McHugh to pay $12M in whistleblower suit
Construction firm allegedly part of subcontractor scam
By: Jason Meisner, Chicago Tribune: May 1st, 2014
Project manager Ryan Keiser has a passion for building big, so he was thrilled eight years ago when he joined a suburban firm that partnered with clout-heavy McHugh Construction on major projects like bridges, highways and rapid transit infrastructure.
But he quickly learned that working construction in Chicago didn’t necessarily mean building anything. Keiser said he was instead forced to participate in a subcontracting scam, spending his days falsifying purchase orders, labor hours and other paperwork to show that his company – which was owned by a woman – was doing jobs that were actually being handled by McHugh.
”Instead of working with a team to build a bridge, I was forced to produce documents that were misleading,” Keiser, 42, said of his job at Perdel Contracting Corp.
He said that when he raised the issue with his boss, Elizabeth Perino, he was abruptly fired.
And that’s when Keiser went from project manager to whistleblower.
On Thursday, authorities announced that McHugh – a century-old company that reported more than a half a billion dollars in revenue last year – had agreed to pay $12 million to settle Keiser’s 2008 whistleblower lawsuit. His allegations had prompted a joint investigation by federal prosecutors and Illinois Attorney General Lisa Madigan.
The probe involved about $150 million in McHugh contracts on some of the biggest recent public works projects in the Chicago area, including the reconstruction of Kennedy Expressway ramps in 2005, the massive 2006 revamp of the CTA Brown Line, the reconstruction of the North Avenue Bridge in 2006 and the 2010 Wacker Drive viaduct reconstruction.
Under laws designed to give companies with less clout a foot in the door, McHugh was supposed to subcontract out about $40 million of the work on those projects to businesses owned by women or minorities.
Most of the subcontracts were given to Perdel Contracting and Accurate Steel Installers, another firm owned by Perino.
McHugh admitted no wrongdoing and will not be barred from winning future government contracts. The company agreed to implement a compliance program and have an independent monitor oversee its subcontracting process for three years.
McHugh will also donate $2 million to the city to support government programs for disadvantaged businesses.
Under whistleblower laws, Keiser, a downstate Illinois native who joined the military after he was fired by Perino in 2007, stands to collect 17 percent of the settlement – or $2.04 million.
At a news conference at the Loevy and Loevy law firm offices on the Near West Side, Keiser’s attorney, Mike Kanovitz, acknowledged that a $12 million hit is unlikely to make an immediate dent in the world of construction deals.
Kanovitz also blamed the city’s lax oversight and ”bad whistleblower culture” for fostering an environment where fraud is rampant.
“They don’t want the system to change,” Kanovitz said. “But this is a first step. It takes guts to stand up and say, ‘Hey, wait a minute, everyone can see what’s going on here.”
McHugh Chairwoman Patricia McHugh said in a statement Thursday that she was “pleased we were able to reach a successful resolution with the government and put this matter behind us.”
In a letter to employees posted on its website, McHugh said it “recognizes the seriousness of the allegations” but disputed “any suggestion that we intentionally disregarded the requirements of (disadvantaged business) programs.”
The investigation came to light in February 2012, when federal prosecutors unsealed charges against Perino alleging she acted as a “sham pass-through” subcontractor for McHugh, which was identified in the charges only as ”Prime Contractor A.” The charges are still pending against Perino, 59, of Willowbrook.
U.S. Attorney Zachary Fardon said in a statement he hoped companies would learn from the settlement that in end it’s more costly to try to circumvent minority subcontracting laws than to “simply comply with the requirements.”
Keiser said he wasn’t so naive to think the construction industry was corruption-free, but it was stunning to see fraud happening “right out in the open” and everyone turning a blind eye.
”I wanted to think the best, but that stuff was just making me sick,” Keiser said.