by Bruce R. Demeter, Esq., AIC
Elizabeth Perino was recently sentenced to one year and one day in federal prison for allowing her firm to be used as a payroll pass-through for a general contractor. Perino owns Perdel Contracting Co., a WBE concrete and carpentry firm. Perino allowed the general contractor of a $7 million O’Hare International Airport runway repair project, Diamond Coring Company, to list several of its employees on Perdel’s payroll. Perdel also reported buying several street sweepers from Diamond for use on the project. Perdel performed no work on the project but received an 18 percent commission from Diamond on labor costs and $20 an hour for street sweeper use. Through this deceptive and unethical practice, Diamond was able to report compliance with the project’s DBE/WBE requirements.
Stories involving the criminal prosecution of construction companies, company officials and individuals are appearing with increasing frequency in the news, ENR and other construction industry publications. Not too long ago, an offending party would have been fined or barred from bidding public work for a certain period of time as punishment for an ethical transgression. For many those actions were considered to be no more than reprimands that did not outweigh the potential benefits of committing an unethical act. The call to impose more stringent punishments for unethical behavior is on the rise because it is perceived as the most effective means of ensuring ethical behavior at this time.
Many of us remember the backlash that grew in the 1970s and 1980s against the construction industry and contractors especially. Surveys listed contractors as one of the most unethical professions in the United States. Project delays, cost overruns, bid shopping, onerous contracting practices, lassie faire attitudes and various unsavory practices left the construction adjacent to the used car industry in the public’s perception of those individuals who had the least amount of moral fiber.
The reaction to the public’s outcry was aggressive action taken by the industry to clean up its act. Codes of ethics were drafted and instituted by companies and trade associations. Bid procedures designed to prevent bid shopping preceded the enactment of anti-bid shopping laws. “Whistle blower” protections were instituted. A plethora of seminars discussing acting ethically were created, and ethics became a key component of industry university degrees and trade educational programs.
Despite the industry’s significant efforts and gains in the area of ethics, many construction companies and individuals continue to act unethically. As a consequence commercial, residential and governmental clients still believe that contractors, subcontractors and design professionals care more about making money than performing quality work on time and on budget. They are convinced that harsher punishment is necessary in order to protect the public and overcome an inability of the industry to significantly abate unethical behavior on its own. The criminal prosecution of construction companies and individuals is a trend that is gaining momentum.
Laws, regulations and rules continue to be enacted that make acting ethically a construction contract obligation and a potential criminal act. For example, under the civil False Claims Act, contractors and their personnel face civil prosecution and treble damages criminal prosecution, and debarment from federal contracting under Federal Acquisition Regulation Subpart 9.4. Suspension and debarment actions include contractors and their employees.
In addition to listing Diamond employees as Perdel employees, Perino also teamed up with another general contractor, McHugh Construction Co., to circumvent federal and state DBE requirements on several other projects. It is estimated that Perino allowed McHugh to pass $40 million through Perino’s other company, Accurate Steel Installers, from 2004 to 2011. These activities came to light after a McHugh project manager, Ryan Keiser, started a whistle blower lawsuit. While Perino is going to jail, McHugh settled with government for $12 million and an agreement that it would revamp its DBE procedures, which included its hiring of an oversight supervisor to manage its subcontracting procedures in coordination with McHugh’s general counsel.
Perino may be one of the latest construction industry individuals to be criminally prosecuted, but she is not the only. Wilmer Cueva, a construction foreman for Sky Materials was sentenced to three years in prison as a result of a 2015 trench collapse that killed Carlos Mancayo and endangered the lives of several others. Mancayo was working in a 13-foot deep trench that was not properly shored. Inspectors repeatedly warned Cueva, and the general contractor, that the trench was in danger of collapsing. Cueva and the general acted unethically by not taking any steps to correct the unsafe condition. After the trench collapsed, Lower Manhattan District Attorney Cyrus Vance Jr. charged Cueva with negligent homicide and the general contractor with manslaughter. Both Cueva and the general contractor were found guilty.
Using a relatively unused Pennsylvania consumer protection act, James Carpenter III, a residential contractor, was criminally convicted of defrauding two homeowners. Carpenter was sentenced to up to 23 months in prison; 400 hours of community service and up to seven years of probation. He was also order to repay $100,000 to the homeowners he defrauded.
Also in Pennsylvania, a general contractor and excavator operator were found guilty of six counts of involuntary manslaughter. On June 5, 2013, a building undergoing demolition collapsed into an adjacent building being operated as a Salvation Army Thrift Store. The collapse killed six people and injured 14 others. The Philadelphia District attorney said that the structural supports of the collapsed building had been improperly removed because the contractor was trying to do the job as cheaply as possible. The District Attorney noted that competing bids for the project were two to three times higher than the amount being charged by the contractor. Griffin Campbell, the contractor, was sentenced to 15 to 30 years in prison. The excavator operator, Sean Benschop, received a prison sentence of 7.5 years to 15 years.
Some will argue that the elimination of unethical behavior is not possible. They point to the fact that there are some individuals who inherently lack the ability to act ethically. They also argue that not all people see some acts as being unethical, which will prevent their acting ethically. For example, there are many people who still consider bid shopping to be an acceptable practice. They ask, “How can you ensure that the owner will receive the best bids for the project if the general contractor cannot shop bids?” To them, bidding shopping is an intelligent and effective means of doing business.
However, more than ever, contractors, subcontractors and construction workers are facing a multi-pronged attack against unethical behavior. Civil penalties will continue to be imposed against those acting unethically. Criminal prosecution for the same bad acts will continue to rise unless we, the collective construction industry, can demonstrate an increased compliance with rules, regulations, laws, and, most importantly an industry-wide code of ethical conduct. Acting ethically is not always the easiest course of action to pursue. But it becomes easier if everyone takes responsibility for acting ethically, and imposing sanctions against those who do not. Until this occurs we will see others trying to control industry ethics through the imposition of civil, criminal, and administrative actions.
Bruce R. Demeter, Esq., American Institute of Constructors, is the author of AIC’s “Mr. Ethics” column. He is former construction litigator. He has published construction industry articles and has been a featured speaker at various national association and organization meetings. He can be reached at email@example.com.