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Topic: Detroit demolition halted- possible bid rigging

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El Supremo

FBI reviewed report of possible bid-rigging in Detroit demolitions
Mar 9, 2018 - The state's investigation caused U.S. Treasury to suspend the city's demolition program in the fall of 2016, Roach said. Since then, oversight was strengthened and another $42 million in federal money was released for the program. The Free Press obtained the state's investigation and related documents ...Detroit demolition documents suggesting bid-rigging get FBI review
Joe Guillen, Detroit Free Press Published 4:11 p.m. ET March 9, 2018 | Updated 8:12 p.m. ET March 9, 2018

Detroit's demolition program and asbestos: What you need to know Detroit Free Press

The FBI has reviewed a report that suggests bid-rigging and collusion among Detroit demolition officials and contractors, documents obtained by the Free Press show.

Contractors bids to tear down Detroits blighted homes were manipulated, the documents say, as part of a scheme concealed from state overseers yet known by Dave Manardo, Mayor Mike Duggans group executive for operations.

The mayor's office Friday disputed that Manardo knew of the bid manipulation scheme and downplayed the documents' significance, saying issues they raised already have been resolved with the state.

The FBI also was given information about several other red flags, including a $1.3-million demolition contract that an investigator believed was "greased" for Adamo Group to win; possible collusion between demolition contractors and asbestos survey companies, and an 800-square-foot garage that inexplicably cost $22,250 to tear down.

Audit cites DEQ for failed oversight on asbestos

Bid rigging in Detroit? State says maybe, then no

The documents originally compiled by investigators hired by the state before they were turned over to the FBI also include notes of interviews with Detroit demolition officials whom a lead investigator described as evasive in their answers. One state investigator suspected illegal activity during the review, according to his interview notes.

My theory is that bid-rigging practices have inflated the cost of demos, lead investigator Tom Golden wrote in notes taken in July 2016.

Golden, a retired PricewaterhouseCoopers partner who specializes in forensic accounting and fraud investigations, was part of a team hired by the Michigan Homeowner Assistance Nonprofit Housing Corp. (MHA) to investigate the Detroit demolition program's use of federal money.

The MHA, which oversees federal funds available for Detroit demolitions, began its review of the city's blight demolition program in late 2015 as costs skyrocketed and media scrutiny increased.

Overall, the states investigative report provides an unforgiving, troubling assessment of Detroits demolition program. The report also opens a window into what federal investigators are examining as part of their ongoing criminal investigation of Detroits blight demolition program. The status of the federal probe is unclear.

A summary of the states 2016 investigation reads, cumulative evidence suggests: bid-rigging, collusion between DBA/DLB (referring to Detroit Building Authority/Detroit Land Bank Authority) and contractors, collusion between contractors, particularly abatement survey companies.

Duggan spokesman John Roach said in a statement Friday that problems uncovered by the state's investigation were resolved last year in a settlement with the state.

As for Manardo: "Auditors' initial concerns were not substantiated after a full investigation. ... Dave Manardo has Mayor Duggan's full confidence," Roach said.

"While these documents may offer a new look at some of the activities taking place before the (state settlement), there isn't anything here that the city, MHA and Treasury already haven't addressed and you and other media haven't reported," Roach's statement reads.

The state's investigation caused U.S. Treasury to suspend the city's demolition program in the fall of 2016, Roach said. Since then, oversight was strengthened and another $42 million in federal money was released for the program.

The Free Press obtained the states investigation and related documents via a Freedom of Information Act request. The MHA, the state agency that commissioned the investigation, has acknowledged the report was turned over to the FBI and SIGTARP, a federal law enforcement agency involved in the probe of Detroits demolition program.

While the mayor's office expressed confidence the issues have been resolved, a state official familiar with the report said she hasn't heard how it was received by the FBI.

The information was provided to those (federal) agencies," Mary Townley, vice president of the MHA board, said Friday. "They do not share what their future actions are with us. We reported it to them based on our responsibility. Once its in their hands, they dont keep us updated.

