforts.
Literally overnight, MnDOT officials reversed course. Differt and other MnDOT officials ruled the contractors' efforts were satisfactory, and awarded Granite and McCrossan the I-494 job.
Differt now works for the consulting company, URS, which consulted with MnDOT on the I-35W bridge before it collapsed. Differt didn't return calls from MPR News. MnDOT did not make available agency officials involved in the decision to reconsider the contract.
WAGNER REFUSES TO FALSIFY RECORDS
Joanne Wagner and her staff were embattled, but not alone, in their assessment of Granite and McCrossan.
MnDOT documents show local federal highway officials accepted Wagner's recommendation to oppose awarding the contract to Granite/McCrossan. MnDOT's about-face apparently surprised them. Those federal highway officials asked Wagner for a copy of the minutes of the reconsideration hearing.
Wagner says she was asked to create a record of the meeting, which she says she did not attend, to show how MnDOT arrived at its decision.
"I wouldn't go along with what MnDOT wanted, with what they thought was in their best interests, when I knew in my mind it was contrary to what the whole program was about," Wagner says.
Wagner says the threat against her job was carried out. She was demoted in pay and responsibilities. Her staff was reorganized and put in another division.
In 2006, Wagner filed a whistleblower lawsuit against MnDOT. Among other allegations, she cites her bosses' request to falsify a record of the reconsideration hearing on the I-494 project. In court documents, MnDOT officials deny Joanne Wagner's allegations.
In October, the agency decided to settle with Wagner out of court in mediation. MnDOT will pay her $170,000, but admits no guilt. Wagner, her attorney says, has resigned from MnDOT.
MNDOT GOES AFTER THE CONTRACTORS
In the meantime, MnDOT has taken a very unusual action. The agency is fining Granite and McCrossan for missing the 494 and Hiawatha DBE hiring goals, and for misrepresenting the numbers.
On the Hiawatha project MnDOT puts the penalty at more than $4 million. On the 494 project it's $200,000, and probation requiring Granite and McCrossan get training to help them comply with hiring rules and regulations.
Granite and McCrossan take sharp exception to the proposed penalties. Company officials declined to be interviewed. In a written response to the state they say MnDOT, the Met Council and the federal government have made numerous factual and math errors in measuring the contractors' performance. They say they performed the work in good faith as required by the contract, and will contest any sanctions.
For their part, MnDOT officials will only say the appeal is in progress.
The Minnesota Department of Transportation's Bob McFarlin says the agency is cooperating with the federal investigation, into the DBE issues with the 494 and Hiawatha projects.
McFarlin, who is assistant to MnDOT Commissioner and Lt. Governor Carol Molnau, says the agency's record on the hiring of women and minority-owned contractors is satisfactory.
"We have no problem in the state. We are very successful in the administration, the enforcement and the cooperation from contractors, and the cooperation from DBEs," he says.
DBE RULES ARE 'A TERRIBLE NUISANCE'
That's not how some of the women and minority contractors see it.
"It has become accepted to not meet the goals -- with no repercussions," says Dianne Holte, who owns Holte Contracting, a Twin Cities excavation company.
Holte is a state-certified DBE. Holte did work as a subcontractor on both the 494 and Hiawatha projects. She was one of the of the subcontractors visited and interviewed by federal investigator George Sullivan. Holte says he wanted to verify hers is indeed a woman-owned company.
Since the mid-1980s, when Congress approved rules on the hiring of women and minority-owned companies, the rules have repeatedly been challenged. A couple of cases have gone all the way to the Supreme Court. But the rules have mostly survived every test.
One former MnDOT official, who requested anonymity, says the big contractors regard the federal DBE rules as "a terrible nuisance," and are routinely ignored.
Brian Deery, a spokesman for the Associated General Contractors, whose members each year win billions in federal construction dollars, says the federal women and minority hiring rules anger smaller contractors.
"The non-disadvantaged subcontractors have not been happy with the program, because they feel they are being left out in a lot of circumstances where they can bid on contracts," Deery says.
Contractors are also put off by recent federal actions around the country, Deery says.
"The U.S. DOT is coming in after the projects are completed and second-guessing, and saying these DBEs are really not DBEs, or they are not performing what they call a commercially useful function," Deery says.
DBE contractor Dianne Holte, who had contracts on both the I-494 and Hiawatha LRT projects, supports applying the rules to state contracts. The rules provide a boost to businesses who need it, she says.
"It's a way to get your foot in the door, to get some of those bigger contracts or to get in with some of those bigger contractors. And then after you have your foot in the door, then the rest is up to you," Holte says.
MnDOT has set a DBE goal for the new $237 million I-35W bridge project in Minneapolis at 10 percent.
They're encouraging the contractors -- Flatiron and Manson -- to direct as much as $23 million in business to women and minority-owned companies.