HomeMy WebLinkAboutAttorney Generals Final Report Regarding Airport Procurement - July, 2012_201401231048448677
BID UNIT, FAIR LABOR DIVISION
BUSINESS & LABOR BUREAU
OFFICE OF ATTORNEY GENERAL MARTHA COAKLEY
FINAL REPORT OF FINDINGS REGARDING PROCUREMENT OF PUBLIC
CONSTRUCTION BY THE NANTUCKET MEMORIAL AIRPORT
COMMISSION
I. Introduction:
Pursuant to M.G.L. c. 149, § 44H, the Bid Unit of the Fair Labor Division in the
Attorney General’s Office conducted an investigation of the public construction
procurement practices of the Nantucket Airport Commission (“Airport Commission”) to
determine if a violation of the public bidding laws had occurred. The purpose of this
report is to summarize key problems and practices that were revealed over the course of
the investigation.1,2 The report also includes recommendations for changes and identifies
remedial efforts now underway by the Town of Nantucket (“Nantucket”) to improve
procurement contracting and procurement practices at the Nantucket Memorial Airport
(“Airport”).
II. Background and Summary of Findings:
During the relevant time period, the Airport Commission, a public awarding
authority for purposes of the public design and construction bidding laws, including
M.G.L. c. 7, §§38A1/2-O, c. 149, §§44A-M and c. 30, §39M, was responsible for public
construction at the Airport. The Municipal Airport Commissions statute, M.G.L. c. 90,
§51E, requires the establishment of a commission of three to eleven members to manage
municipal airports. The Airport Commission comprises 5 citizens selected by the
Nantucket Board of Selectmen (“BOS”). Such a commission is authorized to appoint an
airport manager “… for the proper maintenance and operation of the airport and all
1 Unlike the vast majority of investigations handled by the Bid Unit, which result from the filing of Bid
Protests with this Office, this matter did not involve a single, pending procurement, but multiple, past
procurements by the Airport Commission since 2008. 2 This Office provided our initial findings to the Town on September 14, 2011.
facilities under his supervision.” Id. At all relevant times, pursuant to M.G.L. c. 90, § 51I,
the Airport Commission, was authorized “…to make contracts for the maintenance,
operation, construction, enlargement and improvement to the Airport and for the
purchase of materials, supplies, and equipment pursuant to the laws of the
Commonwealth governing the making of like contracts.” Pursuant to M.G.L. c.41, §56,
the Town Accountant for Nantucket is responsible for reviewing warrants for payments
to vendors contracting to do business with the Airport Commission and determining
whether those payments are valid based, in part, on whether proper procurement
procedures were followed in awarding contracts.
Our review of the Airport Commission and Airport Manager’s oversight of the
procurement and contracting practices of the airport revealed significant deficiencies
concerning compliance with both the Commonwealth’s procurement statutes and sound
financial management tools. These deficiencies include, but are not limited to practices
bearing the appearance of bid splitting, failure to comply with certain obligations under
the prevailing wage law, failure to obtain written contracts for services to be performed,
inaccurate references to procurement law exemptions to avoid proper bidding, and a basic
failure to understand that proper procurement practices are as applicable to the
expenditure of so called enterprise funds as they are to most taxpayer funded contracts.
Examples of these practices are summarized below.
1. Practice of Dividing Projects into Smaller Procurements Created
Appearance of Attempting to Evade Public Bidding Requirements
With great frequency, the Airport Commission approached projects which should
have been the subject of a single, comprehensive procurement process and divided them
into the subject of smaller, incremental purchases. This pattern is suggestive of intent to
avoid compliance with the construction bidding laws, in violation of M.G.L. c.149,
Section 44J(7). For example, electrical contractor Robert W. King, Inc. invoiced the
Airport for over a total of $47,000 for various projects over a three year period from
January of 2008 to June of 2011. Each invoice was for less than $5,000-$10,000. During
one period in the early months of 2011, King submitted 19 separate invoices to the
Commission for payment totaling approximately $22,000 for work at the Airport’s fuel
farm. Pursuant to the construction bidding laws, all construction contracts estimated to
cost $10,000 or more must be awarded in compliance with M.G.L. c. 149, §44A-M or
c.30, § 39M, depending on the nature of the construction work. Properly aggregated, that
scope of work required formal sealed bids and advertising, neither of which is evidenced
in the records of the Airport. The determination to issue repeated relatively small
invoices to the same contractor, often over relatively short time intervals, has often been
cited by this Office as indicative of bid splitting.