The MHA doesn't have the resources to prove whether bid-rigging or collusion definitively occurred, Townley said. She said the state embedded staff within the Detroit demolition program and put other controls in place to make sure problems identified in the report do not happen again.

Government watchdog Robert Davis, who sued the MHA last year for access to documents related to the state's investigation, said he believes the state was withholding release of the documents until after Detroit's mayoral election last November.

"This is the reason why for over a year they've been fighting me to have these documents released," Davis said. "They didn't want this damning information revealed during the election."

Townley said she is not involved in FOIA requests the MHA receives, and the agency does not discuss those requests with the City of Detroit.

About $258 million in federal money has been earmarked for Detroit's blight demolition program. Of that, about $144 million has been spent.

Bid manipulation
The states investigation indicated that Manardo Duggans group executive for city operations was aware of a demolition bid manipulation scheme that was deliberately concealed from state overseers.

The city admitted early last year that contractors demolition bids were manipulated to avoid a $25,000 cap on per-house demolition costs. Records of the states investigation show for the first time that investigators were told Manardo was aware of the scheme as it happened.

Manardo, who previously worked with Duggan at Detroit Medical Center, managed the city's demolition program as executive director of the Detroit Building Authority before moving to his current post in October 2015. Jim Wright, who has since left city government, was his deputy.

As part of the scheme, contractors would shift demolition costs on bid sheets from houses that cost more than $22,500 to other houses in the bid package that cost less than $22,500 to tear down.

(Although the hard cap on each house was $25,000, contractors were told not to exceed $22,500 because $2,500 worth of soft costs for general administration and other things were built into the final cost.)

The bid manipulation allowed contractors to subvert the $22,500 cap on per-house demolition costs while maintaining the same contract price.

State investigators found 10 contracts in which this occurred. They were interested in which city officials knew about the scheme.

Here is a portion of Goldens interview with Wright, who worked under Manardo, with Goldens thoughts in parentheses:

Golden: What does Manardo say about all of this? (Jim again uncomfortable, taking forever to answer but finally does.)

Jim Wright: He knew about this practice. That it was done. There was no malice intent. He wanted to remove the blighted homes at the same contract value. And I agreed to adjust the other properties upwards to make up for the reductions. If the contractors would agree to reduce the price on those properties over the cap then wed agree to shift those amounts to other properties in the same package. Make up the difference. Otherwise, contractors wouldnt tear down those properties. It was not the appropriate way to do it for those properties over the cap amount. It should not have been done that way.

Roach said the mayor's office cannot speak to Wright's statements. "However, auditors' initial concerns were not substantiated after a full investigation, which again, included complete access to all DLBA and DBA computers and documents related to this issue," Roach said in a statement.

The $250,000 mistake
State investigators found several instances of demolition prices changing after a contractor won a bid.

After reviewing documents involved in a particularly troublesome $1.3-million contract awarded to Adamo in 2015, Golden believed the company was wired to get this bid in any case, he wrote in his notes.

Adamo, a Detroit-based demolition company in business for more than 50 years, has been a leading contractor in Detroit's demolition program.

Golden studied the bid documents and Adamos final contract. He also interviewed city demolition officials multiple times about the deal.

My theory was because it just didnt matter what Adamo bid. They were wired to get 2D all along, Golden wrote in his interview notes.

Contract 2D was flagged because investigators discovered a $250,000 mistake in the original bid. Adamo estimated it would cost $253,394 to tear down a single house on Tillman Street. But in the final contract, the demolition cost on Tillman dropped to $38,977, while the costs for nearly all the other houses in the 71-property package increased by exactly 25.9% just enough to spread the original $253,394 cost among the other properties.

Because the demolition cost for the Tillman property exceeded $25,000, the state reimbursed the Detroit Land Bank for only about $21,000. Other city funds covered the remainder. The city's ability to cover demolition costs above $25,000 strengthened Golden's suspicion, he wrote in his notes, that the bid manipulation scheme involving properties that cost more than $25,000 to tear down "was a scam to use federal rather than city funds."

