Neenah construction co. to pay $4 million following FBI investigation (UPDATE)

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Miron Construction Co. Inc., its chief executive officer and chief financial officer were investigated by the FBI for supposed overbilling in school construction projects, though federal prosecutors have agreed not to prosecute if the company adheres to an agreement struck in February.

The Neenah-based company, one of the biggest contractors in Wisconsin, will pay $4 million and will hire an independent monitor to oversee employees for three years, according to a nonprosecution agreement released by Eastern District U.S. Attorney James Santelle’s office.

The company also is required to change its contracting and accounting practices and implement a “corporate responsibility program” to ensure that all employees know the law and are held accountable.

The investigation was conducted by the FBI over a number of years and focused on five projects that took place between 2003 and 2008 and dealt with the actions of the company, CEO David Voss Jr. and CFO Dean Basten. Both still are with the company.

The agreement was signed in February but released Wednesday. Miron Vice President and Chief Operating Officer Tim Kippenhan said the delay in releasing the information was part of the agreement with prosecutors.

According to a news release from Santelle’s office, the overall agreement was reached because of the potential effect a criminal case could have on the company’s 1,200 employees, most of whom had no involvement in any potential wrongdoing. However, according to the agreement, failure to adhere could lead to prosecution.

Kippenhan emphasized in an interview that the company and its leaders have admitted to no wrongdoing and that employees fully cooperated with the FBI and the U.S. Attorney’s Office. He also said the problems prosecutors saw with the contracts with the school districts were emblematic of an industry standard at the time, and that the investigation has been “a huge distraction to our company and our clients.”

According to a statement of facts included with the agreement, the FBI investigation focused on construction and remodeling projects in the De Pere, D.C. Everest, Marathon, Waunakee and Abbotsford school districts. The districts, according to the statement of facts, entered into “cost-plus contracts,” which include payment based on the work cost plus a construction manager or design-builder fee negotiated as a percentage of the project cost.

Miron entered into contracts with those fees, which ranged from 1.75 to 3 percent.

“These contracts defined chargeable labor costs as ‘wages’ or ‘wages paid,’” according to the document. “In reality, Miron billed overhead and other expenses to its labor charges by applying a mark-up to labor above what it paid a laborer in wages and attendant burden.”

According to the agreement, Miron engaged in “cost smoothing,” meaning the company “transferred costs which had been incurred on less profitable jobs to other more profitable ones, including some school district projects.”

The $4 million will go to the school districts affected, according to the agreement.

“While Miron’s financial statements recorded accurate gross profit or loss, the supplemental schedules appended to those statements was inaccurate,” according to the statement.

Kippenhan on Wednesday did not characterize the situation as “overbilling,” but rather a “billing issue.” He said the contracts were adapted from forms from the American Institute of Architects and the Associated General Contractors.

Those forms may not have clarified “chargeable labor costs,” Kippenhan said, and that may have been an oversight by the company. He said the contracts were changed in 2008.

He also said the company has stopped “cost smoothing,” and that the practice never affected any client bills.

According to the agreement, Miron must hire a new accounting firm.

In a statement attributed to him, Kippenhan declined to name the firm that worked for the company at the time of the projects in question. He also declined to name the firm it hired, citing privacy concerns.

According to a release from Santelle’s office, Miron reported more than $680 million in sales in 2013. Follow @eheisigWLJ