WILLETTE Si GUERRA, L.L.P. ATTORNEYS AT LAW CHARLES WILLETTE, JR. R. D. EILEEN M. LEEDS ANALISA FIGUEROA JOE MELANIE A. MOORE ROBERT PUENTE JUAN ROCHA HEATHER SCOTT ARCELIA TREVINO 1534 EAST 6TH STREET, SUITE 200 BROWNSVILLE, TEXAS 78520 TELEPHONE: (956) 541?1846 FACSIMILE: (956) 541?1893 january 20, 2005 FACT FINDING REPORT BY SPECIAL COUNSEL CHARLES WILLETTE OFFICE: 801 NOLANA, SUITE 320 MCALLEN, TEXAS 78504 TELEPHONE: (956) 686-2266 FACSIMILE (956) 686?5913 This is my Fact Finding Report regarding the investigation into how money was spent by the Brownsville Navigation District (Port) in connection with the international bridge project started in 1991. In addition to this Fact Finding Report, which is being made public, I will also provide the Port with a Confidential Attorneyz Client Privileged Recommendations for Possible Litigation Report, which will not be made public, since it is a privileged attorney/client document which addresses possible litigation options the Port may have in connection with the results of the investigation. As pointed out in my Status Report to the Board on September 15, 2004, I spent the majority of the first three months of this investigation working alongside Ignacio Torteya, and others, trying to determine the status of the bridge project in Mexico, because it was clear from the correspondence the Port was receiving at that time, from Dannenbaum Engineering Corporation (DEC) and Grupo Respira (GR), that they were indicating the Port needed to take action in several areas as it related to the completion of the bridge project in Mexico. Because this could possibly impact any potential cause of action the Port may have in this matter, if any, 1 determined it was necessary for me to spend the initial part of the investigation doing what I could to help determine, if these representations to the Port were true. I was doing what I could to assist in putting the Port in the best possible position to take whatever action it may have needed to take to secure the necessary permits and authorizations in Mexico to be able to commence construction of the international bridge in question. Again, as pointed out in my initial Status Report, while my initial charge was to find out why approximately $21.4 million dollars had been spent to date on the proposed international bridge project, yet no bridge was being constructed, due to the immediate circumstances we were faced with, 1 determined that I had no choice but to become more involved in the review being conducted into the status of the bridge project in Mexico. While neither I nor the Board had envisioned my work being dedicated to actively working on the status of the bridge project in Mexico, it was necessary for me to spend this time to help the Port not jeopardize any potential causes of action it may have in this matter, if any. During this time, 1 was also conducting some initial investigation into the how much was spent on the project to date and what work had been completed to date by the various contractors hired by the Port to work on the bridge project. Because (1) DEC was the primary contractor hired by the Port to work on the bridge project, both in the US. and Mexico, at this time, and (2) it was the entity presently responsible under contract to the Port to perform engineering work on the bridge project and (3) it was the project manager of the project in connection with securing the required permits and authorizations, including, but not limited to, Diplomatic Notes, in Mexico, in order that construction on the bridge project could begin, and (4) because 1 had determined that out of the approximately $21.4 million dollars spent on the bridge project since 1991, approximately $15.4 million dollars had been paid to DEC, which amounted to approximately 70% of all the money spent on the project, what time I did spend was initially concentrating on DEC's involvement in the project. By the middle to end of September, 2004, 1 determined that 1 no longer needed to spend time on the status of the bridge project in Mexico. By that point in time, Ignacio Torteya and others had done a very good job of trying to determine the status of the project in Mexico and doing what they could to put the Port in the best possible position to obtain approval of this project in Mexico. It should be noted that after September 15th, a bridge committee was appointed by the Board to continue these efforts and while I continued to monitor its work to a limited extent, I started directing my efforts to the investigation of how $21.4 million dollars was spent on the project to date. As to what was accomplished during the first three months of the investigation, I would refer the Board to Ignacio Torteya's report in October of 2004, and as my report continues herein, I will, from time to time, make reference to his report, as it is thorough and covers areas I don?t need to repeat. While I'm not in any way taking any credit for the preparation of the report, I spent a great deal of time during the first three months of the investigation working alongside Mr. Torteya and others, as all this information was being gathered, which we both used in our respective roles. I will break my report down by the significant years involved in the international bridge project. The first section will be 1991 to part of 1997. The next section will cover from part of 1997 to 2001 and the next section will cover from 2001 to the present. In these sections 1 will address how it appears the money has been spent and on what. However, because of the amount of time I decided to spend on reviewing how the money was spent between 1991 and part of 1997, I did not conduct as thorough a. review for this time period as I did for the years 1997 to the present. This was due, in part, to the fact that the majority, approximately 70%, of all the money spent on the bridge project was spent after 1997. Also, knowing that I wanted to finish my assignment by December 2004 or no later thanjanuary 2005, I decided to concentrate most, if not all of my time and efforts, in the years from 1997 to the present, with more attention being dedicated to the time period from March 2001 to the present when approximately $11 million had been paid to DEC. I may, from time to time, in the report address others areas which I think are important as facts and information I?ve learned in the course of the investigation. My report will be based, in part, on a review of thousands of pages of documents, which are way too voluminous to attach to this report but will simply be referred to herein. Some of the report will be based on my conversations with various individuals, including, but limited to, the current Board members, previous Port Director Raul Besteiro, who is now deceased, and other staff members of the Port, including Deborah Duke, Finance Director; Donna Eymard, former Deputy Port Director and current Interim Port Director; and Nino Gutierrez, Deputy Port Director/Operations. I did not take sworn statements as i decided that the majority of my work would be based on document review; however, my conversations with individuals did add insight into the subject matter of the investigation. It should be noted at this point that I tried to meet, and talk with, two former Board members: Sidney Lasseigne and Capt. Eddie Rendon, since they were on the Board when a significant amount of money was paid out on the bridge project, including money paid to DEC regarding its work on the project. I asked one of the current Board members to talk to both of them, convey my desire to meet with them, and had him explain that I was not taking sworn statements but only wanted to meet and talk to them about their knowledge of the project. They refused to talk to me. I could not force these two individuals to talk to me but did confirm in a letter to both of them that I had requested they meet with me but they have refused to do so. My letter continued to extend the offer to meet with me but as of this report, I have not been able to talk to either of them; therefore, when I'm addressing what appears to have been happening at any time when they were on the Board, it will not be based on any information or facts they could have given me. Further, due to Raul Besteiro?s sudden, tragic and untimely death, there were other issues I would like to have talked to him about but never got the chance. Not only could this have added more information to the investigation, it would have offered him additional opportunities to give his side of any issues where they may have been a difference of opinion or recollection on how events occurred. Before breaking the report down by the years, I would like point out that out of the approximately $21.4 million dollars spent on the project from 1991 through March, 2004, I will be primarily addressing money paid to consultants, professionals and engineers, which amounts to approximately $20.6 million dollars of the $21.4 million. However, the balance of the money paid out of the approximately $21.4 million dollars over the years in questions was paid out as follows: 1. Approximately $56,092.00 was spent on legal/professional services with the largest portion, approximately $22, 700.00 of that amount being paid the Rentfro 69?, Rentfro law firm, which is the Port's general counsel. The remainder of the money paid out in this area were to other attorneys, title company, survey and engineers, and architects. 1 did not review any of their work/ product or invoices. 2. Approximately $199,567.00 was paid out for travel and entertainment, with almost the entire amount attributed to travel for commissioners and staff, including the Executive Director, Raul Besteiro. This amount is not broken down other than by the years it was paid out and 1 did not review each and every travel or entertainment invoice in this regard. 3. Approximately $28,780. 00 was paid out on postage, shipping and custom brokers; office supplies; aerial photography; promotions and advertising and BND employee expense. 4. Approximately $491,426.00 was paid out for financing cost. These amounts were not reviewed in detail, again, because 1 determined it was more important to concentrate on how the majority of the money was spent on the bridge project, which will be addressed as this report continues. 