Port of Seattle Cited for Improper Use of Agency Credit Cards

According to an independent ethics investigator hired by the Port of Seattle, all five elected port commissioners improperly charged personal expenses to a Port issued credit card.   Eventually, they each paid the Port back, although some of their payments were delayed by months. 

Apparently, the commissioners were not clear about whether their charges were reimbursable as part of the commission duties.  Most of the items charged were for food, drink, and travel they thought were related to Port business but that were deemed improper.   

More Information:  Click here to read a November 1, 2011 Seattle Times article on the subject.  Also note the citizen comments on the article.

Lessons Learned:

• Clear Policies:  Have clear policies related to what are reimbursable expenses for elected officials and public employees, and what may be charged to government issued credit cards.

• Ask Questions:  If you have been issued a government credit card and are unclear about what it may be used for, ask for clarification.

• Monitor Credit Cards:   If you have agency credit cards, make sure that someone is monitoring their use to ensure that all charges are appropriate and for official business.

• Training:  All public agencies, including elected officials and employees, should attend required ethics training on an annual basis.  It is critical that public agencies be made aware of and be sensitized to a variety of ethical issues related to their work.  The state of North Carolina requires this type of training.

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Job: Port of Seattle Seeks 2 Contract Administration Managers

The Port of Seattle is recruiting for 2 Contract Administration Managers (Job ID: 5173).

Closing Date:  These job openings closes on Monday, May 10, 2010 at midnight (Pacific Time).  All applications must be received by this date and time to be considered for these positions.

Job Summary:  To perform, lead, and supervise division specific Public Works construction contract functions for major or small works contracts and ensure that all bid and contract documents are prepared and executed in accordance with Port of Seattle policies, federal, state and local laws, regulations and agreements.

Note:  There are currently TWO positions available.  The first position will be responsible for Major Public Works contracts exceeding $300,000.  The second position will be responsible for Small Public Works contracts of $300,000 or less.

Compensation Range:  Minimum $70,473 - Midpoint $88,082.  Grade 27.

Link to Full Description:  http://www.portseattle.org/about/employment/

Design-Build and GC/CM Approval Sought by 2 Agencies

Two public agencies in Western Washington will make presentations to the Capital Projects Advisory Review Board's (CPARB) Project Review Committee on Thursday, January 28, 2010 in support of their applications to use alternative public works contracting procedures on two projects.

Design-Build:  The Port of Seattle is seeking approval from the Project Review Committee to use the Design-Build process for a $47.5 million Renewal/Replacement of 42 Escalators at the Seattle/Tacoma International Airport.  To review the Port's application, please click here.

GC/CM:  The Housing Authority of Snohomish County is seeking the approval of the Project Review Committee to use the GC/CM (General Contractor/Construction Manager) project delivery method for the $3.8 million Marysville Point, a 19-unit new construction project in Marysville, WA.  To view the Housing Authority's application, click here. 

The Project Review Committee will likely give close scrutiny to the Housing Authority's project given the small dollar amount.  While there is no minimum dollar amount for using GC/CM, the Legislature has gone on record (RCW 39.10.250) that even public agencies who are certified to use GC/CM must come back to the Project Review Committee for approval of GC/CM projects less than $10 million.

No Indictments in Port of Seattle Contracting Fraud Investigation

Two years ago, the Washington State Auditor's Office issued a scathing performance audit on the Port of Seattle's contracting and construction management practices.  That audit led to the U.S. Attorney's Office launching a two year probe into whether any Port of Seattle employees broke federal laws and should be indicted.

Last week, the Port announced that the feds have concluded their corruption and fraud investigation and will not be issuing any indictments. 

The December 2007 performance audit led to the resignation of two employees and to seven employees being disciplined. 

The Port has since created a Central Procurement Office headed by Nora Huey to make necessary changes in the Port's contracting practices.

Resources:

• To read the Seattle Times story from January 23, 2010 on the closing of the investigation, click here.
  
  
• December 2007 Performance Audit Report by State Auditor's Office
  

Is Your Agency Ready for a Performance Audit?

The Washington State Auditor's Office has been conducting Performance Audits of public agencies in the State over the last couple of years.

Some of the audit reports have made headline news, most notably their audit of the Port of Seattle's construction management program that resulted in a contracting reorganization at the Port, disciplinary actions against employees, and new laws adopted by the State Legislature. The Auditor's Office is continuing to audit additional public agencies.

To hear the experiences of the Port of Seattle and Seattle Public Utilities, come to an evening dinner meeting: Preparing for a State Audit.

When: Wednesday, May 20, 2009 (4:45 p.m. to 7:45 p.m.)