Beginning on or about August 2008, the Airport Commission paid Bernard Walsh
and his company Multi-Systems for telephone and cabling system services through 25
separate payments, totaling approximately $250,000. The amounts of the invoices varied
from less than $5,000 to one invoice in June of 2009 in excess of $40,000. Although
some of the individual invoices standing alone would not have triggered formal
competitive bidding requirements, when properly aggregated, they would have required
formal sealed bids and the use of contractors certified by the Division of Capital Asset
Management (“DCAM”) for services since the value of the contract far exceeded the
$100,000 threshold implicating DCAM certification. No such process was followed.
2. The Airport Commission Repeatedly Failed to Comply with its
Obligations Under the Prevailing Wage Law
The Airport Commission undertook numerous construction projects without
complying with its obligation under the Prevailing Wage Law, M.G.L. c. 149, §§ 26-27 et
seq. Under the Prevailing Wage Law, awarding authorities are required to request and
incorporate into construction bid specifications prevailing wage rate schedules from the
Department of Labor Standards (formerly known as the Division of Occupational Safety)
and thereafter, maintain a copy of the certified payroll records contractors must submit to
them on a weekly basis. Id. During the relevant time period, numerous, smaller
construction projects were undertaken without the inclusion of the prevailing wage rate
schedules in the bid specifications. Accordingly, contractors performing public works
construction on behalf of the Airport Commission did so without compliance with the
prevailing wage laws of the Commonwealth. 3
Even after this problem had been identified and reported to Nantucket, and
communicated to the Airport Commission by Nantucket, correspondence from Airport
Commission staff demonstrated a failure to comprehend that all construction work,
regardless of the value of the contract, necessitated the issuance of prevailing wage sheets
as part of the procurement and contracting practices. Accordingly, it is likely that
numerous contracts over the last seven years have been performed by construction
workers who, by virtue of the Airport Commission’s failure to obtain rate sheets from
DLR, were deprived of their rights under the prevailing wage law. Unfortunately, unless
an awarding authority requests and DLR issues a rate sheet, the prevailing wage cannot
be enforced. See M.G.L. c. 149, §§ 26-27 et seq.
When asked about compliance with procurement requirements on the fuel farm
work in 2010 (see Section 7 below), in a memorandum to town counsel, the airport
manager commented that “World, North Shore, and Carlysle are all public works
contractors so I assumed that prevailing wages were paid.” Although it is not incumbent
upon the awarding authority to enforce the Prevailing Wage Law, it is required that the
awarding authority, pursuant to M.G.L. c.149 §26-27, obtain appropriate prevailing wage
rates in soliciting bids for projects and receive records indicating compliance with those
requirements. The records provided for this project provide no indication that either
requirement was met despite the expenditure of nearly half a million dollars worth of
public dollars.
3. Contracts Excessively Expanded Beyond Scope of Original
Contract Through Indiscriminate Use Of Change Orders
3 An exception to this rule can be seen on capital projects undertaken by the
Airport Commission, on which an Owner’s Project Manager – not the Airport
Commission – oversaw the work in question. On capital projects, almost across the
board, a prevailing wage rate sheet was included with the specifications and it appears
that the prevailing wage was indeed paid.
