Lessons Learned and Best Practices from Internal Audits of Airport DBE Programs

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Annabella Byrd
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1 Lessons Learned and Best Practices from Internal Audits of Airport DBE Programs Demetrius E. Carney, Esq. Joseph Q. McCoy, Esq. Perkins Coie LLP ACI-NA Fall Legal Conference Pittsburgh, PA September 25, 2010

2 Importance of Internal Audits DOT regulations regarding Disadvantage Business Enterprises (DBE) Improve future compliance with DBE regulations Preparation for federal audits and investigations Ensure a level playing field where DBEs can compete fairly for contracts Continual review of DBE programs Identify and quantify DBE irregularities 2

3 Causes for Concern Inadequate compliance monitoring Use of General Contractors & Construction Managers Lack of due diligence prior to bid and contract execution Lack of knowledge about key DBE related regulations Reliance on Certification Agency Deliberate inaction or indifference to DBE regulations 3

4 Internal Audits - Necessity Better to be proactive than reactive Avoid federal audits Cooperate on the front end to protect funding Often internal investigations/audits are not conducted until it is too late Whistleblowers Contract Over and Goals Not Met 4

5 Types of Misconduct False representation of DBE participation during bid process Failure to verify if DBE sub-contractor is ready, willing, and able to perform work Deliberate inaction or indifference regarding DBE regulation non-compliance Prime Contractors & DBE Sub-Contractors Status Quo: this is the way it is always done 5

6 Types of Misconduct Shortfall in amount of work performed by DBE Target Commitment vs. Actual Performance Incorrect reporting of DBE participation Improper discounting of work sub-contracted to non-dbe companies Improper counting of suppliers, dealers, manufacturers 6

7 Types of Misconduct Non-DBE middlemen Direct contract between non-dbe companies and Primes, to exclusion of DBE companies DBE Pass-Throughs Gives the appearance of full DBE participation DBEs utilized as brokers and perform little or no legitimate work 7

8 DBE Fraud Example Schuylkill Products Inc. (SPI) & CDS Engineering Manufactures concrete bridge beams used on highway construction projects 15 year conspiracy to Defraud USDOT Contracts = $136 million from 1993 to 2008 Scheme was to use DBE Marikina Construction Company as "front" to obtain contracts but SPI and CDS did work SPI and CDS retain majority of profits; Marikina paid small fixed-fee set by SPI to let them use the Marikina name Concealment: SPI and CDS personnel pretending to be Marikina personnel by using Marikina business cards, addresses, stationary, signature stamps; use of placards and decals bearing Marikina logo to cover up SPI and CDS logos on vehicles Charges: Wire and Mail Fraud Plea Deals: Part Owner and COO faces up to 5 yrs, $250,000 or 2X gain in fines, mandatory restitution 8

9 Suggested Improvements / Best Practices Top to bottom assessment of internal DBE program practices and procedures Interview key internal and external stakeholders: Procurement, Planning, Quality Control, Construction, Concession Compare best practices with counterpart personnel at other agencies Other airports Certifying agencies 9

10 Suggested Improvements / Best Practices Detailed bid documentation for all DBE inclusive solicitations Explicit narratives of DBE requirements Detailed DBE participation reporting documentation Require accurate reporting which may vary by industry Capture discounting and non-dbe participation Increased staffing devoted to DBE compliance On-site monitoring and field inspections 10

11 Suggested Improvements / Best Practices Enhanced contract provisions Clearly articulate contractor s commitment and good faith efforts Enhanced debarment provisions Clearly articulate specificity and notice of conduct that justifies cause for debarment Coordinate with certifying agencies to standardize penalties Training is key Develop referral protocols for reporting misconduct to both State and Federal agencies 11

12 For More Information, Please Contact: Demetrius E. Carney Chair, Airport Concessions Practice Perkins Coie LLP 131 S Dearborn, Suite 1700 Chicago, IL (312) DECarney@perkinscoie.com Joseph Q. McCoy (312) JMcCoy@perkinscoie.com 12

ARKANSAS STATE HIGHWAY AND TRANSPORTATION DEPARTMENT CONSULTANT SELECTION PROCEDURES FOR ENGINEERING AND DESIGN RELATED SERVICES

ARKANSAS STATE HIGHWAY AND TRANSPORTATION DEPARTMENT CONSULTANT SELECTION PROCEDURES FOR ENGINEERING AND DESIGN RELATED SERVICES Section I Application (These procedures do not apply to Design-Build Contracts.)