Houston ISD trustee alleges 'corruption,' 'contract steering' in initial hire for Grady Middle School contractor

A construction firm that employs a former Houston schools trustee tried to overcharge the school district $2.5 million on rebuilding a West Houston middle school last year, according to school system documents and another district trustee.

Contractor Morganti Texas tried to tack on $2.5 million to the cost of building the new Grady Middle School last year — a markup 28% higher than what the school district budgeted for the project, and what two independent estimating firms said the school could be built for.

Morganti employs former Houston schools Trustee and former Houston City Councilman Gabriel Vasquez as a regional director. District e-mails show Vasquez was involved in the contract negotiations with his former colleagues at HISD and their consultants.

Houston Independent School District Trustee Harvin Moore, who is still angry about the Grady debacle a year later, referred to it as “fraud,” “incompetence,” “corruption,” and “contract steering,” not just in regard to Grady and Morganti but HISD’s contracting processes in general.

HISD documents show Morganti received poor scores in multiple categories on the district’s internal rankings. Moore says the panel of HISD employees who recommended Morganti to the school board manipulated the data to make Morganti No. 1.

“This district cannot survive the valid public belief that trustees encourage work with corrupt contractors, or that they shout down other trustees who try to stop it,” Moore, whose district includes Grady Middle, wrote in a recent e-mail to Superintendent Terry Grier.

HISD officials wound up giving Morganti the boot before work at Grady had even begun. The school district ended its contract negotiations with Morganti, then hired a rival firm to build the school at a price closer to the original estimate.

But the controversy over the $2.5 million add-on delayed the start of construction at Grady for three months which, in turn, threatened the new school’s planned opening for this fall.

While the ending turned out happy for HISD — taxpayers didn’t pay the extra $2.5 million, and the new Grady building opened on time in August — the situation raises additional new questions about influence, cronyism and potential contract irregularities in the nation’s seventh-largest school district.

HISD has been under fire in recent months for trustees’ ties to contractors. The school district has commissioned two external reviews of its procurement procedures and is considering strengthening its school board financial ethics policy.

Moore wants Morganti fired from the two other HISD construction projects it currently heads, renovations and additions at Southmayd Elementary and Sam Houston Math, Science and Technology Center.

“Does Morganti know that they’ll never work with us again after screwing us like this?” Moore wrote in an e-mail to HISD officials at one point during the negotiations between HISD and Morganti in September 2010.

Issa Dadoush, HISD’s head of construction, repeatedly emphasized in an interview with Texas Watchdog that the district continues to have an excellent relationship with Morganti, which was tapped for all three school construction projects last year.

“The contractor was never declared at default with the district,” Dadoush said. “The contractor is not on the list to never do business again with HISD. What happened is normal. We couldn’t agree, and we parted ways. What we did was obviously the right decision.”

Morganti officials told Texas Watchdog that the company is highly ethical, echoed Dadoush that it’s normal in the construction business for some contract negotiations to go sour, and that it has tapped Vasquez and people like him to get to know the Houston community better. 

Nearly a third of Morganti’s total costs on the project would have gone to one subcontractor, a construction firm run by friends of Houston schools Trustee Manuel Rodriguez Jr., district records show. and it works with another friend of Rodriguez, Art Lopez, who manages Houston’s Glenbrook Golf Course.

Peace confirmed that Vasquez’s Houston connections have enabled Morganti Texas to meet area residents such as Lopez and another subcontractor with ties to Vasquez, businessman Luis G. Carrenza.

“Gabe introduced us to them so we could network,” Peace said. He said that Vasquez’s name is known in Houston, and the former councilman has a solid image in the city.

But Peace emphasized that any work Morganti Texas obtains occurs because the company competes for it.

“There are no free lunches,” Peace said. “If we don’t bid for the work, no one’s going to hand us a contract. It doesn’t happen that way. If Gabe, Luis and Art are helping connect us with work opportunities, great. But none of those connections guarantee us a contract.”

