FRANKFORT — Last month's bid-rigging trial of road contractor Leonard Lawson and former Transportation Secretary Bill Nighbert was another in a long line of public relations disasters for the Kentucky Transportation Cabinet.
The jury acquitted Lawson and Nighbert. But cabinet officials said they were embarrassed by testimony about cozy relations between the cabinet and politically influential road contractors, expensive single-bid contract awards and change orders that needlessly inflate project costs.
The cabinet is trying to address some of the problems raised in the trial, acting Transportation Secretary Mike Hancock said this month.
Hancock, an engineer, served as Nighbert's chief of staff under Republican Gov. Ernie Fletcher and remains at the cabinet under Democratic Gov. Steve Beshear. Hancock declined to criticize Nighbert directly, but he said the cabinet clearly needed reform.
"There are many things we learned throughout the course of the trial, and many opportunities for improvements," Hancock said.
Since the criminal case began in 2008, the cabinet has enacted formal and informal ethics rules to create a professional distance between its officials and the contractors who want a piece of the multi-billion-dollar Road Fund, Hancock said.
The cabinet is adding more controls on change orders and experimenting with different approaches to encourage competitive bidding, he said.
On 15 projects, for instance, the cabinet asked concrete companies to challenge asphalt companies, which tend to hold monopolies in specific regions. One of those projects ultimately went to a concrete company that offered lower prices.
The decision to invite concrete companies to bid against asphalt companies resulted in part from a 2008 analysis done by software that analyzes bidding patterns and can detect possible signs of collusion or bid-rigging, such as a constant lack of competition or unusually high or low material prices being quoted, said Alice Wilson of the cabinet's Office of Audits.
The analysis determined that in most of Kentucky — everywhere except Louisville and Northern Kentucky — asphalt companies do not compete against each other, she said.
On 16 other projects, the cabinet has tried something else, said Ryan Griffith, director of contract procurement.
It packaged several pieces of work together across the traditional territorial lines of various contractors to lure them into competing against each other, Griffith said. In most cases, this resulted in competitive bids, as the cabinet wanted, he said.
A Herald-Leader review of bids on about 150 road projects that were awarded in May 2009 and last month found that competition noticeably was more aggressive when projects crossed county lines.
On average, the projects reviewed by the newspaper drew 2.8 bids each. But multi-county projects drew 3.4 bids on average. All of the multi-county projects drew more than one bid.
The bad economy has helped, cabinet officials acknowledge. Contractors are hungry for work, and with road spending down from $1.6 billion in 2007 to $780 million last year, they are more willing to battle for every job they can get, Griffith said.
"We're seeing some really good prices right now," he said.
Last year, 38 percent of all projects were awarded on single bids, which is down about 3 percent from recent years, Griffith said. The number of single-bid awards is far higher — 63 percent — for asphalt resurfacing projects, the least competitive type of project, and that hasn't changed much.
The winning bids for many road projects over the last year often were lower than the cabinet's own engineers estimated they should cost, potentially saving the state millions of dollars, according to the Herald-Leader's review.
Before the cabinet opened the roughly 150 bids examined by the newspaper, the cabinet estimated the projects would cost a total of $167 million, including a profit for the contractors. Instead, because the bids so often came in below the cabinet's estimates, they cost a total of $142 million, or 15 percent less.
Single bids on average came in 1 percent above the cabinet's estimates. In most cases, the cabinet rejected single bids if they were greater than 6 percent above its estimates. With competitive bids, the winning bids on average were 17 percent lower than the cabinet's estimates.
On a more basic level, Hancock said, his policy as transportation secretary is not to socialize with road contractors or meet alone with them at work. If a contractor asks to see him, he arranges for other cabinet employees to be present, Hancock said.
During the bid-rigging trial, defense lawyers explained frequent phone calls between Lawson and Nighbert by saying that the millionaire contractor and the cabinet secretary became close friends who chatted day and night and whose families socialized at home and on foreign trips. Nighbert was hired by a company Lawson co-owned after he left the cabinet.
Cabinet engineers should communicate with contractors about projects they're working on, Hancock said, but cabinet leaders ought to keep contractors at arm's length to avoid the appearance of favoritism.
"It's best to maintain some modicum of distance," Hancock said.
In August, a year after Lawson and Nighbert were indicted, the cabinet issued a memo prohibiting its employees from asking contractors for donations, including for the cabinet's United Way drive.
Lawyers did not discuss it during the trial, but in a March 26, 2008, phone call the FBI recorded, Lawson acknowledged giving money to key prosecution witness Jim Rummage, a former deputy state highway engineer who testified that Lawson bribed him with $20,000.
In the call, which was played for the jury, Lawson described the money as "for charity and some stuff like that."
However worthy the cause might be, money should not pass between road contractors and cabinet employees, Hancock said.
Hancock said a thornier problem is the revolving door between the cabinet and road contractors, especially for highly sought engineers.
During the trial, the jury heard about engineers who moved back and forth, sometimes using their cabinet posts to help road builders who had employed them or might employ them again.
Defense lawyers repeatedly invoked former state Highway Commissioner Sam Beverage, whom the Fletcher administration hired after he worked for Lawson. Beverage later lost his state job over ethics violations related to bid-fixing. He then joined Hinkle Contracting Corp., one of Kentucky's dominant road builders.
Beverage did not return a call seeking comment last week.
State ethics laws don't address the revolving door as fully as they should, said John Steffen, executive director of the Executive Branch Ethics Commission.
People are entitled to join a state agency from a company the agency does business with, Steffen said. After they leave, they may return to their previous professions, but for six months they must avoid projects they directly handled in their last three years of state employment, Steffen said.
"This is an area we've looked at," Steffen said. "You shouldn't do favors for someone you used to work for. But at the same time, there is no rule saying you can't have contact with your former employer once you're in state government and in a position to help them."
During the trial, cabinet engineers testified that the state sometimes pays too much for road projects because of the lack of competition in parts of Kentucky, and because unnecessary change orders add work, material and costs after projects start.
In particular, they complained that political appointees running the cabinet overrule rank-and-file engineers when influential contractors call Frankfort.
"I have some coziness concerns about a few contractors out of the 600 we deal with," Deputy State Highway Engineer Chuck Knowles testified.
The cabinet is trying to address these complaints, officials said.
Early in the Beshear administration, the cabinet strengthened the change-order process by requiring approval signatures from the local project engineer, the chief district engineer and the state highway engineer in Frankfort, said cabinet spokesman Chuck Wolfe.
"There were instances in the past of contractors doing an end run around field staff to get change orders OK'd directly from Frankfort," Wolfe acknowledged.
A Herald-Leader review of all 883 change orders from January 2009 to last month showed that, overall, they resulted in the cabinet spending $12.3 million less than planned, because many changes removed costs rather than adding them. The average change order in this group lowered costs by $14,055.
By contrast, a 2003 legislative study of the Transportation Cabinet criticized it for authorizing some change orders without proper explanation. The cabinet spent nearly $57 million on change orders in 2002 and 2003, or 3 percent of all project costs, according to the study.