Raquel Rutledge | Milwaukee Journal Sentinel

As a percentage of the nearly $200 million budget for rebuilding a chunk of Wisconsin’s busiest freeway, $404,250 might seem insignificant.

But what if the money were paid by Wisconsin taxpayers for work that was never done? And what if the state knew it when the bill was paid?

That’s what happened when contractors for the Milwaukee Zoo Interchange project double billed the state for 15,000 cubic yards of gravel, enough to help pave one lane of highway for five miles.

Although a project engineer with the Wisconsin Department of Transportation discovered the discrepancy in advance, and alerted supervisors, those in charge insisted the contractor be paid the additional money anyway, an investigation by the Milwaukee Journal Sentinel has found.

When regulators at the Federal Highway Administration learned of the payment, the agency made a rare decision to withdraw federal funding that had been allocated for the work, saying justification for the expenditure “seems inconsistent” and “makes no sense,” according to documents obtained by the Journal Sentinel through state and federal open records laws. As a result, state taxpayers had to cover the cost.

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And, the same bidding arrangement that allowed for the double payment was used for dozens of other projects, raising the opportunity for additional misspending, the Journal Sentinel found.

Yet nobody sought to recover the funds. And nobody has been held accountable for the waste.

Instead, some of the same WisDOT workers who signed off on the more than $400,000 overpayment — along with the contractors who demanded the money — are teamed up on the state’s latest mega roadway construction project three years later: I-94 near the Foxconn development.

A double payment

The double payment on the Zoo Interchange work came to light when WisDOT engineer Sean Race noticed two items budgeted under different categories for the same work. He assumed it was an error by the design firm, Forward 45 — a joint venture of engineers Kapur & Associates of Milwaukee, Colorado-based CH2M and HNTB of Kansas City, Missouri.

When Race raised the issue, his WisDOT supervisors got together and said indeed it appeared to be an error and would be corrected. Four of them signed a contract modification to eliminate one of the duplicate items in the agreement with the firm that had won the bid to do the work: Wisconsin Constructors II.

Wisconsin Constructors II is comprised of three statewide heavyweights in the industry, Brownsville-based Michels Corp., Black River Falls-based Lunda Construction and Edgerton Contractors of Oak Creek.

“Inclusion of both items intended for the same use is redundant and therefore unnecessary,” the WisDOT team wrote in an internal document explaining the change. The move was needed “in order to avoid duplicate bid items,” and prevent “significant unnecessary costs,” the form stated.

Wisconsin Constructors II seemed to agree — in part.

Sure, WisDOT could drop the duplicate item, Wisconsin Constructors II said, but there would be a $52,552 administrative fee for “overhead” related to eliminating the line.

Milwaukee Journal Sentinel files

The fee was requested in letters to WisDOT in March and April of 2015 from Tony Straseske, project manager for Wisconsin Constructors II, and Brady Frederick, vice president of operations for Edgerton — the company slated to provide the material.

WisDOT officials appeared to balk — at least on paper. Stating there was “no basis” for such a fee and calling it an “excessive amount for an item under which no work was initiated,” they denied the request.

The letter was signed by Tom Collins, a consultant administering the contract on behalf of WisDOT.

That was April 17, 2015.

Within weeks, however, the state reversed its position and quietly cancelled the contract modification.

And instead of agreeing to the $52,552 fee, the state inexplicably agreed to pay the full $404,250, and did so in August of that year.

The documents don’t detail how the decision was made other than to note the issue was “discussed by the project team.” And that the contractor had objected to the removal of the duplicate item.

“This was relayed to the project team by phone calls from Tony Straseske and Brady Frederick to Tom Collins,” a report created months later, in March 2016, states.

Collins, in turn relayed the conversations to others, including Ryan Luck, then construction chief of southeast freeways. Luck “asked the team to revisit the basis of the change,” records show.

A couple weeks prior to the payment, Straseske, of Wisconsin Constructors II, urged WisDOT to settle the bill, documents show.

“It would be nice to get this one off my ‘To Do’ list,” he wrote in an email to Collins and three others.

Straseske, Luck and Collins did not respond to phone calls or emails from the Journal Sentinel.

Federal Highway Administration officials, who had been alerted to the situation via a complaint, questioned the payment and asked the department to document how it came to its decision. The federal agency had initially agreed to cover 50 percent of the cost for the gravel — 1,500 truckloads which was designated for a swath between 70th and 121st streets from West Lincoln Avenue to West Bluemound Road.

In emails between the two government agencies spanning months, a handful of WisDOT workers explained that they thought contract language with Wisconsin Constructors II prohibited them from deleting an item.

And, they said, doing so would not be consistent with past practice.

Turns out WisDOT had been using a “special provision” in recent years that opened the door dozens of times for contractors to be compensated for work they never completed.

The provision stemmed from an idea WisDOT officials said was meant to save money, not waste it. But that’s not how it always worked, the Journal Sentinel found.

Milwaukee Journal Sentinel files

Created specifically for megaprojects in the southeast region of the state, beginning with the Marquette Interchange more than a decade ago, the provision allowed the state to pay for a quantity of materials based on a set price rather than the actual amount of material used — no matter how much the quantities might vary from original plans. And it specified that “the department will not measure these designated items.”

