I first drafted this post months ago when KeysNet.com sniffed out the $20,000 missing from the school district.  I’ve been adding to it bit by bit ever since.  I didn’t want to publish it until the veto period was safely over.  And now it is!

The Monroe County school district website includes material that originally came from the USAID Office of the Inspector General’s Fraud Awareness Handbook.  That agency deals with foreign aid projects but much of it applies to local projects, too.

The Keys face significant challenges like adapting to sea level rise and providing affordable housing.  How can the Board of County Commissioners (BOCC) be trusted to effectively address these critical issues after bungling the wastewater projects so badly?  Their track record isn’t so great on other capital projects either.

The BOCC squandered excessive resources on some wastewater projects (Cudjoe Regional) while negligently under-funding others (Key Largo).  Data indicates that the unfair $125 million funding disparity has damaged the economy of Key Largo, the second largest sales tax generator in the Keys.  That doesn’t sound very smart does it?  Or very responsible.  Or very ethical.

Or very logical.  Doesn’t it seem counter-productive to burden the economy of your second largest sales tax generator with grossly unfair funding policies?  Especially for the BOCC, who loves to throw around tax money like it comes from “a bottomless well“.  It doesn’t make much sense, does it?

That brings me to the subject of this post:

The red flags of contract fraud.

Unfortunately, the county’s mishandling of the wastewater projects is very hard to understand without raising the possibility of fraud.  The BOCC’s actions certainly make no sense from a “good government” perspective.  How do the taxpayers benefit when the BOCC overspends by $49 million?  How do the taxpayers benefit from grossly unfair funding practices?  They don’t, but somebody certainly must.  Or it wouldn’t be happening, right?

It’s true that negligence and/or incompetence can look very much like fraud.  It’s also true that incompetence can provide the opportunity for fraud to occur.  In other words, the two often go hand-in-hand.

But keep in mind, incompetence tends to be self-correcting.  Incompetent employees are provided with guidance to improve their performance.  Or they are terminated.  When it comes to the county, the “incompetence” continues to endure through the years and through numerous personnel changes.  The financial stakes continue to get higher and higher.  Even under intense public scrutiny.  If this is incompetence we’re seeing, it’s incredibly resistant to improvement.

Significant issues with county wastewater projects have been reported since the Stock Island project over ten years ago.  A 2005 grand jury report described the county’s handling of the project as “negligent”.  Nothing has improved since then.  If anything, it’s gotten worse.  A lot of the same players are still around.  The dollar amounts involved are much larger.

I found this quote from a KeysNews.com archived article, “Grand Jury – County Negligent”.

“The Grand Jury found that the actions of both the County Commission and County Officials were negligent in their control of public funds,” jurors wrote. “Simply put, someone did not do their job, whether it be intentional or in error.”Consequently, they have recommended that the county establish an oversight committee made up of residents from throughout the Keys who will work independently of the commission to examine projects and restore the trust of Keys residents.

History is repeating itself.  And where’s that oversight committee?  Let’s keep in mind, Commissioners Rice and Neugent were on the BOCC when this occurred.  Comm. Kolhage was the county clerk at the time.  They should all know better.

After a few repetitions, the incompetence excuse just doesn’t fly any more.  That makes me wonder if the problem goes much deeper.

Here’s a link to a blog post about additional fall-out from the Stock Island project.  And another that follows up on the antics of some of the parties involved.

As the Fraud Awareness Handbook says:

Although poor management decisions or negligence may give rise to possible indications of fraud, the difference between fraud and negligence is a fine line called intent. All that fraud indicators can do is to point the way for further detailed inquiry.

In other words, the presence of fraud indicators doesn’t necessarily mean fraud has taken place, but it does mean that the matter should be looked into.

Red Flag #1:  Poor project planning can set the stage for contract fraud.

From the Fraud Awareness Handbook…

The potential for fraud is created when the need assessment is not adequately or accurately developed. A Government agency which, with or without collusion, continually changes its mind about what it wants, will make it possible for a contractor to substantially increase the contract price.

The sudden switch from gravity to low pressure on Cudjoe Regional is a great example.  That switch is responsible for a large portion of the $49 million cost escalation.  The suddenness and the timing put the contractors in the driver’s seat.  Much more up-front work should have been done with affected property owners.  Poor planning, botched execution and a total lack of transparency turned technology choice into a hot political issue.  That provided cover for an excessive cost escalation.  This could have been avoided.

Let’s take another look at the actions of some of the individual BOCC members.  Again they don’t make much logical sense from a “good government” perspective.  The behavior of Kolhage and Carruthers is particularly puzzling.  Carruthers’s district, District 3, consists entirely of Key West.  Kolhage’s district, District 1, consists primarily of Key West, but also a small part of the unincorporated area including Stock Island and Key Haven.

Neither of these two districts benefited at all from the $49 million give away – $59 million if you count the assessment reduction.  Senselessly squandering resources only makes them scarcer for every one, including Key West.  Yet Kolhage and Carruthers were the most enthusiastic supporters of overspending, at one point they even attempted to stifle discussion in their rush to vote.  Why?

