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DAN OLSON: Federal rules, put in place nearly 30 years ago, require private contractors bidding for public work. To make a good faith effort to subcontract some of it to women- and minority-owned companies called disadvantaged business enterprises, or DBEs. The Minnesota Department of Transportation by its own measure has not met the federal goal and in many years, hasn't even come close. The result is hundreds of women- and minority-owned companies certified by MnDOT have missed out on tens of millions of dollars in work.

They might have won from work on MnDOT road and bridge projects over the years. The size of the hiring shortfall became clear two years ago. That's when MnDOT's own consultants found from 2000 to 2004, MnDOT and prime contractors it awarded business to attained half the federal hiring goal of 10%. Kathleen Meyer owns Meyer contracting a Twin Cities utilities and earthwork company certified as a DBE. Meyer obtained a copy of MnDOT's unpublished study.

KATHLEEN MEYER: The total DBE percentage of contract dollars awarded are approximately 5.5%. Out of $2.6 billion worth of contract dollars, that's a very minuscule amount.

DAN OLSON: The consultants told MnDOT the number of women and minority contractors in Minnesota makes a 15% hiring goal realistic. MnDOT's own numbers show it often falls far below all the goals. Earlier this decade, the agency set a goal of more than 10% a year. But when attainment by prime contractors fell far short, MnDOT slashed the goal to 7% and then 6%. Even then in only one year, did the agency meet those diminished goals. There are federal penalties for missing the goals. They include withholding federal transportation dollars. But the rules are rarely enforced. Here's where the story gets complicated. Women and minority business hiring problems on two projects-- the Freeway 494 rebuild and the Hiawatha light rail line have attracted the attention of a federal investigator. MnDOT Deputy Commissioner Lisa Feese.

LISA FREESE: We understand that the inspector general has been reviewing these contracts as well as other contracts nationally involving Granite and Mccrossen.

DAN OLSON: Granite is a California-based construction company. McCrossan is based in Maple Grove. They were partners in 2004 on the $138 million 494 rebuild, nearly 8 miles of reconstruction in the southwestern Twin Cities suburbs, and they were partners before that on the huge $715 million Hiawatha light rail project. On both of those projects, MnDOT alleges that Granite and McCrossan fell far short of goals for hiring women- and minority-owned companies. MnDOT wanted them to subcontract up to 14% of the 494 contract and up to 15% of the Hiawatha contract to DBEs.

Granite and McCrossan by MnDOT calculations came in at half, or well below half, just over 4% on 494 and 7.5% on Hiawatha. George Sullivan is not commenting on his probe. Sullivan is a Federal Department of Transportation Office of Inspector General Investigator in the agency's Chicago office. One of the people he visited is Carlo Lachmansingh, a South Minneapolis disadvantaged business enterprise. Owner Lachmansingh's company sells outdoor lighting supplies, and he was a subcontractor on the 494 project. Lachmansingh says the investigator is finding that the prime contractors, Granite and McCrossan, hired some women- and minority-owned companies that did not do or were not qualified to perform the work they were paid for.

CARLO LACHMANSINGH: A lot of the work that these small businesses did not classify in their area of expertise.

DAN OLSON: That's also the conclusion of an internal audit by the Metropolitan Council. Met Council officials declined interview requests. But they did supply Minnesota Public Radio news with a copy of their internal audit. The writers of the audit, quote, "the federal investigator," both assert granite and mccrossen hired some women and minority owned companies as subcontractors who didn't do the work that was claimed or who weren't actually qualified as DBE, disadvantaged business enterprises. They also assert that some of the subcontractors on the Hiawatha light rail project were little more than fronts or pass-through companies for contracts worth millions of dollars.

There's another layer of complication to this already tangled story. MnDOT's former civil Rights Director Joanne Wagner says in 2004, she warned the agency that the contractors granted and macrossan weren't coming close to meeting hiring goals on the 494 project. And in fact, Wagner, who is an attorney, says she and her staff recommended against awarding the contract to Granite and McCrossan. Wagner says, that's when things got ugly. She says her MnDOT supervisors yelled at her and threatened her with her job if she didn't change her recommendation.

JOANNE WAGNER: There was a huge amount of pressure that was put on not only myself, but my staff, and it was really unbearable. It was very hard.

DAN OLSON: Did you feel your employment was threatened?

JOANNE WAGNER: Yes, I did. There were certain parts-- certain times where not only did I feel that my employment was threatened. I was actually told.

DAN OLSON: Had you done something that was clearly out of line for them to say things like that to you?

JOANNE WAGNER: I don't believe I did.

DAN OLSON: In the end, Wagner was overruled. Her MnDOT supervisors awarded the contract to Granite and McCrossan. Wagner was eventually demoted in pay and responsibilities. Her staff was reorganized and placed in another MnDOT division. Wagner filed a whistleblower lawsuit against MnDOT. The agency decided to settle out of court in mediation. MnDOT will pay her $170,000 and admits no guilt. Wagner, her attorney says, has resigned from MnDOT. In the meantime, MnDOT has taken some very unusual action.

The agency is fining Granite and McCrossan for missing the 494 on Hiawatha women and minority subcontracting goals and for allegedly misrepresenting the numbers. On the Hiawatha project, MnDOT puts the penalty at more than $4 million. On the 494 project, it's 200,000 and probation requiring granite and mccrosson to get training to help them comply with hiring rules and regulations. Granite and McCrossan take sharp exception to the proposed penalties.

Company officials declined to be interviewed. In a written response to the state, they say MnDOT, the Met Council, and the federal government have made numerous factual and arithmetic errors in measuring the contractor's performance. The contractors say they performed the work in good faith as required by the contract, and they will contest any sanctions.

Granite and McCrossan have hired a Minneapolis attorney to make their case. State officials will only say the appeal is in progress. The Minnesota Department of Transportation's Bob McFarlin says the agency is cooperating with the federal investigators look at disadvantaged business enterprise issues with the 494 and Hiawatha projects. McFarlin is assistant to MnDOT commissioner and Lieutenant Governor Carol Molnau. He says the agency's record on the hiring of women- and minority-owned contractors is satisfactory.

BOB MCFRALIN: We have no problem in the state. We are very successful in the administration, the enforcement, the cooperation from contractors, and the cooperation from DBEs.

DAN OLSON: That's not how some of the DBE or women and minority contractors see.

DIANNE HOLTE: It has become accepted to not meet the goals and with no repercussions.

DAN OLSON: Dianne Holte owns Holte Contracting, a Twin Cities excavation company. She's a state-certified DBE. Holte did work as a subcontractor on both the 494 and Hiawatha projects. She was one of the subcontractors visited by federal investigator George Sullivan, who Holt says wanted to verify she is indeed a woman-owned company. MnDOT's goal this year for having its prime contractors' subcontract work to women- and minority-owned businesses is back up to 10%.

That's also the goal for the $233 million 35W bridge project in Minneapolis. MnDOT says, it is monitoring the contractors, Flatiron and Manson, to see if they make a good faith effort in subcontracting as much as $23 million in business to women- and minority-owned companies. Dan Olson, Minnesota Public Radio News, Saint Paul.