The records reviewed demonstrate that the Airport Commission has often
compounded the problems associated with no-bid contracts and/or improperly bid
contracts by granting repeated change orders that allowed relatively limited scope and/or
small value procurements to escalate in complexity and dollar value significantly beyond
the scope of services for which vendors were originally hired. For example, a
landscaping project at the new terminal building was put out to bid in March of 2009 with
no reference to a gazebo being included in the plans. Nonetheless, a gazebo was
constructed at a cost of approximately $170,000. The original price quote for the
terminal building project was $256,070. Thus, the additional $170,000 paid for the
gazebo represented a nearly 40% increase in the total cost of the terminal project. Except
under limited circumstances (e.g. unanticipated site conditions), change orders that
constitute significant percent increases in the scope of work violate principals of proper
procurement because they result in contracts that are fundamentally different than the
contracts which were put out to bid. Morse v. Boston, 253 Mass. 247 (1925). Here,
construction of the gazebo should have been included in the work that was bid out and
the failure to do so constituted a violation of the bid laws.
4. Lack of Written Contracts Undermines Contractor Accountability
and Makes It Difficult to Determine Scope and Duration of
Contracts
The Airport Commission’s failure to have written contracts for construction
performed at its behest undermined the ability to determine, in retrospect, the scope and
duration of contracts, and to hold contractors accountable for contract obligations. For
example, Champoux Landscape received payments in excess of $370,000 for
construction work and supplies, including the construction of a gazebo at a new terminal
facility, over a period of approximately two years. Nevertheless, there was no written
contract incorporating plans and specifications for those services. It is unclear whether
the construction of the gazebo itself at a cost of approximately $170,000 was ever
intended to be part of the original scope of work for which Champoux was hired.
Consequently airport management has described the project as being done in “phases”
and yet the lack of defined dates for performance and delineation of scope make it
difficult to determine when each phase began and ended. In another example of this
practice, no written contract existed with telephone system contractor Bernard Walsh,
despite the fact that he was paid over $250,000 in a two and half year period commencing
in August of 2008. Absent a written contract, it is extremely difficult to ascertain whether
the contract was properly performed and whether the Airport Commission derived the
benefit for which it expended the $250,000.
5. Misunderstanding and/or Indifference Toward Various
Procurement Statutes Contributed to Improper Conclusions
Regarding Applicable Laws and Exemptions
Comments contained in various emails and other communications by the Airport
Manager demonstrate either ignorance of the proper application of Massachusetts
procurement laws or intentional disregard for those laws. At various junctures, since the
procurement issues with the Airport came to light, the Airport Manager has attempted to
explain away multiple failures to properly bid construction services by referencing a
provision in M.G.L. c.30B, a law which is wholly inapplicable to construction
procurements. The exemption, known as the “aviation use exemption” contained in
c.30B, §1(b)(29), has been narrowly construed by the OIG and is not intended as a broad
based exemption from requirements to make most goods and services purchases in
compliance with the construction bid laws. The aviation use exemption is explicitly and
exclusively applicable to procurements subject to M.G.L. c. 30B. Accordingly, the
exemption has no relevance to Airport contracts which were subject to c. 149 and c. 30,
§39M. Whether the Airport Manager was aware of the inapplicability of the exemption
is unclear. Regardless, a person in the position of making such procurements should have
been keenly aware of the distinction and should have sought guidance on the point if he
or she was uncertain. At the very least, the Airport Manager proceeded without regard for
the proper manner of procurement.
6. The Fact that the Airport Operated out of an Enterprise Fund
Appears to Have Been Misconstrued as a Basis for Reducing
Public Transparency and Compliance with Procurement
Regulations
In multiple communications between Airport personnel and Nantucket officials
and in public statements by Airport personnel, there appears to be a perception that
expenditures made from so-called enterprise funds are somehow exempt from
procurement requirements and other forms of accountability as compared with purchases
made from revenues in the general fund of a municipality. There is no basis for this
concept contained in either the applicable procurement statutes nor in the
Commonwealth’s municipal finance laws. Nonetheless, the implication that such
enterprise revenues are somehow distinct in terms of accountability has been reported by
Nantucket as a recurring point of contention with Airport management in recent years.