Neugent, who actually represents District 2, the theoretical beneficiary of all this excessive spending, was among the first to wave the caution flag.  He eventually voted against increasing the already out-of-control spending in his own district.

His apparent attempt at cost-consciousness, earned him a challenger in the 2014 primary and the 2014 general election.  He actually lost his own district in the 2014 primary.  With the help of Districts 4 and 5, he prevailed, and he will retain his seat on the BOCC until 2018.  Despite the fact that District 4 and 5 put him back in office, Neugent has made statements to indicate that they can expect little help from him in addressing their issues.

The question remains, why were Kolhage and Carruthers so determined to push excessive spending to the detriment of county-wide taxpayers, including their own districts?  Kolhage likes to pretend he supports financial restraint.  How does overspending the budget by $49 million square with that image?  Carruthers likes to pretend to care about affordable housing and other issues that disproportionately affect her district.  But how will squandering $49 million on wastewater help in those efforts?

Red Flag #2:  Unnecessary sole-source justifications.

I talked a little bit about my frustrations trying get some decent competition for the District’s grinder pump purchase.  There are a multitude of grinder pump manufacturers out there.  Despite that fact, the FKAA sole-sourced E-One pumps from the start.

In hindsight, I realize that if the District had selected another pump through an open procurement process, it would have  cast even more doubt on FKAA’s decision to sole-source E-One pumps.  Add that to the push back they were getting from Cudjoe Regional citizens and it would have been a very difficult situation for the FKAA.

From that perspective, E-One had to win in Key Largo.  The over-the-top interference with the District’s RFP makes a lot more sense in that context.  E-One had a lot to lose and so did the FKAA.

The FKAA’s purchasing policy isn’t readily available on their website.  I submitted a public records request and got a prompt response.  Here’s a link to the document.  Here’s what it has to say about sole source purchases.

Sole Source. If the item is available from only one supplier it cannot be subject to competitive bidding. In these instances, the requisitioner should make a note in the internal comment field alerting Purchasing that the item could be a sole source item. If a commodity or contractual service exceeds Category Three and is believed to only be available from one source, the Authority shall electronically post a description of the commodities or contractual services sought for a period of at least (7) business days. The description must include a request that prospective vendors provide information regarding their ability to supply the commodities or contractual services described. If it is determined in writing that the commodities or contractual services are available only from a single source, the agency shall: Provide notice of its intended decision to enter a single-source purchase contract. Board approval must be obtained prior to procurement if the purchase amount exceeds Category Three.

A “Category Three” purchase is anything over $35,000.  I’m quite sure the grinder pump stations were well over $35,000.  There was no reason to sole-source them.  That decision, in fact, not only violates the FKAA’s purchasing policy but the county’s as well.

Red Flag #3:  Bidders who are qualified and capable of performing but who fail to bid, with no apparent reason.

Charley Toppino & Sons was listed on the bid tab for the Cudjoe Regional Inner Islands project, but they did not submit a bid.  Ultimately, they wound up as a subcontractor for Layne on the Outer Islands project.  In fact, the bid tab indicates that there are four contractors that the FKAA expected to bid but didn’t.

The fact that the FKAA lied about Toppino’s involvement on the Outer Islands project also raises questions.

Red Flag #4:  Contract files are either incomplete or missing required documents.

The Big Coppitt collection system project was bid twice.  It was first bid on January 31, 2007.  All bids were rejected.  The project was rebid sometime in February 2007 – a quick turnaround.  The results were presented to the FKAA board in March 2007.

After two requests, I got the tabulation for the re-bid from the FKAA.  Both the FKAA and the county claimed not to have the tabulation from the first rejected bids.  There’s something strange about that though.  Why would you keep one bid tabulation and not the other?  FKAA Attorney, Robert Feldman stated very clearly that the FKAA retains all documents.  Why not retain this particular one?  He was quoted in the press as saying this:

“We do now and will continue to retain every document, every email, and every record,” Feldman said.

Well it turns out that this original bid tabulation exists after all.  It took six months and several requests, but I finally got it.  And I can see, why the neither the county nor the FKAA wanted to share it.

Charley Toppino & Sons was ultimately awarded over $9 million worth of work on the Big Coppitt collection system.  The very same collection system that is having ongoing problems.  An officer in that company, Richard Toppino, now sits on the FKAA board.  FKAA staff misrepresented the amount of work the Toppino companies have done for the FKAA.

According to the original bid tabulation, Toppino only would have been awarded $3 million worth of work.  The re-bid netted an additional $6 million.

Red Flag #5:  Contract deviations by means of changes requested and granted immediately after contract award.

Big Coppitt contracts 2-5 were rebid in February 2007 and presented to the board in March 2007.  The contracts were officially awarded in April 2007 along with the first change order.  Charley Toppino & Sons was awarded a change order in the amount of $680,000 in May.

