Special Report: Air Force landlord falsified records to boost income, records show

[June 18, 2019]  By M.B. Pell

TINKER AIR FORCE BASE, Oklahoma (Reuters) - When Paige and Nick Ippolito moved to a row house on this air base in 2015, the floors in the kitchen, living room and hallway were warped. They told the base’s landlord, Balfour Beatty Communities, but “nothing was done,” a company maintenance report shows.

Nick, a Navy petty officer second class stationed at Tinker, worried their baby daughter might lose a finger in the jagged flooring. After a water leak further broke up the floor, a company technician noted in a maintenance log that the eight-month-old “may become sick from chewing on pieces” breaking away from the flooring.

The floor tiles and adhesive contained asbestos, a carcinogen, an internal company maintenance report shows.

The official Balfour Beatty maintenance logs available to the Air Force indicate the company promptly addressed the problems. The leak, for instance, was fixed in 20 minutes, the records purport to show. In fact, the logs were faked. The family said that repair took over a week. The Ippolitos endured the other hazards for months.

“You think your family is safe, and then you find out your kid is eating asbestos flooring. It makes me sick,” Nick Ippolito said. “It seems like they’re just out for the dollar.”

Balfour Beatty, among the U.S. military’s largest housing providers, systematically falsified its Tinker Air Force Base maintenance logs for years, Reuters found through a review of company records, Air Force reports and interviews with former workers. The fake entries made the company appear responsive to tenant complaints and unsafe conditions, helping it secure millions in “performance incentive fees” for good service that it otherwise often would not have qualified for. The efforts left families in harm’s way and persuaded Air Force brass to ignore warnings of trouble raised by military base employees.

For years, Balfour Beatty kept two sets of maintenance books at Tinker, Reuters, working in partnership with CBS News, found. A falsified set of official electronic records was shown to the Air Force, listing quick response times. A handwritten set of accurate records was also kept by the company in order to track what was really happening. These records, never disclosed to the military but examined in part by Reuters, show that weeks routinely elapsed before hazards were remedied.

Robert Whittington, Balfour Beatty’s manager at Tinker from 2014 until July 2017, told Reuters he doctored work-order information in the electronic maintenance logs at the direction of his superiors and pressured staff to close out unfinished work orders, so that late responses would not count against the company.

Whittington said he knew falsifying records left families in peril. A retired Air Force veteran, he said he was disgusted by his actions, and, after wrestling with his conscience and refusing further orders to alter records, resigned.

“It’s like they’re operating a bank robbery at a corporate level,” Whittington said. “I got to the point where I was waking up in the morning and wondering, ‘Well, how many people am I going to have to screw over today?’ ”

Whittington’s claims are supported by numerous internal memos to Balfour Beatty employees instructing them on how to engage in the deception. Reuters documented at least 65 instances in 2016 and 2017 in which Balfour Beatty employees backdated repair requests, filed paperwork claiming false exemptions from response-time requirements, or closed out unfinished maintenance requests.
 

Such problems were well known to some Air Force housing employees stationed at Tinker. For years, they told the Air Force of questionable record keeping and slum-like living conditions. Yet their attempts to hold Balfour Beatty accountable were blocked by the Air Force Civil Engineering Center, or AFCEC, a unit based in San Antonio, Texas, that is tasked with monitoring private landlords.

At least 18 times since 2015, Tinker-based Air Force housing officials warned that Balfour Beatty maintenance logs contained false information making it appear the company promptly responded to service requests, Air Force reports show. “We do not feel that emergency, urgent and routine work orders are accurately recorded,” said one periodic report on Balfour Beatty’s performance.

Quarter after quarter, the Air Force engineering center downplayed these concerns, giving the company high service marks and advising Tinker officials to drop their complaints. “It doesn’t matter if they were in compliance or not, they would still get paid,” a local housing official at Tinker wrote in a February 2018 email.

