A major Chicago construction firm has agreed to pay $12 million to settle federal and state charges that it used disadvantaged business enterprises (DBEs) as "pass-throughs" to get contracts for seven projects, totaling more than $156 million.

James McHugh Construction Co. Inc., in a separate administrative settlement, also agreed to establish a corporate compliance program. The firm further agreed to hire a compliance officer and an independent monitor who will report to the government agencies.

In addition, the company also promised to dismiss Senior Vice President Michael Gould and general counsel Ben Johnston. Neither can hold equity in McHugh, and the firm cannot contract with any company that employs either executive.

The road, highway and transit-line contracts in the case include the Chicago Transit Authority's Howard Red Line station and Brown Line expansion. Each contract totaled more than $55 million.

"It was more costly in the long run for McHugh to avoid its obligations to hire women- and minority-owned businesses than it would have been simply to comply with the requirements" for DBEs, Zachary T. Fardon, U.S. Attorney for the Northern District of Illinois, said.

McHugh said it "chose to settle this matter" but disputes "any suggestion that we intentionally disregarded the requirements of DBE programs."

The government claims McHugh hired Perdel Contracting Corp. and Accurate Steel Installers Inc. (ASI), both owned by Elizabeth Perino, as DBE contractors on the projects, but the firms did "little if any contracted work," according to the settlement.

In fact, the "work for McHugh often exceeded the companies' capacity and experience," so neither firm "performed a commercially useful function," it says.

"McHugh frequently managed union workers hired by Perdel and ASI who performed the work" and "directed Perdel and ASI as to which union crews to hire," it says.

McHugh also picked suppliers, determined the quality and quantity of materials, negotiated prices and drafted purchase orders for Perdel and ASI to send out on their respective letterheads, it says.

Federal mail-fraud charges against Perino are pending.

The case resulted from a 2008 whistle-blower lawsuit by Ryan Keiser, an ex-project manager on three Perdel and ASI jobs. He will collect about $2 million under the settlement, but his termination suit against Perdel and ASI continues.