A lawsuit makes a strong case that J.E. Dunn Construction Company rebuilt downtown with little help from minority businesses
Mark Ernst looked out upon a grateful ballroom. It was December 18, 2003. Then the chief executive of H&R Block, Ernst was holding a news conference at the Hyatt Regency Hotel to announce that his company was moving downtown.
Spurning offers to move to Johnson County, Ernst delighted Missouri politicians (then Gov. Bob Holden attended the festivities) and downtown business interests. Keeping a Fortune 500 company in Kansas City, however, came at a steep price.
Ernst insisted that excitement should surround Block’s new headquarters. So city officials agreed to finance the construction of an entertainment district. The Power & Light District has replaced blight on the south edge of downtown, as was intended, but the developer-friendly agreement has strained the city budget.
H&R Block paid virtually nothing for its oval-shaped headquarters. The city’s Tax-Increment Financing Commission agreed to cover 95 percent of the $308 million cost to buy the land and put up the 17-story tower.
To build its new palace, Block hired the J.E. Dunn Construction Company. Hiring Dunn is a little like rooting for the New York Yankees. Founded in 1924, Dunn is Kansas City’s largest general contractor; on construction sites, the company’s blue signs dominate the competition. At present, Big Blue, as the company is known, is building the Kauffman Center for the Performing Arts, a new headquarters for itself near City Hall, and an ice arena in Independence.
Company founder John Ernest Dunn played semiprofessional baseball — he pitched in the Pacific Coast League — before becoming a residential contractor. When he died in 1964, an obituary noted the time and money he had given to Catholic causes, as well as the marks that Dunn Construction had left on the city, including the Wayne Miner housing project and the Kansas City, Missouri, police headquarters.
Upon his death, one of Dunn’s four children, William H. Dunn, assumed control of the company. Dunn Construction flourished under second-generation leadership. The company built Shawnee Mission Medical Center, Penn Valley Community College, Corporate Woods and Kemper Arena (the roof of which collapsed during a severe storm in 1979).
Dunn Construction did not like to lose high-profile projects. In 1983, fuming at the way the city had awarded the contract to build Barney Allis Plaza, Bill Dunn sent a letter to Mayor Richard Berkley suggesting that the days of Tom Pendergast had returned. Not impressed with Dunn’s historical reference, a city councilman, Bobby Hernandez, complained about a lack of minority subcontractors working for Dunn on the Vista International Hotel (now a Marriott).
Questions about minority participation persisted with the construction of the Town Pavilion skyscraper. The project received government assistance, enabling the city to set a goal that 15 percent of the subcontracts go to minority firms. When, in 1986, it appeared that Dunn Construction would not reach the target, the chairman of the Minority Contractors Association of Greater Kansas City, Elbert Harris, publicly faulted the company. Minority contractors also complained that one of the largest affirmative-action contracts went to a company which was based in Virginia and run by a Spaniard.
The criticism wounded Bill Dunn. He ended his role as an adviser to Harris’ minority contractors group. A few weeks later, after Berkley and others had asked him to reconsider, Dunn withdrew his resignation.
Ultimately, Town Pavilion achieved only 7 percent minority participation. The city applauded Dunn for making an effort to divide bid packages into small pieces, giving more minority firms a chance to participate. At the same time, the city’s Human Relations Department isolated three minority contractors who had served as fronts for white businesses.
In one instance, a minority-owned plumbing company supposedly installed $700,000 worth of fixtures. The city determined that the business had no warehouse space. Dunn officials said they had no knowledge of the falsely reported participation.
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For Dunn, ignorance continues to serve as a defense.
A group of Hispanic contractors filed a lawsuit in 2005 alleging that Dunn had made a mockery of the city’s affirmative-action policy while completing the H&R Block Building. In one instance, Dunn awarded a $3 million contract to a minority electrician who lacked the required expertise. A Dunn representative says the electrician duped the company.
The lawsuit, which is still being contested, has received attention from the media as well as the city. Last December, the city’s Human Relations Department recommended that the TIF Commission not pay H&R Block for the $3 million electrician’s contract it would otherwise have reimbursed.
Pleased to see some action being taken, the Hispanic contractors say the use of fronts is more widespread than anyone in power wants to acknowledge.
Reforming the system is not easy, however, in part because victims of the scam are also participants. Minority businesspeople may hate being used by white-owned companies. But at least the jobs pay a little.
While extravagant, the subsidies that helped H&R Block move its headquarters north three and a half miles came with conditions.
