UPDATE: The Number 2 – Historical “Bad Actor” in terms of government contract fines and violations cited in this “Project on Government Oversight” article earlier this year has now been awarded a $400 Million Contract for border wall construction.
Time for the competition protests; but none of them have a clean slate either.
“THE PROJECT ON GOVERNMENT OVERSIGHT (POGO)”
“The past conduct of three contractors—Caddell Construction, W.G. Yates & Sons, and Fisher Sand & Gravel—should concern contracting officers and prompt stronger oversight in future contracts to ensure that these companies play by the rules.”
“Caddell Construction and W.G. Yates & Sons
“While Customs and Border Protection (Border Patrol) invited four companies to design one border wall prototype, Caddell Construction and W.G. Yates each designed two—one made of concrete and the second of other materials—giving them half of the prototypes that Border Patrol assessed. Both Caddell and Yates are currently the subjects of an unreported years-long whistleblower lawsuit alleging that they, through a joint venture, fraudulently misrepresented their use of small business subcontracts for a 2009 Camp Lejeune project. The government partially intervened in the case, securing a guilty plea from the owner of the subcontractor involved—Pompano Masonry. She pleaded guilty in 2015 to lying to investigators and received a 30-month prison sentence.
The lawsuit, filed by former Pompano Masonry employee Rickey Howard, alleges that Caddell and Yates, while engaged in a $190 million construction project for the Navy at Camp Lejeune, encouraged Pompano to create a sham small business that they would then use to route Pompano’s payments through. Doing so would allow Caddell and Yates to count the work done by Pompano (a large business) as if it were being done by a small business, helping them fulfill their small business subcontracting plan. For this service, the lawsuit claims, they offered and paid Pompano an additional 2 percent of the subcontract’s almost $15 million value—over $250,000.
Aside from the creation of a fake small business that existed only on paper, Caddell and Yates appear to have regularly used “pass-through” small businesses on that project. The lawsuit alleges a dozen different instances where Caddell and Yates chose large, trusted contractors to perform the work, and then paid small businesses one to two percent of the subcontract value to act as middlemen so Caddell and Yates could meet their small business subcontracting goal of 77 percent. This resulted in some rather unusual arrangements, such as Caddell and Yates routing a $1.4 million subcontract for food service equipment through a small landscaping company called Power Mulch—for a 1 percent fee.
Don’t write Howard off as just a disgruntled employee. After leaving his job at Pompano Masonry and filing the lawsuit, Howard went to work at Harper Construction. Within a few short months, he discovered that Harper was using sham small businesses as well. A much shorter lawsuit ensued, and in June 2016, Harper Construction paid the government $5.4 million to settle those allegations. “This type of fraud siphons taxpayer dollars and takes away opportunities for legitimate small businesses for which this money was set aside,” said then-U.S. Attorney Laura Duffy in a press release.
A spokesperson for Yates responded to our questions about the case with the following statement:
“Yates Construction believes that the plaintiff’s qui tam case against it is baseless. Plaintiff’s allegations are just that—allegations—untested and prove nothing. The government declined to join the case after conducting its own inquiry into this matter. Moreover, the Navy gave Caddell-Yates an outstanding rating for the construction project at issue. Yates Construction is vigorously defending the case, and is seeking summary judgement. Yates Construction fully expects to prevail in the matter.”
On a different contract in 2011, Caddell was caught abusing two different small business programs to defraud the government. Ironically for a border wall contractor, the fraud was discovered during a joint General Services Administration and Department of Laborinvestigation of a Caddell subcontractor that was hiring immigrants who were working in the country illegally. Caddell ended up paying $2 million in criminal penalties and $1.15 million in civil penalties.
As the investigation progressed, investigators found that Caddell was billing the government for time spent “mentoring” a Native American small business it subcontracted with, when in reality there was no mentoring going on. In fact, this small business, Mountain Chief Management Services, wasn’t even doing any work. Caddell was using the small business as a pass-through entity to claim incentive payments and boost their small business contracting goal statistics.
The investigation found that this wasn’t the only project in which Caddell had been found to have defrauded the government. According to a report obtained by POGO, Caddell claimed over $1.2 million from the two programs by “citing Mountain Chief as a subcontractor on various U.S. Army Corps of Engineers projects from 2003-2005.”
In 2014, after the investigation was complete and the settlement agreed to, the U.S. Army Corps of Engineers still sent the Army’s Procurement Fraud Division a recommendation to debar Caddell, according to documents obtained by POGO through FOIA. The referral asserts that “it is in the Government’s interest to debar Caddell Construction Co. … based upon the submission of numerous false statements and/or false claims to obtain payment.” Debarment—which prevents a company from extending, renewing, or bidding on government contracts—usually lasts at least three years. It would have been a major problem for Caddell, which has received over $5 billion from the federal government in the last decade. In the end, Caddell escaped debarment, receiving only a warning.
The Caddell employee deemed most responsible for the fraud, Mark Hill, pleaded guilty to lying to investigators and was debarred in 2015. His debarment will end July 1, 2018, but debarring individuals only prevents them (or a company they run) from bidding on and receiving a federal contract or grant. It does not prevent them from working on federal contracts as an employee. Despite the wrongdoing, a company news article appears to indicate that Hill remains employed with Caddell as the Director of Operations for Caddell Power, a subsidiary of Caddell Construction.
