This article comes to us courtesy of the Center for Investigative Reporting.
By Lance Williams
The federal government spent an extra $10 million to relocate the tracks of the famed Napa Valley Wine Train tourist attraction here because it didn’t seek competitive bids, according to lawsuit testimony.
Two fired executives who worked on the $79.2 million flood control project in downtown Napa testified that taxpayers had paid a hefty premium for the U.S. Army Corps of Engineers’ decision to forgo competitive bidding.
In an apparent rush to get work under way, the corps in 2008 steered the Wine Train contract to a small Alaska construction company called Suulutaaq Inc., records show. Under a program to assist Alaska Natives, the company was eligible for federal contracts without competitive bidding.
According to the former executives, Suulutaaq learned it was reaping a windfall from a painstaking financial review of the Wine Train project done by the giant Kiewit Corp. construction firm, a major subcontractor on the job. Kiewit officials scrutinized the contract “line item by line item, detail by detail, even the hours on a particular feature of work,” as former CEO Greg Poynor put it.
“They came back and said we are DNO — we are dead nuts on,” Poynor said in a 2010 deposition. “And we’re going to make — I think the quote they used was ‘obscene profits,’ 10 million bucks, without change orders. And they were — we knew change orders were coming up.”
Former chief of construction John Smithson gave similar testimony.
Change orders, also called contract modifications, involve additional work and payments that weren’t specified in the original contract. Modifications on the Wine Train project have amounted to more than $14.4 million, a government spokesman said. Since the Wine Train project got underway, costs have risen by more than 20 percent — from $64 million to more than $79 million.
Poynor and Smithson were fired in 2009, accused of defrauding Suulutaaq by mischaracterizing the status of a construction bond for an unrelated project in Arizona. The men denied wrongdoing, but an arbitrator upheld their firing. They are suing in an effort to obtain severance pay.
In an interview and e-mails, a Suulutaaq official said Poynor and Smithson couldn’t be trusted, and he denied that the government had overpaid on the Wine Train job.
“There wasn’t an obscene amount of money on the job, by any means,” said Suulutaaq General Manager Tracy Crain. He called Poynor and Smithson “proven fraudsters” and said they made false allegations about the Wine Train contract “to cover up or justify their own malfeasance.”
The year after they were fired, the two men testified in a breach-of-contract lawsuit filed against Suulutaaq by a California firm called BostonPacific, which worked on the Wine Train project as a construction manager. Their testimony gives new insights into the Wine Train track relocation, which is among the most controversial federal stimulus projects in California.
In 2008, the corps awarded the Wine Train contract without competitive bidding. Suulutaaq negotiated a $64 million contract price — the biggest construction project it had ever done, Poynor testified. The company then lined up Kiewit to do heavy construction work on a subcontract that has paid out more than $33 million, records show.
Suulutaaq didn’t have the financial assets to obtain a $64 million construction bond for the project, the executives testified. So, Kiewit offered to indemnify the bond. That meant that Kiewit ultimately would be responsible if Suulutaaq failed to complete the work.
As part of its due diligence, Kiewit examined the Suulutaaq contract in detail. Poynor said Kiewit’s hypothetical bid price included “all their overhead and profit and everything, which is huge.” Their total price was $10 million less than what the government agreed to pay Suulutaaq, he said.
A Kiewit spokesman had no comment on this account.
The project, which is still under way, required construction of a new bridge over the Napa River for the Wine Train, a private rail line that transports tourists aboard restored dining cars, serving gourmet dinners that can cost $139 per plate.
In 2009, two U.S. senators, John McCain, R-Ariz., and Tom Coburn, R-Okla., ridiculed the Wine Train as one of the 100 most wasteful stimulus projects in the nation, calling it “silly and shortsighted.” Widespread criticism followed.
Local officials defended the project as critically important for flood control. A press aide to President Barack Obama called it a “jobs-creating flood protection project.” At its peak, in fall 2010, federal stimulus funds were paying the wages of 90 workers, federal records show.
The Corps of Engineers has defended the no-bid contract, telling the Government Accountability Office that it “accelerated the completion of the flood control project,” records show. That saved taxpayers money by cutting overhead costs and cost increases due to inflation, Corps spokesman Chris Gray-Garcia said in a statement.
Federal records show the cost of the Wine Train project has risen steadily since the government awarded Suulutaaq the contract in 2008.
In 2009, government websites reported the contract was $53.9 million, but that reflected only federal stimulus funds, a Corps spokesman said. The total contract price is now $79.2 million, including $15.7 million in nonstimulus funds.
Robert Brosamer, a Walnut Creek engineering contractor who had hoped to bid on the Wine Train job, said it was no surprise that the project has proved costly. That’s what happens without competitive bids, said Brosamer, whose company built a prior phase of the Napa flood-control project.
“That’s how those deals are,” he said, “and they are obscene.”
In 2010, after California Watch reported on the Wine Train project, Suulutaaq sued the Center for Investigative Reporting, claiming its news story conveyed “the false and defamatory conclusion that the government overpaid for the Napa contract.” It dropped the lawsuit last year.
Suulutaaq settled BostonPacific’s lawsuit out of court in 2010. The firing of Poynor and Smithson led to a prolonged legal wrangle.
In 2011, an arbitrator ruled that Suulutaaq was justified in firing the men because they had committed “civil fraud” in connection with the company’s pursuit of a $11 million contract to build a U.S. Border Patrol headquarters near Tucson, Ariz.
The two executives had told their board of directors and the government that Suulutaaq had a construction bond “in hand” for the project, the arbitrator wrote. That enabled Suulutaaq to obtain the no-bid government contract.
But at the time, the two executives were still trying to obtain a construction bond, the arbitrator found. The project was delayed for four months as a result, he said.
The statements about the bond were fraud, and a violation of their employment contracts, the arbitrator ruled. The arbitrator also cited two additional acts that he said amounted to fraud.
On the Wine Train project, Poynor awarded an “inflated” $3 million subcontract to a surveying company where his son worked and initially didn’t disclose the potential conflict to the board of directors, the arbitrator said. Meanwhile, Smithson had backdated a signature on Suulutaaq’s subcontract with the BostonPacific construction management firm, the arbitrator ruled.
The arbitrator refused to grant the fired executives severance pay and ordered them to pay Suulutaaq almost $700,000 in legal fees.
Poynor and Smithson sued, contending that the arbitrator had ignored evidence that they did nothing wrong. They said that in meetings, phone calls and an e-mail, they repeatedly told Suulutaaq’s board of their problems getting a bond for the Tucson project.
In addition, they said that the Suulutaaq executive who fired them had conceded in deposition testimony that neither Poynor nor Smithson had intended to defraud anyone in connection with the Tucson contract.
They contended that Suulutaaq didn’t lose any money as a result of the delay in obtaining the construction bond in Arizona, the allegedly backdated contract, or the hiring of the company that employed Poynor’s son.
Lance Williams is an investigative reporter for California Watch, a project of the nonprofit Center for Investigative Reporting. Find more California Watch stories here.