DMR required no formal bids for $5.8 million in reef work

DMR required no formal bids for $5.8 million in work on reefs

Sun HeraldMarch 23, 2013 

BILOXI -- A nonprofit sports fishing group founded in the year of Camille, 1969, took on the task of building artificial reefs that attracted red snapper to the muddy water bottoms off Mississippi's shore.

Mississippi Gulf Fishing Banks worked cheap, longtime member Mark Miller said. The group spent $5,000 to $25,000 a reef to sink donated barges, ships and concrete.

The Mississippi Department of Marine Resources worked with MGFB on artificial reef construction before Hurricane Katrina in 2005, but upped its participation in a big way afterward, when millions in federal relief money poured into the agency.

MGFB was limping along after the monster storm. The volunteer group was delighted to welcome DMR into a major reef-building partnership sealed with a subgrant agreement.

On paper, MGFB would hire and pay reef-building contractors with federal grant money supplied by DMR. In reality, DMR picked the contractors and gave MGFB the money to pay them, MGFB board President Ralph Humphrey said. DMR also applied for the federal permits to do the work and oversaw reef placement, along with Miller, who served as a spotter when reef material was deployed.

From November 2006 to date, MGFB records show, the group paid $5.8 million in Katrina dollars for reefs built by two contractors, Matthews Marine Inc. and Mike Holmes Construction, both of Pass Christian.

Documents reveal kinship

On March 7, Coast blogger Doug Handshoe revealed on his website,, that Holmes is the brother-in-law of DMR employee Kerwin Cuevas. Cuevas heads the agency's artificial reef program. Handshoe was tipped off by a reader who found an invoice from Holmes among thousands of pages of DMR records the Sun Herald had posted online. The newspaper had to file a lawsuit under the state's Public Records Act to wrest those records from the DMR.

The State Auditor's Office has since questioned Humphrey and copied MGFB records as part of an ongoing state and federal investigation of DMR spending under former Director Bill Walker. The agency's governing board voted to fire Walker, without explanation, Jan. 15.

The Sun Herald by this time had reported the DMR had spent at least $1.4 million on two recreational boats leased from a foundation Walker headed. The DMR used the boats to collect fish samples at artificial reefs, Walker said, but interviews showed politicians and other influential people also were treated to fishing trips.

The DMR also had approved property purchases from Walker's son and from the parents of a DMR manager.

Humphrey said he learned about the relationship between Holmes and Cuevas in January, when a DMR employee delivered a letter to him that said MGFB would need to solicit formal bids for any future reef work.

MGFB was bidding reef work before the DMR got involved, members said. Board members said it was the DMR's decision -- not MGFB's -- to forgo bids for post-Katrina reef deployments. Humphrey informed MGFB board members at a March 14 meeting the DMR has cancelled its subgrant agreement with MGFB to build reefs.

"We're all pretty frustrated," Humphrey said after the March meeting. "I'll be the first to admit, I feel like we've been duped here."

Reef money attracts DMR

The DMR started working with MGFB on reef building about 10 years ago, said Miller, who has been a member of the group since 1985 and has monitored the group's offshore reefs since 1988. Miller dives down to the reefs, filing regular reports on the MGFB website.

"I know they had no interest in reef construction in the early days and that's why our group is there," Miller said. "It wasn't until the DMR saw there was money in it that they got involved."

Nobody from the DMR was willing to speak with the Sun Herald about the agency's reef building because of the investigation. The staff has for months been contending with investigators from the State Auditor's Office working out of DMR offices in the Bolton Building on Biloxi's Back Bay. The investigators, who are armed, have been reviewing records and interviewing employees, several staffers have said. Investigators have warned employees they should not speak to reporters from the Sun Herald, the staffers said.

"This is a criminal investigation," DMR spokewoman Susan Perkins said Wednesday. "It's serious. We don't want to get in trouble with the investigators."

Reef building supports the charter fishing industry, tourism and people who like to pier and wade fish. The DMR holds permits on inshore reefs all along the Coast. Offshore reefs, called fish havens, have historically been permitted to MGFB through the U.S. Army Corps of Engineers.

In the year before Katrina, MGFB financial ledgers show the group's spending ranged from as little as $225 per month up to $104,160 in one month when DMR contributed to reef building. Miller said the state agency secured federal grant money for the work even before the hurricane.

Contractors' work praised

Brothers Tom and Shaw Matthews, who founded Matthews Marine, said they bid their first job with DMR, deploying material for oyster beds, about 2002.

After the storm, they said, DMR contacted them about reef building. They said they submitted written quotes for the work, not formal bids. MGFB records show Matthews did most of the post-Katrina reef deployments, receiving payments of almost $3.8 million.

By all accounts, the company's performance has been excellent.

Although MGFB paid for the work, the Matthews brothers said they dealt strictly with the DMR.

