BART may have to void most of a $40 million construction contract after it was found that the project manager used to work for the contracted company and that her husband is a current employee, according to a report by the transit agency's Office of the Inspector General.

The unnamed BART employee oversaw the awarding of two contracts, one in 2019 and one in 2020, to San Francisco-based engineering and architectural consulting firm PGH Wong Engineering.

According to the OIG report, the employee failed to disclose a form required under the California Fair Political Practices Commission that her husband and one of her siblings worked for PGH Wong and that her husband received annual retirement account contributions as part of his employment.

The OIG report stated that PGH Wong failed to disclose that the BART employee previously worked for the firm or that her husband and sibling currently do.

The firm also submitted signed declarations for its contract proposals in both years that the projects would have no conflict of interest. The related PGH Wong employees took some steps to recuse themselves from BART-funded projects, but the OIG called those steps "inadequate."

As a result, BART may be required under state law to void the $27 million in work remaining on the contract. The transit agency could also be prevented from paying some $5.4 million in invoices.

BART officials removed the employee from work related to the contracts with PGH Wong in January and, according to the OIG, has since given additional guidance to employees about proper submission of documents disclosing potential conflicts of interest.

Cliff Wong, PGH Wong's president, told the BART Board of Directors on Thursday during a presentation on the OIG report that the BART employee's connection to the firm was well-known and disclosed, but was not formally documented.

"As noted by the IG, the requirement to disclose in writing was not provided clearly within the (requests for proposal," Wong said.

Neil O'Donnell, PGH Wong's counsel and an attorney with the law firm Rogers, Joseph and O'Donnell, argued that the retirement account contributions dispersed to the BART employee's husband should not be viewed as a financial interest for the employee, since it is not based on the firm's profit or revenue in a given year.

"The amount of that (contribution) pool from year to year did not track with the revenues or the profitability of the firm, and the amount that any individual like the BART manager's spouse received was determined by a fixed formula, and that formula was based on factors like position, years of service, age and the number of other participants in the plan," O'Donnell said.

BART management agreed to implement a half dozen suggestions by the OIG to improve the agency's contracting processes and ensure a similar conflict of interest does not remain undisclosed in the future.

However, the agency did not agree with the OIG's recommendation to seek an external opinion on whether the employee's undisclosed conflict of interest violated state law, with BART officials arguing that the employee did not have a financial interest in the contract.

BART's Deputy General Manager Michael Jones told the Board of Directors that consulting with the FPPC would not be possible, because the commission does not advise on events that have already happened, and argued that legal rulings in similar cases of potential conflicts of interest have had varying definitions of what constitutes a financial interest in a contract.

"Given that there's no clear opinion or guidance on this matter, and that BART management firmly believes and is not convinced that a financial interest exists with the employee in question, we believe that canceling this contract would be damaging to the Bay Area, damaging to BART and damaging to PGH Wong and their sub-consultants, who have all been upstanding and dedicated partners to the district," Jones said.

BART Inspector General Harriet Richardson suggested that preemptively voiding the contract would be the simplest method of resolving any potential state law violations rather than waiting until the FPPC launches an investigation or a member of the public files a lawsuit.

"I would be more inclined to not take the risk that it is a violation and void the contract, rather than leave the contract in place and take the risk that if a lawsuit is filed and found against the district, there could be greater penalties for (PGH Wong) and that can be more damaging for the firm," she said.

While the board did not take any action on the OIG report, most board members and members of BART's Audit Committee, which met jointly with the board, said they were in favor of keeping the contract in place.

"There is always a risk every single day of literally that happening for anything," Board Director Janice Li said of a potential lawsuit or complaint. "So I don't think like 'a lawsuit could be filed' or 'a complaint could be filed' is like the threshold for us to take one action or another but we have to weigh the complexities of all of this."