At the heart of the failure to hold the Tinker landlord accountable was a conflict within the Air Force. On one side was the on-site Air Force housing office, whose prime mission was assisting residents and conducting daily oversight of Balfour Beatty. On the other was AFCEC, responsible for developing and managing all of the Air Force’s privatized housing projects. While AFCEC, too, has an oversight role, it is also responsible for ensuring smooth long-term relations with the landlords with whom it does business. Over the years, AFCEC repeatedly sided with its partner, Balfour Beatty.

Presented with the evidence Reuters found of years of false reporting, slow repairs and hazardous conditions at its homes, Balfour Beatty said the company learned in 2016 that one employee at Tinker had acted “improperly,” without providing specifics. It described this as an isolated incident and said it worked with the Air Force to strengthen its maintenance system. The company did not comment on instances of false record-keeping, the internal memos and other irregularities Reuters documented before and after 2016 at Tinker and other bases.

Balfour Beatty said it has cooperated fully with inquiries by the Air Force and other government agencies into its business. “As an organization, BBC has not and does not condone the falsification of records in any way,” the company said in a statement.

In December, Reuters reported widespread instances of shoddy construction and safety hazards in new housing units private companies, including Balfour Beatty, built on U.S. bases. Since that report, the Air Force says, it has been withholding fees from the company at Tinker, pending a review of the matter.

In response to the new findings about the company, John Henderson, the Air Force assistant secretary for installations, said in March he had “real issues” with Balfour Beatty’s performance at Tinker. But he said he did not believe housing companies purposefully changed maintenance records to win incentive fees.

In June, after being shown further details of Reuters’ reporting, he said he will await the outcome of ongoing investigations to determine what happened. He said there were “discrepancies in the maintenance records” and that “allegations of fraud” involving Tinker and at least two other company bases were referred to the Air Force Office of Special Investigations and the Federal Bureau of Investigation in 2017.

“We trust our private sector partners to act in good faith,” Henderson said. “When this doesn’t happen, we must hold those responsible accountable for achieving better outcomes to ensure that we continue to be worthy of earning the trust of our Airmen and our Nation.”

The Air Force Office of Special Investigations does not discuss investigations, said Linda Card, chief of public affairs for the agency. But she added: “Conversations are still taking place” with the U.S. Department of Justice “about what avenues (criminal or civil) – if any – can be pursued against Balfour Beatty.”

Regardless of that inquiry’s outcome, the Air Force plans to boost transparency by creating an automated maintenance-request process allowing residents to view the status of a work order, Henderson said. It also plans to revamp the incentive fee system, with details still being worked out. He defended the work of the Air Force’s engineering center, saying it had taken the allegations against Balfour Beatty seriously and performed an on-site review of the company’s work at Tinker.

The news of accounting irregularities by a major contractor comes as U.S. lawmakers are overhauling the Pentagon’s family housing program. The defense spending bill for 2020 proposed by the Senate Armed Services Committee includes measures to prevent fraudulent work orders, committee staff told Reuters, in part due to concern that millions in fees have been paid based on falsified maintenance records.

“Our military families deserve high-quality housing throughout their service, and that includes ethical and fair treatment by housing providers,” said Oklahoma Republican Jim Inhofe, the committee chair.

PROFIT INCENTIVES

Beginning in 1996, the military launched the largest-ever corporate takeover of U.S. federal housing, shifting ownership of more than 200,000 family housing units on bases to private real estate developers and property managers under 50-year contracts.

These lucrative contracts include bonuses, or incentive fees, that private landlords can earn by meeting performance goals set with the military. To receive the fees, real estate companies must meet quarterly and annual goals, such as responding to resident maintenance requests within a specified time. The fees are payable each quarter, and are generally worth up to 2% of the total rent payments from service families living on base.

