North Carolina Department of Transportation

1. North Carolina Department of Transportation The Ethics of Preparing, Awarding, and Administering Department of Transportation Contracts

2. Agenda • History of Bid Rigging - North Carolina Carolina Example • Why Is Bid Rigging an Issue Today? • National Case Histories • Example Ethics Policy

3. History of Bid Rigging in North Carolina • Bidding Irregularities Disclosed in June 1980 • 31 Contractors Convicted in Federal Court • Testimony That Bid Rigging Had Gone on Since the 1920s • Convicted Contractors Fined in Excess of $6 Million

4. History of Bid Rigging in North Carolina • Civil Settlements > $13 Million • Company Principals Convicted and Sentenced to Active Prison Time of 30-90 Days • 33 Contractors Debarred • 1/3 of all Contracts Between July 1975 and December 1979 were Rigged

5. History of Bid Rigging in North Carolina • 50% of Asphalt Plants Certified in the State Were Owned by 3 Companies • Investigation Revealed Territorial Agreements Throughout North Carolina That Revolved Around the Location of These Plants • Territorial Arrangements Followed County and Division Lines

6. History of Bid Rigging in North Carolina • NCDOT Responsibility • Evidence of Only One Case of NCDOT Involvement • Employee Charged, Tried, and Found Not Guilty • Evidence of Engineer’s Estimate Made Available to Some Contractors

7. Highway Contract Oversight Commission • Created As a Result of Improper Bidding Activities • Established June 4, 1981 • Governor James B. Hunt, Jr. • Membership: Lawyers, Professors, & Private Business Leaders

8. Oversight Commission Recommendations 1. System to Detect Collusion AASHTO BAMS in Now Used 2. Department’s Estimating Techniques Needed to Be Strengthened - Use of Historical Bids Most Common Fault Cost Based Estimating is Now Used 3. State Should Conduct Periodic Antitrust Audit to Look for Evidence of Collusion And/or Bid Rigging Contract Monitoring Office Now Performs This Function

9. Oversight Commission Recommendations 4. Engineer’s Estimate Must Remain Confidential Only Exposed at Bid Opening 5. NCDOT Should Continue to Find Improved Methods of Cost Estimation Continuous Improvements are Made 6. Bidders List Must Be Confidential on Project by Project Basis Plan Holders List is made Public

10. Oversight Commission Recommendations • 7. Bid Depositories Must Be Located Only On State Property • All Bid Openings are Held in State Facilities • 8.Department Should Continue Efforts to Encourage Competition and More Responsive Bids Through Advertising, Pre-bid Conferences, Increasing the Number of Pre-qualified Contractors, And Structuring of Contracts • Efforts are Continuous...

11. Oversight Commission Recommendations 9. NCDOT Should Perform Periodic Reviews and Analyses of Contract Bids for Purpose of Detecting Bidding Irregularities Including Token or Complimentary Bidding AASHTO BAMS is Utilized for This 10. To Promote Competition, Permit Each Bidder to Establish Maximum Amount of Work Awarded at Any One Bid Opening Only done when Contractor Submits Bids on Multiple Projects and Concerns May Exist Over Taking on too Much Work

12. Other Comments & Findings of The Commission • Lack of Competition in Certain Areas • Engineer’s Estimates Used Bid Averages - Not Actual Cost + Profit • If Contractors Consistently Bid High, Average Prices Will Be High • Small Division Projects Are Excluded From BAMS Analysis

13. Why Are Fraudulent Activities Such an Issue Today? • Nationally - Bid Rigging Runs in 20 Year Cycles • Agency, Contractor Employee Turnover, Knowledge Lost • Small, More Numerous Division Let Projects • No Central evaluation of Bids &/or Bid Patterns

14. Why Are Fraudulent Activities Such an Issue Today? • Increased Opportunities for Fraud • Less Oversight by Agencies • Inspection by the Contractor • Expanded QMS Type Programs • Fewer Agency Employees • National Economic Situation • Responsibility High, Opportunity High

15. Other Fraud Issues • Falsification of Test Results • Quality Management Type Programs With High Contractor Responsibility • DBE Improprieties • Bribery • Materials Charged to Projects but Used Elsewhere • Material Substitutions

16. Our Responsibility If Inappropriate Activity Is Suspected, Contact the Following: • Supervisor • Division Engineer • Chief Engineer’s Office • Attorney General’s Office • USDOT, SBI (As Appropriate)

