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PR Firm Will Cut Its Ties to L.A.

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Times Staff Writer

Two weeks after federal prosecutors subpoenaed documents from Fleishman-Hillard, the public relations firm said Tuesday it was canceling its contract with the Los Angeles airports department and would not seek renewals of pacts with the city harbor and water and power agencies.

The decision, involving contracts worth more than $3.6 million, will all but end the giant public relations company’s long and controversial business relationship with City Hall, where the firm has been a significant political fundraiser and advisor to Mayor James K. Hahn.

Fleishman-Hillard has become a lightning rod as federal and local prosecutors investigate city contracts and as elected city officials question why the Department of Water and Power paid $3 million annually to the public relations firm, even as it sought to raise water rates. The DWP board voted Tuesday to back down from a proposed two-year rate hike of 18% and seek only a one-year, 11% increase.

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Last month, City Council members questioned the need for the expensive work, given that the DWP has a monopoly on providing water and power to Los Angeles residents and that the agency has its own in-house public relations staff of about a dozen employees. The contract is one of the largest for public relations ever awarded by the city.

“The hot seat had gotten more uncomfortable,” said Councilwoman Cindy Miscikowski, who welcomed the firm’s departure.

Fleishman-Hillard decided to end its relationship with the city agencies so the controversy would no longer be a distraction to the public, said Richard Kline, the firm’s regional president. Earlier this month, Kline replaced Doug Dowie, a close advisor to Hahn, as general manager of the Los Angeles office.

Kline said the company had agreed on the actions with city agencies in discussions this week. He said the firm had not been asked by Hahn to step aside.

“It was a decision by Fleishman-Hillard because we were concerned that the messenger was overshadowing the message,” Kline said in an interview. “We felt it was time to step back and take this action.”

A spokeswoman for Hahn said the decision had been up to Fleishman-Hillard.

“These are contracts that have been around for years, going back to Mayor Richard Riordan,” said Deputy Mayor Julie Wong. “This is a business decision that Fleishman-Hillard made.”

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But DWP General Manager Frank Salas said he had conveyed to Fleishman-Hillard that the controversy surrounding its contract, which is the largest the firm has with a city department, had made an extension under the current terms a problem.

“Fleishman has done a good job for us,” Salas said. “Unfortunately, they have been caught up in a larger issue that was detracting from our core mission. We decided we needed to do something, whether it is reducing the amount of the contract or severing their relationship with the agency. They decided to sever relations.”

City officials said the firm knew it would have faced additional scrutiny if it had tried to extend its harbor contract too.

One company official, who spoke on condition of anonymity, said the negative publicity involving Fleishman-Hillard in Los Angeles had triggered a “crisis” for executives at the firm’s headquarters in St. Louis.

Kline said Tuesday that the Los Angeles office represented 2% of the billings of the firm, which has 85 offices throughout the world.

“That having been said, Los Angeles is a very important market to us,” Kline said.

Over the last seven years, the DWP has paid Fleishman-Hillard nearly $20 million for public and corporate communications work. In the last five years, city contracts were awarded as the public relations firm and its employees made $137,000 in political contributions to Hahn and other city officials. The firm also has provided pro bono assistance to Hahn as he promoted his agenda.

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The cost of the Fleishman-Hillard contract with DWP, which was billed at as much as $425 per hour, has drawn criticism from elected officials for several years. The Times reported last May that the DWP contract and others had been awarded shortly after Fleishman-Hillard executives contributed $10,000 at a fundraiser for Hahn’s campaign to defeat a secession initiative for the San Fernando Valley.

Fleishman-Hillard was given the work even though competing firms offered to do the job for lower hourly rates at both the Department of Airports and the DWP.

City officials have also objected to the way Fleishman-Hillard has been allowed to extend its work. The DWP contract was for one year, but was later amended to allow the general manager to exercise options for two more years, at $3 million annually, without going back to the DWP board for approval.

“Any time you do big expenditures like that, it should go before the board,” Councilman Dennis Zine said.

City Controller Laura Chick said the company had made “a good decision for the city” by stepping aside, but added that the action would not affect her plans, announced two weeks ago, to audit the firm’s work for the DWP.

Chick said the audit remained relevant because it would determine whether DWP executives had properly monitored and controlled the Fleishman-Hillard work.

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She decided to audit the contract after rejecting the firm’s billings for December and January. Some of them did not satisfactorily specify what service had been provided, Chick said, and others were questionable, including billings for $50 to $100 for quarter-hour periods in which Fleishman-Hillard employees said they had left phone messages or sent faxes.

“I’m pleased,” Chick said. “These are dollars that could be better spent elsewhere. This is $3 million that could go to hiring more police officers.”

A week after Chick announced her audit, the U.S. attorney’s office served a subpoena at the firm’s headquarters for e-mails between Fleishman and city officials.

Federal prosecutors have declined to provide details of the federal grand jury probe.

A parallel investigation by the Los Angeles County district attorney is looking into whether the awarding of city contracts has been tied to political contributions, Dist. Atty. Steve Cooley has said.

Kline said the firm had done nothing wrong.

“We have complied with all requirements and all regulations, and are proud of the work we have done for the city,” he said.

The decision to end the work came in a letter Fleishman-Hillard sent Tuesday to Los Angeles World Airports saying the firm would end its contract with that department in 30 days, on May 20.

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The firm has a three-year contract with the airports agency that otherwise would have expired Nov. 27, Kline said.

The contract provided that Fleishman-Hillard would perform “air services marketing” work on an as-needed basis. So far, the company has been paid $175,000 on the contract, which had a $500,000 cap. Kline said the firm had not done any work under the contract for more than two years.

The Harbor Department contract will expire July 10, but it includes an option that would have allowed the city to extend it for a year at a cost of as much as $360,000.

The Harbor Department plans to ask other firms to submit proposals to help with its public relations, including continued promotion of its efforts to reduce air pollution in the port, said spokeswoman Theresa Adams Lopez.

“We are a little disappointed, but we will go out to bid and find someone else,” she said.

Salas said, as part of a re-evaluation of its public relations efforts, the DWP was looking at reorganizing its in-house community relations staff.

But Councilman Tony Cardenas said the decision should allow the city to make sure that any contracts are awarded on their merits and that the work is needed during the city’s current tight financial situation.

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“I have not heard one person in the proprietary departments say they are essential to their operations,” Cardenas said, referring to the public relations contracts.

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