In early 2005, as construction cranes dominated the skyline, African-American activists demanded that Seattle Public Schools give more work to minority contractors. Their complaints had grown louder as public agencies ended affirmative action in the years after passage of Initiative 200.
"I want my jobs back, or I'm going to be a thorn in somebody's side, OK?" Harold Wright, an electrical contractor, said during a February 2005 School Board meeting.
Within weeks, Wright said, he and other contractors were introduced to Fred Stephens at a meeting with then-schools Superintendent Raj Manhas.
Stephens, who had spent most of his career in government, soon was hired as the district's facilities director and began mending relations between the School Board and minority-owned construction firms.
And on paper, he succeeded. Millions of dollars in contracts were flowing and the tension with minority contractors eased.
In reality, the program was steadily collapsing under the weight of mismanagement. On June 28, five years after he took the job, the district called Seattle police to report an alleged theft of $35,000 by the man Stephens hired as a liaison to the contractors.
That very day, Stephens was nailing down details of his new job, a top post with former Gov. Gary Locke at the U.S. Commerce Department in Washington, D.C., that he had sought for more than a year.
Stephens would be there, 2,700 miles away, as auditors closed in on a financial scandal that would cost Superintendent Maria Goodloe-Johnson her job.
While political and financial costs for the district have mushroomed, Stephens, 64, has been largely silent. He declined to answer more than a dozen detailed questions, responding only with a few terse e-mails to The Seattle Times. He puts the blame solely on Silas W. Potter Jr., the manager who ran the contracting program.
Stephens' friends say a family tragedy may have contributed to his lax oversight of Potter. Stephens says he believes investigations "will demonstrate that I have committed no wrong doing."
But a series of expert reviews found that, despite one warning after another, Stephens allowed Potter to turn the minority-business program into a favor factory, doling out at least $1.8 million in questionable or wasteful contracts.
The consequences of Stephens' "major management failure," as one investigator called it, are piling up.
Stephens' bosses got fired this month. The well-intended program he built was quietly killed. At least two contractors say they've hired lawyers in anticipation of a criminal investigation by Seattle police and King County prosecutors.
And because auditors found the program was improperly funded with construction money, the district was forced to reimburse $2.4 million from operating funds, which pay for teachers.
The School Board itself became a target of angry parents, having played an enabling role in the scandal by lavishing praise on Potter and Stephens instead of asking hard questions.
"A huge success"
Stephens came to the school district with decades of government experience. He worked 11 years for Locke, following him from King County government to Olympia. Stephens was the governor's deputy chief of staff before joining his Cabinet as the state Department of Licensing director.
A number of former colleagues said Stephens, who holds a divinity degree from Yale University, was quietly competent and a straight-arrow.
As facilities director, he was responsible for renovating and constructing new schools, maintaining nearly 100 buildings and fielding concerns from moldy classrooms to lead pipes. Minority contracting was a small part of his portfolio. He started at $106,000, but over time Goodloe-Johnson raised his salary to $150,000.
One of his first hires was Potter, who he put in charge of the district's Historically Underutilized Business program, intended to help minority- and female-owned firms.
Although Potter, who had been a furniture mover with the district, was considered unqualified by a hiring committee, Stephens gave him authority to award small construction contracts. The program took off.
"I was the toast of the town in the black neighborhood," Potter told The Times in a recent interview.
Stephens also basked in the praise, Potter said. An African-American business group, Tabor 100, gave Stephens its Crystal Eagle award at a 2006 banquet.
Potter made his first presentation to the School Board that year and talked about the program's huge success. As he spoke, Ron English, one of the district's attorneys, grew alarmed by what he felt was an exaggerated amount of contracting work.
He later went to Stephens to warn him about Potter's numbers.
According to English, Stephens replied, "Yeah, but we need to make the program look good."
Signs of trouble
Contracts approved by Potter began crossing the desk of Richard Staudt, the district's risk manager. Staudt saw a disturbing pattern. Invoices in 2006 and 2007 were so overpriced, he would later tell auditors, that he went to Stephens and raised the potential of fraud.
One $32,000 contract, to remove portable classrooms, was awarded without bidding; the contractor then turned around and subcontracted the same job for $9,000. To Staudt, such contracts appeared ripe for kickbacks.
Potter's work was "sloppy" but not fraudulent, Stephens later told auditors. He claimed he informally reprimanded Potter.
Charges of favoritism and shoddy construction work emerged as well. Just before school started in 2007, a manager inspecting two remodeled kitchens found the floors unfinished. At one school, the plumbing sat in a pile.
By summer 2008, the trade unions latched on to problems with one of Potter's preferred contractors, Solar West, after learning the firm hired day laborers outside a Home Depot for $8 an hour.
State regulators later ordered Solar West to pay $57,000 in back wages, but it failed to do so, and the district had to pay instead.