TIES TO HISD

The subcontractor who stood to profit the most from the Grady job was Trojan Global Construction.

State records show the three principals of Trojan Global are Charley, Viet and Simon Nguyen, all of whom are listed as “friends and supporters” on Rodriguez’s most recent campaign newsletter, along with several local political leaders.

Trojan Global was incorporated in February 2010, state records show, or about three months prior to the Houston school board initially voting to begin contract negotiations with Morganti on the Grady project. Trojan Global’s website touts about two dozen construction projects as experience, including strip malls and office buildings.

The company has offices on the second floor of a gleaming mirrored-exterior office building on Richmond Avenue, just west of the Beltway. And state records show that its address has been shared with Vina Builders and Greentree Construction, along with The Patio Gourmet Sliders Inc. All three firms are connected to the Nguyens.

A message left on the company’s general voicemail and an e-mail sent to the company’s general e-mail address were not returned.

Rodriguez said he didn’t know the Nguyens until last year.

He said during campaign season, he’d accept donations from anyone who believes he’s the best candidate.

“But that doesn’t mean I’m going to vote one way or another in the future,” Rodriguez said. “My primary focus is on the kids.”

Rodriguez said he had no conversations with or influence in the hiring of Morganti or its subcontractors. He called Morganti “a friend of” the school district.

He was among the five HISD trustees who voted to begin contract negotiations with Morganti on the three schools in May 2010, records show. The four other trustees were absent at the time of the vote.

Lopez, a political figure and another Rodriguez friend and supporter, also works for Morganti “on the sales side,” Pease said. Lopez did not return a phone message seeking comment left for him at Glenbrook Golf Course, which is owned by the city of Houston and which he manages under contract.

As a District H city councilman in 2001, Vasquez was named the city’s “best politician” by the Houston Press, which called him “the power player of Houston Hispanic politics,” one who had aspirations to become Houston’s first Hispanic mayor.  

HISD records also show that, had it built Grady Middle, Morganti would have employed as a subcontractor a firm called Primis Management, headed by Carrenza.

In 2002, when Vasquez was a city councilman, he tried to get Carrenza a construction contract at Hobby Airport, according to a Houston Press story from that time. Lopez had also stood to gain part of a concession contract around the same time, but Vasquez “switched his vote at the last minute,” the Press reported.

“I have to bid on jobs like everyone else,” Carrenza said yesterday. “And I’m not getting any jobs, either. This economy’s brutal.”

Moore criticized what he called “peddling of influence” by Vasquez.

Vasquez flew to North Carolina last spring to meet with the man HISD had just hired as its chief operating officer, Leo Bobadilla. Moore said Bobadilla told him he thought the meeting was odd. Bobadilla did not return a phone message seeking comment yesterday.

Asked about the North Carolina trip in a phone interview yesterday, Vasquez told Texas Watchdog that it was intended as a “meet and greet,” and initially declined to say more about why he’d fly halfway across the country to introduce himself to a stranger. After being asked several times, Vasquez finally said it was because the firm hoped to do business with HISD.

Peace said that his Morganti colleagues knew Bobadilla from working with him on projects in North Carolina and Florida.

“Leo told us he was coming to work at HISD,” Peace said. “We thought it’d be a good idea for Gabe to go meet him.”

‘CRACKED’ CRYSTAL BALL

When a 20-ton excavator punched a hole in the side of the aging Grady Middle building in July 2010, Moore — and parents in his district — were ecstatic.

The old building was 60 years old. It had been built to hold 250 elementary school students and instead now held 500 middle-school students, many of whom studied in portable classrooms.

With the school district negotiating a contract with Morganti to build the new school, HISD went ahead and had the old building razed to its foundation. Moore and the school’s principal were even photographed at the controls of the excavator the morning demolition began.

Two months later, Moore and some Grady parents were panicking: Still no contract, still no construction, and all they had left of the old school was a concrete slab. Time was running out to get the construction underway for the new building to be up and running by fall 2011.

