Airports authority repeatedly warned over contract deficiencies

November 15, 2012

The agency overseeing the region’s two major airports and managing construction of the $5.6 billion Dulles rail project was warned repeatedly over the past 10 years that it was improperly doling out millions of dollars in contracts, but it did little to correct the deficiencies.

The Metropolitan Washington Airports Authority, already under fire for such ethics abuses as taking Super Bowl tickets from contractors, issued several large no-bid contracts that violated federal transit policy, according to reports and audits.

The MWAA changed some of its procedures, but federal officials still say the changes didn’t go far enough and warned in the most recent report that its lack of action would bring on greater scrutiny.

Some of that scrutiny is due Friday, as MWAA officials are scheduled to appear before the House transportation committee, which is making inquiries into the ethics and contracting violations. On Thursday, Del. Eleanor Holmes Norton (D-D.C.) introduced a bill requiring the authority to strengthen its contracting rules after calling the lack of competition troubling.

News of the earlier warnings follows this month’s release of a scathing audit by the U.S. Transportation Department’s inspector general. That long-awaited review marked the most damning account of failings at the MWAA, blasting it for several deficiencies, including nepotism. But it also focused repeatedly on contracting.

View the Federal Transit Administration report on the Metropolitan Washington Airports Authority.

In some instances, the audit found, certain contractors appeared to get special treatment. In at least one other, an MWAA board member offered confidential information about a contractor’s bid to a competitor.

In reports over several years, reviewers say they found repeated problems with how the agency doled out money. A 2002 audit by the Government Accountability Office faulted the authority’s procurement practices.

In January 2011, the Federal Transit Administration found, among other things, that the MWAA improperly awarded contracts without seeking bids. The report by a Massachusetts-based consulting company was obtained by The Washington Post under the Freedom of Information Act.

The FTA review, which came more than 18 months before the inspector general’s report, found that the authority lacked even a basic understanding of how it should oversee $975 million in contracts — $900 million in FTA grants and $75 million in federal highway funds. Created by the Airports Act of 1986, the MWAA operates Dulles International and Reagan National airports and the Dulles Toll Road. It is in charge of the multibillion-dollar Silver Line Metrorail extension, the area’s largest public-works project. The FTA reviewed the authority’s procurement practices because the MWAA was new to spending federal transit money.

The 2011 review evaluated whether the authority was complying with FTA contracting requirements. It examined 54 procurements — 29 of which were sole-sourced — related to the Dulles Corridor Metrorail Project. The MWAA was deficient in nearly half of the 60 standards outlined by the FTA, which reviewed money spent from November 2008 to November 2010.

The authority awarded “three of the largest contracts” without knowing in advance how much it ultimately would spend or how long the work would take, the review found.

“Without these controls in the contract, there is no effective contract administration system,” the report says.

The MWAA also made a dozen purchases of less than $3,000 that lacked documentation to show that the authority paid “a fair and reasonable price,” it says.

In another instance, the agency improperly awarded sole-source contracts using a “categorical exception,” which limits bid competition.

“The sole-source method of award was used disproportionately and unnecessarily, limiting competition on a number of large-dollar value contracts for legal and financial services,” the report says.

The report does not disclose who got the sole-source contracts or how much was spent on them.

Lynn Hampton, the MWAA’s former chief financial officer who also served as president and chief executive from June 2010 to July 2011, said the agency was confused about procurement policies.

“The procurement issues for the rail project, I think you’re going to find that they were done by rules that were established by the [Federal Aviation Administration],” Hampton said in an interview. “When we found that the rules we were using did not comply with the FTA, we did go back and change. We had to get all sorts of contracts amended.”

Hampton said the authority’s general counsel “misinterpreted” part of the FTA’s rules.

“We thought we were doing the right thing by not bidding,” she said. “There was a particular clause in the FTA procurement rules that says something like ‘as long as you’ve got rules approved by your board, it’s okay.’ They [the FTA] said no, that’s not the case.”

FTA Administrator Peter M. Rogoff dismissed the idea that MWAA officials didn’t know procurement rules.

“They took on the responsibility to run a multibillion-dollar transit project. Certainly they should have known,” Rogoff said. “They certified to us that they were following all those rules.”

The Transportation Department has committed nearly $1 billion for the first phase of the 23-mile rail extension, which extends Metro to Tysons and into Reston, Rogoff said. Phase one is scheduled to be completed in August. The authority recently began the bidding process for the second phase, which will extend Metro to Dulles and into Loudoun County.

The review also found weaknesses in the MWAA’s contract manual, which the authority was ordered to revise.

“One of the things we found troubling was the inadequacies of the manual,” Rogoff said.

The authority agreed to modify questionable contracts, revise its manual and make other changes. The FTA gave the agency up to 90 days to take corrective action, depending on the deficiency.

But it took up to a year for the agency to implement many of the changes, including revising its manual. The authority had 30 days to establish contract amounts and performance periods for the three largest contracts. It failed to take action for nearly four months on at least one of the contracts, records show.

Margaret E. McKeough, the MWAA’s executive vice president and chief operating officer, said delays occurred because the FTA dragged its feet on reviewing the authority’s draft contract manual revisions.

Rogoff disagreed. “If this process took longer, I wouldn’t attribute it to our dragging our feet,” he said. “I would attribute it to ensuring the procurement process for a multibillion-dollar rail project is done correctly.”

Rogoff said his agency will conduct a follow-up review early next year to make sure the MWAA is “walking the walk.”

“We’re going to go in again and look at procurements that have followed this audit to further ensure that they are, in fact, following the procedures,” he said.

Despite the changes, this month’s inspector general’s report says that the authority’s “contracting policies and practices are insufficient to ensure compliance with the Airports Act and the lease agreement between DOT and MWAA.”

Those rules say that all contracts larger than $200,000 must be competitively bid. The inspector general found that the authority used categorical exceptions in nearly 66 percent of the 125 contracts reviewed. The audit examined contracts from January 2009 through June 2011. Although they were allowed in some instances, the MWAA failed to provide “adequate justifications” for using the exceptions, the inspector general said.

The 2002 GAO review found similar contract deficiencies, including failing to competitively bid 15 of 35 contracts. In one instance, the MWAA modified a contract at least 10 times, adding “about $2.1 million in work that it had originally planned to compete separately.”

“Since the Authority specifically excluded the additional work from the scope of the original contract, this work was not subject to competition,” the GAO found. “Thus, obtaining the work through contract modifications was tantamount to a series of sole-source procurements.”

The MWAA, which is part of an interstate compact, is not governed by federal or state laws on contracting, ethics or transparency. The Airports Act and the authority’s agreement with the federal government, though, impose some governance requirements.

Mary Pat Flaherty and Lori Aratani contributed to this report.

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