WisDOT called them “special provision, pay plan quantity” or SPV/PPQ items.

Much like a 15x30 foot swimming pool typically holds about 20,000 gallons of water, the theory goes, the amount of material needed for each mile of highway pavement tends to be about the same.

The provision’s benefits can include “reduce time need for taking measurements” and “provide for quicker payment to the contractor,” according to the 2013 WisDOT manual.

“That’s pretty scary,” said Joseph Allen, a construction claims expert from Estero, Florida, who was not involved in the project. “If this were automotive quality control, you’d say this is out of the limits.”

Allen said he had never heard of anything like it in his decades working on construction contracts in Ohio, Kentucky and elsewhere. Calling the set up “strange” and “unusual,” he said, the potential for fraud would be enormous.

“Quantity measurements are the only way owners can keep the reins on the job,” Allen said, noting that owners in the case of roadway projects are taxpayers.

Fewer than a dozen states utilize pay plan quantity bidding of any sort, according to 2017 information from the Federal Highway Administration. Those that do, use it sparingly. Only Texas and Florida use it as frequently as Wisconsin, federal records show.

The provision has worked well for contractors in Wisconsin over the years, according to Jason Roselle, a WisDOT supervisor who worked on the Zoo project.

“We have been using the PPQ special provision and a lot of the same items for PPQ for a number of years now and haven’t heard many complaints from the contractors we have been working with,” Roselle wrote in an Feb. 7, 2014, email to Brett Wallace, director of projects in the southeast region at the time.

The email appears to be in response to a question from Wallace, but the original email from Wallace was not included in records obtained by the Journal Sentinel. It’s unclear why Wallace was inquiring about the department’s use of pay plan quantity items at that time.

WisDOT workers and contractors used an additional bidding mechanism, that when coupled with pay plan quantity, made tracking payments especially tricky.

They included “undistributed quantities” in the pay plan quantity bids — a move that contradicted the intent of the "no-measurement needed" provision.

Undistributed quantities are materials included in proposals that allow contractors flexibility and the freedom to use estimates to cover unforeseen hiccups, such as filling potholes that result from heavy equipment on site or needing more topsoil than was planned.

Typically these items are measured and paid for once the work is complete. But when included as pay plan items, they are not measured — per WisDOT policy. Instead, they are typically paid the full bid amount.

“That would be unusual,” said Gary Whited, former bureau chief with WisDOT in Madison, who was not involved with the southeastern Wisconsin highway project. “Undistributed (quantities) should not be in pay plan quantity. I never saw that happen. I’m really not sure why they would put that in there like that.”

No public records exist that track the actual materials used — or not — in all “undistributed” pay plan quantity items.

“There are no tickets or other means to substantiate any amount of material for payment,” Roselle, the WisDOT supervisor, explained to federal highway administrators in an Oct. 5, 2015, email.

Wisconsin taxpayers spent more than $2 million on 31 items classified as undistributed pay plan quantities in the Zoo Interchange project, including the $404,250, documents examined by the Journal Sentinel show.

Taxpayers have no way to know if the remaining $1.6 million was also spent on nothing.

‘Just an oversight’

WisDOT officials said in an interview with the Journal Sentinel, that it has always been against department policy to include undistributed quantities within pay plan quantity bids — the configuration that led to the more than $400,000 overpayment.

Yet beginning with construction on the Marquette Interchange in 2004, the practice began creeping in — in relatively small amounts. Roughly $3,000 here, another $3,000 there.

In all, the bid amounts for undistributed pay plan quantities — money that would be difficult, if not impossible, to track due to such an arrangement — totaled less than $40,000, according to records supplied by the Wisconsin Legislative Audit Bureau.

Then came the Mitchell Interchange reconstruction in 2009. Eight projects worth less than $28,000 in total were set up that way.

The practice exploded with the Zoo Interchange.

Aside from the 15,000 cubic yards of gravel, WisDOT contracts included a cluster of items bid as undistributed — and not to be measured — worth $992,947 and a handful of others worth $662,924.

WisDOT officials say they don’t know how any of the items made it in the contracts or who was responsible.

“I’m guessing it was just an oversight,” Beth Cannestra, director of the bureau of project development for WisDOT, told the Journal Sentinel in an interview at the department’s West Allis office. “I can’t explain. … All of our projects pass through so many hands, it’s often very difficult to ferret that out.”

Cannestra said the department’s focus was on moving forward and that they have since changed policies to eliminate the use of special provisions and have staff checking to ensure undistributed quantities don’t turn up in pay plan quantity bids.

“We have made changes,” said WisDOT spokesman Christian Schneider, who sat in the interview with the Journal Sentinel. “We saw what happened and now it’s being monitored and it’s a lesson learned.”

Meanwhile those involved in the overpayment have moved on to the state’s latest megaproject.

