The Federal Highway Administration had withheld $5.2 million from the state, saying the Department of Transportation failed to properly oversee one of its major contractors, Shire Corp.

01:00 AM EDT on Monday, May 9, 2005

BY BRUCE LANDIS
Journal Staff Writer

PROVIDENCE -- The Federal Highway Administration has released $5.2 million in construction aid that it withheld for months after accusing the state Department of Transportation of "flagrant unaccountability" in spending on several projects.

When the funds were frozen last September, DOT Director James E. Capaldi said in a letter to the federal agency that the state would have to halt work on seven major construction projects being done by the Providence-based Shire Corp. at a cost of "millions of dollars."

The shutdown didn't happen. The release of the funds, in early March, came after the state met the federal agency's requirements, according to the highway administration's top official in Rhode Island, Division Administrator Lucy Garliauskas.

But by then the state had lost potentially tens of thousands of dollars in interest by having to pay for the construction work with its own money for five months.

The state normally pays only 20 percent of the cost of highway and bridge projects, with the highway administration paying 80 percent.

The dispute followed complaints that Shire was not paying its subcontractors and suppliers on time, although the company was being paid by the DOT as work progressed. The highway administration, in turn, was reimbursing DOT.

By March, Garliauskas said, Shire had paid all but a handful of its bills, and she released the withheld money.

The episode was part of a broader dispute involving the DOT, the highway administration and Shire that has gone on for more than a year. The federal agency says the state repeatedly failed to enforce its own regulations by allowing Shire to miss construction deadlines and payments to its suppliers and subcontractors.

Shire, however, has consistently blamed the DOT for not paying it quickly enough to adequately support its projects. The company also denies that it actually owed the subcontractors as much money as they and the DOT said it did, and says that many delays, costly to the company, were caused by the state agency.

"It's very expensive when you have to wait," said Peter Donatelli, Shire's vice president.

The DOT has often defended Shire, with Capaldi saying that it was better to resolve problems through negotiation. The highway administration, meanwhile, periodically tried to force the issue, most recently by withholding money until DOT satisfied its demands that the subcontractors and materials suppliers be paid.

Capaldi initially said the five-month freeze on funds for Shire projects didn't cost the state anything because the federal government ultimately released the cumulative amount withheld, $5.2 million.

However, the state normally invests the federal aid, earning interest, until it needs to spend it. At The Journal's request, state Budget Officer Rosemary Booth Gallogly estimated that the aid cutoff cost the state more than $22,000 in interest it could have earned.

In a previous dispute early last year, Shire was the low bidder, at $9.3 million, for a safety improvement contract for Route 95. The DOT wanted to award it to Shire despite complaints from the highway administration about unpaid bills and tardy work on other contracts. The federal agency took the unusual step of disqualifying Shire for federal funds on the project.

As in the recent reimbursement holdup, the state had to choose between either stopping the Route 95 project or paying the entire cost. The state rejected all the bids, along with Shire's, and put the project off.

The DOT opened bids for a project including most of the same work on Route 95 last month. Edmund T. Parker, the DOT's chief engineer, said Shire is again the apparent low bidder, this time at $11.2 million.

During an exchange of letters in September, Capaldi said Garliauskas' continuing demands had "placed us in an untenable position," in which the DOT would be forced "to terminate all Shire's contracts," setting the seven projects back years.

Garliauskas, however, wrote back that continuing to pay "an unresponsive contractor in the face of flagrant unaccountability for taxpayers' dollars is not in the public interest and not an option."

Shire's Rhode Island projects, several of which have run long past their original completion dates, are worth a total of more than $44 million. They include the Greenwood Bridge in Warwick; the Point Street overpass over Route 95 in Providence; Route 295 safety improvements; the Broadway Bridge over Route 195 in East Providence; the Barrington River Bridge in Barrington; the Route 195 bridge over Warren Avenue in East Providence; and the Taunton Avenue Bridge over Route 195 in East Providence.