Where: Rock Salt On Latitude Restaurant, 1232 Westlake Avenue North, Seattle, WA

Cost: $37 per person

Sponsored by: APWA Washington State Chapter (Management & Public Administration Committee)

Registration Deadline: Wednesday, May 13, 2009

To register, visit APWA's website

Job Opening: Port of Seattle Seeks Manager for Personal Service Contracts

Position: Sr. Manager Service Agreements

Agency: Port of Seattle

Salary: Minimum $83,987, Midpoint $104,969

New filing deadline: Friday, February 13, 2009 (extended from January 9, 2009)

Purpose: To manage the Service Agreement Section of the newly created Central Procurement Office and to ensure Port compliance with all legal and policy requirements associated with the procurement of professional and personal services.

For a complete job description and minimum requirements, click here.

For information on how to apply, click here.

Personal Services Contracting Manual for Ports Published

The Municipal Research and Services Center (MRSC) has published its Personal Services Contracting Manual for Ports.

In 2008, the Washington State Legislature adopted Chapter 53.19 RCW imposing personal service contracting requirements on all port districts. The legislation requires that ports entering into or amending personal service contracts after January 1, 2010 follow policies adopted by their commission, which must be based on the guidelines included in the Manual.

The Personal Services Contracting Manual for Ports is available by clicking on MRSC's website, or may be ordered as a hard copy from MRSC.

I was one of the editors of the Manual, reviewing and commenting on various drafts before it was finalized.

Contracts Job Open at Port of Seattle

Sr. Manager Service Agreements

Salary: Minimum $81,530, Midpoint $101,907

Filing deadline: Friday, January 9, 2009

Purpose: To manage the Service Agreement Section of the newly created Central Procurement Office and to ensure Port compliance with all legal and policy requirements associated with the procurement of professional and personal services.

For a complete job description and minimum requirements, click here.

For information on how to apply, click here.

Port of Seattle Changes Estimate on Project

Port of Seattle staff changed their internal estimate on a project to build a new cruise ship terminal near the Magnolia Bridge after the bids came in 30% over the Port's estimate. By changing the estimate after bids were submitted, Port staff avoided having to notify the Port Commission of the higher bid. The Port's policy requires that any bid that is more than 10% higher than the estimate must be submitted to the Commission for review.

Read the Seattle Times article from December 18, 2008 for more details.

RCW 39.04.020 is the state law that requires public agencies to develop estimates on public works projects. In summary, it requires the following for any public works project:

• Develop plans and specifications
• Develop an estimate of the cost of the work
• Have the plans, specifications, and estimate filed in the office of the individual or body authorized to require the work
  
• Have the plans, specifications, and estimate approved by the authorized individual or body

The law doesn't address the issue of modifying the estimate after bids have been submitted. Such a practice does appear to circumvent the public's interest, and in the case of the Port, appears to be at variance with the Port's internal policies that requires Commission approval of contract awards where the low bid is 10% or more of the estimate.

What practices does your public agency use with respect to development of estimates?

Port of Seattle Disciplines Employees over Contracting Fraud

On Tuesday, December 9, 2008, two Port of Seattle employees resigned and CEO Tay Yoshitani disciplined seven additional Port employees for their role in fraudulent contracting activity.

The actions come after a critical audit of the Port's construction contracting management practices and a recent report that identified ten instances of fraud committed by Port employees.

Resigned:

• John Rothnie, project manager for the third runway project
• Larry McFadden, general manager of Port Construction Services

Suspended without pay:

• Ray Rawe, chief engineer (3 week suspension)
• David Soike, deputy director of aviation (1 week suspension)
• Paul Powell, contract services manager (1 week suspension)
• Robert Riley, director of airport capital improvement (1 week suspension)

Reprimanded:

• Linda Stout, deputy CEO
• Craig Watson, general counsel
• Mark Reis, airport director

The summary of the Port's actions may be found by clicking here.

More information may be found in the Seattle Times story, or by visiting the Port of Seattle's website.

Port of Seattle to Announce Disciplinary Measures

Port of Seattle CEO Tay Yoshitani is expected to announce on Tuesday, December 9, 2008, disciplinary measures against Port employees involved in instances of fraud.

An independent investigation recently released reported ten instances of fraud by Port employees, most related to the Port's construction contracting management practices. The investigation was ordered by the Port after the Washington State Auditor's Office performance audit in December 2007 disclosed that the Port wasted almost $100 million due to poor contracting practices.

A Seattle Times article on December 7, 2008 discusses the difficulties of pinpointing which employees were involved in doctoring a critical memo that is at the heart of one of the fraud allegations.