Wright gave conflicting answers about the Adamo contract when quizzed by Golden in interviews in July 2016.

At first he told Golden that Adamo was the lowest bidder among seven companies interested in the job. But Adamo actually was the highest. When Golden asked Wright about the changes in Adamos bid, Wright could not explain why city demolition officials didnt catch the changes.

Here is a portion of notes Golden took of his interview with Wright, with his thoughts in parentheses:

Golden: What I think is that none of this paper matters because everyone here knew Adamo was greased all the way from the beginning and nothing else mattered. That would explain why no one here cared about the Adamo bid mistakes or that they were the highest bidder.

Wright: I get it I know. This one probably not reviewed based on their bid. We were looking for production capacity at that point. We wanted to work with a contractor who we knew would get the job done. (HES SAYING THE BID PKG DIDNT MATTER. Basically the entire bidding process was a sham.)"

Wright abruptly resigned from his city post without a severance package three weeks after his interview with Golden. Wright did not immediately respond to a message seeking comment.

A lawyer for Adamo Group declined to comment.

$20,000 garage demolition
High demolition costs sometimes can be attributed to hazardous asbestos-containing materials inside blighted properties that contractors must remove prior to demolition.

But the state investigators found that one Detroit demolition contractor in January 2016 charged $22,250 about $10,000 more than typical per-house demolition prices just to demolish an 800-square-foot garage that required no asbestos removal.

The contractor, Rickman Enterprise Group, originally proposed a price of $4,260 to tear down the garage.

Land Bank officials had few answers about the discrepancy for state investigators.

When questioned by the team, Martha Delgado read from a script she held in her hand. We removed this property due to internal discussions with the team Pura Bascos determined this property should be pulled from funding, the investigative summary reads. Delgado did not provide any further details when attempted follow-ups were made by the team.

Delgado and Bascos no longer work for the Land Bank. Delgado, who was a compliance grant manager for the Land Bank, left with little explanation in January 2017, about the same time Bascos, who was the Land Bank's demolition director, resigned.

Asbestos cost collusion?
Demolition contractors are given asbestos reports that allow them to calculate removal costs for their bids.

For one Detroit house on Gable Street, Adamo estimated asbestos abatement would cost only $405. The asbestos survey Adamo relied upon for its bid was dated March 24, 2015.

A few months later, a former Detroit demolition official named Aradondo Haskins contacted the asbestos survey company and said asbestos was found at the property. Haskins asked for a revised report to reflect the discovery.

The company, PSI, obliged, changing the survey without updating the date it was issued. A change order for $7,900 worth of asbestos removal was then invoiced, the states investigation found.

An e-mail exchange between Haskins and a PSI representative was included as an exhibit in the states report as evidence suggesting collusion between contractors and subcontractors, particularly asbestos abatement survey companies.

Nothing criminal
Despite damning conclusions the states investigation reached, city and state officials have maintained for more than a year that the review found no proof of bid-rigging or any other criminal activity.

The MHA's investigation ultimately found $7.3 million worth of improper billings from the Land Bank. Most of the problems stemmed from "unit-price" contracts the city drew up in 2014 with input from a select group of demolition firms, including Adamo, Homrich and MCM. The audit found more than $4 million in ineligible payments under the unit-price contracts for backfill and nearly $1 million for asbestos work.

A settlement ultimately was reached between Duggan, the MHA and its law firm, Holland & Knight, in January last year. The settlement called for the Land Bank to pay the MHA $5 million for a chunk of the improper payments identified in the audit and for the MHA to make available $5 million for Detroit demolitions. As part of the settlement, the Land Bank made no admission that $6 million worth of disputed billings were improper.

But SIGTARP the federal watchdog working with the FBI told the state it was interested in the audit. SIGTARP requested in 2016 all of the work documents involved in the state's investigation of the Detroit Land Bank.

