Port of Seattle Re-Hires Merlino; Contractor Refused to Cooperate in Internal Fraud Probe

Update: Hours after this story was published yesterday, the port's CEO said he would refuse a pay raise that had been under consideration by the port commission. More below.

All seems forgiven between the Port of Seattle and Merlino Construction Co., the firm that refused to turn over documents for the port's 2008 investigation into fraudulent contracting. The internal probe - coming on the heels of a state audit that found the port wasted $97 million in taxpayer funds over the previous ten years - turned up "significant" misconduct and fraud. As a result, two port managers were forced to resign and seven others were disciplined. Port CEO Tay Yoshitani laid out a "zero tolerance" policy for fraud, and commissioner Bill Bryant asked whether the port should even do business again with uncooperative firms such as Merlino. That was then. Now, Merlino is quietly back at work with a new $2.9 million contract to replace a SeaTac airport apron.

It seems like a return to the practices that led up to the auditor and internal probes, followed up by an FBI investigation that later faded away. Yet officials see nothing wrong, even ironic, about rehiring what port lawyer and former US Attorney Mike McKay called the least-cooperative contractor during his fraud investigation. Yoshitani claims the port was in fact forced to rehire Merlino. Says his spokesperson Charla Skaggs: "Under Washington law, the port is required to award construction contracts to the lowest responsive, responsible bidder. For this particular contract, that bidder was Merlino Construction." Bryant, she added, was traveling and unable to respond directly to Seattle Weekly for comment. But she indicated he made his 2008 remarks about banning Merlino because "he was very frustrated, to say the least."

The new apron contract was awarded in May and is to be completed in October. Granite Construction of Everett was the sole other bidder, coming in at $3.1 million. "We were disappointed that we were not the low bidder," says Granite regional manager Tom Zamzow, who plans to continue to bid on port projects. Merlino, which didn't respond to requests for comment, was one of several major contractors cited by the state auditor in 2007 for involvement in possible bid irregularities. When the Seattle firm refused to fully cooperate in the port follow-up probe, McKay (also currently travelling and unable to respond) told SW in 2008, "The others [contractors] gave us some documents. We got an offer of a very small amount of documents from Merlino. But it wasn't even worth sending people out to look at them."

McKay nonetheless was able to identify ten cases of fraud involving port contractors, much of it revolving around construction of SeaTac's third runway. McKay said his probe concentrated on runway deals with lead contractor Merlino and its partners, the Scarsella Brothers and Tri-State Construction, collectively operating under the name TTI (The Three Italians). After his report was issued, the port in 2008 threatened to sue Merlino and other contractors over disputed payments. Even though the port at the time was paying Merlino to finish up some airport work, officials opted not to use that as leverage to compel Merlino to cooperate or settle the payment dispute.

"I could only go so far to get these vendors to turn over documents," said McKay. "It was up to the port and its attorneys to enforce contract law." The port claimed then that it didn't try to squeeze Merlino for more information because the staff handling that contract was unaware Merlino was resisting full disclosure in the separate probe.

The port is now playing down Merlino's earlier refusal to cooperate. "In response to requests by the port during the investigation," says Skaggs, "Merlino provided the documents that the contract required it to provide. Merlino met its contractual obligations and nothing in the records produced supported a finding that it was a non-responsible contractor." The port has a stronger contract-audit law now, she adds. As for Yoshitani's "zero-tolerance for fraud," says Skaggs, "His stance has not changed."

Update: At a port commission meeting at SeaTac yesterday afternoon, Yoshitani, who is paid $334,000 annually, said (audio) he was turning down the offer of a four percent pay raise. "I respectfully ask that you take if off of the agenda," he told commissioners. "I do not want it to be considered, and if it were considered I would decline the salary adjustment anyway."

He said the raise should "permanently" be removed from consideration at least during 2010. He thanked the commission for the vote of confidence which he said was earned by the whole port staff, not just him.

Commissioners felt Yoshitani was doing a bang-up job. According to a commission memo, "An increase of four percent is the minimum increase for an 'Outstanding' performance under the Port's 2010 Pay for Performance guidelines." The commission also lauded the CEO at yesterday's meeting. But some groups and individuals were making noise about the raise in the midst of hard times.

A watchdog organization, Puget Sound Sage notes that $3 million was cut from port expenses last year through furloughs, layoffs and contract concessions. This year, the port eliminated 110 positions, representing 6.2 percent of its workforce.

Says Sage research director Howard Greenwich, "We had invited a lot of people to attend this meeting to question the wisdom of giving a pay raise to Mr. Yoshitani at this time. It would be a misallocation of public funds during what could very well be a double-dip recession and we believe the port commissioners should hold off on approving any pay raises until the economy recovers."

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