Feds: Prime Contractor Supplied Staff To WBEs on Chicago Bridge Project
The prime contractor on a Chicago bridge project shuttled its employees to woman-owned steel and concrete subcontractors hired to comply with government hiring goal programs, and later rehired the same workers in 2006 and 2007, federal prosecutors charge.
As part of the charges made last month against Elizabeth Perino, 57, the owner of two companies accused of serving as an illegal “pass-through” to help prime contractors fulfill subcontracting requirements for woman-owned businesses (WBEs) and disadvantaged businesses (DBEs) on the North Avenue Bridge project, the U.S. attorney in Chicago amassed different types of evidence of fraud. An essential part of the alleged fraud is that Perino’s companies performed no useful commercial function.
The prime contractor was not identified in the federal charges or accused of any crime, but media reports identified the company as McHugh Construction Co. The firm allegedly sent some employees during the project to work for Perino’s companies, Perdel Contracting Corp., which specializes in concrete and carpentry, and Accurate Steel Installers Inc. (ASI). Both are based in Lockport, Ill., and both were certified as a WBE or a DBE by various government entities.
Some of the fraud occurred, say federal prosecutors, when the prime contractor actually performed the work that was to have been performed by Perino’s two companies.
McHugh had also hired Perdel for tens of millions of dollars worth of subcontracts on the Chicago Transit Authority’s Red and Brown lines and other projects.
Checking on Child Support Deductions
In an affidavit submitted to federal court in Chicago, a Federal Bureau of Investigation agent stated that the project’s prime contractor provided ASI with a foreman, a superintendent and craft workers such as carpenters, laborers, equipment operators and oilers.
In July 2007, one Perdel employee emailed another about arranging the payments for one of the superintendents on the project so that child support payments will automatically be deducted from his check "like he had it set up with [the prime contractor], before they made him go through Perdel for this job…”
On Aug. 14, according to the federal affidavit, a Perdel employee wrote in a business record that “as of next week, all of the carpenters and laborers, as well as an operator and oiler, will be back on [Prime Contractor A’s] payroll. Perdel will only carry and pay the finishers on the concrete pour days…[a Prime Contractor A employee] wanted the carpenters taken off last week. He wants to show different percentages to the city, and ours was way too high.”
According to the affidavit, McHugh also negotiated the sale of steel and provided information to ASI for buying the steel. However, the actual payment was made by ASI.
Subcontractors and suppliers to ASI “went directly to Prime Contractor A” with technical questions, “because ASI’s project managers did not have the ability to answer the questions,” prosecutors claim.
As evidence that the prime contractor, not ASI, was performing the work, prosecutors in the affidavit quote an email that ASI staff sent to the prime contractor asking permission for ASI to send purchase orders for the North Avenue bridge “so we can get them ready in our system. HOWEVER, WE WILL NOT SEND THEM OUT UNTIL YOU SAY IT IS OK !!!”
'No Worry About the Name Change'
In another email, a Perdel employee stated to another employee that “all this ordering of concrete must be run through Perdel for tracking purposes for the entire...job/project.” In another place, the employee wrote to a subcontractor that “we aren’t going to worry about the name change [from Prime Contractor A to Perdel Contracting] on delivery tickets. As long as the billing gets billed through Perdel.”
Perino did not return a call for comment made to her office. It is unclear whether she will dispute the charges filed against her.
The websites of Perino's companies show her to have substantial business experience, but it is not clear exactly how much hands-on heavy construction expertise she has. The Perdel website states that Perino is a registered nurse and that she worked for three years as director of materials management for the University of Chicago hospitals, where she “assisted clients with design development of the new $140-million Duchossois Center for Advanced Medicine."
“Her vast experience in all aspects of hospital construction is an asset to any construction project, especially in health care,” according to the Perdel website.
Neither is it clear how McHugh decided to use Perino’s companies. According to the affadavit, ASI billed McHugh by using its total material costs plus a 3% mark-up and a total labor cost plus an 8% mark-up.
McHugh Construction officials would not comment on the investigation, but a spokesman said the company considers itself an industry leader in its support for minority and women-owned firms.
“We take pride in our historical support of M/WBE firms,” he said. “We hope our track record will speak for itself and will work with any investigators to understand the complexities of the program.”
Chicago Mayor Rahm Emanuel pledged $11 million to be used to develop M/WBE programs with greater oversight. The city plans to begin enforcing strict compliance initiatives including unannounced visits to city job sites, strengthening M/WBE certification requirements and training courses for general contractors and their subs on M/WBE fraud.
Paul King, a former Chicago-area painting contractor and longtime activist for M/WBE firms and affirmative action in construction, said the city's crackdown must involve stiff penalties for any prime contractors found using pass-through companies.
“If they're using fronts, there needs to be a dollar penalty or even debarment. They have to be held accountable,” he said.
But King expressed concern that: cases like the one involving Perino will increase calls to abolish subcontracting goal program altogether.