The holdup was that Morganti had brought HISD a cost estimate way higher than what the school district had planned for.

The whole rebuilding project was only budgeted for $8 million — not an insignificant amount, even to a school district with a $1.6 billion annual budget. But Morganti said it would cost more like $10.5 million.

School district e-mails and memos show that for weeks, the school system’s top construction officials, aided by one of their most trusted advisers, consultant Jim Rice, went back and forth with Morganti about the $10.5 million estimate, trying to find out where that figure came from.

Rice and the school system sought second opinions and even third opinions, asking two independent construction estimating firms to do their own evaluations. They both backed the $8.5 million figure.

“I personally think that their crystal ball is cracked,” one consultant wrote of Morganti in an e-mail.

Meanwhile, Morganti said HISD would either have to come up with the additional $2.5 million or scale back some of its design, such as delaying construction of the gym. HISD didn’t like either option.

The school district dispatched Rice and his staff to Morganti’s offices, where they spent six hours combing through the firm’s subcontractor bids.

That’s when they identified the hangup: Trojan Global — which Morganti intended to use for services as varied as drywall, fire sprinklers, doors, site improvements, concrete and heating and air conditioning.

“We noted the prevalance of bids from Trojan Global whom we were informed was a sub-contractor though their work covered many trades,” Rice wrote in a detailed memo to Dadoush. Rice wrote that he left Morganti’s offices “curious about the prevalent use of Trojan Global.”

After reading Rice’s memo, Peace wrote in an e-mail to Texas Watchdog that “I believe that it accurately recounts the events.”

“The Trojan contractor kept coming up,” Moore told Texas Watchdog. “I kept asking, what about Trojan was high? The steel? Something else? (Jim) Rice told me, ‘I don’t know, the whole bid.’”

In an interview on Tuesday, Rice said that “it was hard to put a finger on any one thing” that drove Morganti’s price $2.5 million over budget. But the inclusion of Trojan Global in the work “appears to have contributed to it,” Rice said.

That prompted a showdown at HISD’s headquarters in September 2010. HISD and its consultants confronted Morganti with the outside estimates of $8.5 million, and asked if Morganti would seek other subcontractors who could do the work more cheaply. Morganti said no.

Five days later, HISD notified Morganti it was ending negotiations with the firm and instead turning to its next choice, Satterfield and Pontikes, which would eventually build the new school. Satterfield’s signs remain on the temporary fencing outside the school today, while it continues work on the site.

Moore, Dadoush and Rice said they had never heard of Trojan Global until the firm appeared in the Morganti negotiations.

“The more I learned, the more fishy it seemed,” Moore said. “It smelled, and I wanted to know where the smell was coming from.”

Worse, Moore said, was his fear that the $2.5 million over-budget money actually represented a circular flow of money that would be distributed among players he couldn’t identify.

“I told Leo (Bobadilla) and Terry (Grier) they ought to look into it, too,” he said.

Moore also questioned why Trojan Global would be chosen to work on the project when their past work experience “had nothing relating to schools,” he said. “They did shopping centers and commercial construction — not a single piece of government work.”

Morganti had told HISD that it wanted to work with Trojan Global in a “protege-mentoring” relationship on the project, school district records show.

The company had to include Trojan Global to meet HISD’s goals for minority subcontracting, Peace said.

Records show that, including Trojan Global, Morganti would have had 55% minority subcontracting, meeting and exceeding HISD’s goal of 20% on the project.

MOORE WANTS FIRM FIRED

The new school is now open, but Moore is still furious — furious at Morganti and furious with the HISD administration.

As for Morganti, he says, “I would vote against ever hiring them again – unless  everything was done properly and above board – because of this very specific experience.”

While bidding on the Grady project, Moore said, Morganti executives failed to disclose that its parent company in Connecticut had agreed to pay the U.S. Department of Justice $800,000  to settle a civil suit alleging fraud on  construction being done for the U.S. government in Jordan.

