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Originally published Thursday, December 4, 2008 at 12:00 AM

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Port of Seattle probe exposes fraud, a "get-it-done culture"

A Port of Seattle employee leaked sensitive documents to a major contractor who later made an "astonishing" 30-percent profit on a $125 million construction job at Seattle-Tacoma International Airport, according to a Port investigation by former U.S. Attorney Mike McKay.

Seattle Times staff reporter

A Port of Seattle employee leaked sensitive documents to a major contractor who later made an "astonishing" 30 percent profit on a $125 million construction job at Seattle-Tacoma International Airport, according to a Port investigation by a former federal prosecutor.

That finding was one of 10 cases of fraud in Port contracting practices uncovered by former U.S. Attorney Mike McKay in a report released Wednesday.

McKay's report also "exposed a culture that tolerated suppressing information" from elected Port commissioners.

But McKay did not find evidence of embezzling or personal gain that would constitute a crime.

McKay said his search for criminal fraud was hampered by his inability to subpoena personal financial records of Port employees and the lack of cooperation from contractors such as TTI Constructors, who made the 30 percent profit on a contract to build Sea-Tac's new third runway.

McKay said the standard profit on a construction contract is 7 percent to 15 percent.

The U.S. Justice Department is conducting a criminal investigation into fraud at the Port. Port Commissioner Bill Bryant, who oversaw McKay's investigation, said information is being shared with federal prosecutors.

McKay's report does not name Port employees involved in fraud.

But it does say former Port CEO Mic Dinsmore inappropriately asked the Port's Washington, D.C., lobbying firm to help secure Dinsmore's daughter a paid internship with Congressman Norm Dicks, a Bremerton Democrat.

McKay said Dinsmore violated the Port ethics policy when he used the firm, McBee Strategic Consulting, for personal benefit. McKay said "the only reason the service was provided was because it was the Port CEO who asked for it."

At Dinsmore's request, firm President Steve McBee "picked up the phone and it was done," McKay said of the internship.

The 57-page investigation report, authorized by the Port commission in January, follows up on a 2007 state audit that said Port contracting practices were lax and ripe for fraud and abuse.

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TTI's attorney, Larry Finegold, said he hadn't read McKay's report and was unable to comment on it. Dinsmore's attorney, John Wolfe, said the same.

Port CEO Tay Yoshitani said employees who committed fraud will be "appropriately disciplined and potentially terminated." McKay said fewer than 10 employees were involved.

Bryant said the report revealed a "get-it-done culture" at the Port "that had arrogant disregard for open government."

McKay's investigation took 10 months, cost $1.39 million and reviewed more than 250,000 documents.

It found four instances of fraud stemming from a contract to build a massive dirt embankment for Sea-Tac's third runway, which opened two weeks ago.

McKay found a Port employee leaked an internal estimate — including a detailed spreadsheet of every anticipated cost — for the runway job to TTI, a potential bidder who later won the contract. The employee's action not only showed "extremely poor judgment," McKay said, it also suggested the employee might have been colluding with TTI, which ended up being the sole bidder for the project.

The problem with TTI having the document before its bid was submitted is twofold, McKay said. First, it gave a potential unfair advantage by letting TTI know exactly how much the Port expected the project to cost. And it might have emboldened TTI to submit an even higher bid than it might have otherwise, driving up the cost to taxpayers.

But McKay added that he couldn't quantify the damage done by the fraud.

TTI is a partnership of local construction firms Gary Merlino Construction, Scarsella Brothers and Tri-State Construction.

A Port employee also negotiated with TTI after receiving TTI's bid but before award of the contract, which violates state law and constitutes fraud.

Senior Port staff also misled the commission about the amount of TTI's bid and the fact it exceeded the Port's internal estimate by more than 10 percent. Exceeding the 10 percent threshold should have triggered another layer of contract review by Port commissioners. But a memo to the commission about the contract was "intended to lull the Commission into taking no action" on the bid, McKay said.

A Port employee also paid TTI "up front" for material costs that were not due to be paid until the conclusion of the contract, McKay found. The payments may have amounted to "unlawful gifts of public funds," he said.

Unrelated to the third runway, McKay found incidents of fraud in which Port personnel steered contracts to preferred vendors, broke large-dollar projects into pieces to avoid competitive bidding and hid some bidding opportunities from certain contractors.

Investigators also found Port staff awarded no-bid or limited-bid contracts then repeatedly amended those contracts and awarded follow-on agreements to avoid competition requirements of Port policies. In one instance, a senior Port executive issued a no-bid $25,000 contract for emergency work, then amended it to more than $1 million, most of which was for different nonemergency work.

McKay also found that Port consultants who were not minorities had their work billed to a minority contractor so the Port could "artificially increase the volume of work that appeared to be awarded to minority-owned businesses."

Yoshitani, who took over the Port after the fraud uncovered by McKay happened, has already taken steps to correct the Port's lax practices, which he has attributed to a corner-cutting culture driven to get things built and jobs done. Yoshitani has reorganized the Port's procurement practices and centralized them under a new director of contracting.

Bob Young: 206-464-2174 or byoung@seattletimes.com

Copyright © 2008 The Seattle Times Company

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