1991/1997 Based on a spread sheet prepared by Deborah Duke, Finance Director, setting out the Bridge Project Expenditures as of March 2004, it shows that from 19 91 to part of 1997, the Port spent approximately $1,101,904.00 on consultants, professionals and engineers. The most signficiant event during these years was the fact that the United States Presidential Permit was obtained. It should be noted that because of my limited review of this time period as set out hereinabove, and due to the voluminous amount of documents that appear to cover this time period, when 1 state that 1 could not find any documents in connection with a certain entity or person, it may be that documents exist, but 1 just couldn't find them. 1 did not review any invoices that may have been submitted during this time period, as well, but that doesn't mean the Finance Dept. may not have them; it only means that 1 didn't request them. During this time period, the money spent by the Port was paid out as follows: 1. Parsons/Brinckerhoff received $155,455.60 from 1991 to 1993/94. It appears to have done engineering and feasibility studies and there are numerous documents attributed to this effort which appears to justify the reasonableness of it costs, although I did not review specific invoices in this regard. Hicks 65: Co. received 226,513.09 from 1992 to 1997/98. It appears to have done enviromental studies and there are numerous documents attributed to this effort which appears to justify the reasonableness of its costs, although I did not review specific invoices in this regard. Also, 39,450.02 of the money paid to it could have been paid in early 1998 and would therefore fall outside this time period, but I've included it herein so as not to have to address them for this amount in the next time section. Grupo ICA received $8,600.00 in 1992/93. 1 refer you to Ignacio Torteya's report where he discusses and its efforts on the project. Given all that seems to have transpired in connection with its efforts, the $8600.00 appears reasonable; however, I did not review specific invoices and the money appears to have paid in advance at the execution of the contract. Of particular interest is the discussion about Mr. Tomas Reynoso Ennis, who later continued working on the project, but evidently in his individual capacity. Juan Carlos Celis received $473.00 in 1992/93. I couldn't find any documents in this regard nor did I review any invoices and make no assessment of reasonableness of this cost. Brown McCarrol 69: Oats received $2333.98 in 1992/93. I couldn't find any documents in this regard nor did I review any invoices, and make no assessment of the reasonableness of this cost. Tomas Reynoso Ennis received $258,702.57 from 1992 to 1995. I also refer you to Ignacio Torteya's report as he discusses Tomas Reynoso Ennis, his contract with the Port and his involvement in the project. And while I can add nothing to what is already in the Torteya report, it does appear that Tomas Reynoso may have become associated with Grupo Rio San Juan. As will be noted later, it appears Chano Tamez is also associated with Grupo Rio San juan. Also noted in theTorteya report, specifically in the section dealing with Chano Tamez, Tomas Reynoso's services agreement was terminated because the objectives were not met; however, while there appears to have been some concern on the 10 amount of money being paid to him, there is a ?To Whom It May Concern? letter dated April 1995, from the then Chairman of the Board, saying Tomas Reynoso performed his services in a professional manner and in accordance with the Port? agreement with him, therefore, it appears he left in the good graces of the Port and therefore, can only assume his charges were reasonable. John St. John received $20, 586.37 in 1992/93. 1 could not find any documents in this regard nor did 1 review any invoices and can make no assessment of the reasonableness of the cost; however, he appears to have been a consultant for the Port working on trying to secure the U. 8. Permit and also attending meetings with other consultants hired by the Port as well, including ICA and Tomas Reynoso. AN. Zavaleta received $1500.00 in 1992/93. 1 could not find any documents in this regard nor did 1 review any invoices and can make no assessment of the reasonableness cost. Brown and Root received $424,505.41 from 1995 to 1997. It was hired in 1995 as the Project Engineers and continued in that position until July of 1997 when DEC was hired as Project 11 10. ll. Engineers. In reviewing its contracts and other related documents, it appears all its efforts justify the reasonableness of its costs. Its contract was terminated but it' unclear why. I can?t find or confirm through any document review that it was doing a bad job or that it wasn?t fulfilling its contract, but in my conversations with some of the current board members, who were there when their contract was terminated, they seem to have a vague recollection of things not getting done that needed to be done but they weren?t sure. Certainly, the Board had the right to terminate the contract at any time with sufficient notice and they then exercised this right. I did not attempt to interview any of the other board members who were on the board at the time was hired or terminated. City of Brownsville received $27,982.02 from 1995 to 1997. This was for traffic and toll studies and it appears there is documentation to justify the reasonableness of its cost, although I did not look at specific invoices. This was for Raba/Kistner received $1800.00 in 1995/96. enviromental site assessment and it appears there is 12 12. 13. 14. documentation to justify the reasonableness of its costs although 1 did not look at specific invoices. AYUSA received $2200.00 in 1996/97. 1 could not find any documents in this regard nor did 1 look at specific invoices and can make no assessment of the reasonableness of the cost. Mitrisin 69: Associates received $11,987.50 in 1996/97. It appears it was hired for consulting services in connection with working with various US. governmental agencies, including GSA. In reviewing the contract and other documents regarding their level of effort in the project, it appears its charges are reasonable; however, there was some communication toward the end of its work asking that it not contact any US. governmental agencies directly and to undertake no further activity until notified. URS Consultants received $2615.93 in 1997/98. It appears it was hired to conduct traffic studies and there appears to be documentation to support the reasonableness of its charges, although 1 did not review specific invoices. Also, it?s possible, that this money may have been paid to URS in early 1998 which I've included herein as I'm not sure if it was 1997 or 1998. 13 As a closing note to these years, there are certain issues regarding the US Permit that should be addressed. In discussing the US Permit with Nino Gutierrez, who was appointed to the recently formed bridge committee, he pointed out that there are still certain conditions that must be met by the Port pursuant to the Permit before construction can begin. Some of those conditions include enviromental issues. These conditions are not so problematic that they can?t be complied with, but they do need to be addressed and dealt with by the Board before any construction can begin. Also, there are limitations on development within the project corridor other than the GSA facility and a possible pipeline that would run parallel to the roadway and railroad. This limitation should be discussed and addressed by the Board as well. 1997/2001 This part of the report is based on the same spread sheet, as well as contracts and any other documents regarding the companies or individuals which/who received money during this time period. However, with the exception of monies paid during to this time period to DEC, I will again list the companies or individuals in summary fashion and will state that have not done a detailed analysis of their involvement in the project, with the exception of the what I will refer to as the May ?99 Report. I will address money paid to DEC during this time period separately at the end of this part of the report. 14 Blanton and Associates received $857,705.51 from from 1997 to 2003/2004. While this goes beyond the period of 2001 in this portion of the report, I will include it in this description so as not to have to discuss it in the later section from 2001 to the present. It appears Blanton and Associates performed numerous enviromental services and studies in connection with the bridge project, including, but not limited to, studies and surveys of the Aplomado Falcon and the Ocelot andjagu arundi cat, which were specifically a condition to the US. Permit. It appears the work they performed was reasonble for the costs charged. American Inland Divers/Prospectiva received $2,267,560.00 from 1997 to 2001. While the spread sheet shows American Inland Divers (AID) receiving money on the bridge project, it should be noted that it was also hired in july 1997 to do repair work to a cargo dock. Also in july 1997, AID entered into a Permit Acquisition Services Contract with the Port in connection with the bridge project. In that contract, Prospectiva was designated as AIDS subcontracted consultant for permit acquisition services. In February 1998, the Board extended subconsultant 15 subcontract with Prospectiva. In August 1998, there was another extension of Prospectiva?s subconsultant subcontract. Beginning in April I999, the Board entered into a separate consulting agreement with Propectiva for the continued work on the bridge project and evidently no longer contracted with AID. There were three extensions of this contract, with the last one being in july 2000. It appears that AID entered into contracts with Prospectiva to perform studies in connection with the Mexican portion of the project. Even though there are contracts with AID, it appears most, if not all, of the work was performed by Prospectiva. I have not reviewed all of the documents that describe the work done by Prospectiva at this time; however, what I have reviewed shows there were studies and other documents prepared by Prospectiva in connection with its expected work and while I?m not in a position to come to any conclusions about the reasonableness of its charges for the work performed, it does appear, in part, from the Torteya report, and also from conversations with staff members at the Port, that its work was beneficial to gaining further acceptance of the project 16 in Mexico. There are numerous references in the minutes of the Board referring to both AID and Prospectiva where their contracts were approved and later extended. While there was some criticism of Prospectiva by a member of the public on several occasions, the Board approved the extensions and renewals of its contracts. Evidently, Prospectiva was also initially hired by Brown 6g Root to conduct the same type of work that AID and the Port later hired it to do. There also appears to be a connection between Prospectiva and Chano Tamez. While there is no document connection that I could find, several individuals have said they are connected. Further, as will be elaborated on later in the report, DEC used Prospectiva?s studies and/ or had them updated when it became the project manager for the Mexico portion of the bridge project and in written responses to certain questions posed to it (DEC) regarding the subconsultants it hired to work on the project in Mexico, DEC said, as represented by the Port, Prospectiva was part of the previous group involved with the Port organized by Chano Tamez. In another area of written responses involving 17 subconsultants,including Prospectiva, DEC refers us to Mr. Lencho Rendon at Congressman Ortiz?s office or Raul Besteiro. 