17. National Case Histories 142 Indictments With 106 Convictions • Contech - Materials Substitution • Straight Arrow Construction Company - False Invoices, Falsification of Payroll Records • White Construction Company - False Claims • Daniel Benkert, Yahara Materials - False Weight Tickets • Palumbo Brothers - Ghost Weight Tickets, Inflated Weight Tickets

18. NCDOT Ethics Policy The Holding of a Public Office by Appointment or Employment is a Public Trust. Independence and Impartiality of Public Officials are Essential to Maintain the Confidence of Our Citizens. Adopted September 8, 2001

19. Conflicts of Interest A Conflict of Interest Is a Situation in Which an Employee’s Private Interest, Usually of a Financial or Economic Nature, Conflicts or Raises a Reasonable Question of Conflict With the Employee’s Public Duties and Responsibilities.

20. Duty & Disclosures • Employees Shall Periodically Review Programs, Policies, and Activities of the Department to Identify Potential or Real Conflicts of Interest. • Any Employee of the NCDOT Who Identifies a Conflict of Interest Shall Disclose the Conflict Through Appropriate Management Channels to the Secretary of Transportation.

21. Disqualification & Contracts • If a Conflict of Interest Is Identified, the Employee Must Remove Him/herself From the Source of Conflict. • No Employee Shall Draft, Negotiate, Accept, or Approve Any Contract or Subcontract If Any Member of His/her Family Has Any Financial Interest in Such Contract or Subcontract.

22. Real/Personal Property No Employee, or Member of His/her Immediate Family, Shall Use Their Position to Profit From an Interest in Real or Personal Property.

23. Business Opportunities No Employee, or Member of His/her Immediate Family, Shall Accept Any Business or Professional Opportunity When They Know, or Reasonably Should Know, That the Opportunity Is Being Afforded to Them With the Intent to Influence the Performance of Official Duties.

24. Restriction OnFuture Employment To Avoid Even the Appearance of Impropriety While Conducting the Public’s Business... • For One Year Following Employment With the Department, Employees Are Restricted From Accepting Any Employment or Contractual Relationship With Any Business Entity in Connection With Any Contract That They Drafted, Negotiated, Developed Specifications For, or Recommended During Their Tenure of Public Service.

25. Restriction OnFuture Employment To Avoid Even the Appearance of Impropriety While Conducting the Public’s Business... • This Does Not Prohibit Employment With a Business Entity If the Activity Is on Work Other Than the Specific Contract With Which They Were Involved.

26. Contracting Firms • All Contracting Firms, Consulting Firms, or Principals Thereof Doing Business With the Department Shall, When Entering Into a Contract With the Department, Certify That They Own No Real Property That Will Be Used for the Project That Is the Subject of the Contract.

27. Contracting Firms • Does Not Prohibit Use of Materials From Borrow Pits or Quarries Owned by the Firms or Their Principals and Located Adjacent to the Work Sites. • Does Not Include Public-private Agreements Authorized by General Statutes 136-18(27) or 136-28.6.

28. Gifts & Favors To Avoid Even the Appearance of Impropriety While Conducting the Public’s Business... • Gifts/Anything of Value - No Gifts Are Acceptable With a Few Exceptions

29. Gifts & Favors To Avoid Even the Appearance of Impropriety While Conducting the Public’s Business... • Favors - Any Opportunity, Service, Accommodation, Use of Facility, or Other Benefit Available for Less Than Market Value • What If You Pour a Concrete Driveway Yourself? • What If You Buy Materials From a Department Supplier?

30. Gifts & Favors To Avoid Even the Appearance of Impropriety While Conducting the Public’s Business... Exceptions • Advertising Items & Souvenirs of Nominal Value • Food & Beverages at Professional Meetings Where Equally Available to All Attendees • Gifts or Favors From Friends/relatives Where the Relationship Is the Sole Motivating Factor (Any Gifts Must Be Reported to the Secretary)

31. Consultation • If Any Issue Arises Where You Feel Uncomfortable Regarding Any Ethical Situation, Consult With the Attorney General’s Office. • Consultation Will Be Confidential As With Any Client/Attorney Relationship.

32. Enforcement & Compliance • Failure to Follow These Rules Is Grounds for Disciplinary Action Including Possible Dismissal. • Failure to Follow Certain Conditions of This Policy Is Illegal and Can Result in Fines or Imprisonment.

33. Questions?