Townley, of the MHA, said those documents were turned over to the FBI and SIGTARP at or before a meeting in early 2017.

Townley said the MHA decided to settle its claims against the Detroit Land Bank because doing otherwise could have been unfair to Detroit residents.

The city and Detroit Land Bank had to fund us back. For me, thats a punishment," Townley said. "They had to take something out of their budget. We didnt want to hurt the residents of Michigan for the negative behavior of a few people.

Contact Joe Guillen: 313-222-6678 or jguillen@freepress.com. Follow him on Twitter @joeguillen.
Post Tue Mar 20, 2018 11:54 am 
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El Supremo

State reverses course, says Detroit demo 'bid rigging' never happened
Joe Guillen, Detroit Free Press Published 6:00 a.m. ET Dec. 8, 2017 | Updated 10:36 a.m. ET Dec. 8, 2017

Detroit's demolition program and asbestos: What you need to know Detroit Free Press

A state audit of Detroits blight demolition initiative suspected possible bid rigging last year in the midst of an ongoing federal investigation into the program, according to records obtained by the Free Press.

But a state official involved in the audit said Thursday that the bid rigging suspicions discussed privately in August 2016 ultimately did not turn out to be true.

"We didn't see any bid rigging," Mary Townley, a state housing official who was at a meeting last year where bid rigging was discussed as a possibility, said in an interview Thursday. "It was probably brought up not knowing what we were dealing with until we further completed, or further got into our analysis."

A state analysis released in January may not have specified bid rigging, but it found $7.3 million in improper billings from Detroit seeking federal funds for demolitions, including about $900,000 in billings tied to bid manipulation in which demolition costs were moved from one house to another so that prices did not exceed a cap of $25,000 per house.

The city ultimately agreed to repay $6.3 million of the billings.

More on Freep.com:

Michigan finds $7M wrongly reimbursed demolition costs

Detroit Land Bank to pay state $5 million in settlement over billing

The suspicions of bid rigging arose in the summer of 2016 during a forensic audit of the city demolition program performed by two firms hired by the state Holland & Knight and Ernst & Young. The suspicions coincided with a three-month suspension of the city's federally funded demolition program imposed by the U.S. Treasury.

The possibility of bid rigging was raised at an Aug. 17, 2016, meeting of the Michigan Homeowner Assistance Nonprofit Housing Corporation, or MHA, which began its audit the previous December.

Holland & Knight along with Ernst & Young have been digging deep into the Detroit Building Authority and findings are not very good. Possible bid rigging going on. Funding has been immediately suspended, minutes from the meeting show.

The minutes represent the first known instance of state officials involved in the Detroit demolition program discussing possible criminal activity.Detroit's demolition program has been under heavy scrutiny for the last two years. Following media reports in the fall of 2015 of skyrocketing demolition prices under Mayor Mike Duggan, federal authorities launched a criminal investigation that remains ongoing.

The MHA, along with its partner agency, the Michigan State Housing Development Authority (MSHDA), reviews the city's demolition invoices and approves federal funding for demolitions of vacant, blighted properties in Detroit.

Last week, government watchdog Robert Davis received complete, detailed minutes of private MHA board meetings as part of a lawsuit his nonprofit, A Felon's Crusade for Equality, Honesty and Truth, filed against the MHA in October. The lawsuit seeks to make sure the MHA is subject to the states Open Meetings Act, and it seeks a copy of the states audit report.

Davis gave copies of the MHA meeting minutes to the Free Press. Although the MHA was created by the state to distribute federal funds, it does not consider itself a public body subject to the states Open Meetings Act.

The minutes show the MHA board received regular updates on the state's audit of the Detroit demolition program. While the meeting minutes say bid rigging was believed to be in play, specific contractors or employees were not named.

The audit findings ultimately were given to the FBI and SIGTARP, a federal watchdog tasked with monitoring the federal funds made available to Detroit for demolitions.

