Federal investigation follows firm's rapid rise

By Jim Dooley
Advertiser Staff Writer

Two companies that have received a half-billion dollars in federal construction contracts here over the past eight years are now the subjects of a federal grand jury criminal investigation into how some of those contracts were awarded.

A related firm, JHL Construction, has landed another 13 contracts worth up to $39 million since it was incorporated here less than three years ago by James H. Lee, nephew of Nan owner Patrick Shin, federal records show.

The companies' success has provoked a mixture of admiration and resentment among competing construction firms here, as well as the interest of federal law enforcement.

FBI agents raided Nan's office last month, seizing computers and business records. Federal agencies also froze three new contracts worth $97 million awarded to Nan and JHL in the past two months.

Officials of the contracting agencies that awarded those contracts said this week that Nan and JHL have not received a "notice to proceed," the legal mechanism that triggers the start of work, on any of the three contracts, citing the pending federal investigation.

"Even if I knew exactly why, I couldn't tell you because of the investigation," said Alex Kufel, spokesman for the U.S. Army Corps of Engineers, which issued two of the contracts, worth $74 million.

FBI Special Agent Arnold Laanui acknowledged the search of Nan's office but said his agency could not comment on any pending criminal investigation.

Shin and Lee declined repeated requests for comment, including submission of written questions to both men.

Reached briefly on his cell phone, Shin said, "I don't want to talk to you, period. That's the advice I get because (of) the investigation."

Shin said "70 to 80 percent" of a previous Advertiser story about the stalled contracts was "all wrong" but he declined to elaborate.

Fast rise

Contracts won by Nan Inc., which does business under the name Ocean House Builders at 636 Laumaka St., are under investigation. Gregory Yamamoto • The Honolulu Advertiser

Only Pennsylvania-based construction giant Dick Corp., which owns a Hawai'i subsidiary, Dick Pacific Construction Co. Ltd., received more U.S. government jobs here in 2002, topping the list of all federal contractors at $151.7 million.

Shin, 39, is a native of South Korea who received a state general contractor's license here in 1990 and incorporated Nan Inc. in January 1995.

He told The Advertiser two years ago that he had three employees and $4,000 in assets when he first went into business here.

Federal procurement records show that Shin began receiving federal work as early as 1992, grossing $241,000 in 1992. Shin's federal contracts rose to $2 million in 1994 and then to $5.3 million in 1995, the year he incorporated Nan and enrolled the firm in the U.S. Small Business Administration's 8(a) program, which assists small and disadvantaged companies in bidding for federal government contracts.

Nan received $69 million in federal construction contracts in 2000 and had grown too large to remain in the SBA's assistance program.

Normally, companies enrolled in 8(a) take nine years to graduate, but Nan was done in four years.

"I became too successful," Shin said in 2001, attributing his many contracts to hard work, sacrifice and marketing savvy. "You've got to get one job and do really well. If you do well, and you give a good price, they remember you and they ask for you again."

Shin now owns a $4 million home on the slopes of Diamond Head, two warehouse properties in the Kalihi-Kai area of Honolulu worth $2.3 million, and two Waikiki condominiums valued at $982,000, according to city property records.

Shin told the federal government early this year that Nan had 98 employees and was averaging $50 million in annual gross revenues. The company is a general contractor whose employees perform general labor and carpentry work on construction jobs but subcontract much of the specialized labor such as plumbing, electrical and mechanical work and collect overhead expenses as the prime contractor on the job.

Complaints surface

Some members of the local construction industry have accused Nan and JHL of unfair business practices in the past.

Both are non-union companies and the Pacific Resource Partnership, which represents the Hawaii Carpenters Union and some 400 unionized contractors, has repeatedly complained to federal agencies that Nan has paid less than federally mandated wages to its employees.

"Our organization works to ensure that there's a level playing field for everybody," said Bruce Coppa, PRP's executive director. "A contractor like Nan gives a bad name to the industry as a whole."

In 1998, Nan was cited by the wage and hour office of the U.S. Labor Department for not paying employees for "off the clock" work, according to a federal report.

