Dan Horn, and Sharon Coolidge

Cincinnati

Copyright 2016, The Cincinnati Enquirer

The Metropolitan Sewer District spent as much as $680 million in public money during the past decade with little or no oversight from anyone outside the agency.

The spending began with a six-line memo from Cincinnati City Hall in November 2007 that changed the way the sewer district does business. An Enquirer investigation found that the memo, written by former City Manager Milton Dohoney, eliminated critical checks and balances just as the sewer district embarked on the largest project in its history.

The city-run sewer district awarded million-dollar deals to contractors without seeking competitive bids, hired consultants to do work that was not clearly defined and paid invoices worth tens of thousands of dollars based on vague explanations of the work performed, The Enquirer found.

Those decisions were made under a system that gave the sewer district and its former director, Tony Parrott, near total control over purchasing decisions related to a $3 billion, court-ordered overhaul of Hamilton County’s sewers.

It’s an arrangement current City Manager Harry Black now says suffered from insufficient “command and control.”

Millions of dollars may have been wasted, city and county officials say, at a time when sewer rates are increasing so fast that some of the district’s 800,000 customers are struggling to pay them.

“The business rules were out of whack,” said Black, who is now changing the rules to control spending at MSD better. “Too much authority was delegated.”

After Dohoney’s memo, The Enquirer found, MSD spent huge sums of money without input from administrators outside the agency, or from elected officials who approve the overall budget but not individual contracts.

If MSD officials wanted to extend a deal with a consultant, buy a piece of equipment or hire a project manager, all they needed was Parrott’s signature.

The Enquirer reviewed 10 years of records related to those practices, including thousands of pages of contracts, consulting agreements, financial records and government emails.

Those records show that the sewer district:

Paid two politically-connected consultants more than $1.3 million for advice on how to help small businesses get contracts with MSD. The consultants turned in invoices that sometimes gave only cursory descriptions of their work, in one case prompting an MSD official to question “what work was actually performed.”

Paid more than $500,000 for software to track its Small Business Enterprise program, even though other city departments used a different system. The agency is now cutting ties with the software provider and joining the city’s system.

Paid an engineering firm $12.2 million for design work on a South Fairmount sewer project, and paid another firm almost $1 million for consulting on different projects, without giving other companies a chance to formally bid for the jobs.

City rules on contracting at the time recommended soliciting bids for work valued at more than $250,000. Black said he’s found no evidence the consultants and companies did anything wrong, or that MSD officials knowingly broke the rules, but he believes MSD paid some contractors too much.

The FBI launched an investigation in November into how MSD spends money, and Black is in the process of revamping purchasing practices. FBI officials have not confirmed the existence of the investigation or otherwise commented.

Parrott, now the director of Louisville’s sewer district, said the purchasing process had sufficient safeguards and was necessary to keep projects moving along quickly. Without the authority Dohoney gave him to make those decisions, he said, court-ordered deadlines could be missed and fines could be imposed.

Parrott said MSD needed to hire consultants and companies quickly because the district didn’t have the ability to take on such a massive project without them.

“Milestones were set,” he said. “We had to deliver projects.”

Some observers say the approach over the past decade put too much power in too few hands.

“It is really hard to follow the money,” said Marilyn Wall, a Sierra Club activist who has tried for years to keep tabs on MSD. “Are people just milking the system? If they were, you couldn’t tell.”

Black lowered the bid threshold to $50,000 and said he now reviews every significant purchase in all city departments, including MSD. He’s also warned council members not to deal directly with potential contractors.

Black said none of the arrangements revealed by The Enquirer’s investigation would win approval today.

“We’re going to reset these agreements,” Black said. “We’re going to make them more reasonable and rational.”

‘It is truly a mess’

The sewer district’s responsibilities, and many of its problems, began to grow a decade ago, after a federal court ordered a massive overhaul of the county’s sewer system.

The goal is to fix hundreds of miles of old sewer lines and prevent raw sewage from running into basements and waterways.

