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Thursday, August 14, 2008

CH2M Hill: "From time to time, ... the U.S. government investigate[s] whether we conduct our operations in accordance with applicable regulatory ..."

I caught this because someone got to my blog by Googling "ch2m contract fraud." I looked to see what else they found. CH2M Hill bought Veco, according to Bill Allen in the Pete Kott trial, at a bargain basement price when he was forced to sell. When the name on the VECO building was changed last year, I pondered whether CH2M Hill would be a better corporate citizens than VECO had been. I was willing to give them the benefit of the doubt, though some commenters linked to spots that showed they had problems with contracting in Iraq and with Katrina relief. So it seemed a good time to add some more information.

Overall, I don't read SEC filings enough to know if this is in the normal range or not. Let's hope it is not. But let's post it and let others give it some context.

CH2M Hill submitted its Form 10K with the Securities Exchange Commission (SEC) February 29, 2008. I'm posting here the Legal Proceedings section.

The title quote is a bit of fancy legal writing to make things look pretty benign. My legalese isn't all that good, but I would translate it as:

"We have regular investigations from the US Attorneys to see whether we've violated any laws." Given the lax regulatory enforcement under the Bush administration, it would seem to take some real effort to trigger regular investigations.

But not to worry, sometimes we aren't found guilty.

These investigations often take years to complete and many result in no adverse action.


Key issues they list:



  • $ 2 million settlement in Connecticut (still pending conclusion)
"we entered into a deferred prosecution agreement" - a subsidiary worked out a deal with the United States Attorney so they aren't going to be prosecuted is what that sounds like.

The DPA relates to an investigation of a Clean Water Act (CWA) violation at two wastewater treatment facilities in Connecticut. Pursuant to the DPA, the subsidiary contributed $2.0 million to community projects and took other agreed upon steps to enhance CH2M HILL's CWA compliance procedures at the two wastewater treatment facilities in Connecticut
I'm guessing at the translation into English: "We worked out a deal where we paid $2million to various community groups to escape from being prosecuted."

  • Veco
Although we were satisfied with the results of the due diligence review, no assurances can be given that the ongoing investigations will not result in civil or criminal charges against VECO, now a subsidiary of ours. Any such charges and related publicity could have an adverse effect on our reputation in the business community or future business operations.
  • Hanford Nuclear Spill
On July 27, 2007, our subsidiary, CH2M HILL Hanford Group ("CH2M Hanford") caused a spill of approximately 85 gallons of radioactive waste, during routine maintenance operations on the Hanford Reservation owned by the United States Department of Energy ("DOE").
It looks like they face a possible $.5 million fine from the State of Washington on that one. (Is the "." a typo? If I were writing it I would have written Half-million rather than have it look like five million. Maybe it was intended to be confusing. Who knows?


The whole Legal Proceedings section is below.


From the Filing:

Item 3. Legal Proceedings

We are a party to various contractual guarantees and legal actions arising in the normal course of our business. From time to time, agencies of the U.S. government investigate whether we conduct our operations in accordance with applicable regulatory requirements. Because a large portion of our

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business comes from federal, state, and municipal sources, our procurement practices at times also are subject to review and occasional investigations by U.S. and state attorneys offices. Such state and U.S. government investigations, whether relating to government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties. These investigations often take years to complete and many result in no adverse action. Damages assessed in connection with and the cost of defending any such actions could be substantial. While the outcomes of pending proceedings are often difficult to predict, as of the date of this filing, our management believes that no ongoing litigation or investigation is likely to result in a material adverse impact on our consolidated financial statements.

In January 2006, a subsidiary entered into a Deferred Prosecution Agreement (DPA) with the office of the United States Attorney for the District of Connecticut. The DPA relates to an investigation of a Clean Water Act (CWA) violation at two wastewater treatment facilities in Connecticut. Pursuant to the DPA, the subsidiary contributed $2.0 million to community projects and took other agreed upon steps to enhance CH2M HILL's CWA compliance procedures at the two wastewater treatment facilities in Connecticut. Provided CH2M HILL complies with its obligations under the DPA through January 2008, the U.S. District Attorney for the District of Connecticut will recommend dismissal of all actions against the subsidiary in connection with this matter. The violation is related to failure to comply with sampling and reporting requirements of the CWA and there is no evidence the violation resulted in harm to human health or the environment. Although the term of the DPA ended in January 2008 and we believe we have fully complied with the DPA, the DPA will not be released and the criminal charge will not be removed until the U.S. District Attorney for the District of Connecticut is satisfied all conditions have been met. We are currently in discussions with the U.S. District Attorney for the District of Connecticut to achieve this resolution.