Balfour Beatty Communities, located in Malvern, Pennsylvania, runs the military housing unit of Balfour Beatty plc, a London-based infrastructure company with annual revenue of $10.7 billion. The company earns $33 million in annual profit on its military housing operations, Balfour Beatty Communities President Chris Williams told Congress in February. The incentive fees alone on those operations are worth about $800 million over the life of the 50-year contracts it holds for 43,000 homes on 55 Air Force, Navy and Army bases across the country, Reuters calculates.

Balfour Beatty took over housing operations at Tinker in 2008. Since then, Reuters estimates, it has earned up to $2 million in incentive fees there.

Signs of irregular reporting have surfaced at other Balfour Beatty bases. In 2016, Air Force housing officials stationed at California’s Travis Air Force Base alleged company employees were using a second set of maintenance logs, an Air Force statement confirmed. In 2017, the housing officials found the company was closing out maintenance requests before they were finished and classifying records incorrectly, the base’s quarterly housing performance records show. That same year, housing officials at Fairchild Air Force base in Washington State said Balfour Beatty submitted inaccurate maintenance data in its application to receive incentive fees.

The Air Force could not substantiate the allegations at Travis and Fairchild. But it stopped paying incentive fees to Balfour Beatty at the two bases late last year, pending a review, and referred the incidents to Air Force investigators and the FBI.

Still, the Air Force has never clawed back incentive fees paid to Balfour Beatty, an Air Force spokesperson said. Nor has AFCEC audited the maintenance records of any other base managed by the company.

BIG LEAKS, TWO SETS OF BOOKS

At Tinker, Reuters last year found half of the nearly 400 new homes built by Balfour Beatty suffered from gushing leaks, raw sewage backups, rotten wood and severe mold.

Starting in late 2015, Balfour Beatty was overrun with maintenance requests in both old and new homes. Roofs leaked, plastic water lines burst and heating and air conditioning failed, former manager Whittington said. Yet that same year, the company recorded just 23 late work orders out of 6,000 jobs, internal work order data show.

In early 2016, Whittington said, executives cut the base’s maintenance staff from six to five, as corporate headquarters in London demanded larger profits from their military housing projects. That left about 132 homes for each worker to cover, he said. Still, Balfour Beatty told the Air Force it was responding promptly to maintenance requests.

Some Air Force housing personnel at Tinker considered the number of late responses suspiciously low, and the incentive fees the company was winning oddly high, Air Force emails show. “It's funny that all properties are always 100%” handled on time, one Air Force housing employee noted in a 2016 email to colleagues.

Derek Rouse points to an incomplete repair on the back of his home at Tinker Air Force Base, Oklahoma, U.S. May 1, 2019. Picture taken May 1, 2019. REUTERS/Nick Oxford

Then, in July 2016, during a casual conversation, the Tinker housing personnel noticed a hand-written maintenance schedule on the desk of a Balfour Beatty work-order clerk named Tina Brown.

Brown was responsible for taking maintenance requests over the phone and scheduling technicians to resolve them. Since her first day, she told Reuters, she maintained an unofficial, hand-written set of maintenance logs in addition to the official computerized records shared with the Air Force.

The hand-written books allowed Brown and other employees to accomplish two ends, according to Brown and other people familiar with the operation. They could accurately track the work so they could eventually complete it, but do so without triggering the clock that started ticking once a work order was entered in the official electronic system. Facilities manager Tim Heath instructed her to enter work orders in this fashion, according to Brown and Whittington. Heath did not return calls and text messages seeking comment.

The requests were often logged into the official system by Brown the day they were completed, not the day they were called in. By doing so, the workers ensured that Balfour Beatty was appearing to meet the response-time goals set in its Air Force contract: 30 minutes to begin an emergency request, four hours for an urgent one and 24 hours for a routine matter. The ruse also allowed the company to meet job completion goals: 24 hours for an emergency and two business days for both urgent and routine items.

