Clout-heavy contractor to pay $12 million in fraud settlement

Tripped up by a whistleblower, clout-heavy firm McHugh Construction has agreed to pay $12 million in fines to resolve a case involving alleged fraud on government programs intended to benefit women and minority-owned subcontractors, according to the U.S. Department of Justice.

In a separate agreement, the company, James McHugh Construction, has agreed to donate $2 million to the city to support such government programs, Mayor Rahm Emanuel’s office announced Thursday.

Ryan Keiser was hired in 2006 as a project manager for a subcontracting firm own by a woman. At a news conference Thursday, he said that all he ended up managing was paperwork. He said he alerted the government after he was fired in early 2007 after asking too many questions.

In the settlement, federal prosecutors allege McHugh Construction failed to follow federal and state rules about the participation of minority and women-owned businesses. McHugh used two such businesses to successfully land state and city contracts for work done between 2004 and 2011, but those subcontractors allegedly did little to no work.

“Rather than managing and supervising the work, [the subcontractors’] project managers generally processed paperwork, such as invoices and payroll,” according to the settlement.

The woman-owned subcontracting firm was necessary window dressing to obtain government contracts, said Mike Kanovitz, an attorney with Loevy & Loevy who represented Keiser.

Keiser said he found himself signing paperwork indicating work had been done by the subcontractor, but it actually had been done by McHugh.

“When I started, I was a little bit naive,” Keiser said. But after only several months of work, “stuff was just making me sick,” he said.

Keiser will get about $2 million of the $12 million for his role as whistleblower in the case. The rest will be divided up between federal and state governments.

McHugh admitted no wrongdoing in the settlement.

The projects in question included work on the Red Line Howard station and the North Avenue Bridge, among others.

McHugh said it has strengthened its contracting safeguards.

“Over the last 26 months, we have not only cooperated fully with the government, but we have taken proactive steps to become an industry leader in . . . compliance issues,” Patricia McHugh, the company chairman, said in a statement.