State sues McKeesport firm for not using domestic steel
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If you build something with Pennsylvania tax dollars, state law says you have to use American steel.
An unusual lawsuit filed in Commonwealth Court by Attorney General Linda Kelly, though, accuses a McKeesport company of ignoring that requirement in two school building projects, in a case that raises questions about how the domestic content rule applies in the age of outsourcing.
Ms. Kelly's civil deputies sued Ryco Inc. in August, saying the company violated the Steel Products Procurement Act. This month her office amended the complaint, making more specific accusations and mentioning -- but not accusing -- Ryco's former controller and chief financial officer, George Dunbar, now a state representative.
Mr. Dunbar, R-Penn Township, said he wasn't intimately involved in Ryco's day-to-day operations and wouldn't have known if someone in the company was buying foreign steel when domestic was required.
"I knew whenever we had contracts that had state dollars in it, under the act, you had to use domestic steel," he said. "I don't, for one moment, think that there was willful intent to do anything wrong.
"If there was something that was wrong," he added, "they should pay the penalties."
Ryco, a three-decade-old company with subsidiaries involved in plumbing and sprinkler installation, was hired starting in 2008 to design and build fire suppression systems for Indiana University of Pennsylvania dormitories. The firm was paid $670,000.
Ryco executives including Vice President Richard Bosco submitted forms pledging to use domestic steel. The act demands that steel products used in state-backed public works projects be at least three-quarters American made, unless no part is domestically available.
According to the amended complaint, though, the company used imported fittings, "some stamped with a China marking, while others were marked Poland."
Ryco attorney Robert Blumling denied that the company violated the steel act.
"I don't know where the commonwealth is coming from with this," Mr. Blumling said.
The company has argued in court filings that the dorm project isn't subject to the steel act because it was outsourced to the private Foundation for Indiana University of Pennsylvania, rather than for the school itself.
The attorney general's office has countered that the foundation was created to promote the university, that an agreement between the two obliges the foundation to comply with the steel act, and that the project was approved by the State System of Higher Education board.
Tom Borellis, of IUP's administration and finance office, said the school thinks the project is subject to the act and alerted the attorney general when it detected potential violations.
In 2009, Ryco was hired to provide sprinklers for the Blairsville-Saltsburg School District's middle and high school renovation project, for $139,500. Again, company officials pledged to use American steel, but according to the attorney general's office, foreign metal was used instead.
The complaint notes that Mr. Dunbar signed one of the contracts with the district. That contract doesn't mention the steel sourcing requirement.
"In all honesty, [other than] Blairsville-Saltsburg, I never signed contracts for Ryco," Mr. Dunbar said. "It's probably the one contract that they worked on that I signed" and only because the district needed the paperwork in a hurry and nobody else with signing authority was available.
He said that as controller, he would sometimes see purchase orders going out on public projects, specifying that only domestic steel could be used. "I really have no idea," he said, "what the screw-up was" if foreign steel made it into public projects.
Domestic and foreign pipe are comparable in price. But the complaint said that a coupling that cost $35 from a domestic source was listed for $7.67 from a foreign supplier. A larger domestic coupling went for $189.50 versus $45.63 for the import.
The attorney general wants Ryco to pay back the money it got for the IUP and Blairsville-Saltsburg projects, plus pay $1,000 per violation and reimburse the costs of prosecution. The office also wants a court order banning Ryco from public contracting for five years and demanding that Mr. Bosco sell any interest in Ryco.
Mr. Blumling called that "very draconian."
Steel act cases are rare. The most recent prior steel act case was settled in 2009, when Aero-Mod Inc. agreed to an $85,000 settlement of a complaint that it used foreign steel in a new pumping station for the Newberry Township Municipal Authority plus as many as 21 previous public projects.
The Sprinklerfitters Union has tipped off law enforcement to alleged violations of the act.
"We've caught quite a few contractors to varying degrees. Some of them are serious, and some of them are not," said Gary Bittner, a business agent with Sprinklerfitters Local 669. "We focused on the most serious one," which was Ryco, he said.
Told that the union was involved, Mr. Dunbar said, "That's kind of dirty, if that's the case." Last year, the union tried, and failed, to organize Ryco's workers.
But regardless of who reported it, he said, "if something's wrong, then something's wrong."
First Published October 20, 2012 12:00 am