Goodwill Omaha has awarded over the past decade more than $5 million in no-bid contracts to two major Omaha companies whose executives sit on the nonprofit’s board — arrangements that experts call eyebrow-raising and ill-advised.
The nonprofit also gave smaller no-bid contracts to the family members and friends of Goodwill Omaha leaders, ex-employees say, a practice the nonprofit last week blamed on executives who no longer work for the charity.
Those contracts stood out during a World-Herald look into the web of potential conflicts at Goodwill Omaha, conflicts that also include contracts granted to a company employing the ex-CEO’s daughter and the fact that the charity has done business with eight of its recent board members’ companies.
One of the two major companies to receive contracts, Peter Kiewit Sons’ Inc., hasn’t gone through a competitive bidding process to win a Goodwill Omaha project since 1995, according to Joe Lempka, a Kiewit executive and Goodwill Omaha’s current board chairman.
Since 2006, Kiewit has been awarded $4.1 million in no-bid contracts to build the new Goodwill headquarters and several retail stores as another Kiewit executive and later Lempka sat on the nonprofit’s board. Lempka also confirmed that he’s close friends with ex-Goodwill Omaha CEO Frank McGree and took a recent European vacation with McGree and their spouses.
The other company, the architecture firm RDG Planning & Design, has received $903,000 in no-bid contracts in the past decade to design the Goodwill headquarters and several retail stores. Joe Lang, RDG’s principal architect and a Goodwill board member, confirmed that Meg McGree Krause, a daughter of the ex-Goodwill Omaha CEO, works for RDG and helped design the Goodwill headquarters.
Both board members defended the contracts, arguing that their companies are able to design and build Goodwill projects quickly and affordably. Lempka and Goodwill executives both pointed out that the nonprofit’s business relationship with Kiewit began years before a company executive joined the board.
And both board members and Goodwill leaders said the construction and design projects were similar over the years, making it sensible that the nonprofit stick with the same companies that had satisfied them in the past.
The board members said that the friendships, family ties and business relationships had no impact on their thinking as they annually debated and set Frank McGree’s salary as members of the nonprofit’s board.
“We think this is a great relationship,” said Lempka, a Goodwill board member since 2009 and president of the Kiewit Building Group. “We (Kiewit) have multiple people serving on (multiple nonprofit) boards. We don’t do work for all those organizations, and that’s not why we are on the boards. But when we can help and bring our experience to bear, we think it’s a great opportunity. And, again, it’s done aboveboard so everyone knows what’s going on.”
But outside experts in nonprofit management had a starkly different view of these arrangements, describing them as highly questionable.
A nonprofit should generally bid out contracts to ensure they get the best deal, and should always bid out contracts that involve a board member’s company or other potential conflicts of interest, they said.
In this way, the leaders of a nonprofit like Goodwill Omaha — a nonprofit that receives public donations, government grants and tax breaks — can avoid either the appearance or the reality that they are getting too chummy with the business interests of their board members, their relatives and their friends.
“My first reaction is just sadness,” said Dave Renz, a University of Missouri-Kansas City professor and nonprofit expert who has advised nearly 200 nonprofit boards during his career.
“What you are describing here is a process that seems to undermine the trust that is essential for a nonprofit’s donors, its constituents, its community. It’s not all that unusual. But it is unacceptable.”
In an interview this month, Pauli Bishop, Goodwill Omaha’s interim CEO, described a three-step process she said is the typical way the nonprofit awards contracts. Step one: Get three bids for the work from three different companies. Step two: Discuss those bids with the nonprofit’s leadership group and other executive staff. Step three: Pick the best company for the job.
But the awarding of major design and construction contracts deviated from this three-step process. Why?
In a follow-up email, the nonprofit said that Goodwill Omaha policy doesn’t call for projects to be bid out if they are “ongoing services,” which the nonprofit considered construction and design contracts to be. The email statement also cited the good work of RDG and Kiewit as reason to continue using them on no-bid contracts.
“There are obvious benefits of efficiency and cost-effectiveness when utilizing the services of an established vendor who has performed the same or similar work in the past,” the statement said.
But Goodwill Omaha appears to have deviated from its own rules in at least four other cases as it decided whom to hire and whom to pay.
Four ex-employees told The World-Herald that the nonprofit awarded no-bid contracts for things like janitorial supplies, bug extermination, T-shirts and signage. All of these contracts went to family members and friends of the nonprofit’s leadership team, they said. Two of the ex-employees say they were specifically instructed by their bosses not to bid out contracts.
“These decisions were made by people who are no longer employed by Goodwill,” the Goodwill statement said in reply to a question about these contracts. It said the nonprofit will address the bidding guidelines as “part of our evaluation of how to move forward.”
State law does allow for business between a nonprofit and the company of a board member or family member, but only if the board believes that “transaction is fair” to the nonprofit. Federal rules require nonprofits to list all potential conflicts in their annual disclosure forms.
