MnDOT Audit Finds Rampant Trouble with Women and Minority Contracting Program

Minnesota has failed for three years to meet federal requirements for a program designed to steer millions of dollars in state transportation projects to minority- and women-owned businesses.

The program has been so plagued by mismanagement and weak oversight that some firms were awarded multimillion dollar contracts for which they might not have otherwise qualified.

In one case, nearly $1.6 million for buying materials on the Union Depot project in St. Paul was funneled through a minority- or women-owned firm to a non-minority-owned contractor. In another case on the same project, nearly $2 million was improperly credited to a non-minority-owned firm.

The findings and others, included in an internal audit of the Disadvantaged Business Enterprise (DBE) program, have led to a shake-up in the Minnesota Department of Transportation’s Office of Civil Rights and may result in additional investigations.

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The 30-year-old DBE program has long been plagued with fraud and oversight problems at both the federal and state levels. In 2010 and 2011 alone, U.S. Department of Transportation fraud investigations led to $88 million in recoveries, restitutions and fines, along with 10 federal indictments and eight criminal convictions.

Locally, it’s also been a source of long-standing, and often costly, frustration for large contractors and DBE contractors alike, said state Rep. Michael Beard, R-Shakopee, who described the program as a “very twitchy, explosive and sensitive subject.” {snip}

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The DBE program is designed to put firms owned by minorities and women in a better position to compete for public works contracts by requiring states to set minimum goals for their participation. Each state is responsible for seeing that DBE contracting goals are met, that DBE firms are properly certified as eligible for the program and that the pool of DBE-eligible firms is expanded. If those goals are not met, it can mean a loss of potentially millions of federal transportation dollars.

Among the audit’s most serious findings, MnDOT, despite its reports to the contrary, never met its DBE participation goals for 2010, 2011 and 2012, which had been set at 8.76 percent. The audit could not substantiate the percentage of construction dollars given to DBE firms, and when documents and calculation were requested, “for some reason the information or calculations were not retained. An attempt to recalculate the rates proved unsuccessful.”

The audit also found that MnDOT’s Office of Civil Rights was not properly monitoring DBE subcontractors. The audit “found several examples of potential wrongdoing in this area,” chiefly, that contracted work that was to be completed by DBEs was never completed by DBEs, yet was included in the participation rate.

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Contractors have long complained that the DBE goals are arbitrary and too difficult to meet, and can result in higher costs for taxpayers.

C.S. McCrossan Construction Inc. in Maple Grove was the low bidder by nearly $6 million on a $52.3 million contract for the new St. Croix bridge but MnDOT officials determined the company hadn’t made clear it would comply with the goal of 16.7 percent participation by DBE firms in the project.

The company disputed that decision and sued. The case was settled last month.

Charlie McCrossan, who runs the business with his son, Tom, said firms like his struggle to comply with the demands of the program laid down by MnDOT, especially when the agency shifts the rules as he said it did in the case of the St. Croix bridge bid. The loss of a potential contract was disappointing, he said, but the state’s wasting of so much money is inexplicable.

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The bridge contract is not the first low bid rejected over DBE issues, but it is the largest.

Over the past three years, MnDOT, the Metropolitan Council and the Metropolitan Airports Commission awarded 20 contracts to firms that didn’t submit the lowest bids but met requirements for giving work to women or minorities certified as disadvantaged. Those 20 contracts cost a total of $1.8 million more than the lowest bids of other contractors for the work.

One successful contractor won a job even though he charged 11 percent more — $380,000 — than the low bidder.

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