Even after the concerns regarding procurement compliance had become the
subject of public discussion in Nantucket, a member of the Airport Commission chose to
make a point in a letter to the local newspaper reporting on the various financial and
procurement irregularities at the Airport that “[]I feel the compelling need to clarify that
airport revenue does not come from taxpayer money. It comes from the following:
general aviation (fuel sales and additives, landing fees, ramp fees and catering income);
rental income (terminal, FAA tower, land and hangars); sales, auto rentals and video-
conferencing; fees (freight handling, aircraft landing fees, tie-down fees, customer
facility charges); vehicle revenue (parking lot, parking tickets and taxi permits).”
Even accepting those statements as accurate, it does nothing to change the legal
requirements applicable to the Airport in expending those funds.
7. The Airport Sometimes Used Bartering and Other Informal
Relationships as the Basis for Contract Award, Even When Such
Practices Were Inconsistent with Procurement Requirements.
In multiple documents related to this matter, references exist to contractors having
obtained work based on some personal connection to the Airport operations. For
example, as noted in a memorandum in December of 2009 from the Airport Manager to
the Commission, a recipient of a paving contract, Victor Brandon Corp., was referenced
as being involved in a “barter deal.” Under the arrangement the company’s services and
materials were exchanged, in part, for the use of property under the control of the Airport.
Such arrangements are generally inconsistent with the bidding requirements of the
construction bid laws and raise issues of unequal footing since not all contractors would
be able to participate in similar arrangements.
In another instance, the Airport Manager referred in one public comment to a
contractor being “[]our go to guy for phones,” referencing the vendor being local and
familiar with the system at the airport. There is also evidence that on repeated occasions,
contracts were only executed after work had already been performed. For example, the
contract signed by electrical contractor Robert W. King, Inc. (see above) was apparently
signed more than a month after the completion of the work.
8. The Renovation of the Restaurant at the Airport Appears to be the
Largest Scale Violation of c.149 and Reflects the Airport’s Disregard for
the Procurement Laws and Proper Contracting Practices.
The Airport’s handling of the renovation of its restaurant in 2007 serves as a
microcosm of the abuses of public procurement and sound fiscal and contracting
practices identified by this Office and Nantucket. During a single year, one contractor,
The Castle Group, was paid in excess of $1 million as the result of an arrangement
between the Castle Group and the airport manager that was entered into without any
competitive bidding process. Not only did this constitute a clear violation of c.149, the
lack of any detailed specifications, contractual requirements, or project parameters left
the Airport vulnerable to having costs, work schedules and performance terms essentially
dictated by the vendor.
The breadth of the agreement between the Castle Group’s principal, Christopher
Skehel and Airport manager Peterson appears to be contained in a seven sentence letter of
January 2, 2007 wherein Skehel informs Peterson he agrees to do “the renovation and the
addition of the Hutch’s Restaurant wing of the airport building…[including] all work
needed to bring the restaurant up to code…Also included will be the provision of
construction of labor and materials for the addition. Any exterior renovation needed will
be determined during the course of construction.” Skehel also announced in the letter
that all carpentry work would be charged at $50-60 per hour and that he would charge a
general contractors fee of 15% for subcontractors and materials. Subsequently,
Nantucket received and paid six invoices from The Castle Group between March and
November which totaled $1,070, 643.79, including payment for as much $446,504 in a
single month. These payments were made without the benefit of a formally executed
contract or any of the many statutorily required contract terms and conditions which
apply to construction work on public buildings.
In attempting to explain the lack of bidding procedures, the Airport Manager
indicated that after a lease had been awarded to the Nantucket Restaurant Group, it was
determined that the facility needed to be brought up into compliance with building and
health code requirements in order for the restaurant to be operable. A decision was made
to let the tenant’s contractor perform the work since it was an “emergency” and they
wanted to open the restaurant as soon as possible. Consequently it was agreed to pay for
any structural work needed to make the facility code compliant. However, it appears that
as additional structural deficiencies were identified, the contract with the Castle Group
was repeatedly expanded.