1 discussed this fact with MrRendon and this will be addressed later in the report. Further, I will refer you to the Torteya report wherein he addresses Prospectiva in detail and its work. The Sanchez/Malpaso/Gu errero/Miller listing on the spread sheet shows that $304,152.91 was paid to them from 1997 to 1999. This is what 1 will refer to as the May ?99 Report issue. This entire issue was the subject a May 5, 1999 report to the Board by Board?s general counsel Daniel Rentfro, jr. It involved a total of approximately $288,000.00 paid out to different "consultants" for which there evidently was no contract(s) and part of the money was wired to an offshore bank account in the Bahamas. This was first raised by the Ports outside auditors, Long Chilton after conducting a routine audit for the fiscal year 1998. The issue raised numerous concerns, including whether the Foreign Corrupt Practices Act may have been violated, as well as possible other state violations. The details of this report have been reported on in the media and discussed at Board meetings so 1 do 18 not think it necessary to go into detail about it again in this report. I will conclude by saying that it was clear this money should never have been paid as it was, and even though the report concluded that no federal or state criminal laws had been violated, there was a violation of the Port's internal policy regarding payment of monies. However, since this did involve money paid out in connection with the bridge project, I did review it. After I reviewed it, I discussed the May [99 report with Mr. Dan Rentfro, jr., and suggested it be turned over to the Cameron County District Attorney's Office for further review. He agreed and turned it over to them forthwith. There is no doubt that any possible civil causes of action have long since expired on the payment of this money; however, I would not want to give an opinion about whether there still exist the right to pursue any possible criminal violations as this should be determined by a state or federal prosecutor. While the local district attorney's office evidently accepted the report and, I assume, opened a file, as of this report, there are no results or actions taken by the local district attorney's office that I know of; 19 however, whether any other officials, federal or state, may be reviewing this could not be confirmed and 1 have not been contacted by any officials regarding this specific issue. The Delay Group received $226,508.46 from 1999 through 2003 with the majority of the money paid to it, approximately $207,474.00 being paid between 1999 and 20012002. This was through several contracts and while the contracts were for numerous consulting services to improve port infrastructure, it appears this amount of money was attributed to the bridge project based on invoices submitted to the Port. These invoices were approved and paid. 1 can make no assessment of the reasonableness of the costs. Chano Tamez received $391,000.00 between 1999 and 2001. He was contracted as a consultant to work on the bridge project and it appears he was paid for services in connection with work in Mexico. However, 1 did not review any of the specific invoices in this regard and can make no assessment as to the reasonableness of his charges at this time. Becasuse Chano Tamez may be connected to Prospectiva, as referenced above and because he 20 shows up later connected to a company called Buena Vista, which will be addressed later in the report, and as set out in the above section dealing with Prospectiva, 1 refer you to those sections of the report. owl will address the money paid to DEC during this time period. Part of my review of documents include documents received from DEC. This will cover the original contract with DEC and supplemental contracts 1, 2 and 3. This will take us up to supplemental contract 4, which will then be covered in the time period from March 2001 to the present. However, during this section of the report, 1 will also address other areas of general background and information that will apply to all of the supplemental contracts entered into between DEC and the Port. Erom july 1997 (original contract date) to March 2001 (end of supplemental contract 3), DEC was paid approximately 4,374,512.82. This was primarily for engineering related work. Before DEC became the engineers for the Port injuly 1997, Brown 65: Root was the engineering firm for the bridge project and had already been working on the project since 1995 and had been paid $424,505.41. In reviewing documents, it is unclear why the Port decided, or needed, to change engineers. 1 don't see any documents that show Brown 5% Root was doing a bad job or that its work was not 21 in conformity with their contract. However, in talking to some of the current Board members who were on the Board at the time the change was made, they have a vague recollection that there may have been some problem with Brown &t Root' work but they can?t say for sure what it may have been. As stated above, the Board could terminate their contract and obviously chose to do so. It has already been reported in the media that State Senator Eddie Lucio was a consultant for DEC and I did learn that it appears Sen. Lucio introduced DEC to the Port in 1997, after which, the Port terminated the contract with Brown and Root and entered into a contract with DEC in July 1997. While I could not confirm this, it may be that DEC and the Port had already been discussing issues before this time. Further, I can find no documents or facts of any type that indicates Sen. Lucio performed any consulting work on the bridge project itself. It does not appear that the Port went out for any Request for Proposals to obtain other bids from engineering firms to take over for Brown 69: Root, but simply made the decision to terminate Brown 59: Root and retain DEC. There are documents showing a comparison was done between Brown 69: Root?s contract and DEC's proposed contract and even though proposed contract amount was higher than Brown 652: Root?s, by approximately $500,000.00, the then Executive Director, jim Kruse, did find that DEC's proposed contract was acceptable and recommended the Board approve their contract. Thereafter, in July 1997, the Board 22 entered into the original contract with DEC. However, what is not evident from the documents reviewed is whether DEC used any of the engineering work that had already been completed by Brown 6g Root or whether it started from scratch in connection with the engineering work it performed from that point forward. I cannot say for sure whether it did or not; I can only say that from what I've reviewed in the way of documents to date, they do not show whether Brown 6st Root's previous work was used by DEC. In the original contract, DEC was to perform professional engineering services that included coordination with associated United States and Mexican Federal, State and local agencies; development of preliminary engineering and schematics; development of plans, specifications and estimates; and complete construction management including inspection for improvements required to develop the bridge project. The project was broken down into three phases: 1. Phase Agency/ Client Coordination and Preliminary Engineering; 2. Phase Final Design; and 3. Phase Management and Inspection. In addition to numerous clauses in the contract, it allowed for supplemental agreements to be entered into and additional compensation allowed, if apprOpriate. Another provision in the contract required that all subcontracts be approved as to 23 form, in writing, by the Port prior to work being performed under the subcontract and that no subcontract relieves the engineer of any responsibilities under the contract with the Port. The provision regarding the approval of subcontracts will become important as the report continues. The original contract in July 1997 with DEC was for $2,053,515.00, which included Phase I and 11 for the work described above. This was clearly for engineering work. This contract was approved by the Board on july 22, 1997. In this same meeting, the Board also approved the termination notice being sent to Brown Est Root. From the documents reviewed and information obtained, Louisjones, a principal in DEC, not only the signed the contract on behalf of DEC, but he was the person designated by DEC to primarily work on this project with the Port. As the work was proceeding under the original contract and supplemental contracts 1, 2 and 3, DEC would send its invoices to the Port and they would break their work down by phases and request payment. Pursuant to the internal operating procedures of the Port, since the contract amount had already been approved by the Board, the invoices would be approved by the then Executive Director Raul Besteiro and sent to the Finance Dept. for payment. The Finance Dept. was only responsible for making sure that there was sufficient money under the approved contract to pay 24 the invoice and make sure the invoices did not go over the approved contracted amount. In trying to find out who at the Port was responsible for actually checking to make sure the work being invoiced by DEC was performed, I learned that there really wasn?t any one person designated as the Project Manager at the Port to oversee the project and review DEC's work. It appears that while Raul Besteiro was the one who approved the invoices and the Finance Dept. would make sure it was within the budgeted amount, no one was really checking the engineering work to see that it was being perfomed as contracted for or to make sure it was being done as the Port intended. It appears Louisjones was the person the Port relied upon in this regard and no one at the Port was looking over his shoulder. When I inquired why no one at the Port, such as someone in the engineering department, wasn't reviewing or at least looking at DEC's engineering work, I really got no satisfactory answer other than it just wasn?t done. Therefore, DEC and Louis jones were not only doing the outside engineering work, they were essentially checking their own work. Before I started the investigation in july 2004, numerous documents had already been provided by DEC to the Port in response to ajune 10, 2004, request by the Port's general counsel to provide the Port with all work/product generated by DEC in connection with the bridge project, including reports, surveys, studies, 25 layouts, analyses, pro formas, data, maps, drawings, photographs, schematics, plans, specifications, estimates, test results, budgets, alignments, and the like. While I did find correspondence from DEC and copies of minutes of Technical Meetings prepared by DEC, which appear to have been supplied to the Port from time to time, it does not appear that the Port had any substantial engineering documents until this request was made; therefore, not only was there no one at the Port actually reviewing engineering work, it doesn't appear it had even been provided to the Port beforejune, 2004. Also, as part of the documents DEC provided in connection with their response, were all of the invoices submitted to the Port by attached to these invoices, however, were copies of invoices between DEC and the subconsultants it had contracted with in connection with the project. However, in comparing these invoices (the ones just received from DEC with the subconsultants invoices attached) to the invoices actually received