Million-Dollar Windfall by Willco Contractor Probed

A private business deal that allowed a contractor to cut about $1 million from the cost of a government-funded toxics cleanup at the Willco Dump in Lynwood and keep the savings is being investigated by the Los Angeles County district attorney’s office, The Times has learned.

The agreement was reached in a meeting arranged by county Supervisor Mike Antonovich and held at Antonovich’s office without the knowledge of state officials.

At issue is whether the California Department of Transportation, which ordered the Willco excavation to make way for the long-delayed Century Freeway, should have been informed of the August, 1983, agreement and whether the savings should have been passed on to the taxpayers.

The revelation about the private agreement, one of several issues pursued in the case by district attorney investigators, can only add to the controversy over the handling of Willco, the site of a planned interchange connecting the Century and Long Beach freeways.

The cleanup was stalled three years ago--with $12 million spent and as much as 150,000 tons of contaminated dirt still in place--amid allegations of fraud by contractors and neglect by state officials. Only now is Caltrans getting ready to resume hauling of the hazardous waste, with the job expected to be completed late this year.

The prime contractor for the Willco cleanup, Andrew Papac & Sons of El Monte, received the $12 million. The amount included reimbursements for hazardous waste disposal fees expected to be charged by the BKK landfill in West Covina, where contaminated dirt was deposited.

Midway through the Willco cleanup, at the meeting arranged by Antonovich, the Papacs and representatives of BKK negotiated a $5-a-ton reduction in the disposal fees, those who attended the session have confirmed. The agreement covered much of an estimated 225,000 tons of contaminated dirt sent to BKK in the course of the cleanup, which was brought to a halt when Caltrans canceled the Papacs’ contract in February, 1984.

The participants insisted in interviews that they had no obligation to inform Caltrans and that the deal was perfectly proper--the kind of maneuvering for financial advantage and squeezing out of extra profit common to contracting.

Caltrans, however, disputes that position. And the district attorney’s office is investigating to determine if any laws have been violated.

Evidence of Cash Payments

The district attorney’s probe, which has moved along fitfully since it began in mid-1984, has also turned up evidence of cash payments delivered to the home of one of the officers of another dump that played a role in the Willco cleanup, according to investigative reports.

In addition, investigators discovered that a key Papac business associate, William Paul Dunlap, failed to file income taxes in 1983 and 1984 when more than $2 million moved through accounts under his control, according to investigative reports made available to The Times.

District Atty. Ira Reiner is nearing a decision on whether to seek criminal prosecutions, Deputy Dist. Atty. John Lynch said. He said he expects no action until later in the new year.

Officials with the state Health Services and Transportation departments privately expressed frustration with the lurching pace of the district attorney’s investigation.

However, Lynch described a far-reaching probe that has ranged outside the gates of the Willco site.

“If we had just looked at the Willco contract--if it was the only focus of the investigation--we would have been finished a lot sooner,” Lynch said.

Armed with search warrants, investigators more than a year ago swept through the offices, homes and bank accounts of several individuals connected with the cleanup and seized a large volume of records, investigative documents show.

Initially, the focus of the investigation was a complicated series of business arrangements that allowed the Papacs to capture the Willco cleanup contract with a bid of $3.9 million--far below the $7.3-million cost estimate by Caltrans engineers. Subsequently, during the course of the cleanup, Caltrans consultants determined that much of the dirt at Willco was hazardous and had to be hauled to a licensed toxics dump site. Under the terms of their contract, the Papacs were paid under a cost-plus-profit arrangement for cleaning up toxics--a provision that shot government spending up to $12 million, including an estimated $4 million in profits for the Papacs and their associates, according to Caltrans.

Caltrans Sues Papacs

In March, 1984, Caltrans filed suit against the Papacs and their business associates, accusing them of fraud in obtaining the contract. Still pending in the courts, the suit seeks to recover all $12 million paid to the Papacs as well as $10 million in damages. The suit accuses the Papacs of entering a “secret agreement” and bidding on behalf of another firm that would have been ineligible for the cleanup work in its own right.

The Papacs have filed a countersuit, seeking damages for breach of contract. They contend that the state terminated the contract because the Papacs revealed that the site was more seriously contaminated than Caltrans had disclosed.

Andrew Papac, the 72-year-old company founder, said in a recent interview that his firm was being blamed for Caltrans’ failure to anticipate the full cost of the cleanup. “They didn’t do their homework,” he said. “Now they are trying to blame us.”

Papac indicated that he is aware of the district attorney’s interest in his financial dealings, and he acknowledged that he was the subject of a search of his home and office.

If there had been anything illegal, he asserted, authorities “would have had me in jail a long time ago. Everything we did was above board.”

Of the seizure of his financial records, he said: “I think they were looking for a needle in a haystack. You know how hard it is to find a needle in a haystack if there isn’t one in there.”

Papac said the reduction in disposal fees made it possible to borrow the money needed to make prompt payments to BKK, which had threatened to turn away contaminated dirt from Willco.

Alarmed by rising costs once the extent of contamination at Willco was identified, Caltrans tried to place a limit on cleanup costs. The state agency agreed to pay Papac $38.50 for each ton of hazardous waste hauled to BKK--an amount that included $24 a ton to cover BKK’s standard disposal fee. However, on Aug. 19, 1983, a few days after the $38.50 figure was formalized, the Papacs and BKK officials signed an agreement that lopped $5 a ton off the disposal fee--increasing the Papacs’ potential profit.

Papac noted that he had to borrow money to fulfill his obligations to BKK, and the loan costs cut into any added profit.

