Contrary to claims by the governor's economic development department, the state's engagement of a Boeing consultant, which led to a record $3.2 billion tax break for Boeing, was not legally or ethically endorsed by the office of state Attorney General Christine Gregoire.
"We did not review or advise on" the $715,000 contract signed by Gov. Gary Locke's economic development agency with Deloitte Consulting in 2003, says Gregoire spokesperson Fred Olson. Deloitte, hired to help Locke develop a state strategy for landing the new Boeing 7E7 Dreamliner assembly plant for Washington, has also been a Boeing consultant in recent years. The deal with Deloitte, arranged by Martha Choe, former head of the Department of Community, Trade, and Economic Development (CTED), was actually a subcontract through another contractor and was never vetted by the AG, Olson says.
David Walsh, an assistant attorney general familiar with the issue, says the AG's office doesn't generally review subcontracts "unless there's some particular legal issue" that is involved or brought to the AG's attention. He was uncertain if any questions arose concerning "perceptions about any conflict of interest or divided loyalties" in the Deloitte pact.
In an e-mailed response to questions posed by Seattle Weekly, Michelle Zahrly, spokesperson for Choe, did not explain why Choe had earlier claimed Gregoire's office had approved the contract. The lack of an official AG review thus leaves unsettled whether the Deloitte-Boeing connection posed a conflict of interest when Deloitte did work for the state. But Zahrly now indicates that Choe, contrary to her statement, personally OK'd the subcontract without such clearance.
"I really couldn't say if the AG's office saw or cleared a given contract," Zahrly says. "All primary contracts are approved by their office. Subcontracts are approved by the state agency that holds the contract. Martha Choe, as director of CTED, would likely have approved the sub. I think Martha's [earlier] statement answers your question about whether CTED sees a conflict."
Besides helping a client, Deloitte's recommendations to the state could indirectly benefit Deloitte, which has earned more than $5 million in consulting fees from Boeing in recent years. The firm and one of its sister companies, Deloitte & Touche Fanhus, a real estate and site-selection specialist, formulated the state plan to win over Boeing, which was weighing economic inducements from other states. Deloitte & Touche, another arm of the Deloitte global financial empire, is Boeing's outside auditor. Together, the Deloitte companies have earned more than $50 million in fees from Boeing since 2001, according to U.S. Securities and Exchange Commission reports. Because of their ongoing work for Boeing, the Deloitte companies have a vested interest in Boeing's future.
In a written statement responding to Seattle Weekly inquiries, Deloitte Consulting says it ceased serving as a management consultant to Boeing before it was hired by the state in May 2003. The company didn't specify when. It is still an auditor for Boeing's financial statements. In its statement, Deloitte said it "not only disclosed to the state that it served as auditors to the Chicago-based Boeing, but asked the state to confirm that it saw no issue with this." Deloitte says it "took steps" to prevent any exchange of information between Deloitte's Olympia advisers and Deloitte auditors who work with Boeing.
Still, Deloitte "stayed in touch with its 160,000 employees throughout the country and around the world" while the company consulted for the state, according to a Mercer Island Reporter story last month about Tom Captain, one of Deloitte's Olympia team leaders and a member of Deloitte's Boeing consulting team. Captain will appear with Choe and a Boeing official at the Washington State Aerospace Supplier Workshop next month in Everett.
On March 11, Locke's office provided a statement from Choe stating the Deloitte contract had been "cleared" with the AG's office (see "The State's Two-Timing Consultant," March 17). Choe, a former Seattle City Council member who now assists Boeing directly as the state's 7E7 Program coordinator, said the Department of Community, Trade, and Economic Development "cleared the selection of Deloitte Consultants LLP through the state Attorney General's office. The economic development office contracted with Deloitte Consultants LLP, a corporate relative of Deloitte & Touche LLP, which has provided audit services to Boeing since 1932. The Boeing Company expressed no concerns regarding the selection."
In the March 18 edition of BusinessWeek, following Seattle Weekly's report of the state-Deloitte-Boeing connection, a former economic-development official reiterated a claim of the AG's legal endorsement. The magazine said that Robin Pollard, Choe's assistant and now state project manager for the 7E7, explained "the state's attorney general gave Deloitte Consultants the green light to get involved because it's a 'separate business operation' from Deloitte's auditing side—and because Boeing expressed no concerns about the arrangement."
AG spokesperson Olson says, "Our attorneys reviewed an original CTED contract with Development Counselors International. Later, Deloitte was added as a DCI subcontractor. We did not review or advise on the subcontract."
DCI is a marketing and promotional firm that does surveys, helps investors, and advises cities on how to bring in tourists. Its advertised services do not include site selection work. Its Web site lists Deloitte as a resource.
Locke's office this week said that, during planning, Deloitte itself raised the conflict issue with Choe, but no one apparently saw any problem with using Boeing's consultant as a state consultant on a contract that resulted in billions of dollars in tax incentives for Boeing. A Locke spokesperson said she did not know if the governor was personally informed in advance that Boeing and Deloitte Consulting had been business partners. Locke couldn't be reached for comment.
At taxpayer expense, Deloitte counseled the governor's office on granting tax relief that its other client, Boeing, had sought for years. The consultant urged Choe and Locke to mount "an extraordinary response to provide a competitive environment for the 7E7," including tax breaks similar to those competitor Airbus gets from the European nations that backits operations. The state, Deloitte suggested, should follow the lead of those foreign nations—and it did. In return for the breaks and millions of dollars in other incentives quietly added by Locke, Boeing in December agreed to build its next-generation Dreamliner in Everett.