Frontier Communications' engineers figured it would cost $72,000 to bring fiber-optic internet service to Central Preston Middle School in Kingwood, one of nearly 200 schools selected six years ago to receive a broadband upgrade in West Virginia.
But Frontier later submitted an invoice to the state for nearly $304,000 - four times the estimated cost. West Virginia officials approved the extra expenses and paid Frontier with federal stimulus grant money.
The primary reason for the inflated price tag: Frontier added an $187,000 "loading" fee to its invoice.
A federal lawsuit unsealed last week alleges that Frontier padded 365 such invoices with loading fees that totaled $4.5 million - part of a scheme to drain unused stimulus funds that could have been steered to Frontier's competitors and help expand high-speed internet across West Virginia.
On its invoices, Frontier defines loading fees as "indirect costs such as vehicles, accounting, administration, etc."
In 2010, the federal government awarded West Virginia $126.3 million in stimulus funds to expand high-speed internet to schools, libraries, health clinics and government buildings.
As the project got up and running two years later, former broadband Project Director Lt. Col. Mike Todorovich issued a memo saying Frontier and other vendors wouldn't be paid for administrative costs.
Federal stimulus grant rules prohibited state officials from paying Frontier for such costs, according to the lawsuit filed under the False Claims Act by Citynet, a Frontier competitor.
"Indirect costs may not be reimbursed," Todorovich wrote in February 2012.
An October 2010 agreement signed by then-Gov. Joe Manchin's office seems to contradict Todorovich's directive. The "memorandum of understanding" allowed the state to reimburse Frontier for "overhead costs" during the broadband project.
The memo indicates the company "may" bill for the extra costs on separate invoices. Frontier combined regular project costs - things like expenses for fiber cable - and overhead fees on the same invoice.
Todorovich's superiors also apparently didn't support his tight lid on the stimulus funds.
"Initially, state Homeland Security Director Jimmy Gianato requested that Col. Todorovich create a 'bucket of money' that could be accessed by the state at any moment with no oversight or pre-approval to obtain the funds," according to the lawsuit. "Col. Todorovich refused to allow the [stimulus funds] to be accessed unless it was to pay for construction already completed."
In any case, the prohibition against reimbursing Frontier for administrative costs didn't last long.
The state's chief technology officer, Gale Given, started approving Frontier's loading charges in August 2012, a month after Gov. Earl Ray Tomblin hired her, according to the lawsuit.
Frontier submitted one invoice with a loading fee before Given, a former Verizon executive, was hired, according to the lawsuit. Afterward, all Frontier invoices contained the extra administrative expense.
Given, through a technology office spokeswoman, declined comment last week. Frontier and Citynet executives also would not comment.
In many cases, Frontier's indirect-cost fee was higher than the estimated price for bringing high-speed internet to a particular site. Some examples:
n An internet fiber project at a state planning and economic development agency in West Virginia's Eastern Panhandle was expected to cost $3,400. Frontier charged $9,000 for administrative fees alone.
n Bringing fiber to the Eastern Regional Jail was supposed to cost $5,100. Frontier's loading fee was $8,300 on that project.
n In Preston County, the loading fee was "259 percent of the actual cost of the project" to bring fiber to the middle school, according to the invoice Frontier submitted to the state.
Citynet's lawsuit also takes issue with Frontier's later decision to tack a $1,800 processing fee onto each invoice that paid Frontier for fiber work inside state facilities. A Frontier engineer claimed it took 16 Frontier employees a combined four hours to process each invoice, according to a memo included with the lawsuit.
Frontier's processing fees - inserted into 327 invoices - totaled $593,000. Given approved the invoices.
Citynet alleges that Frontier padded its invoices as part of a fraudulent scheme to exhaust stimulus funds.
The state had set aside $42 million of stimulus funds to build 1,800 miles of fiber, but it reduced that mileage to 915 miles after discovering many schools set to receive fiber already had it.
"Since Frontier had already determined it could build the 915 miles of fiber for approximately $22.7 million, it and the state realized there would be a surplus of $20 million or more in funds that could be awarded to Frontier's competitors," the lawsuit claims.
The state wound up paying Frontier $40.5 million for fiber construction. But Frontier built only 675 miles of fiber. The statewide project was completed two years ago.
Citynet filed its lawsuit against Frontier under the False Claims Act in 2014, but the complaint remained under seal until last week. Citynet wanted the federal government to intervene in the case, but the U.S. Justice Department declined to join the lawsuit.
Reach Eric Eyre at
304-348-4869 or follow
@ericeyre on Twitter.