Developers who benefit from tax-increment financing and other forms of assistance pledge to hire minority- and women-owned businesses. Construction goals for the Block Building were set at the standard 15 percent for minority-owned and 7 percent for women-owned subcontractors.
J.E. Dunn, Block’s contractor, made an attempt at outreach when it asked Armando Diaz to consider bidding on masonry work.
Diaz tempered his excitement. He’d had a long and, by his measure, not very satisfying relationship with Dunn. He had worked at the company from 1986 to 1991. While on Dunn’s payroll, Diaz learned about concrete and stone and how to develop scopes of work (the divisions of tasks necessary to move from groundbreaking to ribbon-cutting). He quit, feeling he had been underpaid.
Diaz went into business for himself. In a way, he still answered to Dunn. If they wish to stay busy, owners of small construction companies must work for Dunn as subcontractors.
Dunn drives a hard bargain. In the mid-1990s, Diaz bid on masonry work at the Swope Parkway Health Center, which Dunn was building. Diaz says he got the job with the condition that he rent scaffolds and other equipment from Dunn. Diaz arrived on-site and found that Dunn had sent what seemed to be the oldest forklift in its fleet. “It looked like a dinosaur,” he says.
Years later, Johnson County Community College officials asked Dunn to build a museum. Diaz says he submitted the low bid to do the masonry on certain parts of the project, only to watch Dunn do the work. Diaz was familiar with this routine. He could recall a former supervisor at Dunn who had said, “We’re like pigs. We have to have it all.” (General contractors can earn more profit on a project if they know economical ways to complete some of the work.)
Leery from past experience, Diaz went ahead and bid on the H&R Block headquarters on January 13, 2005. Diaz thought he was in position to get the contract. Marvin Carolina Jr., Dunn’s director of diversity, led him to believe that the job was his, he says.
But Dunn said the bids it received were too high. Dunn then re-scoped the work and asked for new proposals. Ultimately, Dunn performed most of the work. Diaz did not bid on the amended package, thinking it futile.
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At the time, Diaz was president of the Kansas City Hispanic Association Contractors Enterprise. He spoke with some of the members of the group about the Block Building. None had been awarded subcontracts.
Frustrated, Diaz filed a lawsuit on August 26, 2005, against the city, the Tax-Increment Financing Commission, H&R Block and J.E. Dunn.
Its final outcome is yet to be determined, but the suit has rattled Dunn and has exposed the weaknesses in a monitoring system that doesn’t ask for much more than tidy paperwork. With access to Dunn’s files through the discovery process, Diaz has turned up compelling evidence that several minority fronts worked on the Block project.
Officials at J.E. Dunn insist that they made an earnest effort to hire minority businesses. A lawyer working for Dunn has called the Hispanic contractors “disgruntled,” which Bill Torres, current president of the Hispanic contractors association, says is true to a point.
“We are disgruntled,” he says. “but we’re disgruntled about the process. We’re disgruntled about the fact that there’s a lot of front companies being hired to do work on these jobs.”
The brass at J.E. Dunn Construction knew, from the beginning, that a white contractor was going to perform work that would eventually be attributed to a Latino.
On November 16, 2005, Trent Wachsnicht, a project manager at Dunn Construction, wrote a memo to Steve Dunn, the company’s vice chairman, that pertained to H&R Block’s headquarters. Wachsnicht referred to yet an earlier memo, in which Dunn was asked to evaluate R.F. Fisher Electric Company for a $2.33 million subcontract for data and communication cabling.
Wachsnicht informed Dunn that R.F. Fisher had “teamed up with Rodriguez Electrical to provide 100 percent MBE [minority business enterprise] participation.” But not long after the cabling work began, a contract compliance officer in the city’s Human Relations Department, Shelley Brown, visited the H&R Block construction site and saw R.F. Fisher’s trucks. Brown asked Dunn Construction officials about R.F. Fisher’s role in the project. So Dunn officials asked Rodriguez to clarify his participation.
Rodriguez allegedly faxed a letter on March 13, 2006, in which he assured Wachsnicht that he was “100 percent involved in this project.” He had hired R.F. Fisher to install a cabling system, explaining that R.F. Fisher was needed because a manufacturer’s warranty required certification that he lacked. And although his work on-site was limited, Rodriguez said he was in control of procurement, shipping and delivery.
The document was signed with an electronic signature. Rodriguez Electrical’s fax number appears in the time and date stamp at the top of the page.
Dunn Construction shared the fax with Brown at City Hall. Dunn representatives say Brown did not follow up, which led them to believe that the document had addressed his concerns.
Rodriguez, however, told a completely different story in a sworn affidavit the following year.
