A few months after Mayor Richard M. Daley took office in 1989, Nancy McMahon and her sister-in-law Kathleen McMahon — two stay-at-home moms — went into business. They started Windy City Electric Co., which would go on to win millions of dollars in work from the City of Chicago — including contracts set aside for women contractors.

Under its two current deals with City Hall, Windy City Electric has been paid more than $10 million over the past five years.

Now, Joseph Ferguson, the city of Chicago’s inspector general, is urging Mayor Rahm Emanuel’s administration to permanently ban Windy City, its owners and their husbands from doing any more work for the city. Ferguson says that, eight years ago, the sisters-in-law falsely claimed they were the operators of Windy City so they could be certified by the city as a woman-owned business enterprise. That made them eligible for city work set aside for women-owned businesses.

Among those city jobs: City records show they were supposed to get $100,000 as a subcontractor on a project to install wireless Internet service — Wi-Fi — at Chicago’s two airports as part of a deal that ultimately paid Daley son Patrick Daley $708,999. But Windy City lawyers say the company was never involved in that project.

In his report last summer seeking the city ban on Windy City, the inspector general also says the sisters-in-law’s husbands — brothers John K. McMahon and Anthony P. McMahon — operated another company, Ace Mechanical Co., as a minority “front” that got more than $900,000 in city work before going out of business.

Since 2005, City Hall has paid Windy City Electric a total of $30.6 million, city records show. The Chicago Public Schools have paid the company an additional $16.2 million.

The company also has done work for the federal government, Cook County and the Chicago Housing Authority.

Nancy McMahon, of Sauganash, and Kathleen McMahon, of Park Ridge, have hired attorneys Thomas Needham and Thomas Breen to fight the inspector general’s effort to ban Windy City, which has been under review by Emanuel’s Department of Procurement Services since Aug. 1.

Citing that review, city officials declined to comment. The McMahons and their lawyers also declined to comment.

John and Anthony McMahon also own Plumbing Systems Inc., which city records show has made payments of $5,000 or more each of the past two years to Daniel T. Hebert, a business associate whose wife is a top aide to powerful Ald. Edward M. Burke (14th).

Plumbing Systems has done more than $1.1 million worth of work for City Hall and other government agencies since 2005.

Windy City has two locations, including a one-story building on Marshall Boulevard in Little Village owned by the McMahons’ older brother, Frank J. McMahon, city records show. That building also is home to McMahon Food Corp. — owned by Frank McMahon and his children — which supplies milk and other dairy products to the Chicago Public Schools, the Cook County Jail and other government facilities.

When the McMahon sisters-in-law incorporated Windy City Electric in October 1989, John McMahon was a 33-year-old electrician for the city of Chicago. His brother, Anthony, then 37, was an electrician for Cook County.

Ban sought in 2005

The following year, City Hall certified Windy City Electric as a woman-owned business enterprise after the sisters-in-law filed papers with the city saying they owned and operated the company. As a certified WBE, Windy City was able to get government contracts set aside for companies run by women.

With that certification, their business quickly took off. Six years later, Windy City had $6.2 million in contracts, including a deal with the Chicago Department of Streets and Sanitation, and turned a $1.2 million profit, according to records provided to the city.

In January 2005, Windy City ran into trouble with City Hall, which declared that the company wasn’t owned and operated by women after all.

“During a site visit on September 24, 2004, it was discovered that Ms. McMahon relies on non-minority males for the firm’s daily operations,” city officials wrote.

So, after getting millions of dollars in government contracts and being in business for 16 years, Windy City could have been banned then from getting any more city work. Instead, City Hall allowed the business to “graduate” out of its women-owned business program and thus keep getting city contracts — as long as it subcontracted some of the work to women- and minority-owned firms.

By that time, the McMahon brothers had come up with a new way to win work through city set-aside programs, according to the inspector general’s report. The brothers became partners with Jimmy Acevedo, president of Ace Mechanical.

In 2002, City Hall certified Ace as a minority-owned plumbing and electrical contractor. A year later, the city gave Ace and Windy City a $1 million contract to install an emergency generator at Midway Airport.

“Although the company was ostensibly owned by the Hispanic male, the two brothers actually controlled the company,” the inspector general’s report says.

Ace Mechanical went out of business in 2008.

Acevedo, of Crown Point, Ind., declined to comment.

His late sister, Anita Gallardo, was the fiancee of the late James P. Harney, a Chicago Public Schools administrator who pleaded guilty in 1996 to taking bribes from contractors he oversaw on school projects, according to court records.

Pricey wedding gifts

The McMahon brothers — Anthony, John and Frank — each wrote letters asking a federal judge not to send Harney to prison. Harney went to prison anyway.

Harney’s son, Patrick Harney, was a high-ranking official in the Chicago Department of Aviation between 2002 and 2006 — a period when Windy City Electric and Ace Mechanical obtained three contracts from the city agency worth $13.5 million. Now Emanuel’s second-in-command at the Chicago Department of Transportation, Harney acknowledges his father’s friendship with the McMahons but said Windy City and Ace weren’t shown any favoritism.

Ferguson’s office began investigating Windy City and Ace in 2009. Last summer, Ferguson recommended the city “permanently debar” Windy City, the McMahon brothers, their wives and Acevedo from getting city business.

Such a ban would presumably affect Plumbing Systems, the McMahon company that has paid Hebert at least $5,000 a year in 2009 and 2010, according to a financial interest statement filed with the city by Hebert’s wife, Michelle M. Murphy, a top aide to Burke’s City Council Finance Committee.

Hebert married Murphy, the daughter of former U.S. Rep. Morgan F. Murphy Jr., in December 2008. Murphy reported that she and her husband received wedding gifts, each worth $500 or more, from Anthony and Kathy McMahon, John and Nancy McMahon, and Frank McMahon.

This report was compiled by Andrew Schroedter and Robert Herguth of the Better Government Association, and Tim Novak and Chris Fusco of the Chicago Sun-Times. To reach the BGA, call (312) 821-9035 or email aschroedter@bettergov.org.