Preferred public works contractors get scrutiny
- Article by: PAT DOYLE
- Star Tribune
- November 20, 2011 - 10:18 PM
For many years a contractor won jobs on major public projects, including the new Interstate 35W bridge.
Along the way Polyphase Electric, citing ownership by a woman, qualified as a "disadvantaged business" eligible for preferential treatment when bidding for contracts.
But that edge ended last year when state officials determined that someone other than Frances Harkonen was in control of the company.
"I went to work for her 10 years ago," said her son, Tim Harkonen. "Did I help her run it? Yes, I did. Was I in control of it? No, I wasn't."
But he asked, "What is control?"
That question takes on greater significance as work ramps up on the state's biggest public works project, the $957 million Central Corridor light-rail line. Yet the answer is often difficult for the public to learn because of limited records and the complications of tracing power in family-owned businesses.
White women make up the single biggest group of Disadvantaged Business Enterprises working on the Central Corridor. They claimed ownership and control of half of the firms that qualified as "DBEs" to work on the project.
Verifying their eligibility is important because they are allowed to win contracts with higher bids than other firms, potentially adding to the cost of a project. Government agencies are supposed to confirm that women or minorities in the DBE program hold majority ownership of a firm and control its operations.
Yet proving it can be tricky when family members or spouses work with a firm.
"Sometimes it's hard," said Wanda Kirkpatrick, a Metropolitan Council official involved in verifying eligibility and certifying DBE firms. The Met Council oversees the Central Corridor project.
Federal law says the interest "must be real, substantial, and continuing, going beyond ... ownership documents." When incorporation papers and other financial documents don't prove who runs a firm, "Sometimes we have to go to the worksite ... and say, 'Who do you think is the owner of this company?'" Kirkpatrick said. "And if they say, 'Sally Jo is the owner,' then Sally Jo's the owner, because people in the field, they know usually who is giving the orders."
Two case studies
The cases of two firms illustrate the difficulty.
Traffic Data Inc. provides detailed traffic count information for the Minnesota Department of Transportation (MnDOT), the Met Council, counties and cities. The firm began in 2001 and got DBE status the next year.
Mike Spack, who worked as a traffic engineer for Maple Grove, said his wife, Jane, owned the firm "and I was helping her out" but she "quickly became a stay-at-home mom and I took over."
Traffic Data lost its DBE status in 2005. "Involuntary removal/owner not controlling business," Met Council records show.
"They said, 'It looks like Mike's running the show, not Jane,'" Spack recalled. "It was a collaborative idea. Where one starts and the other one doesn't is interesting."
Woody's Rebar of Vadnais Heights has a $344,000 deal to provide metal to reinforce concrete for an operations building on the Central Corridor line.
The firm was incorporated in 1999 in the name of founder Larry Woodbury. His daughter, Heidi Gunderson, said she went to work full time for her father's construction business in 2002, bought Woody's from her father in April 2003 and quickly applied to have it certified as a disadvantaged business.
Her application went to the state panel that decides eligibility, made up of officials from the Met Council, MnDOT and Metropolitan Airports Commission (MAC). A firm certified as disadvantaged can gain work on projects directed by any of the three agencies.
The panel turned down Woody's in August of 2003. Records of reasons for the rejection were not available last week, but Gunderson said the firm's name and the timing of her application for disadvantaged status raised eyebrows.
"Their reasoning then was that it was too soon," she recalled. "It looked like it was just ... we did this transaction and we want to be certified."
When she applied again in 2009, Woody's was certified.
Gunderson said officials required an independent valuation of the firm, reviewed the loan she used to buy the business and evaluated her plans to repay the loan with her salary before concluding that she controlled the company.
"They want to see that you're ... running the day-to-day business operation," she said.
Another test is the net worth of the owner; it should be $1.3 million or less for the firm to qualify as disadvantaged. That doesn't include the value of an owner's home or investment in the business.
No central, electronic records
Assessing effectiveness of the DBE program is difficult because many of the reasons for certification or denial deal with financial details withheld from the public, and the three Minnesota agencies that decide eligibility keep separate files and describe enforcement actions differently. Many records are kept on paper, not computer files.
Even though Woody's is working on the Central Corridor, the Met Council says it keeps no records on the firm.
In response to questions from the Star Tribune, the Met Council reported its enforcement resulted in the "removal" of 76 firms from the DBE program in the past 10 years.
But MnDOT reported 388 firms working with all three agencies that were "decertified" or "withdrawn" in the same period.
Firms disqualified from the DBE program can still work on public projects, they just don't qualify for preferential treatment when competing for contracts.
In the case of Polyphase, the state panel in January 2010 disqualified the firm after determining "there has been a change in ... business practices and circumstances." The panel didn't say when the change occurred, only that the firm wasn't being run by a disadvantaged owner.
Tim Harkonen still disputes the finding, saying his mother, now 84, was president and owner of the company. He said Polyphase was in the DBE program for about 20 years -- a detail the panel hasn't confirmed. The firm, which was later suspended from state contracting over unpaid taxes, ceased operations about a year ago.
He blames its disqualification from the program on competitors who "didn't like the fact that Polyphase was a DBE contractor. Sometimes Polyphase may have gotten the job."
Pat Doyle • 612-673-4504
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