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.

Feds Busy Elsewhere - CH2M Hill Played Veco in Ohio

While Alaskan's are all absorbed in our own corruption scandals, the Feds seems to be pretty busy all over the country. Here's a website covering what they call the Cleveland Ohio Water Scandal.

One of their entries mentions CH2M Hill:

Prominent Cleveland consultant Nate Gray and five others indicted in federal probe of corruption in Ohio, New Orleans and Houston

The 45-count indictment charges Gray with creating a secret machine that corrupted public officials with cash, Super Bowl tickets, massages and limousines. Also charged were former Houston building department director Monique McGilbra, prominent Cleveland lawyer Ricardo Teamor, consultant Gilbert Jackson, former Honeywell Inc. salesman Brent Jividen and Cleveland City Councilman Joseph Jones. The indictment also accuses Gray of bribing then-East Cleveland mayor Emmanuel Onunwor involving a no-bid, $3.9 million contract with Denver-based CH2M Hill, which managed the water and sewer systems in East Cleveland starting in March 2002. According to federal prosecutors, CH2M Hill provided as much as $10,000 a month in consulting fees to Cleveland engineer Ralph Tyler, who carried the money to Gray, who used it for bribes. Attorneys for CH2M Hill and Tyler say their clients did not know the money was used for bribes. Cleveland Plain Dealer_ 1/19/05 [Emphasis added]

This could be called old news, but they [the Feds] apparently are still at it. When I reported the changing of the guard at the Veco building, I gave CH2M Hill the benefit of the doubt.

With luck Anchorage is getting a new corporate player with strong ethical standards that will work generously with our community

But commenters weren't as generous. And this story about consulting contracts that were bribes, sounds terribly familiar to what happened with the Alaska Company they bought. Let's watch these guys carefully.

In with the new (CH2M Hill) and Out with the old (VECO)

I got the picture of the Veco building in mid August. A couple of weeks ago the new owner of Veco, CH2M Hill put up their sign and I finally got around to getting the after picture. They even repainted the metal on the bench. Maybe things will be different.





Fortune Magazine last year rated them the 80th Best Company to work for in the US. CH2M Hill is an employee owned company and being on this list is a good thing. But like all such lists we need to take it with a grain of salt. Enron was once on that list, and while they probably were a good company to work for, they ultimately were not a good company.





The Center for Public Integrity lists CH2M Hill in its Windfalls of War page identifying work it is doing in Iraq.

Background

The Colorado-based company offers engineering, construction and operations services with a special focus on hazardous-waste cleanup, waste-treatment design, and transportation projects. CH2M Hill is employee-owned and has more than 10,000 employees worldwide. The company name comes in part from the initials of the founders, Cornell, Hayes, Howland and Merryfield; after a 1971 merger with Clair A. Hill & Associates, Hill was added to the name.
Iraq contracts

CH2M Hill, in a joint venture with Parsons Water Infrastructure Inc., is providing support to the Public Works and Water Sector program office under the Coalition Provisional Authority's Project Management Office. The contract, which was awarded on March 10, 2004, is worth almost $28.5 million. According to a Democratic congressional report, the joint-venture is overseeing work done by four different companies—Fluor, Washington Group International, Black & Veatch and AMEC—on public works and water projects.

CH2M Hill also has a contract through a consortium with Spanish companies Dragados and Soluziona for "electrical power generation" worth $12.7 million. Dragados has reportedly opted out of the deal, in part because of a policy not to perform work in Iraq, a spokesman for the company said. This contract was awarded on Feb. 6, 2004.

Their corporate website includes a page on Social Responsibility.

A Shared Commitment to Social Responsibility

Executing projects to improve the quality of life shows only part of CH2M HILL's commitment to working without boundaries. The other part, not seen in technical reports or engineering drawings, takes shape in the hands and hearts of our employees; we volunteer time, donate funds, and contribute in-kind gifts to support scores of worthy causes in the communities where we live and worked.

CH2M HILL's Community Partners program focuses our endeavors into four areas:

* Global Responsibility — providing reliable infrastructure, clean water, opportunities for women, and hope for future generations in developing countries
* Educational Outreach — fostering interest in careers in engineering and technology through involvement in educational programs at all levels
* Environmental Stewardship — applying eco-friendly work practices and promoting environmental responsibility
* Human Services — supporting local causes to combat issues ranging from poverty to violence, hunger, and homelessness

With luck Anchorage is getting a new corporate player with strong ethical standards that will work generously with our community.