by the Port from DEC over the course of the project, none of the invoices from DEC had the subconsultants' invoices attached; so we were seeing those invoices for the first time. In addition to seeing invoices from subconsultants for the first time, the Port also received copies of contracts between DEC and numerous subconsultants it (DEC)entered into subcontracts with in connection with the project. Even though the original contract called for all subcontracts to be approved, in writing, by the 26 Port, only one of the subconsultant contracts was approved by the Board in writing. The one subconsultant subcontract that was approved was between DEC and Buena Vista (Chano Tamez) which will be addressed later in the report. In reviewing the original contract and supplemental contracts 1, 2 and 3, with attachments, which set out in detail the work expected to be perfomed under these supplemental contracts, DEC would refer to coordination with subconsultants, such as URS Greiner for traffic and investment grade studies; Aranda for surveys; Raba Kistner for geotechnical, and Mitrisin for GSA consultant. It would also refer to project development coordination with Mexico and list companies such as Prospectiva. It would refer to other subconsutlants in different work related areas such as Tukay Associates in connection with a binational media presentation. Also, in reviewing the invoices the Port actually received from DEC as the project was proceeding, there would be references to monies it had paid to subcontractors, such as URS Greiner, which did traffic studies and Mitrisin Associates, which you will recall from above, had at one time, contracted directly with the Port for consulting services in connection with governmental agencies, such as GSA. While I cannot find that any of the subconsultants' subcontracts mentioned in the preceeding paragraph were specifically approved by the Board in writing, it does appear, however, that only these subconsultants were specifically listed in the 27 attachments to the supplemental contracts, which were approved in writing by the Board. So it's plausible that this could constitute written approval to some degree. The attachments to these supplemental contracts were very detailed and consisted of numerous pages of descriptions of work to be performed. It should be noted, however, that during this time period, DEC entered into a subconsultant subcontract with Homeframes de Mexico, SA. de C.V., injanuary 2000. This subcontract, among other services subcontracted for, obligated Homeframes to obtain approval of the "Project" by SRE (one of the Mexican agencies from which approval was needed) and the exchanging of diplomatic notes. DEC put in the subcontract that this work was related to its supplemental contracts 2 and 3 with the Port. However, in reviewing supplemental contracts 2 and 3 between DEC and the Port, there are no similiar descriptions of services to be performed by therefore, it is unclear why, and under what authority, DEC subcontracted work with Homeframes for which it (DEC) wasn?t suppose to perform. The subcontract called for DEC to pay Homeframes a consulting fee of $650,000.00 in installments and it appears DEC did pay this sum to Homeframes. This subcontract has a termination date of January 1, 2001. More importantly, this subcontract was never approved by the Board, in writing, and this company was never mentioned in any of the attachments to supplemental contracts 1, 2 and 3 as were other subconsulants 28 mentioned above. Therefore, DEC had no authority to enter into this subcontract. This particular company and monies paid to it and other subconsultants will be addressed in more detail in the neXt section of the report. In regards to the engineering work product received from DEC in June 2004 referenced above, I asked Nino Gutierrez, Deputy Port Director/Operations, who oversees, in part, all engineering work, at the Port, to review the work/product. He determined from an initial review that the work appeared approximately 80 to 85% complete, but more work was needed. Therefore, in regards to money paid to DEC pursuant to the original contract and supplemental contracts 1, 2 and 3, unless the in/house engineer at the Port determines by further review that its work needs more explanati on, it would generally appear that DEC did perform engineering work pursuant to these particular contracts. It should be pointed out that the concepts of the bridge changed several times over the course of the project. It started as a truck bridge only, then changed to a truck and rail bridge, then changed to a rail only bridge and lastly was a primary rail bridge but with engineering and other related work to be done so the truck portion could be added at a later date. There is no doubt that these changes caused more expense to be incurred in the project; however, it is not known, at this point, how 29 much additional expense it caused to be incurred. 2001/2004 Beginning in March 2001 and thereafter, pursuant to supplemental contracts contract was expanded to take on the primary role, if not exclusive role, of getting the Mexican government officials to approve the project and obtain diplomatic notes which would advance the project to allow construction of the bridge to begin. In essence, DEC, through Louis jones, became the project manager of the project for all purposes, both on the US. side and in Mexico. The Board and Raul Besteiro said that this expansion of DEC's involvement was at the request, and suggestion, of Louis jones. However, in responses to questions we posed to DEC regarding the project, DEC said, in part, that after almost three years, and numerous redesigns, it was represented to DEC that the Port Board had become disenchanted with the group managing the Mexican side. The Port, through Raul Besteiro, contacted Louis jones of office and asked if any of the prominent Mexican businessmen DEC had dealt with previously would be willing to assist. Therefore there is a disagreement about how role was expanded. There is no doubt though, that before this point in time, there was no significant and meaningful movement in Mexico to advance the project toward construction. In fact, it appears the Mexican government had actually issued an 30 unfavorable diplomatic note indicating the project was not feasible. From the Board and Raul Besteiro?s recollection, Louisjones offered his company?s services to get the project approved in Mexico . The Board accepted this and expanded role in this regard. I Beginning with supplemental contract 4, DEC was to: 1. Continue level of effort to acquire the Diplomatic Note from Mexico; for this, DEC charges $300,000.00. 2. Complete the outstanding studies and designs in Mexico; for this, DEC charges $100,000.00. 3. Provide project management of the Mexico project to obtain the Diplomatic Note; for this, DEC charges $100,000.00. 4. Coordination of the Mexico Federal Agencies; for this, DEC charges $140,000.00; and 5. Coordination of the agencies in the State of Tamaulipas; for this, DEC charges $25,000.00. This is the attachment to supplemental contract 4; however, the detail of the description of the work to be performed is substantially less than the detail that was given in all the previous supplemental contracts attachments. As mentioned above, this was when DEC expanded its scope of work and 31 became the project manager in Mexico. Before this, it does not appear that DEC was engaged, or supposed to be engaged, in any level of effort to acquire the Diplomatic Note; therefore, it's unclear why they would say they were to ?continue? the level of effort to acquire the Diplomatic Note, unless it is simply referring to the Ports previous efforts through others. Also, numbers 1 and 3 seem duplicative and redundant. In any event, under supplemental contract 4, DEC contracted for, and was paid, $665,000.00, which sum is very close to what it agreed to pay Homeframes in a subcontract datedjanuary 2000, included work on the diplomatic note. Supplemental contract 4 was approved by the Board on March 21, 2001. DEC operated under this contract between March 2001 and February 2002 when supplemental contract 5 was entered into between the Port and DEC. Between March 2001 and February 2002, DEC entered into three other subconsultant subcontracts with Mexican companies. On March 2, 2001, before supplemental contract 4 was even approved, DEC contracted with Homeframes again. This was for the exact same work it previously contracted with Homeframes for and Homeframes was being for certain tasks, and $150,000.00 for other tasks. These tasks are identified in the subcontract as being related to supplemental contracts 2, 3 and 4 between the Port and DEC. Although the subcontract says that the Port is in agreement with the subcontract, no such approval 32 was ever obtained from the Port in writing, as required under the original contract, nor did the Port sign this subconsultant subcontract or any other subconsultant subcontract, with the exception of the one between DEC and Buena Vista, which again, will be addressed later in the report. On April 1, 2001, DEC subcontracted with Comercializadora Binacional America, SA. de CV. referred to as COBINA. COBINA was subcontracted to coordinate Mexican consultants and agencies; assist in obtaining diplomatic notes; assist in obtaining Mexican partners and financing for the Mexican side of the project. DEC paid COBINA $300,000.00 for this contract, to be paid over six months. On September 15, 2001, DEC subcontracted with COBTNA to continue the initial services and agreed to pay it $375,000.00, to be paid over four months. Therefore, we have DEC agreeing to pay COBINA $675,000.00 for ten months to do work that appears very similiar to what it was paying Homeframes to do; although DEC always identifies the work to be performed by the subconsultants to tasks DEC is to perform under its supplemental agreements with the Port. These subconsultant subcontracts between DEC and COBINA were not approved by the Port in writing nor were any of the invoices from these subconsultants sent to the Port with the invoices it received from DEC as this work was allegedly being performed. The above are given as examples of supplemental contracts with the 33 Port and subcontracts with subconsultants. As to supplemental contracts with the Port and DEC's subconsultant subcontracts with various subconsultants, I want to summarize what transpired between March 2001 and February 2004 in this regard. Over this period of time, DEC entered into supplemental contracts Between March 2001 and February 2004, DEC was paid approximately $11,095 ,08200 to perform various tasks as set out in the attachments to each supplemental contract. No attachment to any of these supplemental contracts were over one page in length and this is where the work to be performed would be described. See Exhibits 15 which are copies of the attachments to the respective supplemental contracts. Since supplemental contract 9 was never funded, this attachment is not included. Further, it should be explained that supplemental contract number 5 was changed from $3,323,000.00 to $5 323,000.00. According to whatl could