Goodwill has disclosed its business relationships with Kiewit, RDG, the insurance company Arthur J. Gallagher & Co., First National Bank and the Omaha law firm Baird Holm in federal 990 forms that The World-Herald reviewed. The nonprofit also confirmed that it has done or does business with Investors Realty, the Omaha law firm Fraser Stryker and American National Bank.
Goodwill’s 21-person volunteer board includes seven current members employed by those companies. An eighth member, Daniel Padilla of First National Bank, recently resigned from the board.
Board member Mark Stokes, an executive vice president at Arthur J. Gallagher & Co., told The World-Herald that while his insurance company has done business with Goodwill Omaha for the past few years, that business had been won annually through a competitive bidding process.
Goodwill declined to provide proof of that bidding process, calling it proprietary and confidential.
Goodwill said that First National and American National Bank went through a competitive bidding process to get the nonprofit’s business, while Investors Realty was selected as a real-estate agent after an interview. Fraser Stryker and Baird Holm are two of four Omaha law firms that the charity uses because of their specific legal expertise, Goodwill Omaha said.
State guidelines require nonprofits to save board minutes and records of discussions and votes so they can illustrate how the deals between the charity and its board members’ companies is in the nonprofit’s best interests. But neither state nor federal law explicitly requires that those contracts be competitively bid.
Board members said they followed applicable laws and Goodwill Omaha policy on these conflict-of-interest dealings, for example recusing themselves if the board was voting on a contract with their company.
Outside experts say there’s an easy way to prove that a deal is in the best interests of a nonprofit: competitively bid out the work so that executives and board members can judge it against other offers. And have open, transparent conversations as a board about any and all perceived conflicts.
“We would recommend that you go out to bid,” said Anne Hindery, CEO of the Nonprofit Association of the Midlands. “It doesn’t mean you wouldn’t use the same company. But you want to have that process to let sunshine in.”
Angela Eikenberry, a University of Nebraska at Omaha professor and nonprofit expert, pointed out that a board’s duty goes beyond what’s legal.
“There’s an ethical duty here ... a duty to avoid the appearance of anything strange or anything that seems like a conflict,” Eikenberry said. “So, yeah, this kind of raises the eyebrows, doesn’t it?”
Lang, the RDG principal architect and longtime board member, said the Goodwill Omaha board never discussed the fact that the nonprofit CEO’s daughter would be working on the headquarters project for RDG after Goodwill Omaha awarded that project to the design firm without a competitive bidding process.
“We hire based on merit,” Lang said. “Meg is an outstanding employee. She’s been with us for a while and done a great job.”
Lempka, the Goodwill Omaha board president and Kiewit executive, was asked if he had thought about how to separate his duties as board president from his company’s business relationship with Goodwill Omaha and his own friendship with McGree.
“Sure, it does require some thought,” he said. “But I take it even more seriously because I have a fiduciary duty to the board, and I take a board position very seriously.
“I would hope that anybody who works around people very closely for a number of years would develop some level of friendship and you get along and it’s an efficient relationship. But this is also why we have a board of the size we do. ... All the things we are talking about are taken to the full board. I’m just one vote for the board.”
During the interview, the board members argued that their companies, and the companies of other board members, have volunteered their time and money to Goodwill programs like YouthBuild, which helps high school dropouts learn construction skills while earning their GEDs.
Lyn Wallin Ziegenbein, who resigned from the Goodwill board last week, joined in defense of the pro bono work that Kiewit, RDG and Investors Realty have done in the nonprofit world. In a separate interview, the director emerita of the Peter Kiewit Foundation said she had seen countless occasions of those firms providing free cost estimates, advice and other expertise on community betterment projects.
“They have done many good things for nothing,” Ziegenbein said.
Renz, the nonprofit board expert, said the Goodwill Omaha conflicts of interest remind him of “old-style practices” he saw more often earlier in his career. He cautioned generally against what he called “the perception of quid pro quos” — any whiff of belief that any large gift results in a nonprofit pushing business that donor’s way.
He said that in the past decade, many boards have moved to tighter controls on conflicts of interest, spurred largely by the public’s growing desire to know how their donations are being used.
He said he could imagine how Goodwill Omaha’s business and family conflicts of interest developed slowly, over years, and likely for reasons that seemed logical to the board and the nonprofit’s leadership.
But he also said that organizations in Goodwill Omaha’s situation often fail to take a step back and see the full picture, including the nonprofit’s need for transparency and accountability to the public.
“It’s a board’s job to ensure that the brand of the organization isn’t sullied by the practices of that organization,” he said. “Quite frankly, the cleanest way for an organization that’s taking great care is to just not engage in these kind of relationships.
“Boards (around the country) are recognizing that there needs to be more care taken ... to keep these processes clean.”
World-Herald staff writer Henry J. Cordes contributed to this report.