In September 7, 2007, we acquired VECO and substantially all of its operating businesses. Prior to the acquisition, on May 2, 2007, the founder, then chief executive officer and principal shareholder of VECO, Bill Allen, entered into a plea agreement with the United States Department of Justice pursuant to which he agreed to plead guilty to certain criminal charges involving bribery of public officials, violation of campaign contribution laws, and tax fraud. In connection with the investigation of the allegations against Mr. Allen, the United States Department of Justice, the Internal Revenue Service and certain State of Alaska government agencies commenced investigations of VECO and certain of its other employees. In the process of reviewing VECO's business and operations prior to the acquisition, we engaged in special due diligence designed to address concerns related to the conduct of VECO's past operations and various investigations underway by the Department of Justice, the Internal Revenue Service and certain State of Alaska government agencies. Although we were satisfied with the results of the due diligence review, no assurances can be given that the ongoing investigations will not result in civil or criminal charges against VECO, now a subsidiary of ours. Any such charges and related publicity could have an adverse effect on our reputation in the business community or future business operations.

On July 27, 2007, our subsidiary, CH2M HILL Hanford Group ("CH2M Hanford") caused a spill of approximately 85 gallons of radioactive waste, during routine maintenance operations on the Hanford Reservation owned by the United States Department of Energy ("DOE"). No one was injured, and the DOE's accident investigation concluded that "[because] of low concentrations and short duration of the exposure, it is not likely that the spill event caused an overexposure or chronic health impacts". CH2M Hanford took all prompt and appropriate steps to formulate and implement a corrective action plan that has been accepted by the DOE. In connection with the event, the DOE's Office of Health, Safety and Security has conducted an investigation under its Price Anderson Act nuclear safety authority. The DOE has not yet taken any formal action against CH2M Hanford as a result of this investigation. The DOE has broad discretion in setting fines, but it takes into account a contractor's prompt acceptance of responsibility and the formulation of an appropriate corrective action

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plan, which is what CH2M HILL has done to what we believe to be the DOE's satisfaction. The Washington Department of Ecology has proposed to fine the DOE $.5 million in connection with the spill and, if the fine is levied, CH2M HILL will be financially liable for it under our contract with the DOE. CH2M Hanford is in discussions with the the Washington Department of Ecology about a possible reduction of the proposed fine. Finally, the Environmental Protection Agency ("EPA") proposed to fine both the DOE and CH2M HILL in connection with the spill. CH2M HILL settled that fine for $6,800 and $24,000 in in-kind services to support the local Tri-County emergency response team. CH2M HILL's management does not believe that this event will materially impact CH2M HILL's business or results of operations.

11 comments:

  1. The CH2M Hill Hanford cleanup project is worth over 2.2 Billion to them. Billion. The possible fine, for having let a tank overflow and spread 50-year-old radioactive waste onto the ground, is $5,000,000, which would be .2272727% of the contract's value. (point 2272727 per cent).

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  2. I certainly hope that the "ongoing investigations [will] result in civil or criminal charges against VECO." Otherwise, Bill Allen (through his family) will benefit to the tune of $463 million for criminal activity!

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  3. The new CH2M Hill/VECO versus the old VECO: it's the same mind set, just with a longer name now attached to it. Here's a good example of their mindset, the one that justifies whatever this greedy corporation will do to get work, despite whether or not it's ethical. Very sad what happened to Tom Huntsinger and his family. Read the following. When Huntsinger's tried to fight it, CH2M just dragged the suit along for years, costing the Huntsingers their life savings and wearing them down until Tom Huntsinger took his life. Read on...

    We only ask WHEN (if ever), will CH2M and/or Ralph Peterson find it in their conscience to apologize for all the harm, pain and suffering they inflicted on our family (the Huntsingers), for Huntsingers merely DOING THE RIGHT THING. Under Ralph Peterson's leadership, CH2M literally left a dead body behind them and a family without its son, husband, father, and grandfather (Tom Huntsinger) because CH2M simply wanted yet another job. Instead of dealing with its conflict of interest in a proper, honest way, they "shot the messenger" who raised the issue that there was a conflict of interest. The messenger is now dead! What CH2M has turned into is NOT something we long time Coloradoans should be proud of at this point.

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  4. CH2M Hill conducted a presentation for locating "high-tech" industry in my town of Saugerties. There were a number of concerns about CH2M Hill's past and present violations, pending litigation and fines imposed for various spills, worker transgressions, etc.

    During the 3 hour long PR presentation (which local tax payers paid for) several audience members asked pointed questions regarding these issue and the speakers danced around, but ultimately excused the events as "just human error" and not their way of doing business.

    Please read the details at saugerties-ny.blogspot.com.

    Thanks for the information.

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  5. I don't like to just assume that certain large companies are corrupt. But proponents of the free market system say that everyone pursuing their own self-interest leads to a better system. Thus we need to assume they are vigorously pursuing their own self-interest.