find, supplemental contract number 5 was always supposed to have been for $5,323,000.00 but DEC submitted the wrong contract for signature. When this was learned, DEC submitted the correct supplemental contract number 5, which is the one that was approved by the Board, in the amount of $5,323,000.00. Therefore, supplemental contract number 5 is not a combination of $5,323,000.00 and $3,323,000.00, but was supposed to be a total increase of $5,323,000.00. Again, according to what I can determine, the Board 34 originally approved $5,323,000.00 in supplemental contract number 5 but evidently an inadvertent error on part caused an incorrect version of supplemental contract number 5 to be submitted to the Board for signature on or about February 27, 2002, and when it was later discovered that this was in error, a correct version of supplemental contract number 5 was submitted to the Port and signed (obviously backdated) by Commissioner Roy De Los Santos. In discussing this with the Board and Raul Besteiro, it definitely appeared this was simply a mistake and the second version of supplemental contract 5 was sent to correct the error. In any event, the funding approved under supplemental contract number 5 was $5,323,000.00. Some supplemental contracts were apparently amended by others, such as supplemental contract 5, was apparently amended by supplemental contracts 7, 8, 8A and 9. Evidently, from the beginning of the time DEC was entering into contracts with the Port, it (DEC) was entering into subconsultant subcontracts with various companies. According to DEC's records, over the entire project, they entered into subconsultant subcontr acts with 17 different companies for a total payout of $10,529,058. 58. And other than some of the subconsultants referenced above, which were mentioned specfically in the attachments to supplemental contracts 1, 2 and 3, none of the other subconsultants are mentioned in any attachment and none of the other subconsultant contracts were approved by the Port in writing; other than the 35 one between DEC and Buena Vista. Moreover, the attachments to supplemental contracts 4 through 8A are vague and in much less detail in comparison to the very detailed descriptions given in supplemental contracts 1, 2 and 3. See attached Exhibits referenced above. However, of particular importance, is the fact that betweenJanuary 2000 and February 2004, DEC entered into subconsultant subcontracts with three Mexican companies: Homeframes, COBINA and Sistemas. These three Mexican companies, alone, received approximately $9,176,106.00. 1. COBINA received $1,445,000.00; 2. Homeframes received $3,344,757.00; and 3. Sistemas received $4,386,349.40. Here, it is important to point out that when DEC expanded its role to become the project manager in Mexico, it brought several individuals into the picture: Miguel Nagel and Hector Larios. These individuals, and others, made up what was called Grupo Respira (GR). GR, on its own initiative, was to become the Mexican sponsor of the bridge in Mexico and would be the group DEC would continously refer to and associate with, in all of its dealings in Mexico in regards to this project. There are no documents which show that GR ever received any money from the Port and DEC denies it ever contracted with or paid GR any money in connection with its efforts 36 in this project. However, in the documents provided by DEC, injune 2004 to show the work/product on the project, GR's name appears on numerous presentations, both here and in Mexico, and other documents showing what work was being performed on the project. During the investigation, DEC was asked numerous questions, in writing, and part of these questions dealt with how the subconsultants in Mexico were hired. In response to the questions about the subconsultants in Mexico, DEC said that the Port utilized DEC's contract as a conduit to hire the required consultants to perform the required Mexican activities. DEC has taken the position that it hired as subconsultants various consultants at the direction of GR and the Port to perform various studies and final designs in Mexico. When asked about specific subconsultants such as COBINA, Homeframes and Sistemas, DEC said, in part, the following: COBINA GR verbally directed DEC to utilize this company to assist in activites with regard to the Port project. DEC said the scope of the this contract was approved by the Port, and GR was to, among other things, coodinate the various Mexican consultants and agencies, assist in obtaining a diplomatic note and undertake other activities. DEC said COBINA identified problems previous Port promoters created 37 and set about to change the Ports image with various federal and state Mexican agencies. In connection with other contracts between DEC and COBINA, DEC said the Port approved these contracts and the Port agreed to pay through DEC a success fee with COBINA, to be paid when the first diplomatic note from SRE was submitted. As stated by DEC, this happened and DEC contends that the Port authorized it to pay the success fee to COBINA through DEC's contract with the Port. DEC entered into four separate contracts with COBINA. HOMEERAMES DEC said, in part, that GR verbally directed the Port through DEC to utilize this company to, among other things, assist in the activities required to be monitored, assist in coordination and assist in study development. DEC entered into six different contracts with Homeframes. SISTEMAS DEC said, in part, that GR verbally directed DEC to utilize this company to, among other things, assist in the activities required, assist in coordination, and to monitor and assist in the development of various studies. DEC entered into seven different contracts with Sistemas. Based on descriptions of the work to be performed by each company, their work seems very similar, and DEC was contracting with these companies 38 during times which, in a large part, apparently overlapped. I asked the Board members and staff if they ever heard of these subconsultants; COBINA, Homeframes and Sistemas. They me they had never heard of them and didn? know DEC was contracting with them to perform any work on the project. And I can find no reference to them in the minutes of any meeting nor can I find any documents showing the Board ever approved any of the subcontracts with them. However, in regards to COBINA, I did find documents showing that in july 2002, a draft of a proposed subcontract between DEC and COBINA was sent to the Board?s general counsel, Dan Rentfro, jr., for review, and after reviewing that proposed subcontract, Rentfro sent a report to Raul Besteiro outlining suggested changes; however, Rentfro never heard anything about this proposed subcontract again, and it was never approved by the Board. He said he assumed DEC just decided not to use them. Also, it?s interesting to note that before this, DEC had already entered into at least two prior subconsultant subcontracts with COBINA, and none of them had been submitted to the Board or Rentfro for review or approval. It should be pointed out that just a few months earlier in March 2002, Rentfro was asked by Louisjones to approve a proposed subconsultant subcontract between DEC and Buena Vista. Dan wrote Louis jones back and explained what changes needed to be made and also pointed out that all subcontracts must be approved by the Board. The 39 Board did approve this subconsultant subcontract between DEC and Buena Vista and not only is it listed in the minutes, on April 3, 2002, approving it, there is a separate attachment to that subcontract signed by a Board member acknowledging that the subcontract is approved by the Board. No other subconsultant subcontracts that DEC entered into were approved by the Board as the Buena Vista one was, but it clearly shows that both DEC and the Board knew what was required before DEC entered into a subcontract with any subconsultant. In reviewing the minutes of the meetings between 2001 and 2004, I found that Louis jones was in attendance at various meetings but there would not always be comments or reports made in public session. The Board would go into executive session in these meetings. It appears that during these executive sessions Louisjones was present and the project discussed; sometimes for several hours. When I inquired about this with the Board's general counsel, he explained that whenever the Board would go into executive session with Louis Jones to discuss the project, this was acceptable under the Open Meetings Act pursuant to two exceptions: the first dealing with economic development and the second dealing with real property. I did not determine whether these execptions were valid or not, but did determine that the Board's general counsel had indeed looked into this at the time and determined that these exceptions could apply. However, it should also be noted that beginning in 40 approximately April 2003, Louis jones started addressing the Board more in public session regarding the status of the bridge project. In addition to discussing the project in Board meetings, there were numerous other times that Louis jones and individual Board members (usually no more than two) would attend meetings in both the US. and Mexico. Since Louis jones was at almost all of the Board meetings when each supplemental contract was entered into, I asked the Board members who were on the Board then, specifically about supplemental contracts 4 through 9, mainly because this is where the Board approved approximately $11,095,082.00 be paid to DEC. 1 pointed out that the descriptions of the work to be perfomed in those supplemental contracts were not that detailed, at least compared to the description of work in the original contract and supplemental contracts 1, 2, and 3, which approved approximately $4,374,512.82 to be paid to DEC. Based on some of the Board members recollection, it appears that each time a supplemental contract was submitted to the Board for approval, Raul Besteiro would be asked if he was recommending the Board approve the contract, and he always did. The Board would then question Louisjones, most likely in executive session, about why DEC needed the amount of money it was asking for and would this complete the project and would they then be in a position to complete the bridge project in Mexico. The Board members did all agree that Louis 41 jones would tell them what DEC was doing to get the project approved in Mexico and that each particular amount of money was needed, mainly to do and/ or complete studies, which would then be turned over to the Mexican government for approval and ultimately approve the project and be in a position to begin construction of the bridge. While they agreed that Louis jones never guaranteed the bridge project would be approved in Mexico, he did represent that he felt confident that if the Board authorized further funding under each supplemental contract and funded each supplemental contract, that the goal would be achieved. It would be pointed out to the Board, by Louisjones, how much the Board had already spent on the project and that if they decided to stop, at any given point, then the project would not be approved in Mexico, and