Making that happen, however, is as costly as it is complicated. One of the biggest challenges is MSD’s management structure: The county owns the district and the city runs it.

The two local governments have struggled for years, sometimes duking it out in court, over how best to proceed with the repair program, which costs hundreds of millions of dollars a year.

Though City Hall is supposed to watch MSD and county commissioners sign off on its budget, the agency has tremendous discretion within those budgets to spend as it sees fit.

That discretion greatly expanded with Dohoney’s memo, which gave Parrott authority to “sign on behalf of the City of Cincinnati any documents, including contracts” related to the sewer overhaul.

All told, MSD and Parrott signed off on about $680 million in contracts and service agreements since 2007.

It’s common for elected officials and administrators to give their department heads latitude on procurement, figuring they don’t need to know about the purchase of every paper clip or toner cartridge.

But big purchases, like the ones MSD oversees every year, usually are a different story.

Ohio law requires competitive bids on state contracts worth $50,000, and Hamilton County’s top administrator can’t buy anything for more than $100,000 without a vote of county commissioners.

The rules are designed to create enough oversight to make sure no one games the system, or that well-intentioned people don’t make deals that put expediency ahead of the interests of taxpayers.

“It comes down to a separation of powers,” said Brent Maas, executive director of business strategy at the National Institute of Governmental Purchasing, a nonpartisan group for procurement officials.

“Without a structure that provides for checks and balances, the organization is at greater risk.”

He said a government body, such as a board or city council, typically gets involved when spending approaches $100,000 or $150,000.

Doing so, he said, puts more eyes on the money and helps keep everyone honest.

Mayor John Cranley said MSD’s practices didn’t meet the standard he’d like for all city spending, let alone the huge projects MSD is managing.

“City spending should always be aboveboard and transparent, which in my opinion had been lacking citywide, including at MSD,” Cranley said.

County officials, who have complained for years about MSD spending, said they’re glad the city realizes there’s a problem, but hundreds of millions already have been spent.

“It is truly a mess,” county Commissioner Chris Monzel said after learning of The Enquirer’s findings.

“It’s a travesty being borne on the backs of ratepayers.”

$62.50 for an email

Emails between city and county officials during the past year show that concerns about MSD’s spending habits had been growing for some time.

One focus of those concerns was the sewer district’s Small Business Enterprise program. The agency worked primarily with two consultants, Zola Stewart and Sam Malone, to help MSD improve the program, which seeks to involve more local firms in the agency’s contract work.

Records show Stewart, owner of Focus Solutions Inc., was paid about $1 million since late 2011. Malone, a former city councilman and the owner of Urban Strategies and Solutions, was paid $366,000 since 2012.

Each got as much as $250 an hour for their work.

Stewart and Malone appeared to have a good relationship with Parrott. Their invoices note frequent meetings with him and, when Parrott left in July for the Louisville job, Stewart threw him a party with free food and an open bar at Sonny’s All Blues Café in North Avondale. Malone was on the guest list.

Both Stewart and Malone also have close ties to Councilman Charlie Winburn, a vocal advocate of Small Business Enterprise programs.

Stewart attends and volunteers at Renew Community Church, which Winburn founded and runs.

Their connection is well known at City Hall. When Stewart’s firm was rejected last year for a city contract unrelated to MSD, some city officials braced for Winburn to get involved.

“She will definitely reach out to Charlie,” wrote Assistant City Manager John Juech in an email last April. “They are very close.” Winburn said in an interview Stewart never spoke to him about any contract; Stewart declined to comment.

Malone is close to Winburn, too. He considers himself Winburn’s protégé and has worked on his political campaigns, collecting $15,000 for consulting work on Winburn’s unsuccessful 2014 campaign for state senate.

Winburn said he spoke to Parrott about improving MSD’s small business and minority inclusion programs, but he said he never involved himself in Stewart and Malone’s work at the agency or helped them get contracts.

He said he’s been concerned for some time about the way the sewer district handles its contractors. “My instincts tell me that this whole system, the way MSD is set up, isn’t good,” Winburn said.