An example from 2016 shows how the set-up worked. A page from Brown’s unofficial handwritten records includes a work request from a family with a broken stove, dated July 7, 2016. The official electronic maintenance log, captured in a screenshot from Brown’s work station, shows the family’s request was not entered until July 12, 2016 – the day before the work was done. If the request had been accurately logged, it would have failed the incentive requirements.

After finding Brown’s shadow set of books, Air Force housing officials at Tinker interviewed residents in the summer of 2016 and confirmed that Balfour Beatty was not entering requests when residents called them in. “These findings are very disheartening,” one official wrote in a July 2016 email to colleagues.

Balfour Beatty later addressed the accusation in an application for an incentive fee payment. It told the Air Force it had discovered “discrepancies in the data entry process at Tinker” and quickly acted to ensure it didn’t recur, according to the fee request it filed.

About two weeks earlier, Balfour Beatty had fired Brown. As she was escorted out of the office, according to people who witnessed the scene, she shouted to co-workers that she had been axed for keeping a fake set of books at the direction of her boss, Heath.

“They threw me to the wolves,” Brown said. She filed a wrongful termination suit against the company that is still pending.

In its statement, Balfour Beatty did not name Brown, but said a single employee acted inappropriately.

Internal Balfour Beatty documents show the company issued broad instructions to employees to alter the books.

That was the message in a 2013 directive about work orders emailed to Balfour Beatty employees. “You will modify and ‘correct’ these work orders so that they comply with the Response Time of 30 minutes – 1 hours, and a Completion Goal of 24 working hours for Emergency work orders,” the memo states.

Another 2016 internal memo shared via emailed instructs clerks to place maintenance requests in a red folder if “workload excessive and can’t schedule right away.”

Whittington said Tinker never had enough maintenance staff to tend to the base’s 660 homes. All the while, Whittington said, corporate staff from Phoenix pushed him to close out maintenance requests so the company could obtain incentive fees.

“Work orders were closed when they weren’t actually completed,” Whittington said. “Again, that plays into the incentive bonus.”

Whittington said he pressured his staff to “fudge the numbers.” In an email dated September 1, 2016, he directed two employees to close 119 resident maintenance requests in four hours. “The objective is to get ALL open Work orders closed today!” he wrote.

Whittington said he was directed by his regional manager, Rebecka Bailey, and vice president Raul Martinez. Bailey is no longer with the company; both she and Martinez declined to comment.

ASBESTOS HAZARDS

All those years, families lived with a range of hazards – raw sewage backups, vermin infestations and exposure to asbestos.

In the McNarney Manor neighborhood of Tinker, all but a handful of the 262 homes have flooring material containing asbestos, Whittington and two other former employees said. Balfour Beatty covered that material with floating floors or carpeting for aesthetic purposes and to seal away the asbestos tiling, a common and effective abatement strategy.

Much of the new flooring was cheap and poorly installed, however, according to Balfour Beatty work order records. From 2012 to February 2019, McNarney residents called in at least 350 maintenance requests complaining about flooring, including buckling, warping and, according to one work order, “black stuff coming thru flooring.”

In the Ippolitos’ case, Balfour Beatty’s maintenance records show the company moved the family into the home knowing the flooring was in “bad” condition, as one log put it, and that a risk of asbestos exposure existed.

The company should have hired a specialist to safely remove the asbestos or seal it off properly, said Nick Ippolito, who worked for 12 years as a residential construction supervisor before joining the Navy. “But I guess that took too much money for them,” he said. In 2018, the couple left the Navy.

Balfour Beatty declined to discuss the cases of specific families. It said it was not aware of widespread flooring problems in the McNarney homes.

THE 'EXCEPTION' POLICY

After Tina Brown was fired in mid-2016, Whittington said, company executives directed Balfour Beatty employees at Tinker to stop keeping a second set of hand-written maintenance logs.