all that had been spent to date would be lost and the project would die. The Board members who were on the Board then said they felt they had to go forward, even if it meant spending millions more because millions had already been spent and if the bridge could become a reality, it would not only pay the Port back for all the money it had spent on the project, it would be create a financial boom for the Port and the surrounding community, so everyone would benefit. This was the justification the Board gave for why they kept approving millions of dollars be spent on the project even in the face of vague descriptions of work, for which millions of dollars would be paid. In hindsight, they wish they hadn't approved as much 42 money as they did since the bridge project hasn?t been approved in Mexico but they still have hopes the bridge will be a reality. The Board did point out that once DEC got involved in becoming the project manager in Mexico, things definitely started getting better, since injune 2002, they got the first positive diplomatic note, and this is true. Plus, later, in November 2003, they got another positive diplomatic note that discussed possible construction of the bridge beginning in 2005. While these two notes did, indeed, represent positive steps, it appears they cost the Port approximately $10 million and there is still no diplomatic note actually allowing construction. Further, in December 2003, a Board workshop meeting was held. In attendance, among others, was Louisjones and Sergio Bringas (GR). In this meeting, Louis jones and Sergio Bringas continued to tell the Board that the project was in great shape and they were ready to arrange the financing for construction. They said they should be ready to call for the concession in earlyJanuary, and although a year wasn?t mentioned, it can only be assumed that meantjanu ary 2004. Louisjones said they?ve been told if done properly, it will be approved in Mexico. They are still telling the Board everything is ready to go. They just need a little more work. Even if the Mexican government says no, they?ll be able to figure out how to regroup and get it approved. However, even DEC admits in a written report to the Port dated June 2004, that the final concession and diplomatic note allowing constuction to begin for 43 Phase I Rail Only would be completed by December, 2004. Therefore, DEC knew that the diplomatic notes received to date did not allow construction and the one that would allow for construction still had not been obtained. That particular report said that in Mexico, the project had all the approvals and notes for Phase I to go to construction but then says the final one would be forthcoming. That was in june 2004, and there is still no final diplomatic note received by the Port allowing for construction. While the Board explained their justification for why they kept approving million of dollars for the project, I kept asking who was in charge of overseeing the project for the Port, and was told it would have been Raul Besteiro, since as the Executive Director, he was the person the Board would look to for guidance on the project. It should be noted that during june and july 2002, DEC was asking for approval to complete the tasks in supplemental contract 5 as well as submitting supplemental contract 6 for approval. During this time, Board memberjoe Gayman asked Nino Gutierrez to review both of these for his input. Onjuly 1, 2002, Gutierrez sent Gayman two memos outlining his questions and concerns, and included therein were comments about supplemental contracts and also comments about the draft of a proposed contract between DEC and which was the same one submitted to the Board?s general counsel referred to hereinabove in July 2002. 44 Gutierrez requested that a hold be put on the supplemental contracts so he could look into them further. Even though Gutierrez?s memos pointed out his concerns, on july 17, 2002, the remaining tasks were approved under supplemental contract 5, and task 1 under supplemental contract 6 was approved. When I asked Gayman if Gutierrez looked into them further, he said no and it appears it was because Raul Besteiro suggested this not be done. When I asked Raul Besteiro about this he said he thought Nino Gutierrez was being overly critical and it would create hard feelings, which could hamper the project moving forward. Raul Besteiro said he was relying on Louis Jones as to what should be done to get the project approved in Mexico and did not want to delay that process. Gayman did not feel he had the support of the other Board members to pursue this issue. Evidently this issue was never discussed again and the Board approved the remaining tasks on july 17, 2002. It should be pointed out that back on Eebru ary 27, 2002, supplemental contract 5 was approved, but the Board only authorized task 7 being performed at that time. It was then inJuly 2002 when the remaining tasks were approved. Eor point of information, supplemental contract 5 was for $5,323,000.00 and 6 was for $1,036,000.00. It does not appear that anyone at the Port was really checking what DEC was saying needed to be done or if it was being done. The Board was pretty much relying on Louis Jones as the person to tell them what needed to be done and would never 45 really have anyone at the Port check work. Evidently, according to some Board members, Raul Besteiro would agree with what Louis Jones said needed to be done; however, when I asked Raul Besteiro about this, he said that the Board made its own decisions and he never told the Board members that they should or shouldn't approve any of the supplemental contracts, but always left it up to the Board to come to its own conclusions, and that he also relied on Louisjones to tell them all what needed to be done. While this was not very effective internal management of a project this size, I think it only goes to show that the Board and Raul Besteiro were trusting and relying, solely, on the expertise of DEC and Louisjones to determine what needed to be done to get the project approved in Mexico. The question then becomes whether this trust and reliance was possibly misplaced. Not only do we know that approximately $9,176,106.00 was paid to three subconsultants in Mexico by DEC, we also know that DEC obtained that money from the Port through its supplemental contracts. According to the Board, however, they did not know who these subconsultants were nor did they approve any of the subconsultant subcontracts that DEC entered into with them. More importantly, the Board did not know the connection between these three subconsultants (COBINA, Homeframes and Sistemas) and LouisJones, Miguel Nagel and Hector Larios. What was uncovered during the investigation regarding this is what raises questions about 46 how DEC and Louis Jones conducted their business. We have certified corporate documents from Mexico, which after having been orally translated for us, apparently shows that LouisJones, Miguel Nagel and Hector Larios as well as Steven Howard, who was also one of subconsultants DEC subcontracted with for $92,449.00 for consulting services) are all stockholders in COBINA. It was first formed in April 2001, which is the same month the first subconsultant subcontract between it and DEC is signed. This company was paid $1,445,000.00 and it was paid with money that came from the Port pursuant to supplemental agreements with DEC. Even though DEC is saying that the Port approved this contract, which 1 can find no evidence of, DEC is certainly not saying that the Port knew DEC was subcontracting $1.4 million dollars worth work to a subconsultant that Louis Jones owned an interest in. In the questions we submitted to DEC, we specifically asked if Louis Jones owned any interest in GR or in any company, corporation, association or entity of any type which has received any money as a subconsultant on this project and the answer was, ?No, for all of the above questions.? The answers to these questions were signed by Louis Jones. Assuming these Mexican corporate documents are correct, and there is no reason to think they?re not, then this clearly appears to be a conflict of interest on LouisJones' part and could constitutue self/dealing. This then raises a serious question about how forthright Louis Jones has been with the Board in 47 connection with how the Port' money has been spent on this project in Mexico, not only in regards to just the money DEC paid to COBINA, but it puts in doubt, or at least raises serious questions, about all the money paid to the subconsultants in Mexico. Louisjones and DEC clearly had a duty and responsibility to make sure the Port?s money, public money, was being spent properly and judiciously on the project, and specifically in regards to how the Port?s money was being spent on subconsultants it (DEC) was subcontracting with. It should also be pointed out that in addition to DEC subcontracting with Steven Howard, dba S.C. Howard 55: Company, it appears from reviewing other documents that Louisjones, Miguel Nagel, Hector Larios and Steven Howard are stockholders in Earthwise Technologies, Inc, a Nevada corporation. Even though Earthwise was not one of the subconsultants DEC subcontracted with, on this project, Technical Meeting minutes (prepared by DEC) of a meeting held shortly after DEC first started working on the project show that Steven Howard, representing Earthwise, was at the meeting. This is just additional information to show an apparent connection between these individuals. In connection with Homeframes and Sistemas, while we don't see that these same three individuals own any stock in the company, we do find a link between them and Miguel Nagel. There are documents showing that Miguel Nagel holds himself out as a representative of Homeframes and Sistemas. Further, in reviewing 48 the documents recently submitted by DEC injune 2004, and specifically the attached invoices from the subconsultants, and particularly the invoices from subconsultants COBINA, Homeframes and Sistemas, it was discovered that attached to these invoices are wire transfer documents. It appears that most, if not all, of the money paid by DEC to these three subconsultants was through wire transfers to money exchange houses in Mexico. There appears to be a commonality of interest between Miguel Nagel and Homeframes as on numerous wire transfers to Homeframes, Miguel Nagel is listed as the beneficiary of the wire transfer to Homeframes. There appears to be a commonality between Homeframes, COBINA and Sistemas, in regards to wire transfers to each of them to the same address and/ or wire transfers sent to them at the same time and to the same money exchange house in Mexico. Also of interest is the fact that the corporate documents from Mexico, as orally translated to us, shows that COBINA is a project development company that helps start up businesses. Sistemas is a security company which provides security services for companies and individuals and it was apparently first formed back in 1997. Homeframes is shown to be a real estate company and was apparently first formed in 2000, which is also the same year its first subcontract with DEC was signed. Actually, it