That would certainly qualify as “immediate”.

Red Flag #6:  Falsifying Data

A Cudjoe Regional lawsuit filed by two local fisherman turned up evidence that the FKAA tampered with water use data in order to justify the use of shallow disposal wells.  The suit was ultimately successful in that the FKAA agreed to construct a deep well.  According to this item, the lawsuit also resulted in a switch from chlorine gas disinfection to liquid chlorine disinfection.  The FKAA agreed to cover legal expenses.

This leads to all sorts of questions as to why the FKAA was so desperate to avoid a deep well.  It’s obviously not money.  The total cost of the project has sky-rocketed from $147 million to $196 million.  The deep well only accounts for $7 million of that.  Maybe they wanted to avoid the additional scrutiny that comes with permitting and building a deep well.  Or maybe they wanted to throw the well work to a contractor who isn’t qualified to install deep wells.  Here’s another theory.

The need for a deep well was borderline, but there were a couple of good reasons to do it.

1. The flow calculations in FKAA’s initial FDEP permit application indicated that influent flows would exceed one million gallons per day.  That’s the point at which a deep well is required.  The calculations were later revised.
2. There are numerous small wastewater treatment plants in the Lower Keys.  Bay Point, for example, is only seven miles away from Cudjoe Regional.  With a deep well, the FKAA could consolidate plants and save on operating costs.

Anyhow, there is evidence to suggest that the FKAA tampered with water use data to artificially lower calculated influent flow and avoid the deep well requirement.  Here’s a link to a video by a retired FBI agent working on the lawsuit.  In the video he walks through an examination of the evidence to support the contention that FKAA falsified water use data.

Red Flag #7:  Unhealthy Partnership

I’ve long thought that the “partnership” between the county and the FKAA was inappropriate.  All the money comes from the county.  The FKAA has no skin in the game.  That’s not a partnership.  It is an owner-contractor relationship – and a very lopsided one at that.  Why doesn’t the county treat it like one?

The county should be taking on an oversight role.  So where’s the oversight?  I recently asked the FKAA for a list of subcontracts on their current projects.  I was told they do not require that from their contractors.  (It turns out they lied about that, too.)  Guess what?  The county does require a list of subcontractors.  This is, in fact, a very common requirement.  Here is a paragraph from the recently awarded Key West Airport Customs Facility.

5.2.1 Unless otherwise stated in the Contract Documents or the bidding requirements, the contractor, as soon as practicable after award of the Contract, shall furnish in writing to Project Management for review by the Owner and Project Management the names of persons or entities (including those who are to furnish materials or equipment fabricated to a special design) proposed for each principal portion of the Work.

The county is paying a premium for project management that, to hear the FKAA tell it, doesn’t meet their own standards.  Why should the county’s largest infrastructure project operate at a lower level of scrutiny than it’s smallest?  It doesn’t make sense.  Who benefits?

Red Flag #8:  Nonsense on the FKAA Board

So here we have Cudjoe Regional – $49 million over budget.  And we have Big Coppitt – also excessively expensive and now in the operations phase with ongoing problems that have gone unaddressed.  But nobody talks about that.  Who’s running this circus?  Theoretically, that would be the FKAA board.  But that is a circus within a circus.  Between residency issues, nepotism investigations, and inevitable conflicts of interest I don’t know how the ratepayers could possibly expect good oversight.

Conclusion

Taken together, the many oddities associated with county wastewater projects do point to the possibility of contract fraud.  Particularly Big Coppitt and Cudjoe Regional.

• Poor planning, poor communication and politically driven technology choices all led to a rush to switch from low-pressure to gravity.  This put the contractor in the drivers seat and pushed up the cost.  Ineptitude and fraud often go hand-in-hand.
• Sole-sourcing the grinder pumps was unnecessary.  There are many, many grinder pump manufacturers.
• The missing bid tabulation from the first Big Coppitt bid is missing.  Both the FKAA and the county claim not to have it.  This even though Robert Feldman, FKAA attorney, insisted that the FKAA keeps each and every scrap of paper.  It took a few repetitions before they finally provided the document.
• Change orders granted immediately after contract award.
• Monroe County constantly refers to its relationship with the FKAA as a “partnership” but it is not.  The county is footing the bill.  The FKAA is managing the project.  It is an owner-contractor relationship.  The county does NOT treat it like one.  Rather than providing meaningful oversight, they give FKAA free reign.
• Tampering with water-use data presumably to avoid the additional scrutiny that comes with building a deep well.
• General nonsense on the FKAA board.  If the board members don’t even follow their own rules, how can the ratepayers expect them to keep a contractor in line?  Especially when one of those contractors sits on the board!

Where there’s smoke there’s fire.  And there’s an awful lot of smoke here.  I’ve raised my concerns.  Folks in Cudjoe Regional have raised their concerns.  So far, no action.  The only thing left to do is put it all together and put it out into the public sphere.  The red flags by themselves don’t tell us for sure that something inappropriate is going on, but they do suggest that it might be.