Edgerton is doing earthwork as a sub-contractor for the I-94 and Ryan Road Interchange. Brady Frederick, the vice president of operations who sought payment for the material that wasn’t supplied, is no longer employed by the company. Frederick told the Journal Sentinel he doesn’t recall the contract and referred questions back to Edgerton.

Steve Nachreimer, president of Edgerton, declined in an email to talk to the Journal Sentinel and referred questions back to WisDOT and Wisconsin Constructors II.

Wisconsin Constructors II stands by the payment.

“We believe that the contract was performed and paid correctly, but if a mistake in payment has been found to have been made, the Wisconsin DOT has maintained the right to offset against future jobs,” said Thad Nation, a spokesman representing Wisconsin Constructors II.

Straseske, who also sought payment for the gravel on behalf of Wisconsin Constructors II, continues to be a senior project manager with Michels, the primary contractor for much of WisDOT’s multimillion-dollar Interstate 94 north/south project.

Kapur, which was involved with the design, has numerous multimillion-dollar contracts with WisDOT for projects in the Foxconn region and elsewhere in the state.

Kapur employees involved with the project did not respond to phone calls and emails.

The main WisDOT workers who handled the contract, including Brett Wallace and Ryan Luck, as well as Tom Collins, the consultant, continue to hold key positions overseeing contracts tied to high-profile taxpayer-funded projects around the Foxconn development in Racine County.

Collins owns an engineering firm and has contract work with WisDOT.

Regulators with the Federal Highway Administration admonished WisDOT for allowing Collins to sign work orders on behalf of the state, noting the practice violated federal requirements.

"The consultants cannot make financial obligations on behalf of the owner," agency officials wrote in a February 2016 review of WisDOT operations.

Collins did not return phone calls and emails from the Journal Sentinel.

Lack of 'checks and balances'

The Wisconsin Department of Transportation opened an internal investigation into the issue following a complaint in September 2015, records show.

The conclusion: “There was no evidence to suggest wrongful actions or mismanagement of state and federal funds.”

However, the practice of including undistributed quantities within pay plan quantity bids is “not good practice and should be discontinued,” Joseph Olson, administrator of the Division of Transportation System Development wrote in a Nov. 16, 2015, letter to Wallace.

“Although this complaint led to the discovery of several opportunities for improvement, it’s clear that your project team continues to provide excellent service to the Department and the taxpayers of our State,” Olson wrote.

Officials with the Federal Highway Administration weren’t so sure.

They questioned why, if WisDOT felt obligated to pay for the gravel, couldn’t it be used in a different location.

A WisDOT worker had tried to do that but was forbidden, records show.

After all the explanations and back and forth with WisDOT managers, federal highway authorities maintained the agency was “not in agreement with interpretations made to support payment to the contractor.”

“There is no documentation to support the basis of the $404,250 payment,” Tracey Blankenship, major projects program manager with the Federal Highway Administration, wrote in a March 1, 2016, email to WisDOT.

Furthermore, in order for WisDOT to be in compliance for future federal funding, the state agency would need to make revisions to its policies aimed at improving accountability, transparency and communication.

“Appropriate checks and balances need to be in place to ensure the use of PPQ is appropriate and in the public interest in each case,” Michael Davies, division administrator of the federal agency wrote to WisDOT officials in a March 2016 letter.

In the same letter, Davies complimented WisDOT, saying that the federal agency was “satisfied that diligence is being taken at all levels and WisDOT is meeting our expectations in representing taxpayers’ interests.”

WisDOT has professional people and good training systems in place, he said.

Federal Highway Administration officials declined to be interviewed, but said in a statement to the Journal Sentinel that the agency “takes seriously its oversight role on federal-aid projects along with accountability to taxpayers.”

Earlier this month, the Office of Inspector General for the U.S. Department of Transportation noted in a memo to that agency's secretary that “providing effective stewardship” over infrastructure projects is among the top management challenges for the department in 2019.

The Inspector General’s office looked into the Zoo Interchange misspending — more than a year after the payment had been made — and decided not to refer the matter to the U.S. Attorney’s Office. Since federal funding had been withdrawn, “there was no loss to the federal government,” the agent concluded.

The state’s Legislative Audit Bureau had looked into the issue as well, following a tip to its fraud hotline.

“We found that DOT paid a contractor $404,250 for a construction item that was unneeded on the Zoo Interchange megaproject,” Dean Swenson, the bureau’s performance evaluation director, wrote in letter to the department’s new secretary, Dave Ross, in April 2017. Ross replaced longtime secretary Mark Gottlieb in January of that year.

“We recommend DOT improve its management of construction contracts,” Swenson wrote.

Ross wrote back the following day noting that, following the withdrawal of federal funding, the department had stopped the practice of including undistributed quantities in pay plan quantities and had reviewed its use of the special provision.

“We do not feel we are deriving benefit from use of the (special provision) and disallowed its use on future projects,” Ross wrote.

Why didn’t the bureau’s findings draw much public attention?

Swenson had stated that his letter should remain “confidential.”

“Circulation of this correspondence should be limited to DOT management and key staff,” he wrote.

The Journal Sentinel obtained the letter from the Federal Highway Administration under the Freedom of Information Act.