appears from looking at the Mexican corporate documents for Homeframes that it was first formed in October 2000, but DEC first subcontracted 49 with it injanuary 2000. When I asked DEC to produce the work product of these three companies, I was told that it had already been provided in all the documents GR had delivered to the Port in june 2004, which was also in response to the Board?s general counsel?s request to DEC. Most all of these documents were in Spanish, but some were in English. When I, along with Ignacio Torteya andjorge Solis from his office, reviewed these documents, we saw numerous studies from RODA, which is another subconsultant DEC subcontracted with to do studies in connection with the project in Mexico. There were also some studies by Prospectiva, who DEC paid to do and/ or updates studies in Mexico. In addition to these documents, there were 49 small black binders which all had name on the front of them and each would have a variety of documents, including, but not limited to, power point presentations, graphs, charts, letters, comparisons, etc. Not all of these were in each binder, but each binder might have any one of these in it. Only two of these binders actually had, on the front, under GR's name, the name of two of these three subconsultants. One binder entitled Comparison between the West Rail Bridge with the Matamoros POB Bridge, has COBINA's name on it and it is a two page document in chart form with no names or date on it. The only other reference to COBINA I could find in any documents provided by GR was a power point presentation dated April 2001, which indicated 50 that the power point presentation was being presented by Port of Brownsville, in association with Dannenbaum Engineering Corporation, Comercializadora Binacional SD. de CV. (COBINA) and Blanton and Associates, Inc. I could not find any specific reference in the power point presentation to but their name is mentioned on the front cover. One binder entitled International Bridge Matamoros Port of Brownsville Transpacific Corridor, Confidential Offering Memorandum has Homeframes? name on it; however when you open it, it has one page of two color photos of the Ports of Brownsville and Lazaro Cardenas and Manzanillo. After this, there are siX undated pages entitled Transaction Summary which has the name WSM Management Services, Inc. on it, and then approximately 17 pages of charts which has the name DFP Consultores, S.C. at the bottom of each page but apparently has no date on it or not one that I can make out is a date. Nothing in this binder makes any reference to Homeframes. It was interesting to find, however, that in one binder entitled Puente lnternacional Del Puerto De Brownsville, which is a June 25, 2004, power point presentation by GR to Kansas City Southern Rail Road Co., there is a description of GR on the last page and under the listing Main Shareholders, it has jose Carral Escalante, Hector Larios Santillan, Miguel Nagel Leon, Louis H. jones and Ambassador Oleg Darushenkov. According to this, Louis jones is not only a 51 shareholder of GR, he is one of the Main Shareholders. This again contradicts Louis Jones answers to our previous questions about whether he owned any interest in GR. After finding nothing of substance, if anything at all, in the way of work/ product for the three companies, I then again requested that DEC provide me with the work product of COBINA, Homeframes and Sistemas. I also specifically asked if Louis Jones owned or had any interest,of any kind, in these companies. Having never heard back regarding any of these questions, I again went back to the small black binders to see if I was missing something. Then for the first time, I noticed that on the back of one of the binders, there was a small piece of white paper which appears to have been glued to the back of the binder, which had the name Sistemas on it with reference to a contract and task number as well as a date on it. The particular one I was looking at was the binder that had GR's power point presentation to Kansas City Southern, which is referenced above. When I noticed the piece of white paper with Sistemas' name on it, I looked through the binder again to see if Sistemas showed up anywhere and it did not. Then I looked at the back of all the other binders and found that 34 of the 49 binders each had a piece of white paper glued to it with either the name of COBINA, Homeframes or Sistemas on it and some of them actually had all three names on them. When I again looked through all of the binders that had these names glued on the back, I couldn't find any reference or 52 mention of any of them in the binder, except for the two mentioned above. Therefore, I can only assume that the pieces of white paper on the back must be meant to attribute what's in the binder to that company or companies named on the white paper. In looking at another binder, binder 17, and under GR's name, it is entitled Participation in Partnerhip of Prosperity in San Francisco, California, datedjune 8, 2003, and it is the agenda for a seminar being held in San Francisco. The piece of white paper on the back is attributed to Sistemas. Not only is this not any work/ product of Sistemas, because it?s the agenda for a seminar, its name doesn't appear anywhere in it. Of interest, though, is the fact that under the listing for the companies that attended the seminar, we see Earthwise Technologies, Inc, Grupo Respira and Dannenbaum Engineering Corporation. In any event, I don't see any evidence of any work/product to justify DEC paying COBINA, Homeframes and Sistemas almost $9.2 million for their work on the project in Mexico and it was responsibility to make sure they were spending the Ports money in a prudent, fair and judicious manner. In connection with the subconsultant subcontracts between DEC and Sistemas, it appears DEC agreed to pay Sistemas a total "success fee? of $2 million, which is set out in two separate subcontracts datedjanuary 2003 and February 2003. The ?success? would be if the Port received a second diplomatic note permitting 53 construction to begin. DEC also entered into its own success fee? agreement with the Port in supplemental contact 7. In supplemental contract 7, DEC was to be paid a $2 million success fee" if the Port received a diplomatic note to allow construction. Supplemental contract 7 was entered into on Eebru ary 4, 2003. We do know that in November 2003, a second diplomatic note was received, which discussed construction and discussed a possible timetable for the construction to begin, but it was all contingent upon certain things happening, including technical studies being completed and a concession being awarded. We know for a fact that a concession has never been awarded so there is no way that construction would be allowed, at least until this were to occur. Plus as set out hereinabove, DEC set out in its own June 2004 report to the Board that a diplomatic note allowing construction should be received in December 2004, which has still not occurred. However, it appears that immediately after DEC entered into its subcontract with Sistemas, which was months before the second diplomatic note was received, DEC started paying Sistemas for the ?success fee? in installments. Also, after DEC entered into supplemental contract 7 with the Port, it started submitting invoices to the Port and without mentioning ?success fee," it was invoicing for monies under the task numbers that were related to the success fee. The invoices were for numerous tasks and were not just for monies to be paid for the "success fee.? The Port paid approximately $1.7 54 million towards this success fee", until Deborah Duke in the Finance Dept. realized that the Port was paying for something that hadn?t occurred or at least from what she could tell, hadn?t occurred. She brought this to Donna Eymard's attention who was shocked by this finding and she immediately brought it to Raul Besteiro attention, and ultimately any further payments attributed to these tasks were terminated. However, the approximately $1.7 million had already been paid and it was unclear who should have been checking to make sure erroneous payments like this were not being approved. The 1.7 million was paid pursuant to four invoices. The first one, dated April 10, 2003 was for $400,000.00 for certain tasks. This was approved by Raul Besteiro on April 16, 2003, but there was a notation that payment was approved when funds were to be available. Evidently they were or became available because this invoice was paid. The second invoice is dated May 10, 2003, and it was for $400,000.00 for the same tasks. This was approved by DE, which must have been Donna Eymard. The third one is datedjune 18, 2003, and it was for $400,000.00 for the same related tasks. A notation on it says ?Board saw the invoice on 7/2/03? and it further shows ?approved by Raul Besteiro.? The fourth one is datedjuly 7, 2003 and it was for $550,015.00 for the same tasks. There doesn't appear to be any approval notations on this one. Again, it needs to be pointed out that no where in the invoices was DEC telling the Port that these particular line items, listed among many 55 other line items, were for the success fee.? The invoices only listed the tasks and supplemental contract number. While it appears DEC is taking the position that the November 2003 diplomatic note entitles it to a "success fee,? which the Port disputes, DEC started invoicing for, and being paid, said fee months before the November 2003 diplomatic note was even received. It further appears that DEC started paying the subconsultant for their success fee" months before the second note was received as well. Nevertheless, by DECS own june 2004 report, the "success fee? should never have been paid. Therefore, the Port should be entitled to recoup this money from DEC. However, did Raul Besteiro and any of the Board members know that the success fee? was being prepaid? Based on the notation on at least one invoice, maybe; however that notation does not specifically refer to the tasks in question. Based on conversations, with some of the Board members, it may that they did know something about it, but when they clearly learned what was happening, they stopped any further payments immediately. In connection with subconsultant subcontract between DEC and Public/Private Strategies Consult, Inc, which is a company apparently owned, in whole or in part, by Randy DeLay, it appears that no money was ever paid under this subcontract. It appears this was connected to DEC's supplemental contract 9 with the Port. However, while it does not appear that the Board ever approved this 56 subcontract, it does appear from emails and correspondence between Raul Besteiro and Louis jones that Raul Besteiro knew about it. This subconsultant subcontract apparently was also connected, in art, to the timing of the announcment by Congressman Ortiz in March 2004. But since no money was ever paid under either contract, I didn't look into this any further. In questions directed to DEC, we asked DEC about other subconsultants, including Prospectiva, Construcciones Maintenimiento Comercializacion RODA 8A., and Buena Vista