Crooked contractors, bribery and embezzlement are all subplots in a botched $153 million deal to build a Department of Veterans Affairs hospital near Pittsburgh, according to a report released Tuesday by the agency's inspector general.
Veterans Affairs contracting officers and lawyers improperly dismissed evidence that the firm selected to build the project, Westar Development Co., was controlled by a man who admitted to embezzling money from a previous employer. They also failed to spot connections between Westar and a money man in the deal who pleaded guilty to bribery and racketeering charges three months after the lease was awarded.
Westar officials even claimed falsely that their project team would include a former VA executive as a consultant, an assertion that earned extra points from agency evaluators. That executive, William Montague, later pleaded guilty to accepting bribes and kickbacks while he worked at the veterans' agency in return for inside information about lucrative agency contracts that apparently were unrelated to the Pennsylvania facility.
Veterans Affairs officials did not check their own records to verify claims that Westar should received special consideration as a veteran-owned small business. They did not even verify Westar's claim that it had worked on 11 other federal buildings, including veterans' hospitals. In fact, Westar had never built anything before it got favored treatment from VA contracting officials to build and lease the medical center in Butler, Pa., according to the report.
The 20-year lease agreement that would cost taxpayers $152.7 million was awarded to Westar in May 2012. It was terminated in August 2013 after the inspector general confirmed the allegations initially made in a protest filed by an unsuccessful bidder. The follow-up report released Tuesday came at the request of agency officials who asked the inspector general to determine why the contract was so badly mishandled.
“While it is undisputed that Westar made false and misleading representations to VA, our findings and conclusions supported that VA failed to perform appropriate, required verification steps and failed to follow up on key statements made in Westar’s proposal,” the inspector general said in its analysis of the deal.
The bizarre tale began in January 2010, when VA sought proposals from developers who would secure land, build the Butler VA medical center, and lease the property to the agency for 20 years.
Because of the way the deal was structured, Westar had the advantage. The company acquired the site that was preferred by VA contracting officials for no good reason, according to the report.
Westar was founded in 1998 Robert J. Berryhill, who was listed on corporate documents as its majority owner and until mid-2010 as its president, according to the inspector general.
About a month after VA awarded the contract to Westar in 2012, a protest was filed by an unsuccessful competitor claiming Berryhill had admitted in court to embezzling from his previous employer.
The judge in that Ohio civil case wrote in December 2011 that it was “undisputed that Berryhill had embezzled” about $300,000.
Yet VA contracting officers and lawyers from the agency’s Office of General Counsel did not follow up on the allegations and dismissed the protest as “rumor and innuendo,” according to the inspector general.
In April 2013, Berryhill was charged with fraud and reached a plea agreement a few weeks later. He was sentenced last year to six years in prison and is now incarcerated at a minimum-security federal facility in West Virginia.
During its investigation of the bid protest, the inspector general got a tip that Westar had been acting as a front company for Michael Forlani, an Ohio builder, when it was awarded the VA contract. Forlani was suspended from doing business with VA after he was indicted on bribery and racketeering charges in 2011. He later pleaded guilty and was sentenced to eight years in prison; he is being serving time at a minimum-security federal prison camp in Alabama.
The inspector general's investigation concluded Forlani had been involved in the project from the beginning, originally as a named partner with Westar and later through complex transactions involving the purchase of the land.
Another twist in the strange plot is a murky relationship between Westar and William Montague, former director of the Louis Stokes Cleveland VA Medical Center.
Westar’s original proposal listed Montague as a consultant to the project. The knowledge and credibility he brought to the Westar team caused VA contracting officials to raise the score they assigned to the company’s bid, according to the inspector general.
But it turned out Montague had no formal agreement with Westar, and ultimately decided not to get involved in the project.
In February, Montague pleaded guilty to corruption charges and faces more than six years in prison. Among Montague's admissions was that he passed confidential VA contracting information to Forlani for construction projects in Ohio.
The inspector general's report does not say whether there is any connection between Montague’s crimes and the Butler VA facility. A VA Office of Inspector General spokeswoman would not comment on any possible connection.
Beyond the criminal histories involved in the Butler project, VA contracting officers did not do routine verifications about Westar’s ownership and work history, according to the report.
To gain a bidding preference, Westar officials claimed the company was a veteran-owned small business, entitling it to preference points when the bids were scored. However, the inspector general found the company was not registered in VA’s own database of qualified firms.
As part of its bid proposal, Westar also listed 11 previous federal contracts in which it was either the primary contractor or did major work, including the Cleveland VA medical center where Montague had been director. In fact, Westar had not developed a single project since it was formed, the inspector general found.