Attempting to crack down on a decades-old scam in which front companies perform subcontracts under minority/women-owned business enterprise, or M/WBE, contracting programs, the city of Chicago says it will spend $11 million for improved programs with better oversight. The push follows a federal probe into a company accused by prosecutors of operating as a "sham pass-through" subcontractor on some of the city's biggest public works.

Prosecutors have charged Elizabeth Perino, owner of Perdel Contracting Co. and Accurate Steel Installers Inc., with fraud for allegedly using her company as a pass-through firm on four major projects. Perdel was hired by McHugh Construction Co., allegedly disguised in the federal complaint as "Contractor A," to provide subcontracting work worth $200 million for reconstruction projects on the Chicago Transit Authority's Red and Brown lines, the North Avenue Bridge and downtown's Wacker Drive. Prosecutors allege that, despite being hired, Perdel did not perform any work on the projects, claiming the company was merely hired by McHugh as "part of a scheme to help prime contractors meet" city and other governments' "set-aside requirements for construction contracts."

Prosecutors also have charged Anthony Cappello, owner of Homer Glen, Ill.-based concrete cutting and sawing contractor Diamond Coring—which has worked with Perino—for allegedly using a company run by his wife to obtain more than $2 million in city and state projects between 1999 and 2006.

McHugh, which has not been charged, would not comment on the investigation, but spokesman Mike Meagher said the firm considers itself an industry leader in its support of M/WBE 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."

After the Perdel indictment, Chicago Mayor Rahm Emanuel pledged $11 million to be used for the development of M/WBE programs with greater oversight. The city will begin enforcing strict compliance initiatives, including unannounced visits to city jobsites, strengthening M/WBE certification requirements and training courses for general contractors and their subs on M/WBE fraud.