Whistleblower cites Bancroft in complaints to MSD

In May 2002, Curtis Warfield filed paperwork with the Kentucky secretary of state’s office to create Bancroft Group, LLC. Later that year, he submitted an application to MSD for Bancroft to be certified as a minority business enterprise, describing the company as “a supplier of concrete, gravel, sand and pumping services.”

According to the application, at that time Bancroft’s company consisted entirely of a $2,000 check from Warfield and a $3,000 check from its majority owner, Warren Pulliam. Bancroft had no trucks, licensing or warehouse space, and its office was based in Warfield’s home in Prospect. Warfield’s attached résumé listed him as a CPA who was the CEO of a large health-care business processing firm — which he is to this day — but contained no experience in the construction business.

In January 2003, MSD approved Bancroft as a certified MBE, yet there appears to be no records of Bancroft gaining any construction contracts for the next seven years. The secretary of state eventually dissolved Bancroft in 2008.

Bancroft_Logo_Black.138172620_logoThen in March 2010, Bancroft suddenly re-emerged as a subcontractor on a $49.1 million bid by prime contractor Whittenberg Construction for MSD’s Derek R. Guthrie Water Quality Treatment Center Pumping Package project. Despite having no experience in the field, Bancroft’s subcontract as a concrete supplier was worth more than $2 million.

Whittenberg was awarded the project, beating out MAC Construction & Excavating Inc.’s bid, which listed Advance as the concrete supplier. Later that month, Warfield resubmitted paperwork to the secretary of state to reinstate Bancroft as an LLC.

After the Guthrie project began that summer, a whistleblower emailed Joy Walker, MSD’s supplier diversity administrator. Referencing an earlier conversation between the two, the whistleblower indicated that though the TriState Minority Supplier Development Council — the regional certifier of the National Minority Supplier Development Council — had certified Bancroft as an MBE, its president indicated that the organization does not evaluate an MBE’s capability of being an independent supplier; rather, it only determines if a business is owned by a minority.

The whistleblower warned Walker that this allows for a major loophole in the MSD contract compliance program for supplier diversity, as an MBE subcontractor could easily be used as a pass-through by non-MBEs, therefore taking business away from capable minority business enterprises and undermining the intent of the program.

Walker essentially blew off the whistleblower, suggesting in an email reply that the person should take it up with the national credentialing agency, which has handled MSD’s diversity certification since the 2009 reforms.

According to a document obtained by IL — but not turned over by MSD as part of the open records requests — the whistleblower followed up with another letter meticulously outlining an alleged scheme Bancroft and Advance used to undermine MSD’s supplier diversity program.

The letter went on to state that Bancroft’s products, materials, cement mixer trucks, drivers and dispatchers on the Guthrie project all came from Advance, adding that “it is clear that the majority of wealth created from the project will go to the prime, not the MBE.” The letter went on to suggest that “perhaps your field monitoring of the Derek Guthrie project will confirm some of the points mentioned and even reveal other areas of concern as it relates to the above arrangement.”

The whistleblower letter also highlighted specific sections of MSD’s supplier diversity contract compliance program that prohibited pass-through arrangements. MSD rules specifically state that an MBE subcontractor must perform a “commercially useful business function,” and that “acting merely as a conduit of funds to a majority-owned firm when that is unnecessary to accomplish the business transaction” does not constitute such a function.

Those MBE subcontractors who merely serve as “brokers” are not to be regarded as suppliers under MSD rules, which also require MBE subcontractors to perform 100 percent of the work in their contracts using their own workforce and equipment. If in its field monitoring or auditing process MSD determines any of those rules are violated, or fraud has been committed against the agency, both the prime and subcontractor can be debarred and prohibited from future contracts.

MSD submitted no documents to IL showing that Walker ever replied directly again to the whistleblower.

However, early in 2011 — in the middle of the Guthrie project — MSD emails show that Walker began to look into the business functions of Bancroft and its relationship to Advance. A January email from Walker to another MSD employee requested “a copy of all Pay Estimates from Whittenberg, which have Bancroft and/or Advance Ready Mix listed.” In early March, another MSD employee emailed Walker to say he had visited the Guthrie site and “noticed two Bancroft trucks transporting concrete onsite.” Walker replied asking if there were any Advance trucks there. There was never a reply.

According to Bancroft’s DBE certification application, which it submitted to the transportation departments of Kentucky and Indiana in 2012, Curtis Warfield claims he sold Bancroft to his father Richard Warfield and business partner Eric Winston within days of MSD investigating its trucks on the Guthrie site that March.

Bancroft trucks at Advance | Photo by Joe Sonka

Just last week, Bancroft trucks were parked on Advance Ready Mix property. | Photo by Joe Sonka

Insider Louisville recently made several trips to Advance’s Water Street location and found multiple cement mixer trucks with the Bancroft logo stored there. However, the trucks do not belong to Bancroft. According to a search of federal and state databases, registration numbers on the trucks show they are owned by Advance; Bancroft does not own any cement mixer trucks. Similar arrangements in other states — masking a truck’s majority ownership by adorning it with the logo of an MBE or DBE — have resulted in federal criminal convictions and major civil penalties for conspiracy, fraud and violating the False Claims Act.

