Kentucky used $24 million in federal stimulus funds to award contracts to Leonard Lawson's road-building companies in the year after his bid-rigging indictment, despite federal rules calling for him to be barred from such road projects, a new report shows.
The Federal Highway Administration should have suspended Lawson from winning road projects involving federal funds within 45 days of his September 2008 indictment, the U.S. Department of Transportation's inspector general wrote in an audit report this month.
Instead, it took 10 months for Lawson to get his suspension letter, in July 2009.
In the interim last summer, the Kentucky Transportation Cabinet awarded companies associated with Lawson road projects using $24 million from funds that President Barack Obama and Congress authorized last year to stimulate the economy.
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The Federal Highway Administration helps pay for many of Kentucky's major road projects, and it must "ensure that government contractors who have acted unethically do not receive additional government dollars," Assistant Inspector General Mark Zabarsky wrote in his report.
Zabarsky does not name Lawson in his report. But his detailed description of Lawson's criminal case and co-defendants clearly identifies him as the indicted road contractor in question.
Zabarsky did not return calls seeking additional information Wednesday. Lawson's attorneys declined to comment, other than to confirm that Lawson received a suspension letter from the Federal Highway Administration last July.
Lawson, 70, is on trial in U.S. District Court in Lexington this month with former Transportation Secretary Bill Nighbert, 58. The two are charged with bribery and obstruction of justice. They have pleaded not guilty.
Federal prosecutors say Nighbert leaked confidential bid estimates to Lawson in 2006 and 2007 for road projects worth $130 million.
A federal grand jury indicted Lawson, Nighbert and Lawson employee Brian Billings in September 2008. The Federal Highway Administration promptly was notified of the indictments — sufficient grounds for suspension — but the agency failed to suspend Lawson for nearly a year, Zabarsky wrote.
"With better communication between the Federal Highway Administration and Kentucky's Transportation Cabinet regarding the forthcoming suspensions, the awarding of the (federal stimulus) contracts may have been avoided," Zabarsky wrote.
The report noted that delayed suspensions of contractors accused of wrongdoing is a chronic problem, not limited to the Lawson case. The 45-day suspension rule is not clear enough in U.S. Department of Transportation policy, leading some administrators to exceed it, Zabarsky added.
Transportation Cabinet spokesman Chuck Wolfe on Wednesday said the state is aware that the federal government has suspended Lawson from road projects involving federal funds.
But Wolfe said Lawson legally is "taking action to separate himself from the companies," so the companies remain eligible to win road projects worth tens of millions of dollars. The suspension covers Lawson, not the companies he owned and ran, Wolfe said.
"The status of the companies remains as it had been from the cabinet's end," Wolfe said.
Corporate records show Lawson's son, Steve, a longtime executive at his father's companies, remains listed as an officer while Leonard Lawson's name has been removed. Steve Lawson did not return a call to the companies' Lexington headquarters seeking comment Wednesday.
The inspector general's report questioned whether Lawson's companies are under new management if Lawson's son succeeded him and they essentially have the same people working at the same offices.
Quoting federal rules, Zabarsky wrote that evidence of affiliation includes "interlocking management or ownership, identity of interests among family members, shared facilities and equipment, common use of employees," among other factors.
In its response to the inspector general's report, the U.S. Department of Transportation said it did not immediately suspend "any of the other unindicted companies that the draft report maintains were associated with the indicted parties, because from its perspective, the available evidence was not legally sufficient."
However, as a result of the report, the Federal Highway Administration has issued orders to the six companies in question that share the same address, requiring them to document their relationship to Lawson, wrote Linda Washington, assistant secretary of transportation.
"Upon receipt and review of this information," Washington wrote, the Federal Highway Administration "will take swift and appropriate action as warranted."
A U.S. Department of Transportation spokeswoman said Wednesday she did not know the status of the companies' eligibility to continue winning federally funded road projects. Jose Sepulveda, administrator of the Federal Highway Administration's Kentucky division, referred questions to the agency's Washington headquarters.
At the bid-rigging trial Wednesday, defense attorneys for Lawson and Nighbert ended their cross-examination of the government's key witness, Jim Rummage, a former deputy state highway engineer.
Rummage has testified that Nighbert told him to take bid estimates to Lawson, who rewarded him with $20,000 in bribes.
Howard Mann, who represents Nighbert, said Rummage by his own account lied many times throughout the alleged bribery scheme and subsequent criminal investigation. Before he became a government witness in March 2008, Rummage denied giving bid estimates to road contractors when asked by the Transportation Cabinet's Office of the Inspector General and the FBI.
Rummage even lied on his income tax returns by failing to disclose the $20,000 in bribes as income, Mann said. Rummage acknowledged that was true, although he said he later filed amended returns to include the bribes and paid the appropriate penalties and fees.
"Sir, how many lies have you told?" Mann asked. "Could it be 30, 40, 50, 60?"
Larry Mackey, who represents Lawson, played two recordings for the jury of Rummage being coached by law-enforcement agents before he secretly taped people in the case, trying to get them to say something incriminating. Despite their efforts, nobody admitted to wrongdoing, Mackey said.
"The plan in the coaching session did not work, did it?" Mackey asked.