Between Friends

A federal audit suggests the Lanier administration gave a sweetheart deal to one of the mayor's buddies -- then failed to ensure that taxpayers' money was properly spent.

In July 1995, just before he left office, Greanias released a review of the Greater Houston Wastewater Project, the $1.7 billion state and federally mandated program to rebuild the Houston sewer system. Auditors discovered tens of thousands of dollars in overpayments and questionable costs, as well as a hidden provision in the contract that added $1 million to the amount paid to the city's two management consultants, Montgomery Watson and Brown & Root.

The key revelation from Greanias's audits, as well as from the most recent HUD examination of the RTC program, is that city officials in charge of administering the contracts were asleep at the wheel. Indeed, HUD points out that housing officials basically gave Duddlesten Management a blank check for more than $1 million, which was passed along to Duddlesten's Cornerstone Construction and used with "no contractual control and little or no oversight" by the housing department.

Moreover, HUD expressed alarm that the city displayed "a significant lack of concern" over Cornerstone's being paid every nickel it billed the city for, even though proper documentation supporting the expenses was largely nonexistent. And much to the surprise of the feds, the Lanier administration isn't interested in what Cornerstone's subcontractors were up to, even though HUD has ordered that $450,000 of the funds they juggled among themselves be accounted for and, if necessary, recovered.

There's little chance that will happen. After considering the city's response to the audit, HUD concluded that housing officials simply refuse to take "responsibility or remedial actions" for flagrant violations of federal procurement laws by the Duddlesten companies.

"The city abdicated its responsibility to ensure proper and economic use of public monies," HUD declared.

This, unfortunately, is not unusual either -- particularly when the contractor turns out to have especially close ties to Bob Lanier. Following Greanias's audit, for instance, it took the mayor months to fire Municipal Collections, which was formed by a Lanier campaign gofer named Peary Perry.

Lanier stood up for Perry until the public discourse suggested he sit down and cancel the contract. Perry rewarded Lanier's bizarre gesture of loyalty by suing the city. The breach-of-contract suit will probably not go to trial until at least November, and will likely be watched solely in the event that a witness blurts out that Perry's ticket-collection contract was a reward for his legwork on the Lanier campaign.

Indeed, Municipal Collections did appear to have the inside track on the contract: Perry was the sole beneficiary of changes to the eligibility requirements made by Larry Miller, the city department head who recommended Municipal Collections for City Council approval. Perry later hired Miller's sister, whose husband was an employee of Miller's department.

In a flashback to that fiasco, the HUD auditors sniffed out an unusual chain of events they intimated led to a sweetheart deal for Duddlesten.

It all began in March 1993, when the original contract to handle the RTC deals was drafted. Housing officials recommended Duddlesten Realty Advisors to inspect the RTC complexes and help with the acquisition; Duddlesten Management to lease the units, prepare the rehabilitation budget and manage construction; and the Manley Companies to handle the financing.

Before the contract could be approved by Council, Greanias objected, pointing out that allowing one Duddlesten company to decide what complexes to buy and then giving a second Duddlesten firm the contract to manage the acquisitions might be giving the fox the keys to the henhouse. Housing officials reluctantly agreed to delete Duddlesten Management from the contract and ostensibly started looking for another company to handle those duties.

Eight companies submitted proposals for the new contract; none of them, however, appear to have been seriously considered. The housing department rejected them all and recommended Duddlesten Management again, even though the company never submitted a second proposal. The owner of one established real estate firm who did submit a proposal told the Press that the city never even bothered to return his phone calls.

In November 1993, eight months after housing officials removed Duddlesten Management from the original contract, Council awarded a second contract to the company for leasing and construction management. Inexplicably, the new deal enhanced the potential for conflict by agreeing to pay Duddlesten Management 3 percent of the total rehabilitation costs -- which, by virtue of the first contract, were to be determined by Duddlesten Realty Advisors.

For obvious reasons, that pricing method is prohibited under federal regulations. Nonetheless, Duddlesten Management collected $30,000 in fees while subcontracting the construction management duties to a third Duddlesten company, Cornerstone Construction.

In turn, Cornerstone directly billed and received more than $1 million in public funds. The fact that the construction company never entered into a written subcontract with either the city or Duddlesten Management might explain why Cornerstone doled out the actual work without soliciting low bids, another breach of federal procurement law.

Given all that transpired before they arrived on the scene, it's no wonder Cornerstone's subcontractors were able to receive almost a half-million dollars without proving the work had been performed. Among the more egregious examples identified by HUD:

Almost $12,000 was spent for 58 metal doors that were not part of the original construction budget and, as HUD later discovered, were never installed.

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