On March 25, 2011, Walker sent a formal letter to the vice president of Whittenberg Construction and to Curtis Warfield of Bancroft, seeking detailed records from their work on the Guthrie project. Whittenberg was asked to provide all paid invoices on concrete used on the project. Bancroft was asked to provide reports on its equipment, workforce, vehicles owned or leased from Advance, and payroll registers.

Payroll records IL obtained from MSD — originally generated in response to Walker’s request — show that Advance was directly paying its own employees for a vast majority of the work done on the Guthrie project from November 2010 to May 2011. Even in the reports showing Bancroft directly paying two or three drivers each week, a quick review of their names shows they are actually Advance employees.

Despite those findings, it’s been nearly four years since there was any internal communication within MSD about Bancroft’s business arrangements — at least among the documents provided to IL under open records law. It is unclear whether MSD completed an audit on Bancroft and Whittenberg’s contracts on the Guthrie project, although if it had, state open records law would likely require the agency to provide those final documents.

Bancroft garners state certifications, contracts 

Before the Guthrie project was completed, Bancroft applied for certification as a disadvantaged business enterprise with the Kentucky Transportation Cabinet. While the aim of the cabinet’s DBE program is to ensure diversity in its suppliers by including small businesses with a net worth under $750,000, Bancroft’s application also stated — as they are allowed to — that it was eligible for the designation because it had been subject to racial prejudice and discrimination. Curtis Warfield, already listed as a former owner on that application, currently lives in a house bordering Oldham County that is worth nearly $1 million.

By August 2011, the state had approved Bancroft’s DBE certification. Meanwhile, it continued to land contracts in Louisville.

That summer, Bancroft was approved as an MBE subcontractor for Koetter Construction on a project to build a therapy room for the University of Louisville’s athletics department. Unlike every other project that IL found involving Bancroft, the contract did not include supplying concrete. Instead, Bancroft’s $35,239 subcontract was to provide window treatments, glass, drywall, fire sprinklers and interior finishing.

Later that year, in November, Smith Contractors Inc. submitted a successful $2.45 million bid for MSD’s Buechel Basin Wastewater System project, with Bancroft as one of its required MBE subcontractors, supplying concrete for $84,564.

In March 2012, Bancroft put its new Kentucky Transportation Cabinet DBE certification to work, serving as one of the required subcontractors on MAC Construction’s $16 million bid for repairs on the Kennedy Bridge. Bancroft’s share totaled $3.6 million. That same month, Bancroft applied for a DBE certification from the Indiana Department of Transportation. By that summer, Bancroft was approved in both states and ready to start its most lucrative construction project yet.

But Bancroft’s participation in the Kennedy Bridge repairs — and the DBE programs of both states — did not last long. In June and July, another whistleblower complaint alleging the same pass-through scheme was submitted to both states’ transportation departments. The Kentucky Transportation Cabinet’s Office of Civil Rights and Small Business Development jumped into action, conducting an onsite inspection and interview with Bancroft’s managing partner, Eric Winston, on July 9, 2012.

The upstairs of this Subway is what ... | Photo by Joe Sonka

Bancroft’s office space: The upstairs of this Subway restaurant | Photo via Google Earth

According to a report from that interview, Advance was supplying all Bancroft’s cement for the job and providing all its trucks in conjunction with Ernst Concrete. The notes indicate that Bancroft provides “one big payment to Advance per job.” Additionally, the new office space provided by Bancroft was a Subway fast-food restaurant on Dixie Highway, with office space on the second floor and a very small parking space in the rear. Jefferson County Property Valuation Administrator records show that Curtis Warfield has owned the building since 2010.

Less than a month after that interview, the same state division sent Bancroft a letter indicating it had reasonable cause to believe Bancroft was ineligible to participate in the DBE program under federal law.

“…It appears that you depend heavily on prime contractor(s) to be able to fulfill your awarded contracts,” read the letter from the division’s executive director, Tyra Redus. “Documentation shows that you depend on prime contractor(s) for equipment and employees. Federal Regulations state that you must show independence and control of your firm and must not be dependent upon another firm.”

Three weeks later, Winston replied to the state transportation cabinet in a letter, objecting to the characterization of Bancroft as dependent on prime contractors and including the company’s payroll registers and invoices.

“As far as equipment, Bancroft leases its trucks, which is industry practice,” wrote Winston. “We have the ability to purchase trucks but decided that leasing is more cost efficient. Bancroft is not controlled by any other firm and has no exclusive contracts.”

Winston’s objections fell on deaf ears. Two months later, the state responded with a blistering letter laying out the full case for why Bancroft was essentially a pass-through, formally stripping the company of its DBE certification and ending its participation in the bridge repair contract. The letter said Bancroft failed to use its own equipment, relied entirely on Advance employees, kept insufficient financial records, and had no lease agreement for trucks it claimed it was leasing.

While given the option to appeal the decision within 30 days, there was no record of Bancroft ever filing an appeal. Indiana’s transportation department followed suit, stripping Bancroft of its DBE certification in that state as well.