Port of Seattle Fraud Report Issued

After ten months and $1.39 million, former U.S. Attorney Mike McKay issued his report on ten instances of fraud that he discovered at the Port of Seattle.

The report follows a scathing performance audit of the Port of Seattle's contracting practices issued almost a year ago.

McKay found that one Port employee leaked the Port's internal cost estimate to a contractor who later bid on the third runway project and ended up making a 30% profit on the project. Other findings of fraud included:

• Negotiating price with a contractor prior to award
• Breaking projects into smaller projects to avoid competitive bidding thresholds
• Not notifying certain contractors of bidding opportunities
• Steering contracts to favorite contractors
• Issuing an emergency contract for $25,000 that was later amended to more than $1 million for non-emergency work

The complete 76 page fraud report, issued on December 3, 2008, may be found by clicking here. An executive summary of the report may be found by clicking here.

You can also read the December 4, 2008 Seattle Times article on the subject.

Port of Seattle Legal Fees Reach $1 Million

The scathing December 2007 performance audit of the Port of Seattle’s construction management and contracting practices has been an expensive endeavor for the Port. The State Auditor’s Office found that the Port wasted $97 million in public money through their practices.

And now the Port has been billed over $1 million from three law firms for their work in helping the Port investigate and respond to the audit, including charges of potential fraud in the Port’s contracting, and working with the U.S. Department of Justice as they investigate the fraud allegations.

The Seattle Times has a story on the Port’s legal fees in its June 23, 2008 edition.

Nora Huey begins her challenging job as the new director of the Port’s recently created Central Procurement Office on June 30^th. Nora is a highly competent attorney who previously worked for King County and has the skills and knowledge necessary to help bring some structure and discipline to the Port’s contracting practices.

Port of Seattle Hires Nora Huey as Procurement Chief

The Port of Seattle has appointed Nora Huey, a local attorney, as head of its new central procurement office. The position is a new one, created in the wake of a highly critical performance audit conducted on the Port’s construction management and contracting practices by the Washington State Auditor’s Office in December 2007.

Huey, who previously worked for King County as a supervisor over the county’s public works and professional services contracts, has also been very involved in broader industry wide issues in the State. She has served as the representative of counties on the Capital Projects Advisory Review Board (CPARB), and chaired CPARB’s Industry-Wide Subcommittee. As chair of the subcommittee, she has been influential in helping bring contractors and government agencies together in trying to craft a legislative solution to the Washington State Supreme Court ruling in the Mike M. Johnson cases.

Huey begins her new position at the Port on June 30^th, meeting the Port’s self-imposed deadline of when they intended to have the new central procurement office up and running.

Click here to read the Port's news release on the appointment.

No Fraud Found in Port of Seattle Contracts

An independent auditing firm found no evidence of fraud in the Port of Seattle’s contracts that it reviewed.

The audit by the firm of Moss Adams was in response to the December 20, 2007 performance audit of the Port of Seattle’s construction management and contracting programs by the Washington State Auditor’s Office.

Moss Adams reviewed more than 60 contracts from the Port, including large and small construction contracts and consultant contracts. “We found no instances of fraud,” Moss Adams auditor Laurie Tish noted in her briefing to the Port Commission on June 3, 2008. Moss Adams is under contract to the Port to perform independent audits of the Port’s finances and operations.

What is a Performance Audit?

On April 1^st, I attended a training session in Ocean Shores, Washington, sponsored by the Washington State Chapter of the American Public Works Association (APWA) and the Municipal Research and Services Center (MRSC) on issues related to performance audits. In November 2005, the voters of the State of Washington approved Initiative 900 that directed the Washington State Auditor's Office to conduct performance audits of state and local government agencies in the state. The initiative became effective on December 8, 2005. The State Auditor's Office has already conducted a couple of fairly high profile audits, most recently the highly critical audit of the Port of Seattle’s construction management and contracting practices that made front page headlines when it was release in late December 2007. There have also been performance audits on the construction management programs of Sound Transit and the Washington State Department of Transportation (WSDOT). The State Auditor’s Office will continue selecting various public agencies and programs to audit.

Speakers at the training session included a representative from the State Auditor’s Office, a principal from one of the consulting firms hired by the State Auditor’s Office to conduct the Sound Transit and WSDOT audits, and a representative from WSDOT.

Unlike an annual financial and compliance audit, a performance audit looks at issues of economy, efficiency, and effectiveness of the policies, management, fiscal affairs, and operations of state and local governments, agencies, programs and accounts. A performance audit seeks to identify areas of performance that could be improved in order to meet best practice and other criteria standards.