When trucks loaded with contaminated dirt from Willco pulled into the West Covina disposal site, they were issued charge slips based on the higher, posted price, according to Dunlap, a Papac consultant and associate who played a central role in negotiating the fee reduction.

‘American Way of Life’

Both Papac and Dunlap said they had no contractual obligation to inform Caltrans officials about the price reduction. “Why should we tell them?” Papac asked. He later added: “We came up with a better deal. That’s the American way of life.”

However, Hillel Amos, a senior Caltrans engineer who was responsible for the Willco cleanup, said the Papacs’ contract called for hazardous waste hauling payments to be based on actual costs of hauling and disposal. If Amos is correct, then the Papacs’ savings should have been passed along to the state.

Supervisor Antonovich confirmed that he helped arrange the meeting but said that he left before the two parties worked out the price reduction. He denied any detailed knowledge of the issues at stake and said he became involved only as a service to the Papacs, who live in Arcadia, just outside his supervisorial district.

“Mike Antonovich’s father and I go back 50 or 60 years,” Papac explained.

Antonovich’s campaign committee received a total of $10,000 in contributions from the Papacs in 1983 and 1984, half of it three months before the meeting with BKK and half six months later, according to records filed with the Los Angeles County registrar of voters. Papac said he has long contributed to the Republican politician’s campaigns. “He is like a relative,” Papac said. “I knew him before he was born.”

Attending the meeting on behalf of BKK was another Antonovich acquaintance, Ernest T. Winter, vice president of BKK and a member of the state Republican Central Committee.

Winter said in an interview that Antonovich personally asked him to meet with the Papacs. BKK agreed to cut the disposal fees, Winter said, because it assured prompt payment and because the firm felt a moral obligation to maintain the lower price that was in effect when the cleanup originally began.

The district attorney’s probe also has uncovered evidence showing that in 1983 and 1984 Papacs’ company paid out $2,143,404 to accounts controlled by Dunlap, the Papacs’ business associate and consultant, according to an investigative report prepared for the state Franchise Tax Board. The report identified Dunlap as a “silent partner” in the Willco contract and recommended that he be prosecuted for income tax evasion.

In interviews with The Times, Dunlap acknowledged his failure to file tax returns but contended that until 1984 his past business problems left him virtually bankrupt, with more liens against him than he was worth.

‘Filing Right Now’

“My attorneys are filing right now,” Dunlap said. The lawyers, he said, were negotiating with the IRS and the state Franchise Tax Board to arrange a lump-sum payment.

Investigators also learned, and Dunlap confirmed, that he and others delivered cash payments to the home of Michael Harabedian, one of the executives of the Operating Industries dump in Monterey Park.

The Operating Industries dump was where the Papacs deposited nonhazardous material--mostly clean dirt--that they removed from Willco. Most of the contractors who had bid on the Willco cleanup had expected to pay when they dumped the nonhazardous material. But the Papacs and Dunlap worked out a complicated agreement with Operating Industries that allowed them to dump the material for free, according to Dunlap. This saved the Papacs a considerable amount of money and allowed them to underbid their competitors for the Willco contract.

Part of the cash delivered to Harabedian, Dunlap said, was to cover the wages of nonunion laborers who worked for a Dunlap-founded business that had exclusive rights to deposit clean dirt at the Monterey Park dump site.

Dunlap said other cash payments represented a share of fees paid to the Papacs by haulers who dumped clean dirt and concrete at Willco, where it was used by the Papacs to fill in their excavation. Harabedian felt he was entitled to a share of the fees because the material ordinarily would have been deposited at his dump, if it were not for the Papacs’ excavation at Willco, according to Dunlap.

Harabedian did not respond to interview requests, made through his lawyer as well as delivered to his home and business. Papac said he knew nothing of cash payments.

Dunlap boasted in interviews that he has been able to make money on contracting jobs by figuring out cheaper ways to do the work than his competitors. He and the Papacs began to look for work hauling hazardous waste as soon as Dunlap discovered that markups for the jobs could be as high as 50%, he said.

The district attorney’s investigators also discovered that Dunlap offered a job to a Department of Health Services official in 1983 at a time when Dunlap and the Papacs were attempting to obtain a contract from the department to haul contaminated liquid waste from the Stringfellow Acid Pits dump site near Riverside.

Job Offer Noted

Alex Kennedy, who was then manager of the Stringfellow cleanup for the state, said the offer came at a time when he had already planned to go to work for Caltrans in an unrelated job. The talks about a job broke down, Kennedy said in an interview, when Dunlap would not produce a three-year employment contract.

In the course of the discussions, Dunlap introduced Kennedy to a female friend of his wife and the two couples shared a hot tub in Dunlap’s hotel room at the Industry Hills and Sheraton Resort, according to investigative reports. Later Dunlap provided Kennedy with a key to a room at the hotel. Kennedy told investigators that he hesitated to accept the key because it might appear that he as a state official was accepting a gift. But he finally took the key and spent the night in it alone after an evening of drinking. Both men confirm the account contained in the reports.

Kennedy said he had no influence on the award of the Stringfellow contract, which went to the Papacs after they produced the lowest bid on the job.

However, a report released last year by the federal Environmental Protection Agency criticized the decision to give the contract to the Papacs, who were not registered to haul hazardous waste at the time the bid was awarded. Auditors from the federal agency concluded that Papacs’ firm “underbid its costs, thereby eventually eliminating competition.”

Papac has contended that the price he quoted would have resulted in a profit.

In March, 1984, the state canceled the Stringfellow contract after Department of Health Services officials accused the Papacs of illegally holding hazardous materials at an unlicensed site for more than 96 hours, said Dennis Eckhart, a deputy attorney general who represents the state in the breach-of-contract suit filed by the Papacs.