"The owner of the firm, Patrick Shin, was not aware that the employees were performing work at the job site more than eight hours a day and worked some Saturdays," according to the report, written by Wage and Hour Division investigator Susan Chang.

The company agreed to pay 24 employees nearly $276,000 in back wages, Chang's report said.

Other companies here have complained to the federal government about the selection process which awarded Nan several multimillion-dollar construction contracts.

Dick Pacific Construction has filed formal contract award protests at least twice, according to federal procurement records. Both protests were resolved in favor of Nan by the U.S. General Accounting Office.

One protest, filed by Dick Pacific on Jan. 8, 2002, involved a contract to renovate four three-story buildings at what is called F Quad at Schofield Barracks. A joint venture between Dick Pacific and a small, local construction company called Alan Shintani Inc., was initially awarded the contract in September 2001, based on a $50.69 million price and 618-day performance schedule.

Nan Inc., the only other bidder, successfully argued that contracting officials had incorrectly evaluated the competing proposals and both firms were required to submit revised proposals.

Nan then won the contract with a bid of $47.7 million and 600-day schedule. Dick Pacific/Shintani then formally protested, claiming that Nan had improperly been given access to details of its competitors' original bid.

General Accounting Office official Anthony Gamboa rejected the protest, ruling that it was filed too late and that DickPacific/Shintani had failed to label the scheduling and technical data as confidential.

Dick Pacific filed another protest Sept. 29 over the new award of a $54.95 million contract to Nan for renovation of three buildings at C Quad at Schofield Barracks. That protest was rejected by the GAO Oct. 21.

The new C Quad contract is one of two large federal contracts recently awarded to Nan and JHL which have been put on hold, at least temporarily, because of the FBI investigation, according to federal officials.

Relationship questioned

Other contractors have complained to federal authorities about what they believe is a too-close relationship between Nan and JHL Construction, the firm owned by Shin's nephew, which has allowed Shin to continue to enjoy the benefits of the SBA's small business assistance programs, according to federal records.

JHL Construction entered the SBA's 8(a) program in September 2000 and is part of an SBA-sanctioned "mentor-protégé" relationship with Nan in which a large, successful graduate of the 8(a) system assists a young company to develop new business.

JHL operates from a warehouse on Hau Street in Kalihi that is owned by Shin, city property records show. SBA officials here declined to discuss the participation of Nan or JHL Construction in the 8(a) program.

"Because of the investigation, we can't comment," said Michael Youth of the Hawai'i SBA office.

Last month, as a result of the FBI investigation, a new $20.12 million contract awarded in September to a partnership between JHL and Douglas Awai Masonry, a small Big Island firm, was also put on hold, according to Douglas Awai.

Awai said he was told by Lee that the job, which also involves renovation of Schofield Barracks facilities, won't proceed until the investigation is complete. He also told The Advertiser that he was questioned by FBI agents about JHL and Nan.

"They tried to pressure me but I really don't know too much," Awai said.

Contract records were also seized by the FBI, Awai said, adding that he was "excused" from appearing before a federal grand jury hearing evidence in the case.

Though he has never met Shin, Awai said Shin helped him arrange bonding to qualify for the job. He described Shin as "the main guy, the guy that gets the contract."

Awai believes that other companies here are "teed off" because they lost the contract. Large companies "don't like losing out to small companies," he said. "But that's why they made this (SBA) program so that small companies can get jobs."

Other companies say they have admiration — sometimes grudging — for what Shin and his company have accomplished.

George Toyama, owner of General Trades and Services Inc., an 8(a) contractor who also consults with other 8(a) firms on increasing federal contract work, said that Nan "has performed well for the government and I think that they run a fine operation."

Toyama said Shin has "been very aggressive in going after contracts" and "has a strong marketing program" which landed him "the lion's share of contracts" when he was still in the 8(a) program.

"I think you'll find that every state has got one company like that, that has gotten a lot more 8(a) contracts than other companies, but that's the way the system is set up," Toyama said. "It rewards performance and it rewards marketing."

Reach Jim Dooley at jdooley@honoluluadvertiser.com or 535-2447.

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