For each performance audit, the State Auditor’s Office identifies objectives for the audit, working in consultation with the agency. For construction management and contracting programs, the State Auditor’s Office is continuing to refine and develop the criteria that currently include the following, but that are adapted for each specific audit:

1. Over the most recent three-year period ending June 30, 2008, has the entity been effective, efficient and economical at planning, designing and managing the construction projects and construction contracts in order to:

1. Minimize all costs associated with its construction projects, including but not limited to engineering, land acquisition, environmental review, environmental mitigation, permitting and construction?
2. Minimize unnecessary change orders and delays that result in extra costs?
3. Keep projects on schedule?
4. Minimize risk by identifying it, eliminating it, minimizing it or sharing it with the contractor through good contract terms and contractor management?
5. Obtain the best quality, timeliness, workmanship and other value?
6. Minimize building maintenance and utility costs through cost-effective floor and building designs (decreases in future maintenance and utility costs should exceed the additional construction costs necessary to achieve them)?

2. How effective was the entity at soliciting, procuring and managing its Engineering, Consulting and Construction Management Contracts related to construction projects in order to minimize costs and maximize the value and quality of services provided?

3. How effective has the entity been at complying with the State’s and its own bidding and procurement requirements?

In preparing for a performance audit, an agency should identify those issues that may become the subject of the audit, evaluate the risks associated with the current practices, identify how the agency currently measures performance, etc. It may be useful for an agency to conduct a pre-audit of its own practices, either with in-house personnel or by hiring an outside consultant to conduct the audit. A pre-audit can help an agency identify areas that need improvement prior to a formal performance audit.

Once an agency has been selected for a performance audit, it’s a good idea for the agency to develop a communications plan for how they will interact with the auditor, elected officials, the public, etc. In addition, the agency should identify resources to help manage the interactions with the auditor.

If you’re interested in more information about performance audits, I would be glad to strategize with you about other key issues to be aware of and to share other information gleaned from the training. The State Auditor’s Office website has a special section with more information about performance audits, including a copy of the audits that have been completed thus far.

Port of Seattle to Hire Director of Procurement

In response to the highly critical audit of the Port of Seattle's construction management and contracting practices issued in late December 2007, the Port has begun recruiting for a new position: Director, Central Procurement Office. The creation and hiring of this new position was one of the key recommendations that the State Auditor made to the Port to begin to address the systemic contracting and procurement deficiencies in the Port's operations.

The job announcement for the new chief procurement officer position may be found online at: http://www.portseattle.org/about/employment/currentopenings.shtml#req2851

Re-cap of 2008 Legislative Session

When it came to legislation affecting public contracting in Washington State, the 2008 Legislative Session was noteworthy for the extremely limited number of bills that passed and became law. In fact, the only one I was tracking that actually made it into law related to concerns arising from the State Auditor’s findings on the Port of Seattle’s construction management and contracting program. SB 3274 passed and makes certain changes related to port districts.

Legislation that did not pass includes the following, some of which will undoubtedly re-surface in the 2009 session, which will be a full session unlike the short one this winter.

Alternative Public Works Contracting: HB 2780, crafted and endorsed by the well-respected Capital Projects Advisory Review Board (CPARB), was a clean-up bill from the 2007 session and fixed some of the problems in the re-authorization of alternative public works contracting. Most of the focus of HB 2780 was on design-build and would have permitted use of some design-build-operate-maintain projects. The bill passed the House, but not the Senate. This bill will likely show up again next year, but with further refinements of the various alternative public works contracting methods (design-build, general contractor/construction manager (GC/CM), and job order contracting).

Expansion of Qualifications Based Selection: ESSB 6235 would have expanded qualifications based selection (not using price as a criterion for selection) to include project and construction management, in addition to the current disciplines covered in RCW 39.80 (architects, engineers, landscape architects, land surveyors). This bill also included a number of issues that were part of port district reform, and did not pass. The bill was supported by the architectural and engineering community, but in my mind would not be in the public’s best interests – public agencies should be able to use price for selecting these consultants. I have a more detailed analysis of the issues surrounding this subject if you’re interested.

Prevailing Wages for Off-Site Prefabrication: HB 2864 passed the House but not the Senate. It would have required public agencies to collect data about off-site prefabricators prior to acceptance of a public works project. The issue stems from the fact that in Washington State prevailing wages must be paid for off-site prefabrication of materials for a public works project if the materials are not standard, off-the-shelf items, but are specifically fabricated for the public works project. The applicable wages are those in the county where the product is prefabricated. A number of fabricators have moved their operations to Idaho and Oregon, just across the Washington state line in order to avoid having the pay prevailing wages and thus be more competitive. This practice has labor unions particularly concerned as it is putting firms out of business who are not able to compete with low wages paid across state lines. In addition, the state is losing tax revenues.

