Port not yet sure whom to punish over contract fraud

Who hid the truth about the high cost of a major construction project from Port of Seattle commissioners?

That's a key question for Port CEO Tay Yoshitani, who will announce Tuesday disciplinary measures against Port employees involved in 10 cases of contracting fraud identified last week in a $1.4 million Port investigation.

To follow through on his "zero tolerance" policy for fraud, Yoshitani must determine who was responsible for rewriting a memo that deliberately misled Port commissioners about a $125 million contract and concealed from them troubling facts about the proposed contract.

The memo was one of the most serious problems found in the Port investigation by former U.S. Attorney Mike McKay. Had the memo not been rewritten to hide key information, McKay said, it likely would have triggered more scrutiny by commissioners. That could have led to rebidding the contract or another option that might have saved taxpayers millions.

A state audit last year said the Port misspent $32.8 million on the project because it paid that much more than the Port's $93 million cost estimate for the job, which entailed building a huge plateau of dirt for the new third runway at Seattle-Tacoma International Airport.

Port Commission President John Creighton said he is "very much concerned" about the memo. Identifying those who rewrote the memo to make it deceptive "is something Mr. Yoshitani needs to be working on," said Commissioner Bill Bryant, who oversaw McKay's investigation.

In its initial version, a Dec. 22, 2005, memo by Ray Rawe, the Port's chief engineer, did what it should have: It clearly told commissioners the lone bid from TTI Constructors exceeded Rawe's cost estimate by more than 10 percent. The 10 percent threshold is a Port policy intended to alert commissioners to high bids and situations where jobs could be rebid or broken into pieces to possibly attract more competitive bids.

But in subsequent versions, the memo was diluted and did not mention that the lone bid was 19 percent above the engineer's estimate. "A couple of flares were going up" in the first draft, McKay said, "and those flares were deleted in the process."

The revisions also misled commissioners about purported reductions in TTI's bid that supposedly would cut it from $125 million to $115 million.

In fact, some Port employees knew most of the reductions were not real but cosmetic, McKay said in his report, and those were emphasized to "lull the commission into taking no action." In the end, the reductions did not materialize, and TTI was paid $125 million for a job that cost the firm $96 million, according to McKay.

The memo failed to mention another of McKay's findings: that a Port employee might have colluded with TTI by providing the company a detailed spreadsheet of the Port's estimated costs for the third-runway job before TTI submitted a bid. TTI was the sole bidder for the job.

The memo is an example of information the Port concealed from state auditors. David Cotton, the state's lead auditor, spent considerable time examining the TTI contract and requested all records pertaining to it. Although he received later, diluted versions of the memo, he said he never got Rawe's initial version.

But Yoshitani may not be able to pinpoint culprits. "The problem is that so many people looked at it and made changes, we were not able to identify with complete accuracy who made what changes," McKay said.

The memo was addressed and copied to a dozen top Port managers, including former Port CEO Mic Dinsmore and the airport's director, Mark Reis.

A high-ranking Port official, who requested anonymity, said he expects only two Port employees to be fired in the wake of McKay's inquiry, with neither termination related to the memo.

McKay maintains that Port managers share a "collective responsibility to make sure what ends up before the commission is accurate" and that there's reason to believe a group was involved "in diluting the memo."

McKay will present his investigative report to the Port commission Tuesday. Yoshitani, the Port CEO, will present his response to the report then.

Bob Young: 206-464-2174 or byoung@seattletimes.com