Malone, who has done similar consulting for Cincinnati Public Schools, said political connections had nothing to do with him getting work with MSD.

“I definitely don’t need help getting contracts,” Malone said.

His contractual relationship with MSD was unusual. He worked through a Columbus-based law firm, Bricker & Eckler, as a consultant whose invoices were sent to Parrott via the law firm.

Malone’s early invoices in 2012 offer some detail about his work. They include billing MSD $62.50 for each email he sent and phone call he made, and $500 for a two-hour meeting.

Later bills, however, provide only boilerplate language from his consulting agreement, such as “tracking monitoring research consulting.” For months, that description was the only reason given for bills totaling as much as $18,500 a month.

When asked to explain his work, Malone said he couldn’t comment because of a confidentiality agreement with Bricker & Eckler. His contract was canceled last May.

Malone wrote Black a letter a few months later asking for a new deal, arguing he would be the “watchdog” on MSD’s small-business program.

He sought a contract worth $210,000.

Black did not accept the offer.

Consulting services ‘big asset’

Stewart generally provided more detail about her work, but not enough to avoid questions from some at MSD.

“I am not clear about the scope of work and how it benefit(s) MSD,” Ihab Tadros, a deputy director at MSD, wrote in an email last August about an invoice from Stewart’s firm.

Another MSD official, enterprise manager Leisha Pica, grilled Stewart last February about a work order from Focus Solutions, which included a doubling of her hourly rate from $125 to $250.

Essentially, Pica wanted to know what Stewart was doing for the money. “The work order does not provide any specifics or deliverables,” Pica told Stewart in an email.

It’s unclear from the records whether those concerns were addressed, but Parrott continued to authorize work for Stewart and she continued to get paid through late 2015.

Parrott said the work was important and helped get the word out to small businesses about MSD contracts. According to MSD, small-business participation has increased from 20 percent to 24 percent since 2011.

“The consulting services that were provided were a big asset,” Parrott said.

Parrott’s successor, Gerald Checco, seemed more skeptical of the value of the consultants’ work. A few weeks after taking over in July, Checco flagged one of Stewart’s work orders.

“I think that the scope of work lacks clarity,” Checco wrote in an email to two managers on his staff. “I am not sure what actually MSD is getting out of that, beside(s) … a report.”

Neither Stewart nor Checco would comment. When asked last year by Checco and others to explain her work, Stewart cited training sessions she led, a training manual she wrote for small businesses and various reports she prepared for MSD, according to a document she emailed to Checco.

Emails among MSD staff also reference work Stewart did that was not useful to the agency.

In one case, a grant application Stewart wrote for a project was not submitted because the project wasn’t eligible for the grant. In another, MSD rejected an analysis Stewart did because it was “determined to not be relevant.”

Much of the work Stewart and Malone were hired to do was related to the city’s adoption of new “responsible bidder” rules, which required contractors to run union apprenticeship programs.

But when a court ruled the city couldn’t implement those rules at MSD in mid-2014, all work on that project should have stopped.

Malone’s invoices, however, continued to list consulting on “responsible bidder” as one of the justifications for paying him through May 2015. Dozens of hours of work were attributed, at least in part, to responsible bidder consultations, resulting in thousands of dollars in payments to Malone.

County officials, who opposed responsible bidder, started asking why late last year.

“This will be particularly politically explosive,” Juech warned in a September email to Black.

City Solicitor Paula Boggs Muething was more blunt: “Get ready for a true MSD sh*t storm,” she said in an email to a colleague the same day.

MSD getting ‘a good value’

County officials did raise questions about payments to Malone, according to subsequent emails. But the Small Business Enterprise program is just one point of contention between the city and county.

County commissioners say spending is out of control. The county’s MSD monitor, Dave Meyer, told them last week that several big projects are running over budget.

The Enquirer found some of those projects involve master service agreements – deals with companies to provide services over a period of time – rather than competitively bid contracts.

Such agreements can be useful, especially on long-term projects that require consistency from contractors, but Black and others say the process must be closely monitored and involve as many companies as possible.