His two-page statement, which was marked “Exhibit E” in the Diaz case, was made on July 13, 2007. In it, Rodriguez said R.F. Fisher approached him about a bidding strategy, wherein R.F. Fisher would bid on the job through his company. Rodriguez said he was not given the opportunity to perform some of the work, despite his requests.
Dunn approved the strategy, Rodriguez continued, with the understanding that Rodriguez would endorse the checks and turn them over to R.F. Fisher. Rodriguez says he received a cut of $66,892.73 of the nearly $3 million that Dunn paid after change orders were made to the original agreement.
In an interview with the city’s Human Relations Department, Rodriguez stood by the story that he was a front. He also disavowed knowledge of the 2006 fax.
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Discovery in the Diaz case has turned up paperwork supporting Rodriguez’ assertion that his chief contribution to the Block project was his minority status.
On February 25, 2006, Rodriguez sent an invoice to Dunn for $16,630. On the same day, Rodriguez Electrical and R.F. Fisher jointly invoiced $789,140.
Copies of checks indicate that R.F. Fisher deposited the big-dollar payments from Dunn. In the case file are checks from R.F. Fisher to Rodriguez in various amounts (none larger than $30,000), at times coinciding with Dunn’s payments to the “joint” venture.
Dunn’s lawyer, Jim Sullivan, tells The Pitch that Dunn knew R.F. Fisher was working with Rodriguez. Sullivan says the checks were made out to both companies on some occasions because Dunn “wanted to make sure that Rodriguez paid its subcontractor.” Sullivan says this is standard practice.
As for the fax, Sullivan says there is no evidence that it isn’t genuine. Sullivan says the fax agrees with a stack of documents in which Rodriguez (or at least his signature) reports to Dunn on the status of the project.
The Hispanic contractors insist that Rodriguez, who hasn’t talked to Dunn’s and Block’s lawyers, much less the media, told the truth when he said he was fronting for a white contractor. Moreover, they say, Rodriguez was not alone in lending his ethnicity (or gender, as the case may be) to the Block development.
H&R Block, the developer of record, filed paperwork on August 31, 2006, indicating that minority- and women-owned businesses performed $26.4 million worth of the construction work. The amount represented 20 percent of the construction costs. Diaz and his lawyer, Scott Hofer, said Block overstated minority participation by $11.5 million.
Diaz and Hofer came up with that figure by scrutinizing the minority-utilization reports against the checks Dunn Construction had written to various vendors. They claim that the woman-owned Gateway Building Products (Jane Weiland, president) served as a pass-through for a steel company that received $2.7 million.
Another woman-owned business, Eg-Tech, supposedly supplied $1.4 million in switchgear. Diaz and Hofer assert that Eg-Tech is an engineering consultant, not a supplier, and that Capital Electric actually performed the work. (Indeed, Eva Hernandez runs Eg-Tech out of her bungalow in the West Plaza neighborhood. She and Weiland declined comment.)
Block reported paying DELL Plaster & Drywall $621,534. Lowell Dixon, the owner of DELL, came forward a year later (much as Rodriguez had done) and stated in an affidavit that a majority contractor, Total Interiors, had told him what to bid and had added materials to his contract. Dixon said he was paid $202,712. (Dixon did not return calls.)
Gabe Perez, a member of the Hispanic contractors group, says Dunn hired some of the minority businesses knowing that they’d be handling invoices and not much else. Perez calls Rodriguez Electrical a “one-man shop.” Yet it wound up with a multimillion-dollar contract.
“That’s like hiring a deck guy to put the Sprint Center up,” he says. “Come on.”
Alex Harris pulls a yellowed newspaper clipping from a desk drawer. It’s an advertisement for Ray Harris & Sons, a contracting business. Harris began working for his father at age 9. “I couldn’t play football or basketball because my father had me hanging wallpaper,” Harris says.
Today Harris is in his late 70s, and he continues to work, running a not-for-profit agency that assists small construction companies. The National Association of Construction Contractors Co-operation is headquartered near 63rd Street and Oak. Harris works at a desk underneath a crumbling drop ceiling. An argyle sweater hangs loosely from his shoulders.
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As a younger man, Harris battled for minority businesses. He uses the term “militant” to describe his stance. “I raised a lot of hell,” he says.
In 1971, Harris interrupted a meeting in which contractors submitted bids to build Penn Valley Community College. Harris, the construction manager of a group called Mo-Kan Contractors, wanted to make sure that minorities received a fair share. According to a newspaper account, he sat on a desk and said, “There’ll be no bidding openings tonight.”