Townley, vice president of the MHA board, said she typically updated the board on the state's Detroit demolition audit. She said she likely was the person who brought up bid rigging as a possibility. But on Thursday she could not immediately recall what auditors had found that drove the discussion.

Davis said the records put the federal demolition investigation in a new light. He said Duggan and state officials have misled the public by downplaying the state audit findings. When discussing the findings at a press conference in January, Duggan said he saw nothing to suggest anything criminal was going on in the demolition program.

This is why transparency is so important in government, Davis said. When you have governmental entities conspiring with one another with concealing the truth to the public. The governor and (the state) all shouldve came out when the mayor flat-out lied and said this is more serious.

Duggan spokesman John Roach denied assertions that the mayor misled the public concerning the demolition program.

"Robert Davis is the one who continually says things that are not true and the facts continue to prove that," Roach said.

Erica Ward Gerson, chairwoman of the Detroit Land Bank Authority, said the state audit was thorough.

"At the end of an exhaustive audit process that lasted several months, (the state) did not find any bid rigging," she said in a statement.

"We worked closely with the state to implement a series of new internal controls. Since those improvements were put in place, MSHDA and the Treasury Department have released another $130 million to continue the demolition program and MSHDA has fully released us from any claims regarding the bid process."

Duggan met with state auditors on Jan. 4 in Chicago to discuss the audit that ultimately found $7.3 million in improper billings.

When the audit was released in January, the city agreed to repay only $1.3 million of the improper billings. The city disputed the rest.

"The feds are doing what they should be doing. We have given them, I think, every single document that exists," Duggan said then. "I have not seen anything in this that suggests anyone did anything criminal."

Eventually, the city and the state reached a settlement. The Detroit Land Bank Authority agreed to repay $5 million in outstanding claims of improper billings. At the same time, the state agreed to make $5 million available to the city to pay for more demolitions.

Contact Joe Guillen: 3131-222-6678 or jguillen@freepress.com.
Post Tue Mar 20, 2018 12:08 pm 
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El Supremo

Click on Detroit Channel 4.

Documents reveal state went to FBI about Detroit's demolition program in 2016
State reports possible bid rigging, over-billing by Detroit Land Bank
By Kevin Dietz - Reporter, Derick Hutchinson
Posted: 6:32 PM, December 07, 2017
Updated: 6:32 PM, December 07, 2017
Share Your OpinionShares425
DETROIT - Detroit's demolition program is back on track, as funding has been restored and abandoned homes are being knocked down in the city.

But new documents have surfaced that uncover a big secret. The state of Michigan went to the FBI in 2016 to report possible bid rigging and over-billing by the Detroit Land Bank.

The new documents are part of a discovery in a lawsuit, and they show that the state agency in charge of distributing millions of dollars for demolition conducted an audit, and they didn't like what they saw, so they took it to the FBI.

Detroit Mayor Mike Duggan held a press conference last October to say Detroit make a mistake in the demolition program.

"I was very disappointed by some of the things I learned, and we just need to fix them," Duggan said.

The Local 4 Defenders have learned what was going on behind the scenes. The agency dolling out funds was doing an audit and activist Robert Davis sued to get details.

"The most shocking (thing about) this is the fact that here they are identifying a big rigging issue and they fail to alert the citizens to say, 'Here's the result of our findings,'" Davis said.

These are excerpts from the August meeting memo:

"Update on audit: Have been digging into the Detroit Building Authority and the findings are not very good. Possible bid rigging going on. Funding has been immediately suspended."

"Mayor Duggan has been advised that all funding has been pulled and we are in the process of figuring out who may be involved."

"At this time, nothing has gone to the media, but when and if and should, MSHDA has prepared a statement if needed."

Davis accused the city and state of failing to be transparent.

"Nearly a year to a year and a half ago, discovered there was some possible big rigging going on with the city of Detroit demolition program," Davis said.

In October, there were more revelations.

Here is more from the memo:

"Not sure how long the audit will continue and may continue after all information has been turned over to the FBI investigation."

"Mayor of Detroit will pay back all money due and will not be paid with federal funds."