Relevant records indicate that the architectural firm hired to provide specifications
for the work in question was hired without adherence to the statutorily required
procedures for such hiring. In January of 2007, the Nantucket Architecture Group Ltd.,
(“NAGL”) through its principal William McGuire, issued a letter to manager Peterson
indicating it would perform design services for the renovation of the restaurant for a fee
not to exceed $25,000 at a rate of $150.00 per hour. Attached to the letter was a list of
services NAGL would provide and a contract drafted by NAGL and executed by
McGuire and Peterson. This approach is inconsistent with the Commonwealth’s
Designer Selection Law, M.G.L. c.7, §§38A1/2-O, which requires a formal competition
where a design fee is expected to exceed $10,000 and the construction costs are expected
to exceed $100,000. A properly conducted designer selection process would also require
an awarding authority to put forth its own contractual terms and conditions, including
statutorily mandated provisions such as errors and omission insurance requirements for
parties providing design services on public buildings.
9. The Rehabilitation of the Fuel Farm by the Airport Appears to be the
Largest Scale Violation of c.30, 39M and is Also Indicative of Problems
with the Airport’s Procurement and Contracting Practices.
In the early months of 2010, the Airport Commission identified problems with the
integrity of the four aboveground jet fuel storage tanks at the airport that are part of the
“fuel farm.” The work needed to restore the tanks involved addressing rusting through
the epoxy liner which reportedly was causing contamination of the fuel and excessive
water in the tanks. Ultimately the Airport expended approximately $477,000 to make the
needed repairs at the fuel farm. Such work would customarily be subject to bidding
under M.G.L. c. 30, §39M, as a public works construction project. Nonetheless, the
Airport proceeded to make direct calls to potential vendors qualified to perform
components of the project such as the painting work as well as the steel framework
rehabilitation. Additional contracts were awarded through informal solicitation
procedures for the piping work in the fire suppression system and for the replacement of
electrical wiring.
In explaining the procurement procedures used, the airport manager indicated he
“… relied on both the emergency issue and the aviation exclusion to approach the
solution.” The need to address deficiencies discovered at the fuel farm in an expeditious
manner is understandable in terms of potential safety hazards and property damage.
However, awarding authorities who believe they need to invoke emergency procedures to
procure construction services are required to seek waiver of public advertising rules
through the Division of Capital Asset Management (“DCAM”). That agency makes
determination based on the awarding authority’s description of exigent circumstances as
to whether a deviation from standard bidding procedures is warranted. When a waiver is
granted, often based on a concern about imminent dangers to people and/or property,
DCAM will often condition the waiver on the use of some minimum competitive
procedures (e.g. soliciting a minimum number of telephone quotations) in lieu of the
advertised sealed bids with the requisite waiting period. There is no evidence in the
records for the project provided by Nantucket that a waiver was sought from DCAM.
The Airport’s manager also refers to his belief that the fuel farm was “aviation related
project” and therefore not subject to standard procurement requirements. This is an
invocation of the M.G.L. c.30B, §1(b)(29) exemption for contracts involving “aviation
uses or the sale of aviation fuel.” This exemption is not actually relevant to the
construction work performed at the fuel farm since that work is subject to c.30, § 39M
and not c.30B.
The problem with the lack of written contracts was also in evidence for the
various components of the fuel farm repairs.
10. Nantucket Has Undertaken Significant Steps to Improve the Airport’s
Procurement and Contracting. This Office will Continue to Monitor
Construction Related Procurement by the Airport Commission For the
Purpose of Ensuring Both Compliance with the Public Bidding Laws, as
well as the Prevailing Wage Law.
This Office acknowledges the multiple measures undertaken by Nantucket both
before and since this matter came to our attention. This Office recognizes the cooperation
received from the Town Manager, CPO, and town counsel in connection with our efforts
to review these matters. The Town was fully cooperative and provided ready access to
this Office in response to document requests.