Police put Harris in handcuffs and dragged him out of the room. He and two others were charged with disturbing the peace. “I became a young man with a record for speaking up for people’s right to participate,” Harris says.
Harris eventually became Mo-Kan’s regional director. At its zenith, the organization reached into Nebraska, Iowa and Arkansas. The group used all manner of tactics. “I tore up buildings all across the country,” Harris says. “Physically tore them up.”
Mo-Kan, which received city funding, came undone in the mid-1980s. There was IRS trouble. Newspaper stories linked Mo-Kan to failed savings and loans. Contractors complained that they were required to pay $2,000 to get on Mo-Kan’s “gold list.” Harris blames “a whole lotta politicism” for the group’s downfall.
After Mo-Kan, Harris worked for the International Union of Operating Engineers. Then, in 1990, he went to work for J.E. Dunn as a consultant on minority affairs.
Harris credits Bill Dunn for correcting his “tunnel vision” — for helping him see the city as something more than pieces of turf to fight over. Harris worked for J.E. Dunn for 10 years. “The Dunns are like a family to me,” Harris says.
Dunn representatives say the company’s record on diversity is a long history of outstanding performance. Bill Dunn and other company officials have received dozens of awards over the years. In 1996, the Kansas City Hispanic Association Contractors Enterprise even recognized J.E. Dunn with its Amigo Award.
Of course, Dunn officials have direct and indirect control over some of the organizations that give the company plaques. The MidAmerica Minority Business Development Council, for instance, once named Bill Dunn its CEO of the year. Steve Dunn and William Dunn Jr. have served on the development council as officers and directors, according to the registration reports available from the Missouri secretary of state.
J.E. Dunn’s sway also comes from its ubiquity on the construction scene.
The Pitch tried to reach several contractors alleged to have been used as fronts on the H&R Block Building. They ignored calls or turned down interview requests.
Even general discussions about pass-throughs seem to be off-limits. Carlos Gomez, the president of the Hispanic Chamber of Commerce, and Leonard Graham, who heads the Kansas City Society of Black Architects and Engineers, did not respond to interview requests.
The apparent reluctance to speak may have something to do with the power wielded by a contractor with $2.7 billion in revenues. As Harris puts it: “The J.E. Dunn Company is the star of the show in Kansas City.”
Armando Diaz says minority contractors expressed support when he first challenged Dunn. But once the lawsuit got filed, he says, “People would call and say, ‘Why are you doing it?'”
Minority contractors, Diaz says, have little to gain by standing for purity when it comes to compliance. “They’re afraid,” he says, “afraid of losing work.”
Silence, of course, allows general contractors to be lazy about meeting minority-participation goals. If they played by the actual rules, minority businesses would be banking $3 million contracts instead of $60,000 crumbs.
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Diaz shut down his masonry operation. He plans to start a general-contracting business, which should lessen his reliance on Dunn and other large firms.
Rodriguez Electrical’s phones are disconnected; the name of the business has been forfeited. Bill Torres notes that Rodriguez hasn’t belonged to the Kansas City Hispanic Association Contractors Enterprise for some time, but he has been led to believe that Rodriguez continues to work as an electrician. “We have no control over him,” Torres says.
On December 4, 2007, a judge ruled against Diaz, while recognizing that Diaz had made a pretty good case that the minority participation on the H&R Block Building was a lie.
Charles Atwell, a Jackson County circuit judge, said in his ruling that the plaintiff had presented “meaningful evidence, although controverted” that certifications on the Block job were “inaccurate, false or misleading.” The facts, Atwell said, also suggested that the city and the TIF Commission should have been more diligent.
Just the same, Atwell denied Diaz’ petition on grounds that Diaz lacked standing, ruling that Diaz Construction was a third party without enforceable rights. Diaz filed an appeal. Hofer, his lawyer, has narrowed the list of defendants to H&R Block, the company ultimately responsible for Dunn’s compliance. He argued the case before the state appeals court last fall and awaits a ruling.
Though the Block headquarters has been finished for nearly three years, city officials are trying to figure out what to do. The Human Relations Department is currently determining whether Block and Dunn made an honest effort to secure women and minority participation. The stakes are high. The TIF Commission could force Block to pay damages, in addition to subtracting $3 million (the value of Rodriguez Electrical’s “work”) from the costs that Block is eligible to recover under the TIF statute.
J.E. Dunn objects to any finding that it did wrong. In a letter to the city, the company said it was “completely bewildered” by Rodriguez’ denial that he authored the fax in which he stated his commitment to the project.