This is from the December memo:

"Treasury scheduled a meeting in Chicago for Jan. 4 with Detroit mayor, and the outside council. MSHDA will not be attending. There was great concern that no MSHDA officials will be attending and felt that at least one should be involved in this meeting."

The mayor's office said he has been consistently transparent in admitting mistakes, pointing specifically to last October's press conference.

"The speed in which we went outstripped the controls we had in place," Duggan said in October 2016.

The treasury demanded new strict controls, stronger than any other city in the country, and they are clearly satisfied that today all rules are being followed. They recently awarded the city another $88 million for demolition.

Here is a statement from Detroit Land Bank Authority Board Chair Erica Ward Gerson:

"MSHDA had a responsibility to conduct a very thorough audit and consider every possibility, which it clearly did. At the end of an exhaustive audit process that lasted several months, MSHDA did not find any bid rigging.

"We worked closely with the State to implement a series of new internal controls. Since those improvements were put in place, MSHDA and the Treasury Department have released another $130 million to continue the demolition program and MSHDA has fully released us from any claims regarding the bid process."

Here is a timeline provided by a city spokesman John Roach:

June 7, 2016: DLBA board hired Experis-Finance, a management consulting and forensic audit firm, to audit DLBA processes and procedures.

July 2016: DLBA was advised the MSHDA auditors had uncovered potentially ineligible expenses. DLBA board directs Experis to review the ineligible expenses identified by MSHDA.

Aug. 4, 2016: DLBA internal report identifies approximately $1 million in expenses billed to MSHDA that were potentially ineligible for reimbursement; nearly all of which were incurred over a nine-month period between June 2015 and Feb. 2016

Aug. 4, 2016: DLBA sends internal report to MSHDA

Aug. 15, 2016: Treasury suspends Detroit demolition program until additional controls were put in place.

Aug. 17, 2016: MHA meeting at which auditors discuss preliminary findings and express concerns over DLBA practices and indicate funding has been suspended.

August to October 2016: DLBA works with MSHDA to implement new procedures and stronger controls at both the DLBA and DBA.

Two MSHDA employees housed at the Land Bank and Detroit Building Authority.
Established a $5 Million escrow account fund to assure payment of demolition costs not eligible for HHF funding.
Demolition bid packages restricted to no more than 50 houses.
Contractors required to disclose the names of all subcontractors
Contractors required to limit markup work performed by subcontractors by no more than 10%
Oct. 14, 2016 - MSHDA signs off on DLBA/DBA procedures and treasury releases $42 million for Detroits demolition program (HHF 4).

Oct. 17, 2016: Mayor Duggan holds press conference announcing that federal government has released $42 million for Detroit and demolitions would resume and new controls and procedures had been put in place during the suspension.

Oct. 19, 2016: MHA meeting discussed an update on the audit indicating they have identified 50 or more DLBA/DBA staff to interview. Discuss Treasurys release of HHF4 funding.

Oct. 27, 2016: DLBA chair Erica Ward Gerson holds press conference to announce plans to repay MSHDA $1.3 million to cover identified improper billing, but still disputes other overbilling claimed by MSDHA.

Dec. 21, 2016: MHA meeting notes: "Treasury scheduled a meeting in Chicago for January 4th with the Detroit Mayor, and the outside counsel"

Jan. 4, 2017: Mayor attends a meeting in Chicago with MSHDA legal counsel Holland & Knight and auditors Ernst & Young in efforts to negotiate a settlement over the outstanding disputed invoices.

Jan. 31, 2017: Mayor holds press conference announcing partial resolution on MSHDA billing disputes, but plans to go to arbitration to resolve the rest.

May 31, 2017: Treasury Dept. releases $88M in demo funds (HHF5) to the city.

June 22, 2017: Mayor and DLBA Chair Erica Ward Gerson holds press conference to announce agreement with the state to settle billing irregularity issues and the terms of the agreement.
Post Tue Mar 20, 2018 12:39 pm 
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