Justice officials alleged, among other charges, that Morganti submitted false pre-qualification documents.

“Morganti has a pattern of losing contracts,” Moore said. “That is incredibly pertinent information that would’ve helped the selection committee while they were deciding whether or not to hire Morganti.”

Peace said it was a misunderstanding.

“We thought that question” on HISD’s disclosure form “was asking us about Morganti Texas, so we answered the question in that way,” Peace said. “We respectfully disagree with Mr. Moore if he feels that we should have reported what was happening with the company’s international division in Jordan. We don’t see any attempt by us to defraud anyone.”

Peace, a mechanical engineer, added that other Morganti divisions do not report to him those types of developments. Peace was unaware of the Department of Justice settlement until Texas Watchdog informed him of it.

But Peace also said that if he and his colleagues were wrong and incorrectly answered that question, they would make sure to answer it properly in the future.

Vasquez also said that he reached out to Moore during fall 2010. He said he left Moore a message with the HISD board services office. But he never heard from Moore, Vasquez said.

“We’re happy to sit down with him and answer any questions he has,” Vasquez said. “We don’t want any misperceptions about how we operate.”

Peace also invited Moore to visit Morganti’s offices in Houston.

“We’ll show him whatever he wants to see,” Peace said. “We’d be glad to show him the paperwork. We have nothing to hide.”

Morganti’s entire business, Peace said, comprises projects funded with public money, and in recent years the firm has headed up the massive revamp of Washington, D.C.’s Reagan National Airport and renovated the Connecticut state capitol building. Company policy mandates that its accounting books are open.

“If an owner wants to see them, they’re here,” Peace said. “We have to be above board in everything we do. We have to be good stewards of the public’s money.”

Peace continued that Morganti has a strict code of conduct that prohibits unethical actions. He compared the company’s compliance department to internal affairs at a police department.

“You better have your act together when they come calling,” Peace said.

“This was our first project with HISD,” Peace told Texas Watchdog. “We’re trying to understand their system and how they operate. It’s part of the learning curve. We’re obviously disappointed. But now we have an understanding that we need to work harder to make sure we’re ready to go on the next one.”

QUESTIONS ABOUT RANKINGS

As for HISD, Moore feels he spent a year warning his fellow school board members, Grier and the district department heads, and then wasn’t listened to.

“We knew in advance that Morganti had issues, but we went ahead with them anyway,” Moore said in an interview Wednesday.

HISD staff should never have ranked Morganti first among the bidders, Moore said.

Documents show that HISD’s internal selection committee rated Morganti as having the worst overall reputation among the 28 potential bidders on the Grady project.

Officials from Goose Creek Consolidated Independent School District in the Houston suburb of Baytown wrote in their reference document that they would in “no way” choose Morganti again. “Good God, no,” reads the concluding comment. Goose Creek officials also wrote that Morganti never finished the project it was hired to do.

“We’ve never failed to complete a project anywhere,” Peace said, rebutting the Goose Creek claim. “I just talked to Goose Creek yesterday. They had a question about a project they’d like us to do for them.”

Moore also pointed out that HISD’s evaluation matrix ranked Morganti 18th in the “quantitative scoring” category and 15th in the “qualitative results” category.

“How do you go from that to first?” Moore asked, referring to the final ranking Morganti received due to the weighted scores assigned by the district selection committee.

Moore said he’s told Grier and others at the school district that he wants things cleaned up.

“What’s frustrating is that these types of incidents eclipse the breakthrough progress we’ve made at HISD and are nationally known for,” Moore said. “That can’t be the story when other stories about possible district corruption are what’s in the news.”

***
Contact Mike Cronin at mike@texaswatchdog.org or 713-228-2850. Follow him on Twitter at @michaelccronin or @texaswatchdog. Contact Jennifer Peebles at jennifer@texaswatchdog.org or 281-656-1681. Follow her on Twitter at @jpeebles or @texaswatchdog.
   
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