City launches $11 million plan to combat problems in minority contracts program

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Elizabeth Perino leaves the Dirksen Federal Building in Chicago where she appeared on charges for wire fraud. | Al Podgorski~Chicago Sun-Times

Mayor Rahm Emanuel’s administration on Monday outlined an $11 million plan to clean up Chicago’s corruption-filled minority set-aside program – two weeks after a white-owned construction giant was accused of using “pass-throughs” on $200 million in city projects.

The $11 million will come from Allied Waste Transportation, a company with ties to Bridgeport trucking magnate Fred Barbara and the Hispanic Democratic Organization at the center of the city hiring scandal.

Allied agreed to the penalty last month to cover “substantial shortfalls” in minority contracting on city contracts awarded over the last decade to transport city refuse from transfer stations to landfills.

Now, the Allied cash will be used to “accelerate” changes to a minority set-aside program at the heart of a burgeoning federal investigation involving 115-year-old McHugh Construction.

Specifically, the city will hire more compliance officers to make unannounced visits to job sites to make certain that minorities and women are doing the work they were supposed to do.

The settlement will also be used to: strengthen certification; train prime contractors, sub-contractors and city staffers, some by U.S. Justice Department personnel, and enhance software programs used to track payrolls and payments to sub-contractors to make certain prime contractors are living up to their promises.

“We’re not doing it because we have the $11 million. We’re doing it because the mayor mandated it from Day One. What this $11 million has allowed us to do is accelerate and come at this from technology enhancements and increased monitoring,” said Chief Procurement Officer Jamie Rhee.

“I go out myself. My deputies stop at job sites. This is becoming part of everyone’s responsibility. The mayor has been very clear we need to do more. We will implement policies and procedures to make sure the program is strictly adhered to.”

In 2005, James Duff pleaded guilty to masterminding a scheme to defraud the city of $100 million in contracts earmarked for minorities and women.

A string of revelations by the Chicago Sun-Times – and the more recent allegations against Allied and investigation involving McHugh – provided further evidence that the program has been manipulated by the politically connected at the expense of minorities.

McHugh has not been charged with wrongdoing. But, a federal criminal complaint unsealed earlier this month shows the company is at the heart of a massive federal investigation into minority and women-owned business fraud.

A woman-owned business that was a McHugh subcontractor on projects to overhaul the CTA’s Red and Brown lines, rebuild the North Avenue bridge and reconstruct Wacker Drive has been charged with mail fraud for allegedly acting as the owner of a sham “pass-through” that did no work.

“If the allegations contained in the indictment are true, it’s really sad. But, we will keep moving forward,” Rhee said.

Last summer, Inspector General Joe Ferguson released a follow-up audit claiming that Chicago’s minority-business program remains “dysfunctional” and “beset by fraud and abuse” because former Mayor Richard M. Daley lacked a commitment to clean it up..

On Monday, Ferguson embraced the mayor’s plan to use the Allied cash to clean up a program his office has spent “significant investigative resources” on.

“If effectively implemented, the mayor’s plan to use the settlement funds could address many of” the problems he uncovered, Ferguson said in a prepared statement. The inspector general’s office “looks forward to evaluating” the mayor’s progress in the coming months, he said.

One of Allied’s minority subcontractors was Brunt Brothers Transfer, Inc., whose owner, Jesse Brunt, has been indicted on federal mail fraud charges related to a separate city sewer cleaning contract in which Brunt subcontracted most of his work to Municipal Sewer Services, whose investors included Daley’s son, Patrick, and the mayor’s nephew, Robert Vanecko.

Brunt is not accused of criminal wrongdoing related to Allied. But, from 2007 to 2009, Allied claimed over $9 million worth of minority business participation for Brunt Bros., approximately 20 to 25 trucks a day. Yet, Brunt Brothers owned at most five trucks that could be used on Allied’s contract, according to Ferguson.

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