msd-300x160In 2009, the board of Louisville’s Metropolitan Sewer District voted to reform its supplier diversity program, which is designed to require that a minimum percentage of subcontractors on major construction projects are businesses owned by minorities.

Instead of certifying minority business enterprises (MBE) themselves, under the new rules, MSD would rely on a select few national organizations to determine which businesses would qualify. The agency would continue to provide direct oversight through new compliance procedures designed to ensure no MBEs were serving as “pass-throughs” — entities consisting of little more than a minority owner and his or her certification, who pass along contract money and work to bigger, white-owned businesses.

The pass-through arrangement is mutually beneficial, providing the shadow company access to contracts it would not normally qualify for, and the bigger — or prime — contractors a way to meet the government’s diversity mandates.

But according to hundreds of pages of documents from MSD and the transportation departments of Kentucky and Indiana obtained by Insider Louisville under Kentucky’s open records law, one minority business enterprise — Bancroft Group, LLC — appears to have violated those rules over and over by serving as a pass-through for non-MBEs on several MSD projects since 2010 for subcontracts totaling more than $6 million.

Not only has MSD continued to reward Bancroft with subcontracts, it appears to have disregarded a whistleblower’s claims about the company and failed to recognize when the states of Kentucky and Indiana stripped Bancroft of its minority certifications for being a pass-through company.

advance-ready-mix-concreteWhile Bancroft is certified as an MBE concrete supplier through the National Minority Supplier Development Council, the records IL obtained contain evidence that the company is fully reliant on Louisville-based Advance Ready Mix — a non-MBE firm that is one of the city’s largest concrete suppliers — for the employees, trucks and supplies it uses on MSD projects. In other words, while a prime contractor on an MSD project lists Bancroft on its bid in order to reach the minimum requirement of 15 percent minority business subcontractors, that work is for all intents and purposes done by Advance, defeating the purpose of MSD’s supplier diversity program.

That is the conclusion reached by the Kentucky Transportation Cabinet after an investigation of the Bancroft/Advance relationship in 2012. After certifying Bancroft as a disadvantaged business enterprise (DBE) — a similar federal program for supplier diversity on construction projects — and approving it as a DBE subcontractor on Kennedy Bridge repairs, the cabinet received a whistleblower complaint alleging the business was a pass-through. The cabinet launched an investigation, concluding Bancroft was too dependent on Advance to conduct its work, and stripping Bancroft of both its DBE certification and a lucrative subcontract.

The records also show that MSD was warned about Bancroft being a pass-through as early as 2010, and MSD gathered evidence strongly suggesting this was true a year later. Still, the agency has taken no action to strip Bancroft of either its minority business enterprise certification or eligibility for MBE subcontractor credit. In fact, last month, MSD approved a subcontract for Bancroft totaling more than $4 million.

The current owners of Bancroft declined to comment for this story, as has Camilla Schroeder, the owner of Advance Ready Mix. Curtis Warfield, the founder of Bancroft who said he sold the company in 2011, told IL Bancroft was never a pass-through and claimed it cleared multiple MSD audits examining its business relationship with Advance. He claimed to have no involvement with Bancroft since he sold it and does not have a copy of those audits.

Though MSD turned over hundreds of documents to IL, the agency declined to provide copies of any audits of Bancroft, citing a state statute exempting anything containing “preliminary opinions” from open records law because they have not been approved for final action. Additionally, MSD declined to release certain emails and correspondence regarding Bancroft after the agency deemed the documents “preliminary correspondence.”

MSD never confirmed it had conducted an audit of Bancroft, only hinting that one existed.

The Bancroft backstory and the company’s relationship with Advance came as news to MSD executive director Greg Heitzman, who took over on an interim basis in late 2011 after the previous director resigned following a scathing state audit of the agency. Presented with IL’s findings last week, Heitzman said he knew Bancroft was a common MBE subcontractor on agency projects. But he said he had heard nothing about allegations that the company was a pass-through, the agency’s 2011 inquiry into the company, or that the state had stripped Bancroft’s DBE certification in 2012 over its dependence on Advance.

Heitzman told IL he would immediately review MSD’s relationship with Bancroft. He said that could be followed by a formal internal investigation of Bancroft’s past and current contracts, or a request for an outside audit of both the company and MSD’s supplier diversity program.

The revelations about Bancroft and MSD come at a time when federal and state prosecutors across the nation have pursued criminal and civil cases against companies for schemes to defraud MBE and DBE programs. In some cases where companies secretly conspired to fraudulently use an MBE or DBE pass-through in order to gain a contract, the maximum sentence for a criminal conviction is 20 years in prison. Some civil cases have resulted in millions of dollars in penalties.