Of great importance, upon learning of the issues at the Airport, the Town
centralized procurement review and approvals through the Office of the Chief
Procurement Officer (“CPO”) of Nantucket. It also heightened scrutiny of Airport
expenditures and contracting by the Finance Department of Nantucket in order to monitor
compliance with procurement requirements as a prerequisite to paying invoices received
from vendors and halted payments on contracts improperly procured. Nantucket acted
appropriately and consistent with long-standing legal precedents in the Commonwealth
by stopping payments on contracts awarded in contravention of the appropriate
procurement statutes. Further, the Town sought and received effective guidance from
town counsel regarding proper procurement procedures, which greatly enhanced its
efforts to bring a halt to the rampant procurement problems which marked the
administration of the Airport under its then-leadership team.
The Memorandum of Understanding entered into by the Board of Selectmen and
the Airport Commissioners on September 21, 2011, represents an opportunity to bring
much improved control over the procurement practices of an agency which has clearly
had systemic resistance to and ignorance of fundamental public procurement contracting
practices. In particular, Nantucket’s plan to hire an assistant procurement officer who
will work out of the Town offices and answer directly to the CPO is a welcomed measure
to enhance the Airport’s compliance efforts. Despite current budgetary constraints, we
urge the Airport Commission and the Town to move forward with this plan as soon as
practicable. Even though the employment of the Airport Manager ultimately responsible
for many of the problems discussed herein has been discontinued, the documents and
correspondence reviewed by this Office strongly suggest that the culture of disregard for
procurement regulations has become endemic among administrative personnel at the
Airport and therefore the input of independent representatives of the Town remains vital
to implementing compliance initiatives.
Finally, the hiring of an outside auditing firm to conduct a comprehensive and
independent audit of the contracting and financial operational practices at the Airport was
an important step. Although the focus of this Office and this report has been on
construction contracting procurement, numerous other concerns have been raised in the
course of reviewing materials and receiving input from a variety of sources within
Nantucket and the community. As referred to above, these include, but are not limited to,
concerns about indiscriminate use of the credit cards and travel budget of the Airport,
commercial relationships between businesses employing family members of Airport staff
members and the Airport, the need to better inventory equipment purchased for the
Airport to assure it is being used there exclusively, and the awarding of financial benefits
to employees inconsistent with Nantucket personnel policies. The independent review
effectively highlights these and many other issues and provides the Town with a litany of
issues to address.
The Town has begun to put into place the start of more efficient checks and
balances on procurement undertaken by the Airport and we anticipate that such checks
will greatly enhance compliance efforts. Given that the Airport Manager responsible for
the procurement issues addressed above is no longer in the employ of the Airport
Commission, we are encouraged that a new culture of compliance will emerge. To that
end, we recommend that all staff involved in procurement on the part of the Airport
Commission, and the Town, receive and/or continue training in proper procurement
practices and continue to seek input from town counsel and this Office, as needed.
To ensure that the public construction procurement compliance at the Airport has
been achieved, we will continue to monitor such procurement on a quarterly basis
beginning as of September 1, 2012. To that end, we have asked the Town to submit to
the Bid Unit within the Attorney General’s Fair Labor Division a summary report of all
public construction related contracts, including:
a description of the project, the selected contractor, the dollar amount of
the project, unsuccessful bidders, a description of the bases for contract
award, any unusual issues in the procurement, and any change orders in
the contract, and a copy of certified payroll records submitted by the
contractors performing construction. The required reports shall be
submitted for the period ending September 1, 2012, December 1, 2013,
March 1, 2013 and June 1, 2013 and shall cover construction/bidding
activity during the preceding 3 months.
The Town has agreed to provide the requested information going forward, and to assist
our office in monitoring the Airport Commission’s compliance with the public
construction procurement laws, as well.
III. Conclusion
Presuming this disclosure and monitoring occurs as requested, and presuming that
this office’s oversight discloses future compliance with the public construction
procurement laws, this report is intended to close the Bid Unit’s inquiry into the
Nantucket Memorial Airport. As described in this report, all of the examined practices
have now ceased and safeguards have been put in place by the Town to guard against
their repetition.