US investigating use of sham firmsBy Raphael Lewis
Federal agents searched the offices of two Big Dig subcontractors Thursday as part of a nationwide probe into large construction firms setting up sham firms with women or minority executives, in order to obtain lucrative public works contracts, federal and industry officials said yesterday.
About two-dozen federal agents executed search warrants at two North Shore firms, PT Corp. and Testa Corp., the officials said.
From 2001 until last summer, PT Corp. of Lynnfield, a state-certified woman-owned business, had been in charge of dismantling the 1.5-mile elevated Central Artery. But the firm fell behind schedule and was replaced by Testa Corp., a major player in the demolition field.
PT Corp.'s chief executive is listed by the state as Pamela J. O'Brien. She is the sister of Steven Testa, who runs Testa Corp.
The prime contractor overseeing the subcontract is Modern Continental Construction Co. Inc. of Cambridge, one of the nation's largest construction firms and the company that has performed more Big Dig work than any other.
Like many federal construction projects, the Big Dig requires a certain percentage of contracts to go to minority- or women-owned firms, such as PT Corp.
It was not known, however, exactly what aspect of the contract are being examined by the federal investigators from the US Department of Transportation 's office of inspector general; the US Department of Labor's office of labor, racketeering, and fraud investigations; and the Internal Revenue Service.
Geri Denterlein, a spokeswoman for Modern Continental, said she could not comment "because we don't have enough information." She added that Testa's work on the artery project has not been slowed by the investigation.
John Ruffo, vice president of Testa Corp., said yesterday that the search warrant federal agents handed him also listed other companies, but he declined on the advice of his lawyer to name them. He added that agents did not inform him why the office was being searched, but said Testa Corp. complied fully with all requests and that its work on the $14.6 billion artery project continued yesterday.
"There is an investigation on the Central Artery project, and we provided information they asked for," Ruffo said. "I don't know the focus of the investigation, [but] there was more than two companies listed on the search warrant."
Tracey A. Miner, a lawyer for PT Corp., as well as for Testa, defended both firms, saying, "They're both legitimate businesses."
"If the government is looking for a scapegoat on the Big Dig project, it's not going to be PT or Testa," Miner said.
Spokesmen for each of the federal agencies involved said they do not confirm or deny ongoing investigations. The searches Thursday took place as the inspector general of the Department of Transportation has been highlighting fraud in "disadvantaged business enterprise" as a top concern nationwide. The program was set up to give small businesses owned and controlled by "socially and economically disadvantaged individuals" a chance to obtain coveted federal construction work.
Testifying before Congress last July, Transportation Department Inspector General Kenneth M. Mead said "fraud involving the DBE program for minority and women contractors who are used as 'false front' companies is an area with serious enforcement and compliance problems that appears to be nationwide in scope and requires more attention." A December report by the IG's office states that "we are currently investigating 40 DBE schemes in 19 states." From late 1999 until late 2003, the report said, such investigations "have resulted in 40 indictments, 29 convictions, and $10.7 million in fines and other monetary recoveries." The report named the companies indicted; no Massachusetts projects were listed.
"This matter requires more attention and greater oversight efforts by the department," the report said.
Founded in 1967, Testa Corp. of Lynnfield is one of the nation's five largest demolition firms, according to the Engineering News-Record, which tracks the construction industry. It is not a disadvantaged business enterprise under the federal program.
Formerly known as MRP Site Development, the firm paid a fine of more than $1 million in late 2001 after pleading guilty to carting Big Dig hazardous waste to sites that were not authorized by the state Department of Environmental Protection.
PT Corp. was certified as a woman-owned business on Jan. 11, 2000, according to records at the State Office of Minority and Women Business Assistance, which certifies all Bay State firms seeking to obtain federally financed contracts. Officials from the state office did not return calls seeking comment.
Miner, PT's lawyer, said O'Brien worked for years at MRP as an account executive before deciding to found her own firm. PT was originally the subcontractor on the $45 million project to dismantle the elevated artery, but was forced to give up its role when the firm fell badly behind schedule, Miner said.
That's when Testa took over. It remained unclear yesterday, however, how Testa was chosen to fill in that role.
Doug Hanchett, a spokesman for the Massachusetts Turnpike Authority, which oversees the Big Dig, said the only thing that was certain was that PT Corp. no longer does work for the artery project. In 1999, Modern Continental, which holds the $400 million-plus general contract involved in dismantling the elevated artery and finishing the artery tunnel downtown, had subcontracted another woman-owned business, Zam-Tek Inc., that was dropped from the project over allegations that the company may not, in fact, have been run by a woman.
Copyright ©2004 Boston Globe. Published 04/03/2004.