Corporation. In response to Prospectiva, DEC said it had no contract with Propectiva because it was part of the previous group involved with the Port organized by Chano Tamez. DEC needed to obtain copies of the studies done by Propectiva to give the GR and other Mexican consultants. DEC said the Port verbally authorized it to pay for Prospectiva?s services, to obtain these copies, from lump sum contract. In response to RODA, DEC said the Port verbally directed DEC and GR through contract to utilize this company to perform the required studies to extend the project around Matamoros to connect to existing infrastructure, resulting in a loop (rail and truck) around Matamoros. DEC said that, as represented by the Port, Lencho Rendon of Congressman Ortiz?s office recommended RODA, due to experience in Tamaulipas and contacts with Governor Yarrington through other individuals. DEC said this would help satisfy the Port?s commitment to 57 Governor Yarrington, as represented to DEC by the Port. GR, as the Mexican sponsor, agreed to accept them on the consultant team in Mexico and DEC proceeded to provide the conduit in which the Port would contract for these services. I did see evidence of numerous studies by RODA. In response to questions about Buena Vista, DEC said the Port verbally directed DEC to utilize this company. As stated hereinabove, the Port did approve DECS subcontract with Buena Vista. In connection with the other two subconsultants, it does appear that both Matamoros and Tamaulipas were concerned about the rail loop around Matamoros creating a ring of poverty and therefore, studies were needed to show this would not occur. DEC would have known this as well and since they were the project manager in Mexico, it would have been their obligation to address these concerns and act on them accordingly, which is what the Board assumed was being done. None of the Board members I spoke with, who were on the Board then, has any recollection of ever approving DEC using these companies, nor did Raul Besteiro. In response to other questions about these subconsultants, DEC said that we should contact Lencho Rendon at Congressman Ortiz?s office or Raul Besteiro. I asked Raul Besteiro about these companies. He certainly knew who Buena Vista was because the Board approved that subcontract. He knew who Prospectiva was because the Board had previously contracted with it directly. While he heard of 58 RODA, he said he never approved DEC subcontracting with them or using them. He did remember that loop studies needed to be done and he did tell DEC that Prospectiva had already done a lot of studies and DEC should talk to them. He remembers being told by DEC that another company may need to be involved too. I then talked Lencho Rendon. He said that it would be impossible for me to talk to the Congressman about this since anytime anyone wants to talk to the Congressman regarding an investigation, there are House Rules that must be followed and until then, the Congressman could not make any official statement or comment about the investigation. However, Lencho Rendon did tell me that he knows nothing about RODA. He remembers hearing about Prospectiva from the Port but he never heard of Buena Vista. When I explained that Buena Vista was connected to Chano Tamez, he said he knew who Chano Tamez was and that he met him through the Port some time ago. He said that neither he nor the Congressman would ever tell DEC or the Port who to hire on any project and he doesn?t know why DEC would be referring me to him in connection with these companies. He has no personal or business relationship with any of these companies. I asked the Board members if they ever knew that this project was going to cost approximately $10 million dollars to get, or attempt to get, the project approved in Mexico. They said that when Louisjones would come to the Board requesting more 59 money under each supplemental contract, they hoped that would be all it was going to cost to complete the project in Mexico and they believed that Louis jones represented to them that he also was hoping that each supplemental contract would be all that was needed to complete the project. However, it does appear that in November 2002, the Board and staff were worried that they were running out of money to pay DEC's invoices, which by that time were for millions of dollars. In November 2002, it appears Louisjones told them that a projected cash flow of how much more the project would cost to bring the Port up to the point to where construction on the bridge could begin, would be approximately $7.5 million. The Port then set about to discuss how to come up with this money and they decided to sell some of the bonds that already had been approved. In February 2003, the Board approved selling $6.5 million in bonds to fund the bridge project to bring it to the point that construction could commence. From November 2002, the Port spent approximately $5.5 million more on the project, with most of that money being paid to DEC to get the project approved in Mexico, which we know has not been accomplished so far. The Board continued to believe what Louis jones was representing to them and that was, that if this additional money was funded, the bridge would become a reality. In connection with the investigation, I retained outside forensic accountants 60 to assist me in this matter. 1 retained FTI, Inc. out of Houston, Texas. They were only asked to look at the money the Port paid DEC and the money DEC paid to subconsultants. They have been working on this matter since approximately the middle to end of November and they are still working on it at this time. While no final conclusions have been reached by them, they are expected to give me a preliminary report on their findings and analysis to date. However, this report will be included in my Confidential Attorney/Client Privileged Recommendations for Possible Litigation Report since the accountants would be considered potential expert witnesses in any litigation, assuming litigation is pursued,which will be up to the Board after they review the Report. While I cannot go into any details about its findings and analysis, suffice it to say that based on what has been reviewed to date, the accountants believe further work is necessary to document the alleged work done, or not done, by consultants and subconsultants, including, but not limited to, DEC. This now concludes my fact finding report on how the money was spent on the international bridge project, which began in 1991. A total of approximately $21.4 million dollars has been spent on the project from 1991 to February 2004. Payment has been paid to various professionals as shown in the report. As set out in my agreement with the Port which sets forth my Scope of 61 Employment, it was specifically stated that I am not a criminal prosecutor and shall not be responsible for determining if crimes had been committed; however, I did agree that if any evidence of criminal conduct was discovered in the course of the investigation, it would be turned over to the appropriate law enforcement authorities. I did not find any evidence of criminal conduct in the course of this investigation. As it relates to the majority of the money being made to DEC on this project, while the Board relied on DEC and its expertise ,as engineers and mainly as consultants for this project, it appears that tighter controls of project management should have been implemented to make sure the money was being judiciously spent. 62 EXHIBIT A Port of Brownsville International Crossings Project Dannenbaum Engineering Corporation Summary of Supplemental Agreement 5 Task 1 Level of effort (Labor and Expense) $1,550,000.00 to acquire the Diplomatic Note from Mexico and seek World Bank participation Task 2 Coordination and Communication of Mexican Federal Agencies $865,000.00 Task 3 Coordination and Communication of State of Tamaulipas Agencies $110,000.00 Task 4 Coordination and Communication of US. Federal Agencies $498,000.00 Task 5 General Project Management of U.S./Mexico Project Development $200,000.00 Task 6 Update existing studies of Phase I Project (Rio Grande to El Refugio) $200,000.00 Task '7 Develop Mexico Truck/Rail Loop around Matarnoros Phase II including the following studies: a) Railroad Feasibility b) Drainage Studies ?2 c) Geotechnical Study d) Preliminary Cost Estimate e) Field Study Data Information f) Financial Plan g) SCT ?Specs Pavement Design standards h) Environmental Assessment i) Impact of Facility on Matamoros Regional Plan of Development $800,000.00 Task 8 Develop Feasibility Study from Lazaro Cardenas to El Refugio $400,000.00 Task 9 Development Investment Grade Study from Lazaro Cardenas to include Truck/Rail Loop (Matamoros) $400,000.00 Task 10 Prepare coordinated Port Facilities Plan Program $300,000.00 Total Supplemental Agreement No.5 $5,323,000.00 EXHIBIT 1 FALSE Uni EXHIBIT A Part of Brownsville International Crossings Project Dannenbamn Engineering Corporation 3 1 Summary of Supplemental Agreement 6 Task 1 CW0): and of the Maxi can Federal Age?cics in acquiring the approval of all Mexican Studies for up $476,000.00 Taskz Coordinationinmengingthe ?nancing . including the ?nalizing of developing the Mexican Patncxis) for these projects. $560,000.00 Total Supplemental Agreement No.6 53' a? IWW EXHIBIT A Port of Brownsville International Crossings Project Dannenbaum Engineering Corporation Summary of Supplemental Agreement 7 Task 2 (modi?ed) Coordination and communication of the Mexican Federal Agencies for 2003 $1,000,000.00 Task 7 (modi?ed) Increase length of road portion to Highway 2 (approximately 50% increase) and develop Mexico Truck/Rail Loop around Matamoros Phase 11, including the following studies: a) Railroad Feasibility b) Drainage Studies (2) c) Geotechnical Study d) Preliminary Cost Estimate e) Field Study Data Information 0 Financial Plan g) SCT Specs Pavement Design Standards h) Environmental Assessment i) Impact of Facility on Matamoros Regional Plan of Development $1,400,000.00 Total Supplemental Agreement No.7 $2,400,000.00 (Increase funding for each modi?ed task above) EXHIIT 3 CORPORATE Coming-[58 137701 -24-03)idnu EXHIBIT A Port of Brownsville International Crossings Project Dannenbaum Engineering Corporation Summary of Supplemental Agreement 8 Phase I, Supplemental Agreement No. 5 Task 6 (modi?ed) Revise existing studies $300,000.00 Phase II, Final Design Port Road Final Design Decrease the scope and length regarding the design of the Port Road Total Supplemental Agreement No.8 0.00 (Net funding change for each modified task above) XHIBI It GAMMTRANSPORTATION CORPORATE ContractsUlH-Ol due EXHIBIT A Port of Brownsville International Crossings Project Dannenbaum Engineering Corporation Summary of Supplemental Agreement 8A Phase Supplemental Agreement No. 5 Task 6, 6A, 68 (modi?ed) Revise existing studies 60,000.00 Task 7, 7A, 73 (modi?ed) Loop studies around Matamoras $491,349.40 Phase II, Final Design Port Road Final Design Decrease the scope and design task of the South Port Road 51,349.40) Total Supplemental Agreement No. 8A 0.00 (Net funding change for each modi?ed task above) EXHIBI CORPORATE CONTRACUEXHIBIT