Officials at J.E. Dunn brush off the suggestion that they had played dumb about Rodriguez’ ability to do the job. “I can assure you that no general contractor or developer has the resources or is under any obligation to micromanage a subcontractor to this degree,” Thomas Whittaker, Dunn’s in-house lawyer, wrote in the letter to the city.
John Crossley, an attorney for H&R Block, and Sullivan, Dunn’s lawyer, shared a lectern in January to address the TIF Commission during its monthly board meeting. Crossley reached into a black satchel and pulled out a hunk of correspondence in an effort show the commitment made to the minority-contracting policy. “Everything went according to plan,” he said.
Sullivan suggested that the city should have challenged the cabling work when inspector Shelley Brown was on the case. Referring to the fax in which Rodriguez authenticated his involvement, Sullivan said, “It’s not like we submitted the letter and never saw the man [Brown] again,” he said. (Brown no longer works for the city.)
In Sullivan’s telling, the villain was Rodriguez. “I think that we have a situation where we were all duped, if in fact Mr. Rodriguez didn’t do the work that he said he did,” he said. Sullivan omitted a few salient facts. While noting that J.E. Dunn had written checks to Rodriguez, Sullivan neglected to mention that R.F. Fisher’s name had also appeared on the “pay to the order of” line.
The “duped” comment sounded ridiculous to Bill Torres and Gabe Perez, who also attended the meeting. “I’ve been on a Dunn site,” Torres said afterward. “I can attest, they watch every penny. They watch everybody.”
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Perez added: “These guys knew before the first shovel was turned how this was going to do down.”
Torres and Perez found it easy to criticize J.E. Dunn. Criticizing Rodriguez presented more difficulty. Asked to vouch for him, Perez called him “a qualified electrician.”
A reporter suggested to Perez and Torres that Rodriguez had collaborated.
But Torres wasn’t going to go there.
“Who’s got the power?” he asked.
A worker wearing a hooded sweatshirt under his hard hat pinches snuff from a plastic tin. He puts the tobacco in his mouth, tosses the empty container over his shoulder and reaches for a socket wrench.
It’s a partly cloudy afternoon in late February. The worker is among a group of men preparing the machinery arm of a tower crane, a massive apparatus that will assist with the construction of the West Edge, an office, hotel and retail development just west of the Country Club Plaza.
J.E. Dunn walked off the job last fall. Big Blue said the development company, which is led by advertising executive Bob Bernstein, asked for changes that inflated the project’s costs. (An arbitrator ruled last month that both parties abandoned the construction agreement.)
The West Edge, like most significant developments in Kansas City, benefits from tax-increment financing, and TIF money means meeting diversity goals.
At around the time that Dunn and Bernstein parted ways, the city told the TIF Commission’s subcommittee on affirmative action that the West Edge had not tried hard enough to hire minority subs. At the time, minority-owned businesses had performed 6 percent of the construction work — well short of the goal of 15 percent.
The city nullified all but only $838 of a $1 million contract attributed to ABS Concrete Pumping. The city determined that ABS, a minority-owned business, had not actually performed the work.
ABS Concrete also had a contract to work on the Block headquarters. The Hispanic contractors allege that ABS Concrete functioned as a front on that project, though the city determined that “nothing improper” occurred in the execution of the contract. (Arthur Still, the company’s owner, did not return phone calls.)
What looks like clear fraud to the Hispanic contractors may not seem as obvious to city officials. At the same time, there’s little doubt that the H&R Block controversy has caused the Human Relations Department and the TIF Commission to adopt a tougher stance with developers and their general contractors.
Earlier this month, Bernstein and representatives from Walton Construction, Dunn’s replacement, met with the subcommittee on the 17th floor of Town Pavilion, headquarters of the Economic Development Corporation, the city-funded agency that administers TIF.
Seated at a conference table, Bernstein seemed genuinely embarrassed. “This is one that took me back,” he said. Bernstein acknowledged that minority businesses had not been well-served, and for this he apologized.
Minority hiring isn’t Bernstein’s only problem. The West Edge is going to miss its projected opening date by a year and a half. Final budget: unknown. “We’re finding ourselves really behind the eight ball as far as costs,” Bernstein said.
Steve Julo, a project executive at Walton, then explained that Walton had invited 60 disadvantaged businesses to bid on the remaining work at the West Edge.
Walton made an effort to distribute work that J.E. Dunn had planned to complete with its own crews. Walton’s construction managers broke the scopes of work into smaller pieces — a traditional method of expanding opportunities for small suppliers. Julo reported that, in all, Walton had awarded more than $10 million in contracts to minorities and women.
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