Trench Excavation: HB 2009 was a hold-over bill from the 2007 legislative session and was crafted by CPARB. It would have eliminated the requirement for listing the dollar amount for trench excavation safety shoring on the bid form. Failing to get any traction this session, this bill got buried, and didn’t pass either house. Look for it again next year when hopefully support for it can be shored up.

Fees for Intents and Affidavits: HB 2942 would have increased the filing fee for a Statement of Intent to Pay Prevailing Wages and an Affidavit of Wages Paid from $25 to $40. No one was willing to put any money on this bill and it didn’t pass either house.

Veteran’s Preferences: HB 2210 passed the House but not the Senate. It was a poorly written and confusing to implement piece of legislation that would have required certain percentages of public contracts to be awarded to veteran owned businesses and would have created a certification process for such businesses. The bill is becoming a veteran in Olympia, having been introduced in 2007 originally and it may make another appearance in 2009.

Mike M. Johnson: While there was a lot of discussion between public owners and the Associated General Contractors (AGC) on this issue stemming from a Washington State Supreme Court decision, the AGC chose not to introduce any legislation this session, instead engaging in dialogue with owners to develop a consensus and compromise bill that both parties could live with. Hopefully, the dialogue will continue and the parties can reach a consensus before the next session. AGC has all but given notice that they will introduce some bill in the 2009 legislative session.

There were a host of other bills that did not pass including those related to bid limits for cities and counties (HB 3030), living wages on public contracts (HB 2853), and OMWBE (HB 2925).

If you know of important bills affecting public contracting (public works, consultant, architectural or engineering, or procurement of goods and supplies) that passed during the 2008 Legislative session, please let me know.

Preparing for a Performance Audit

You've read about the scathing performance audit on the Port of Seattle's construction management and contracting program that was conducted by the Washington State Auditor's Office. When will your agency receive it's performance audit? How can you prepare for it? What lessons can you learn from the Port's experience and the experience of other public agencies?

On April 1, 2008, the American Public Works Association's Washington State Chapter will sponsor a training session on Performance Audits that will feature speakers from the State Auditor's Office, the Washington State Department of Transportation (WSDOT) who was recently audited (click here for WSDOT's audit), and a consultant who participated in WSDOT's audit.

The training will be from 9:30 a.m. until 3:00 p.m. in Ocean Shores, Washington at the Ocean Shores Convention Center. The cost is $50, which includes lunch.

The registration deadline is March 24th. There are currently only 29 spaces remaining. Maximum attendance is 100. Visit APWA's website for more information and to register online.

Initiative 900, which became effective in December 2005, requires the State Auditor ‘s Office (SAO) to conduct independent, comprehensive performance audits of state and local government, provides a funding source for the audits and urges the SAO to start with the largest, costliest government entities and eventually audit all 2,700 governmental agencies. It also specifies that performance audits be conducted in accordance with Government Auditing Standards, which are issued by the United States Government Accountability Office.

Each performance audit is to include, but not be limited to the following nine objectives:

1. Identification of cost savings.
2. Identification of services that can be reduced or eliminated.
3. Identification of programs or services that can be transferred to the private sector.
4. Analysis of gaps or overlaps in programs or services and recommendations to correct them.
5. Feasibility of pooling the entity’s information technology systems.
6. Analysis of the roles and functions of the entity and recommendations to change or eliminate roles or functions.
7. Recommendations for statutory or regulatory changes that may be necessary for the entity to properly carry out its functions.
8. Analysis of the entity’s performance data, performance measures and self-assessment systems.
9. Identification of best practices.

The SAO has conducted at least nine performance audits since 2005.

ESSB 6235 Passes Senate

Engrossed Substitute Senate Bill 6235 passed the Senate on February 19th with a vote of 33 yeas, 15 nays, 1 absent. In the House, it has been referred to the State Government and Tribal Affairs Committee, where, hopefully, it will not see the light of day.

As I've written before, this legislation is in response to the audit conducted by the State Auditor's Office of the Port of Seattle. If approved, it would prohibit government agencies from using cost as a selection criterion in selecting consultants for project management, construction management, and construction supervision related to a public works project. This is not in the public's best interest as no competitive prices are received. Agencies would be required to select the most qualified consultants and then negotiate a price, rather than having a competitive price submitted as part of the selection process. It is not an appropriate means to address concerns about the Port of Seattle's selection of consultants.