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Detroit — A contractor in the city's federally funded demolition program is at risk of losing $15 million in future work and its current projects are halted amid a review over claims it violated rules for filling holes.

Chicago-based McDonagh Demolition was issued a stop-work order by the Detroit Building Authority for all demolition and backfill work last week after it was discovered the company had not fully removed all demolition debris before adding fill dirt at several sites. 

The firm was specifically ordered to excavate one site on Maiden Street and confirmed that some materials there had not been properly removed, according to Brian Farkas, director special projects for the city's Building Authority.

The firm was doing $1.5 million worth of work on about 90 structures. In total, three sites out of a batch of four have been dug up so far. The company's other sites are in various stages. Some haven't been backfilled yet but all will be reviewed in some form, according to the building authority. 

McDonagh has close to 700 other properties under contract that are worth more than $15 million. The company bid on its first properties late last year. It has not yet received any payment. 

The internal investigation of McDonagh, first reported by the Detroit Free Press, comes amid a federal criminal investigation into the city's demolition program and growing concern over practices involving dirt used to fill holes throughout the city.

The stop-work order was issued Friday morning, Farkas said, and will remain in place until the review of each of McDonagh's sites is complete and officials are able to "ensure that all work has been completed properly or redone if it has not been," he said. 

"This is a serious violation of our protocols and will be dealt with severely in our contractor discipline process and likely will result in suspension or expulsion from the program," Farkas said in an email. 

McDonagh, in a released statement, said during the course of demolishing dozens of abandoned homes, it's been made aware of four properties that contained small pieces of concrete and is working with the land bank and building authority to remove the materials.

"We are confident that this is an isolated issue," the company said. "We are determined to find out exactly what happened and why. In fact, McDonagh has already taken initial corrective action steps to address these issues. What took place in this instance does not in any way reflect the integrity, value and operating practices of McDonagh Demolition."

Farkas added that the investigation is evidence the building authority's quality controls worked, as intended.

"In this case, our on-site DBA field liaison discovered that McDonagh Demolition out of Chicago filled several demolition holes before fully removing all of the demolition debris," Farkas said.

Detroit City Council President Pro Tem Mary Sheffield, in a Tuesday memorandum to land bank and building authority leaders, is urging that contracts awarded to the firm be immediately revoked and wants all of its sites excavated and the fill tested. She wants the firm's wrecking license revoked and to have it forbidden from working in the city. 

Sheffield said the moves are being made to protect residents and respond to "improprieties and violations."

During Tuesday's formal session, Sheffield voted no on several demolition contracts and said she'll continue to do so moving forward. Sheffield joins President Brenda Jones who has voted against demolition contracts since she learned of a federal criminal investigation.

The Special Inspector General for the Troubled Asset Relief Fund has issued numerous subpoenas to contractors, building authority and land bank employees over the last several years as part of a probe into the program that's also been the subject of other state, federal and local reviews. 

"To me, there are no proper protocols in place," she said. "I've been dissatisfied. Until I know residents in the community are safe, I'll be voting no on all demolition contracts on the floor."

She also is seeking an analysis over whether oversight and administration of the program can be taken out of the land bank and building authority's control and be handled in-house instead. 

Sheffield's demands come after she called earlier this month for the U.S. House Oversight and Reform Committee to convene a congressional hearing on Detroit's demolition program.

State Rep. LaTanya Garrett, D-Detroit, this week intends to ask the full House to adopt a resolution requiring hearings on what's taken place within the land bank and building authority under the program as well as seek answers from the state, which administers the federal funding, said Robert Davis, a policy advisor to Garrett. 

Alyssa Strickland, a spokeswoman for the land bank, in response, said that the city itself cannot be a direct recipient of federal Hardest Hit Fund dollars. 

"...the ability to administer Hardest Hit Fund dollars is a key reason why City Council and the Mayor reconstituted the Detroit Land Bank Authority in 2014, she said. 

The building authority said it's reviewing all of the sites that have been backfilled by McDonaugh. The excavation is being done at the contractor's expense.

Farkas said the state Department of Environmental Quality is aware of the review. The process, he said, will include reviewing all aspects of the demolition and any testing will adhere to our scope of backfill protocol.

The Michigan State Housing Development Authority, which administers funding for the program through its Michigan Homeowner Assistance Nonprofit Housing Corp., said the findings are "serious" and "a clear violation of program guidelines concerning a new contractor," said Katie Bach, a MSHDA spokeswoman.

Bach said the health and safety of Detroit residents during the demolition process "is paramount."

"We are demanding full disclosure about how this happened and why these violations were not caught during the routine inspection process," said Bach, who added the state can't speculate about a change in administration of the program until it receives a formal, written proposal.

Bach said that a Detroit field inspector caught the issue at a demolition site and the building authority promptly brought it to the state's attention. 

"Until we receive details on the condition of all 90 demolition sites, it is premature to say what penalties may result," she said. 

The company also exceeded a $25,000 threshold instituted by the state on a handful of houses within its bid packs.

Strickland said in cases when a demolition exceeded the set limits, city funds are used to make up the difference.

"Anything over $25,000 goes through an executive director review process in which the DLBA must decide if the cost is worth it to eliminate that blight on the neighborhood," she said. "There are a significant number of houses that must come down but require significant abatement and/or they are larger houses, so it costs more to demolish them."

Strickland pointed to a contract for a property on Wilshire where the abatement alone topped $26,000.

She provided a breakdown of six properties that exceeded the cost cap as well as the contractor bid for abatement, demolition and the total cost. 

Bach confirmed that the land bank is permitted to seek alternative demolition funding sources to cover costs over the $25,000 cap.

She added that the state has not received invoices for McDonagh's demolition work nor has it funded work on any of its properties. 

"Any demolitions that are found to be in violation of our guidelines will not be funded with Hardest Hit Funds," she said. 

Strickland said McDonagh's stop-work order is not a setback for the demolition program.

"We are months ahead of schedule, so even with a rebidding process for these properties, our HHF spend-down will be complete well before the December 31st, 2020, deadline," she said. 

As of Dec. 31, Hardest Hit Funds spending to-date was just over $173 million for 9,948 properties over four rounds of funding.

cferretti@detroitnews.com

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