They don’t know if that happened at the sewer district because the authority to make decisions was so concentrated at the top. Parrott said he worked closely with colleagues at MSD to hire the best contractors at the best price, but county officials aren’t convinced.

“There is not strong oversight,” Meyer said. “When I walked in the door, it was like drinking from a fire hose. So many things were moving forward, big dollar items.

“Checks and balances are absolutely critical, and I didn’t see a lot of checks and balances.”

One contract reviewed by The Enquirer shows that Black & Veatch, a respected international engineering firm, was hired to consult on multiple projects in 2010 for $310,000. Three years later, Parrott had extended the company’s service agreement three times and increased the total cost of the deal to almost $1 million.

Parrott also signed off on a service agreement with Strand Associates, a design firm that’s done work around the country, to design a $244 million project along Queen City Avenue in South Fairmount. Since 2009, a series of work orders under that agreement has resulted in $12.2 million of work going to Strand, most without input from anyone outside MSD.

Officials at Strand say MSD staff closely vetted their contracts and work. “It’s as detailed a process as anything we go through anywhere else,” said John Lyons, Strand’s director of operations. “MSD has always, in my view, made sure they’re getting a good value from our contracts. They haven’t just cut us loose.”

Black said he believes the companies have done the work, but the process that got them the jobs is flawed. He has made tweaks to both agreements, but will stick with the companies because the projects are so far along. In the future, though, Black said projects of that size will be handled differently and his office will be directly involved.

“The approach to procurement did not reflect the level of discipline I thought it needed,” he said. “We want to make sure the city gets value for its money and taxpayers pay no more than necessary.”

He said his new system also would have prevented MSD from buying software for its Small Business Enterprise program from a different company than every other city department.

Black caught flak when he moved to end the contract with Early Morning Software, especially from Winburn, who complained the city was losing a good minority-owned company. Black didn’t back down, however, and is merging MSD’s software system with the city’s.

Still, before it’s done, the sewer district will have spent more than $500,000 on the old system.

Monitor: West Side project at least $13M over budget

Rates on the rise

Black said he’s not challenging the legitimacy of the work any contractors did, but he believes MSD’s ratepayers could have gotten a better deal. He said he wants more competition, more efficiency and more oversight.

Monzel, the county commissioner, said the county wants a better-run sewer district. The average sewer bill has more than doubled since 2006, from $101 a quarter to $211, and Monzel said that’s the reason he’s pushing for reforms at MSD.

“It’s outrageous,” Monzel said. “It has to change. It has to stop.”

Some city officials have been worried for a while about MSD spending, too, even if they haven’t been as vocal about it as county commissioners.

Patrick Duhaney, the city’s chief procurement officer, worked previously at MSD and had suggested to Parrott in 2014 that he consider changing the district’s procurement policy. He sent an email to Parrott about it, but said Parrott didn’t respond.

After The Enquirer broke news in November about the FBI investigation, Duhaney emailed several city staffers about the story. “I’ve been aware of this for some time now,” Duhaney said of MSD’s spending practices. “The city manager and I have been working to right the ship.”

He was more ominous, though, in an email sent the same morning to Thomas Corey, the city’s director of economic inclusion.

“The noose is tightening,” he said.

About MSD

In 1968, Hamilton County commissioners created the Greater Cincinnati Metropolitan Sewer District, combining city of Cincinnati assets – which the city still owns – with its own and contracting with the city to run the utility. In recent years, city and county officials have publicly argued about spending, regulations and which government makes decisions.

The district is funded by people who use the sewers, roughly 800,000 residential and commercial users in 43 out of 49 Hamilton County political subdivisions, plus three adjacent portions of Butler, Clermont and Warren counties.

The district is under a federal court order to bring the system into compliance with the Clean Water Act, a project that is expected to cost $3.2 billion. Last year, Director Tony Parrott left the district for the same job in Louisville. He was replaced by Gerald Checco, a longtime city employee who recently cleaned up the city’s public services department.