The number of late work orders skyrocketed, from eight during the first half of 2016 to 377 during the second half, according to a Reuters analysis of Tinker work order data. The company completed 12% of its maintenance calls late, which would have been too many to receive its full incentive fees. The company didn’t report these numbers to the Air Force, however.

Instead, in its application for incentive fees for the third quarter of 2016, Balfour Beatty again reported stellar figures, saying it completed between 96% and 98% of maintenance calls on time. The company sought 100% of the incentive fees for which it was eligible that quarter, $41,536.

Air Force housing officials at Tinker expressed disbelief. “We have had many complaints from residents from each category stating work orders were not completed within specified timeframe,” the Tinker housing office wrote to another outside contractor, recommending against incentives that quarter.

They were right to be suspicious, said Whittington. After Brown’s firing, he said, regional manager Bailey directed him to make sure the maintenance numbers met the incentive fee goals by massaging the records. The company began taking advantage of a technicality known as the “work order exception policy” to keep winning incentive fees, according to Whittington and documents.

Under the Pentagon’s housing contracts, when a maintenance request cannot be completed on time because of extenuating circumstances, landlords can file an “exception” so the work order doesn’t count against them. Examples include having to order special parts, jobs requiring multiple stages of labor, or residents requesting a repair slot after the mandated response deadline.

Whittington said he combed through late maintenance requests and edited the records to include exceptions to the response time policy.

“Shamefully, I complied,” Whittington said.

The next spring, April 17, 2017, eight residents called in maintenance requests and, the official records say, all eight requested the work be done later than required, on April 20, according to an email exchange with the Tinker housing office. Without those exceptions, all eight jobs would have been late, counting against Balfour’s incentive goals.

As recently as last year, Balfour Beatty was still relying on exceptions. Tinker had about 1,850 late work orders in 2018; more than 1,100 fell under a time policy exception, the records show.

The company says it did often use exceptions at Tinker starting in 2016. In 2018, Balfour Beatty says, it and the Air Force implemented a new process for recording work orders, including the use of exceptions.

The Air Force Civil Engineering Command, or AFCEC, said it is working with Balfour Beatty to correct “challenges.”

Melody Marsh, AFCEC’s regional manager, has defended the company. In May 2017, a resident invited a Tinker housing official into her home to witness a persistent leak. Marsh scolded the official for entering the home without a Balfour Beatty representative. “This isn't showing a partnering approach,” she wrote.

In August 2017, after Tinker’s housing office provided AFCEC with evidence that Balfour Beatty was claiming fake exceptions, Tinker staffers urged a curtailing of fees. Marsh overruled the recommendation.

“AFCEC does not agree that your response validates a decrease in the award incentive,” Marsh wrote.

Marsh did not reply to a request for comment.

The warnings continued. In December 2017, AFCEC agreed to cut a small portion – 3.8% – of Balfour Beatty’s incentive fees for the second and third quarters of 2017.

Last November, the Tinker housing office asked Marsh and the Air Force engineering center to investigate Balfour Beatty, predicting dire consequences if action was not taken. “With continued inadequate maintenance, our property will not withstand a 50 year lifecycle,” it wrote.

Marsh declined, replying in correspondence that investigations were “ineffective and extremely unproductive.”

Some Tinker families continue battling the landlord. In May, neighbors gathered on Mundell Street to discuss those struggles with a Reuters reporter.

Derek Rouse, a Navy flight engineer, said he and wife Jennifer have asked Balfour Beatty for years to stop rainwater from penetrating their home. In April, Balfour Beatty marked a work order from the Rouses as finished on time, claiming to have fixed the couple’s back door by installing new weather stripping. The reporter examined the door. New weather stripping had not been installed.

“I get done flying at 4 a.m., and at 6 am I get a phone call from my wife saying the house is leaking again,” Derek said. “I put my life on the line, and I shouldn’t have to deal with this."

(Additional reporting by Joshua Schneyer and Deborah Nelson. Editing by Ronnie Greene)

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