Nearly $100 million wasted by Port, state says

A state audit Thursday blasted the Port of Seattle for shoddy management of construction contracts, which auditors say wasted $97 million in public money, violated competitive-bidding laws, and left the Port "vulnerable to fraud, waste and abuse."

The 200-plus-page report, released by state Auditor Brian Sonntag, also said some Port staff stonewalled investigators and refused to vouch for the accuracy of all the information they were providing. In some cases, records were altered before they were turned over to auditors.

"I think there is more scrutiny warranted," Sonntag said in an interview. "What we're identifying is a lack of accountability and a lack of oversight."

The audit already has caught the eye of federal and local law-enforcement officials, who said they may launch their own probes.

Port CEO Tay Yoshitani said he did not agree with all of the audit's findings, but that the Port takes the report seriously and will implement many of its 51 recommendations, which include hiring a chief procurement officer to manage all contracts.

"It is a new day, and it is a moment of change," said Yoshitani, who was hired this year to succeed Mic Dinsmore, the Port's chief during the period criticized by the audit. "We see it as a great opportunity to look at what we do and how we do it."

Yoshitani said no Port managers have been fired or disciplined as a result of the audit. He characterized most of the problems as unintentional mistakes.

"I have no reason to believe that any of our people have purposely abused the system or lied or anything like that," Yoshitani said.

Still, Port officials plan to hire an outside firm to investigate at least some of the conduct criticized by auditors. In particular, they will examine a 2004 contract in which Port staff altered invoices to pay a Bellevue electrical contractor more than the maximum amount authorized under the contract — a violation of state law.

If the Port finds any evidence of fraud, "it would be dealt with swiftly and appropriately," Yoshitani said.

In all, Sonntag said the report found $97.2 million in "unnecessary costs" at the Port, mostly due to two contracts related to construction of the third runway at Seattle-Tacoma International Airport.

A consulting contract awarded in 1998 to Parsons, a national engineering and project-management firm, was initially set at $10 million, but ballooned to $120 million without competitive bids. Sonntag said that unnecessarily cost taxpayers $60.5 million because the Port engineers could have done the work for less — in some cases for half the amount paid to the consultants.

Yoshitani disputed that conclusion, saying the Port followed "best practices" used by many other ports. He said the Port needed the consultants' expertise to manage the large, complex construction project.

In another instance, Port management authorized a contract for embankment work at the third runway that came in $32.7 million higher than an engineer's original estimate. The $125 million contract, awarded to the construction company TTI, violated state law, and details of it were concealed from the elected Port Commission, according to the audit.

Port commissioners, who serve four-year terms, oversee Port policy and hire the chief executive. Port Commissioner Alec Fisken, a frequent critic of Port management, called that finding disturbing but typical of how the Port was run under former CEO Dinsmore.

"It's a pretty fair snapshot of how Dinsmore ran the place," said Fisken, who last month lost his bid for a second Port term. "It was an effort, clearly, to not go back to the Commission [to discuss the contract] in public."

Dinsmore, who retired from the Port this year, did not return a phone message left Thursday at his office at the Seattle office of Stark Investments, a Milwaukee-based hedge fund.

At a news conference Thursday, Port Commission President John Creighton and Commissioner Lloyd Hara were more diplomatic in their assessment of the audit. They said the Port should look to the future, change its culture to be more accountable and strengthen the oversight role of the commission.

They also stressed that the Port is a large, complex organization that has managed billions of dollars in construction projects in recent years, from the third runway to a new cruise-ship terminal.

Hedged information

Thirteen Port managers refused to provide signed statements attesting to the accuracy of all the information they provided to the auditors. Such statements are usually routine in audits, and included language saying the managers had "no knowledge of any allegations of fraud or suspected fraud" in the Port's construction contracts.

"We're never seen that before," said Sonntag, who has been state auditor for 15 years. "It makes you ask additional questions."

Among those who refused to provide all of the assurances auditors sought was the Port's general counsel, Craig Watson, who declined to comment Thursday.

Yoshitani said Port managers followed advice from lawyers and were uncomfortable with signing the broad statements requested by auditors. In most cases, they provided partial statements to auditors.

Auditors raised the specter of favoritism in some no-bid Port contracts, saying it was a "distinct possibility" — though they couldn't prove it — that bidding requirements were ignored to steer contracts to "favored vendors."

In some cases, the Port divided jobs into multiple $50,000 contracts, or awarded contracts for that amount and amended them to higher amounts later, to avoid the threshold at which competitive bidding is required, the audit said.

More investigation?

Bob Westinghouse, chief of the criminal division in the U.S. Attorney's Office in Seattle, said the office will review the auditor's report, and encouraged "anyone with any evidence of conduct we should be looking at, or corruption at the Port, to please contact us."

The King County Prosecuting Attorney's Office also plans to review the audit to see whether a police agency should investigate further, a spokeswoman said.

The audit covered all construction projects and related consulting agreements at the Port from January 2004 through March 2007, though some of the contracts had started years earlier.

Performance audits were authorized by Washington voters when they approved the Tim Eyman-sponsored Initiative 900 two years ago. That law gave Sonntag's office broader authority to investigate public agencies and make recommendations aimed at saving taxpayer money.

The Port audit was conducted by Cotton & Co., a Virginia-based auditing and accounting firm.

It cost $786,000, and Sonntag's office said the resistance by the Port staff prolonged the audit fieldwork, adding $335,000 to the original contract amount.

Staff reporters Steve Miletich and Mike Carter contributed to this report. Jim Brunner: 206-515-5628 or jbrunner@seattletimes.com

The information in this article, originally published December 21, 2007, was corrected December 21, 2007 at 5:55 PM. Thirteen Port managers refused to provide signed statements attesting to the accuracy of all the information they provided to the auditors. A previous version of the story incorrectly reported that 11 Port managers refused to provide signed statements.