Dave O'Meara of the painters union said he went to Stephens to complain about Potter. "I definitely got the feeling when I walked out of there that Fred (Stephens) was acting as a firewall."
Some district employees viewed Potter as a con man and were puzzled why Stephens seemed to protect him.
Amid mounting concerns, a confident Potter again briefed the School Board in September 2008. While his presentation was even rosier than the last, Potter admitted his written report contained bad numbers and that he had lobbied lawmakers in Olympia in "secret."
Stephens took the microphone from Potter, saying he planned to hire someone else to manage the small construction projects.
Board members, who didn't seem fazed by their admissions, heaped praise on Potter. Board member Cheryl Chow went so far as to plead with him not to look for work elsewhere.
"This is really a huge success, and we're grateful to you and Mr. Stephens ... " said board member Michael DeBell.
"You're one of the most highly respected individuals in the small-business community," board member Harium Martin-Morris told Potter. "You represent the district very well in that community."
Violent death of son
As Stephens was trying to manage Potter, his personal life was in turmoil.
His son Frederick Stephens III, 25, drowned in a hot tub on Feb. 3, 2008, after a night of partying ended in a fight with an acquaintance. The incident led to a three-week murder trial for which Stephens took leave to attend.
"Fred was obviously distracted," said John Charles, a friend and former co-worker.
As the trial was about to get under way, The Sutor Group, a consultant hired by the district, issued what would be the first of three critical reports.
It found a small number of contractors got a disproportionate amount of the district work and that Potter was ignoring policies and procedures with little oversight.
Stephens formally reprimanded him and took away his authority to grant small construction contracts.
But he let Potter keep the original program created in 2005 that focused on preparing minority contractors to do business with the district. The annual budget for the program ballooned to more than $1 million.
Stephens also let Potter hire three new employees — all of whom appeared to have had personal connections to Potter — despite a hiring freeze. They were so unqualified that a consultant had to be hired to train them, according to former King County prosecutor Patricia Eakes, an investigator hired by the School Board.
Potter's program relied on the use of outside consultants, some of whom did little or no apparent work. Potter, in an interview with The Times, said, "The bottom line is that I followed directions from Stephens."
One consultant, Tony Orange, a longtime civil-rights activist, submitted a single, vague $45,000 invoice for all of 2009. He was paid to recruit apprentices for the building industry, including getting them drivers' licenses. But he billed for classes and meetings that did not occur, according to the recently released state audit.
Efforts to reach Orange by state auditors, the district and The Times were unsuccessful.
By late 2009, Potter, on district time, began planning to create a private version of the district's program. He sent Stephens his plan last March. Stephens warned Potter not to work on the venture during business hours, but later admitted to Eakes that he failed to follow up. Stephens told her he hadn't clamped down harder because he "trusted" Potter.
If Stephens was too trusting, it wasn't the first time he had a blind spot.
When Stephens was with King County, his secretary stole about $24,000, court records show. Carol Stevenson forged her name on county-issued checks, ran up a county credit card and gave herself an unauthorized $10-an-hour raise. She was convicted of theft and reimbursed the county.
Stephens told the court he had given her "total access to every operation."
Looking ahead
As Potter was planning his future on district time, so was Stephens.
Within a week of Locke's swearing in as secretary of commerce in 2009, Stephens sent and received a flurry of e-mails from work as he sought a top job with the former governor.
His initial attempts weren't fruitful, but he kept lobbying for a job with Locke.
Last May, John Charles, Stephens' friend who was working for Locke, told Stephens he would soon be brought to Washington for interviews. "I felt Fred needed a change of venue," Charles said, referring to Stephens' family tragedy.
At least on paper, Potter and Stephens appeared to still hold each other in high regard. In a May e-mail copied to Goodloe-Johnson, Stephens wrote: "Silas, you are awesome."
A week later, Stephens learned that Potter nominated him for an award given by the group Our Black Fathers.
But the two men soon parted ways.
Potter resigned June 7, although Stephens would keep him on as a $55-an-hour consultant. The same day, Stephens was in Washington, D.C., for interviews.
On June 15, the program Stephens and Potter had built imploded.
State auditors effectively killed it by ruling the district could not spend capital funds on minority-outreach programs unless the money was tied to a specific construction project.
Potter's consulting contact was terminated days later. The district was soon calling police about its missing $35,000 check that had been deposited in Potter's bank account. He later returned the money.
Stephens resigned July 14. In September, the school district quietly ended the small-business program.
By then Stephens had settled into his new $155,000 job as Commerce's deputy assistant secretary for administration, where his duties include oversight of the Office of Small and Disadvantaged Business Utilization.
Staff reporters Jim Brunner, Mike Carter, Linda Shaw, Christine Willmsen and news researcher David Turim contributed to this report. Jonathan Martin: 206-464-2605 or jmartin@seattletimes.com. Bob Young: 206-464-2174 or byoung@seattletimes.com.
