Dive Brief:

• A Missouri contractor funneled nearly $900,000 through two minority businesses to meet diversity goals on construction contracts without actually engaging the firms for their building services, federal prosecutors alleged in an indictment last week.  
• Brian Kowert Sr., a former co-owner and chief operating officer at what is now Russell HBD in St. Louis, paid two minority-owned subcontractors small fees to shuttle checks and contracts to non-minority firms on three projects starting in 2014, the feds alleged.
• Kowert created duplicate contracts and purchase orders and fraudulently claimed the minority firms were doing the actual work, the complaint alleged. He altered checks to include non-minority contractors' names after recording them as paid to the minority firms, according to the indictment.

Dive Insight:

Minority and women-owned business participation on construction projects has become a hot-button topic. Many government-funded projects set participation goals for underrepresented groups, while the industry has tried to change its White-guys-only image with diversity and inclusion initiatives.

Hal Goldsmith, assistant U.S. attorney for the Eastern District of Missouri who is prosecuting the case, said his office has received complaints of minority business enterprise fraud in the construction industry for years.

"Unfortunately, it's more common than we'd like," said Goldsmith. "Hopefully this will deter others in the construction trades from doing the same thing, where they really aren't using legitimate minority companies and workers to perform on these construction jobs."

Joel J. Schwartz, listed in court documents as Kowert's attorney, didn't immediately return calls seeking comment.

Russell HBD, which succeeded Kowert's original HBD Construction after the firms merged in 2020, also didn't respond to Construction Dive's request for comment. But according to the St. Louis Post-Dispatch, the company said it had no knowledge of Kowert's actions, and terminated his employment in December.

"This matter begins and ends with Brian Kowert Sr.," Caitlin Russell, company president, told the paper. "We at Russell are fully committed to transparency and ethical financial stewardship. We do not tolerate fraudulent behavior or misconduct of any kind."

Kowert's son, Brian Kowert Jr., still works at the firm, according to its website.  

The indictment doesn't name the two minority firms Kowert allegedly used as shells, which it said received payments ranging from $2,000 to $2,500, and emphasizes that the clients whose projects he built didn't know about Kowert's deception.

For example, the indictment said one client, Springfield, Missouri-based developer RAGA, unwittingly used Kowert's bogus minority participation numbers in January during a presentation to the Missouri Housing Development Commission as evidence of meeting its goals for a senior housing community known as Logan Villas.

"RAGA and Logan Villas LLP and their employees had no knowledge of Kowert's fraudulent scheme," the indictment stated.  

Recent issues

Actual compliance with minority participation goals on construction projects has gained scrutiny nationally.  

The Federal Aviation Administration recently called out officials at the Kansas City airport's new terminal project for not properly tracking minority contractors, and the Massachusetts state auditor found the state's construction division failed to meet inclusion goals for women on 95% of projects.

In addition, in Congress last fall, minority contractors testified they were often used as "window dressing" to help prime contractors win bids, only to be pushed off projects after they're awarded.

Paula L. Finch, an attorney at St. Louis-based Greensfelder, Hemker & Gale, P.C. who focuses on supplier diversity in construction projects, said minority workforce participation compliance varies by jurisdiction and that contractors often face challenges meeting goals laid out in project requirements.  

"From a big picture standpoint, we don't have enough women and minority-owned businesses out there," Finch said. "The unintended consequences of these goals is companies who try and get creative so that their bid looks better."

Indeed, at Providence, Rhode Island-based Gilbane, which recently committed $4 billion to minority and women-owned suppliers, newly appointed CEO Thomas Laird told Construction Dive a lack of capacity at underrepresented firms was one of the biggest challenges he faced.

"The diverse contracting capacity is very thin," Laird said, who emphasized the company partners with and mentors underrepresented firms to help address the issue. "We are very focused on trying to create that capacity."