"They would give us a scope of work and we would give them pricing on it," Tom Matthews said. "How they handled it after that, we don't know. What I do know is that we did good work for them. We did a good job and we've got the equipment base to do that work, more so than anyone else around here."

The men knew Cuevas, the DMR's artificial-reef coordinator, from their days together at St. John High School in Gulfport, the brothers said, but they were never close friends.

They did not question how the DMR conducted its business. "We're owner-operators, hands on," Tom Matthews said. "We're as busy as can be out here trying to keep the wheels on this operation. I can only assume that everybody's professional in doing the job that they're supposed to be doing."

New on the scene

Mike Holmes, brother-in-law of Cuevas, started doing reef work in December 2006, DMR and MGFB records show. Before Katrina, he and his wife ran a day-care center in Pass Christian. After the storm killed that business, they opened Katrina Kafe in the repaired building. Pass Christian Mayor Chipper McDermott said the restaurant has since closed.

Holmes would not talk to the Sun Herald.

"It's too many bad rumors that are just lies, so I'm not speaking about it," Holmes said before hanging up the telephone.

MGFB's Humphrey said the group has been extremely pleased with Holmes' work. He said Holmes always had equipment on site to unload reef material at a moment's notice. The DMR leases a staging area for reef material off Reichold Road in Gulfport for a nominal fee from the Harrison County Development Commission, the commission confirmed.

Miller said Holmes has stored equipment in a building the DMR erected on the property, which sits on the Industrial Seaway. When MGFB was building its own reefs, Miller said, little if any money went to staging material because contractors dropped it off without charge at a staging site MGFB had previously used.

MGFB paid Holmes more than $2 million for staging reef material and cleaning the site, MGFB and DMR records show.

"It's been very expedient to use his services," Humphrey said. "He does quality work. Even though we haven't bid the job, we'd be hard-pressed to find someone who could do the work as well and cheaply as he does."

Check never delivered

Humphrey was unaware of Holmes' relationship to Cuevas until another DMR employee, fisheries biologist Jimmy Sanders, mentioned it in the context of seeking bids for future reef work. Humphrey said his chin almost hit the table.

He was already perplexed because he had learned from reading the Sun Herald the DMR had spent more than a million dollars on the recreational fishing boats leased from the foundation Walker directed -- overhauling engines, performing maintenance, buying equipment and making insurance payments. He felt that money could have been spent building reefs instead. Much of the money spent on boat maintenance came out of reef building and maintenance accounts, DMR records show.

The DMR's Katrina-recovery money for reef building came through congressional appropriations administered by the National Oceanic and Atmospheric Administration. The Gulf States Marine Fisheries Commission, a quasi-government agency, administered the grant money.

Ralph Hode, fisheries disaster-recovery coordinator for GSMFC, said the DMR is familiar with regulations attached to federal funding. He said the DMR solicited bids for work the agency did on oyster reefs. Subgrant agreements with MGFB put the onus on the nonprofit to solicit bids when required, he said, and on the DMR to make sure it was done.

NOAA was unable to provide bid thresholds for the federal grant money.

"You can't take federal funds and pass them through three agencies just to bypass federal purchasing requirements," Hode said. "It's that simple. If the intent was to do that, that's problematic."

MGFB questions its role

The subgrant agreements the DMR drew up said state purchasing rules for personal services contracts would be followed. Those rules require written price quotes for contracts up to $100,000. Publicly advertised bids are required for contracts that exceed $100,000. Individual payments to Holmes and Matthews in some cases exceeded $100,000.

In retrospect, Humphrey said, MGFB was naive in accepting the arrangement with the DMR with no questions asked. The fishermen on the board, several of them charter boat captains who also received Katrina relief payments from the state agency, just wanted to see reefs built and restored.

"All we did was conduit money from DMR to the contractors," Humphrey said. "I want to say we never actually delivered a check to the contractors. Those checks went to DMR. They delivered the checks.

'What are we doing?'

Miller has been asking for several years for copies of the reef permits the DMR secured from the U.S. Army Corps of Engineers on MGFB's behalf. The group was under the impression the permits were issued to MGFB, although the DMR agreed to do the work to get them. MGFB recently learned the maintenance permits were issued to the DMR. Damon Young, chief of the regulatory division for the Corps of Engineers Coastal Branch in Mobile, said the last permit issued under MGFB's name was in 2001.

MGFB had a few questions at its last board meeting for DMR personnel. The Sun Herald attended the meeting in a conference room at the Biloxi Yacht Club, hoping to speak with Cuevas, who has declined previous interview requests. Both Cuevas and biologist Sanders showed up for the meeting, but left after sitting in the yacht club parking lot for about 20 minutes.

Humphrey said: "The question that's been asked of me is, 'What are we doing?' Why does the Mississippi Gulf Fishing Banks even exist anymore? Other than monitoring everything and keeping track of everything, and assisting with deployments, what are we really doing?

" … We were a small part of the process, be we did have a voice in what was going on, albeit a small voice. It was a dwindling role that we were playing."

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