    Thus bloggers keeping track of what's happening in their own communities can log a cyber record for others to find and to build on.

    So, glad what I posted helped, and thanks for keeping track in saugerty. Let us know what the upshot of the meeting was.

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  6. S/
    You may opt to look at this( **** see http), a complaint with the AG on the FBI/ DOJ who was the Team(A) to nail Stevens:

    http://media.adn.com/smedia/2008/10/29/17/TS.source.prod_affiliate.7.PDF

    It notes the VECO sale as how the DOJ maintained leverage over ALLEN.
    Irrespective, of any notes(DOJ in April), the writing was on the wall in Oct 2008.
    Then, some played a switch-a-roo, and agent ***** did his flip flop.(bailed Ship, like an out of the boat, thing.
    The VECO job cost detail was not accurate, according to the subject letter, and, some have tried to warn you that: 2 + 2, + **** does not equal $ 250,000.
    Having said the foregoing, there has been no indictment of any DOJ/ FBI *****, so, the presumptious of innocence is with them , until there is any conviction, or other.
    I have no crystal ball on what the future holds on that(as we are a day before Easter, 2009).
    How many lawyer notes pretial were not turned over by the U S Attorney's Office in Alaska in criminal cases in the last 25 years, I fear to count the number, it may be so large.
    Have a wonderful, and joyous, and enlightened Easter.

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  7. Anon, The Williams and Conolly letter to Mukasey that you link to above is interesting. But it is an attorney's letter so it is slanted to favor their client without our hearing the Government's response to the letter.

    In terms of the VECO issues, for example, they argue in the letter that, "Even more significantly, the government’s decision not to indict VECO when Mr. Allen, its Chief Executive Officer, agreed to plead guilty facilitated a sale of the company for $385 million, making Mr. Allen and his family wealthy."

    Well, first of all, VECO was worth a lot more than that before Allen got into trouble and Allen and his family were already wealthy. The scandal caused the value of VECO to drop. Thus Allen already lost perhaps $100 million or more in value. The agreement only meant it wasn't going to get worse.

    Second, as this post shows, CH2MHill's Feb 2008 filing acknowledged that they still faced legal liabilities from the VECO action even though this was about 18 months after the guilty plea.


    "In the process of reviewing VECO's business and operations prior to the acquisition, we engaged in special due diligence designed to address concerns related to the conduct of VECO's past operations and various investigations underway by the Department of Justice, the Internal Revenue Service and certain State of Alaska government agencies. Although we were satisfied with the results of the due diligence review, no assurances can be given that the ongoing investigations will not result in civil or criminal charges against VECO, now a subsidiary of ours."

    So, contrary to what the letter suggests, the guilty plea did not make VECO's liability go away.

    All that said though, as I've mentioned before, attorneys I know have been saying the Prosecutors' behavior was outrageous, and the judge and the attorney general have agreed, so there is clearly some weight to their complaints. Let's see what the investigations uncover.

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  8. The W /C LTR notes some $ 70 million,
    That may come out of B A.' s hide
    in the very " troubled asset", AKA that was
    Stevens Girdwood house that the DOJ turned into
    a $ 3 million liability for Ted S.
    It is frightening that the DOJ plays games
    to make assets troubled
    and plays God on the liability side of the ledger
    as well. This saga has many more chapters
    to unfold.
    wev S has an NPR interview early on,
    he was singing a very different tune , then.

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  9. As a former employee of ch2/omi I can attest to the fact that problems that they have had are directly related to human error and at times deliberate. Yes I do know first hand. Know onto this company, they work very hard to stay compliant and there company idea is " perfect reporting of compliance and non-compliance" issues asap to avoid any type of future unwanted press. Any position from project manager down is an extremely difficult and stressful and constantly overworked. While I don't like the way the eat up the worker bees that work for them and the office politics is just nuts but they do try to stay on top of things and Katrina and Iraq went very well but with others in the working in the area raised so many flags of there own, (hal-burton ..etc) it brought all subs under scrutiny. I don't know much about the veco deal much so I really can't comment on it. I am not sold by any means on ch2 but most of the bad press is related to ch2 being mostly a one of a kind company with very little direct competition with in the industry.

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  10. Anon 6/20 - thanks for your comments, I appreciate getting a different perspective. It is hard to evaluate with relatively little information, and of course, organizations are made up of people, some of whom are decent and others who cut corners. If you have more to add, you can
    E-mail Me

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  11. Bottom line is when a company, such as CH2M, maliciously and wrongfully harms the "messenger" (like they did to Huntsinger), they should have to pay. As long as they are allowed to finese their way under Colorado's high outrageous conduct threshold, they will. CH2M talks the talk of "ethics," but only to the extent that it makes good PR. In practice, as shown in the Huntsinger case, their "ethical" talk is really a farce.

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