J.E. Dunn pays $1.1 million to make minority-contracting complaints go away

What’s the price of a lie? For the city’s largest general contractor, a little extra effort.

J.E. Dunn Construction Co. agreed last week to find $1.1 million in work for businesses owned by women and minorities as it puts the finishing touches on its taxpayer-assisted headquarters downtown. The agreement puts an end to the nastiness created when Dunn used front companies to meet diversity targets on the construction of H&R Block’s world headquarters.

A group of Hispanic contractors exposed the practice. In 2005, they filed a lawsuit alleging that Dunn had overreported the participation of women and minorities by $11.5 million.

Some of the evidence was bracing. In one instance, Dunn awarded a $3 million contract to a minority electrician who lacked the required expertise. The electrician, Ralph Rodriguez, received $66,892. The rest of the money went to R.F. Fisher Electric Co., whose bid Dunn had accepted before it “teamed up” (as a Dunn project manager put it in a memo) with Rodriguez to provide the patina of minority participation.

The Hispanic contractors lost their case on technical grounds. But the documents they found in discovery could not be ignored (“Dunn Deals,” March 19).

Ultimately, the city conducted an investigation. City officials had jurisdiction in the matter because the project benefited from tax-increment financing, an incentive in which taxpayers help developers recoup their costs.

The subsidies — crazy generous in the case of the Block headquarters — come with conditions. Developers who receive TIF and other forms of city assistance pledge to hire a diverse workforce and subcontract with minority- and women-owned businesses.

Think affirmative action is stupid or outdated? OK. But a contract is a contract. H&R Block’s TIF deal required Dunn to award roughly $26 million of the construction budget to minority and women subcontractors.

The question of whether Dunn complied ultimately centered on the deal with Rodriguez Electrical.

The city’s Human Relations Division concluded that Dunn had not entered into the arrangement in good faith. (Rodriguez signed an affidavit in 2006 outlining his role as a patsy. He has made no other public comment.) This, the city said, constituted a direct violation of the TIF Commission’s affirmative-action policy.

H&R Block cut the ribbon on its headquarters in 2006. The city did not formally object to the Rodriguez contract until 2008. Without it, Dunn fell short of the 15 percent target set for minority subcontractors — with no obvious way to reach compliance.

Dunn and H&R Block sent lawyers to the TIF Commission to state their innocence. One of Dunn’s attorneys said Rodriguez had “duped” everyone. The companies also argued that the city’s vigilance had come a little late in the game.

The lawyers appeared at multiple TIF Commission meetings. They were generally the ones wearing the darkest and best suits. They pulled papers from briefcases stout enough to accommodate old typewriters.

A lot was on the line. H&R Block faced a potential multimillion-dollar penalty for failing to reach the diversity target.

Members of the TIF Commission, who volunteer their time, allowed the matter to drag along. I hesitate to say they were intimidated by the battalion of lawyers. But Block’s and Dunn’s representatives gave the impression that a multimillion-dollar penalty was unlikely to be met with grace and an apology. Threat of litigation is a powerful deterrent.

The commissioners were also tasked with passing judgment on two pillars of the business community. H&R Block is the largest corporation within city limits. Terry Dunn, the president of J.E. Dunn Construction, chairs the board of the Civic Council of Greater Kansas City, an influential group of Kansas City CEOs.

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Chairman Ron Yaffe and the other TIF commissioners asked the right questions. They seemed to grasp the most important element of the case: Dunn’s complicity in the use of fronts or pass-throughs.

H&R Block, the official developer, bore ultimate responsibility. But Dunn is the real story. The company’s blue signs surround most major projects in Kansas City. Dunn even employs a diversity director, Marvin Carolina Jr., to handle compliance issues.

A different project gave the TIF Commission reason to believe that the “brown washing” on the H&R Block job was not an isolated incident. A year ago, the city determined that a minority concrete supplier had acted as a pass-through at advertising-magnate Bob Bernstein’s West Edge
project near the Plaza.

The project’s general contractor? J.E. Dunn. Or at least it was. The contractor’s crews walked off the job last September after Dunn and the West Edge development team reached an impasse over cost overruns.

The TIF Commission elected not to hammer Bernstein. (I think they felt sorry for him; the project sought Chapter 11 bankruptcy in May.) As a rule, the city and its agencies do not pursue “liquidated damages” — compensation in cash — when a prime contractor fails to reach diversity targets.

H&R Block provided a test. Here was a high-profile project and an instance of obvious fraud. (It was embarrassing to watch Dunn officials suggest that Ralph Rodriguez had played everyone for a fool.) What would the TIF Commission do?

Offer a light sentence as a plea bargain.

“I believe this is the right thing to do,” Yaffe said after the TIF commissioners emerged from a closed-door meeting. He opened the floor to public comment. No one spoke.

Bill Torres, president of Kansas City Hispanic Association Contractors Enterprise, watched the proceedings from the rear of the conference room on the fourth floor of Town Pavilion, the skyscraper where the TIF Commission is located. He left before the meeting adjourned.

Torres knew a settlement was in the works. Still, he was disappointed. He wanted liquidated damages.

“That would have really delivered the message,” he tells me. “They chose not to.”

Torres says the members of his group can take pride in their effort, even if the outcome left something to be desired. “We did what we could to bring forth the public’s attention to the flaws in the system,” he says.

The system, it’s worth noting, casts women and minorities as both victims and perpetrators. As they condemned the practice, Torres and his associates were made to answer for the actions of a fellow Latino who had rented his ethnicity for the price of a BMW.

Attention now turns to J.E. Dunn’s headquarters.

Dunn received a TIF deal of its own. The company’s new building sits catty-corner to City Hall. TIF is paying for a $19 million garage below ground.

According to the most recent report I’ve seen, minority subcontractors have banked $8.2 million of the $55.9 million construction budget. Women have been paid $2.3 million.

A company too large to qualify for preferences, Mark One Electric Co. was removed from the list of women-owned businesses (“The Electric Slide,” August 13). Sandra Rayford, the TIF Commission’s affirmative-action compliance officer, found the error. I take this as a hopeful sign.

An even better sign would come if the city’s Human Relations Division got into ass-kicking mode.

A recent city audit determined that the department was slow, set unrealistic goals and lacked consistent monitoring. In other words, it’s not very good at its job.

The Dunn headquarters offers an ideal place for the Human Relations Division to work on its monitoring skills. After all, what’s to stop Dunn from using fronts to distribute the $1.1 million in work for women and minorities that has been promised?

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I don’t think it’s too much to ask the subcontractors to show the calluses on their hands.

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