Metropolitan Sewer District executive director Greg Heitzman suspended local concrete suppliers Bancroft Group and Advance Ready Mix on Monday from further construction contracts with the agency after those companies were found to have engaged in a pass-thorough scheme to undermine supplier diversity program rules, according to the preliminary findings of an audit investigation revealed earlier in the day.
The audit was spurred by an Insider Louisville investigation, which found evidence that minority-owned concrete supplier Bancroft may have fraudulently served as an illegal pass-through for non-minority businesses on several MSD contracts, particularly Advance. MSD’s supplier diversity program requires that contractors on major construction projects use a minimum percentage of minority-owned subcontractors in order to be eligible, but IL found that all of the trucks, labor, storage and supplies used by Bancroft on these projects appeared to actually be provided by Advance. MSD attorney Paula Purifoy stated on Monday that the audit “basically substantiated what Mr. Sonka reported.”
Heitzman said in today’s full board meeting that he found the preliminary results of the audit “very concerning,” adding “from the information that I have reviewed, it does appear that Bancroft is essentially serving as a pass-through on a number of these projects.” He announced that he was temporarily suspending both Bancroft and Advance from construction contracts due to behavior “indicating a lack of business integrity or honesty that affects the present responsibilities of MSD.”
Hetizman indicated that he had the power as executive director to make such a suspension — while noting that he had the full support of the board — and said that after the audit’s final report next month, both companies could either be disbarred for up to three years, or try to appeal the ruling. He added that he also would begin the process of looking at current projects to see whether either of the companies had active contracts that needed to be pulled or require change orders from the primary contractor.
MSD spokesman Steve Tedder later indicated that Bancroft has the only current subcontract on an MSD project, for which they are now ineligible. Chicago-based Walsh Construction Co. won a $42.7 million bid this year for MSD’s Logan CSO project, with Bancroft approved as its minority subcontractor to supply concrete for $4.11 million. The project is in the middle of construction, yet the concrete work has not yet begun.
While stating that MSD “has been seen as a leader in minority and women business procurement going back to the 1980s” and is nationally recognized for its contracting diversity, Heitzman also recommended the board temporarily suspend its supplier diversity compliance program for all major construction projects and come up with a new system in 30 to 60 days. Heitzman recommended switching to a “good faith effort” program — similar to what Metro Government and Louisville Water Company have — in which contractors only have to prove they made a concerted effort to find minority subcontractors, instead of requiring a set, final percentage.
The MSD board approved this recommended motion, with board member John Phelps adding that “what we’re trying to do is make this policy better for both the minority community and for the contractors that utilize this program. And we will come up with a decidedly better program, hopefully, within two months.”
Tedder said MSD does not know whether it will forward the results of the audit to other government agencies for further action until it is complete.
“We need to get the full report, and then the determination will be made as to where it goes,” Tedder told Insider Louisville. “Commonwealth attorney, attorney general, state auditor… again, it’s not complete information, so we need to get that first.”
Bancroft’s attorney Chris Egan did not respond to a phone call and email seeking comment on MSD’s actions against the company. Advance lawyer Michael Shull of Frost Brown Todd told IL that he could not yet comment, as he has not seen the preliminary audit findings and has not seen the exact wording of the action taken by MSD in its suspension of Advance.
***** Update 8/26, 10:20 a.m. *****
Though Tedder indicated Monday that only Bancroft has an active subcontract on an MSD construction project, he clarified Tuesday that Advance also has current subcontracts. He said that MSD is in the process of identifying those projects, contacting the prime contractors, and determining whether change orders will be required to replace Advance.
IL found two current projects in which Advance has contract to supply concrete worth over $1 million: the Bells Lane Wet Weather Treatment Facility project, worth $1.1 million, and the Logan CSO Interceptor project, worth $1.38 million.