Caddell has had a previous run-in with the debarment process. In 1999, the U.S. Air Force officially proposed to debar Caddell, making them immediately ineligible for any government contracts and giving them a chance to argue against it before it became final. The details of the proposed debarment are unclear, but in the end Caddell was ineligible for just eight days.
Caddell told POGO that it does not comment on its government contracting work. Caddell also did not respond to POGO’s request to verify Mark Hill’s continued employment. However, the 2017 article showing a picture of Mark Hill accepting an award on behalf of Caddell was removed the day after the request for comment was sent.
Fisher Sand & Gravel
Fisher Sand & Gravel has a rap sheet that is too long to list here, racking up around two thousand violation notices from city, county, state, and federal regulatory bodies, many relating to the company’s disregard for air pollution standards. Completely aside from the then-owner of the company being sent to prison for tax fraud in 2009, the city of Phoenix reportedly filed 467 criminal charges against the company in 2010, stemming primarily from violations at one facility’s asphalt plant. The company ended up shutting down the offending plant a month later and paying the city at least $243,000 in fines. Early the next year it settled a lawsuit with Maricopa County for $1 million, stating that it was “relieved to finalize this settlement and to move forward with a clean slate.”
Three months later, in April 2011, the company paid $312,000 to settle a civil case brought by the State of Arizona for air and water quality violations that spanned six counties. That settlement covered issues such as illegally dumping waste into a river, operating for up to 16 hours a day instead of the permitted 3.3 hours, and having exhaust stacks that were half as high as they were required to be. Instead of requiring Fisher Sand & Gravel to pay the full amount to the state, the settlement allowed them to put two-thirds of the fine towards an Environmental Management System that would prevent future problems. In 2013, however, the state found more violations and the company was forced to pay $500,000.
Also in 2013, the Environmental Protection Agency (EPA) fined Fisher Sand & Gravel $150,000 for “failing to comply with dust mitigation regulations” at three sand and gravel producing facilities in 2010. “Some nights there was so much [dust] in the air, it looked like fog outside,” a nearby homeowner told azfamily.com. “If you took a deep breath, it would make you cough.” That fine also included a requirement to install water spray bars in and around the machinery at one Phoenix area plant to help control the dust. While the dust problems at that location appear to have been addressed, the county air-quality department issued a $2,160 citation related to dust control as recently as January 2017 over a different Phoenix facility.
Other federal bodies have fined Fisher Sand & Gravel for additional issues. The Equal Employment Opportunity Commission fined them $150,000 in 2011 for discrimination and retaliation, the EPA fined them again in 2016 for $18,654, and there are several fines from the Mine Safety and Health Administration ranging from $5,000 to $10,000 between 2008 and 2016. Azcentral.com also reports that the company has faced environmental complaints and violations in other states including Michigan and Montana.
“Fisher Sand & Gravel Fisher is a good environmental steward and we take environmental responsibility very seriously,” the company wrote in a 2018 statement to Fox News. “We complied with all orders and everything has been resolved.” Given the company’s history of recurring violations and the recent county-level citations, however, it would be wise to take these words with a grain of salt.
Fisher did not respond to POGO’s request for comment.
Contractor Misconduct Rarely Leads the Government to Meaningfully Debar Companies
Unfortunately, contractor misconduct is not rare, and the government does little to punish frequent abusers—especially when they are large companies. POGO’s Federal Contractor Misconduct Database is full of contractors that have together paid out over $100 billion for various kinds of misconduct but continue to receive hundreds of billions each year in taxpayer funds. If the government ends up awarding one of these three contractors a future contract, it would be wise to build in additional safeguards and oversight.
What future contracts they might be involved in remains unclear. The Trump Administration appears dedicated to fulfilling the campaign promise of a “big beautiful wall,” but both Congress and Mexico have so far declined to pay for it. While the recently passed appropriations bill includes $1.6 billion in funding for border security, the vast majority of that funding is specifically dedicated to additional fencing, personnel, and border security technology. None of the fencing funds can be spent on new designs (aka “the wall”), and only $38 million is allocated towards border wall “planning and design” (Section 230, starting at p. 673). That is far below the $18 billion that Border Patrol requested from Congress in January for the first phase of the wall. President Trump, however, remains committed to the project and has requested that the states deploy the National Guard to bolster security—despite the fact that the Guard is prohibited from performing civil law enforcement duties. “The Guard will provide air support, reconnaissance support, operational support, construction of border infrastructure, and logistical support,” according to an Arizona National Guard statement. Exactly how involved they will be in “border infrastructure” is unclear, although California Governor Jerry Brown made clear that “this will not be a mission to build a new wall.” Adding to the uncertainty, California yesterday rejected the Trump Administration’s proposed duties for the troops because they were too closely related to immigration enforcement.
There has been speculation that President Trump might attempt to divert military funds to build the wall, but that would be a complicated process requiring Congressional approval. It is far more likely that the Administration will simply wait and request more funding for the wall in the next appropriations bill, which is due this October.
Despite President Trump’s early statements that he will personally select the winning border wall design, the Department of Homeland Security (DHS) “does not anticipate that a single prototype design will be selected,” according to an email from Southwest Border Branch Chief Carlos Diaz. “Rather, the eight different prototypes are each anticipated to inform future border wall design standards in some capacity.” As far as the DHS is concerned, the “contract for [prototype] construction has been completed” and agency leadership is evaluating potential next steps.
When asked about the potential for military funding for the wall, White House Press Secretary Sarah Huckabee Sanders declined to provide details, instead stating that “the continuation of building the wall is ongoing, and we’re going to continue moving forward in that process.”