Hammer Art Museum Faces Sharp Pencil : Budgets: Cost overruns may force Occidental to scale back or defer three major components of the cultural center.

The Armand Hammer Museum of Art and Cultural Center under construction in Westwood has encountered significant cost overruns and may be forced to scale back or defer completion of three of its major components, according to sources close to the project.

The museum is being financed by Occidental Petroleum Corp. Meetings have been under way at Occidental this week to determine what sources called the museum’s “guaranteed maximum cost”--a term commonly used to indicate the price at which a contractor guarantees to finish a building.

The sources said the projected total had ballooned to as much as $80 million before Occidental officials ordered a comprehensive review. They said the internal inquiry was focusing on elimination of lavish features in the design--particularly millions of dollars worth of electronic gear and expensive finish materials in the auditorium--that could potentially reduce the total cost to about $58 million. The museum was originally estimated to cost about $50 million.

The museum is being built to house the art collection amassed by Occidental Chairman Armand Hammer, who turns 92 next May. Hammer’s collection was bought partly with Occidental funds.

In recent weeks, crews of dozens of construction workers have been working overtime to complete the museum’s seismically reinforced outer shell and steel skeleton.

“The museum construction is proceeding on schedule,” said Occidental spokesman Frank Ashley. “It is expected to open about this time next year. Beyond that, I wouldn’t elaborate.”

Other Occidental or construction officials contacted by The Times would not discuss the project, and the office of Alla Hall, the museum’s director, referred calls to Ashley. Hammer did not return calls seeking his comment.

Sources familiar with the project and a lawyer representing Occidental said the museum may be forced to leave vacant the space reserved for a restaurant, auditorium and library. It also might have to cut back drastically on other museum features.

“It’s all money-related stuff,” said one source closely familiar with the project. He said the issue is one “of too much building and too few dollars.”

Bruce Kauffman, a Philadelphia attorney who represents Occidental in a pending shareholder suit challenging the oil company’s commitment to the museum project, said he was aware of deliberations over the last several weeks that focused on construction costs.

Kauffman said he knew of at least one discussion, to which he was not a party, in which scaling back or eliminating the auditorium and restaurant had been considered.

Occidental is required under terms of a pending court order to limit cost overruns to $10 million. Previously sealed court documents, made public as a result of a court petition by The Times and the Wall Street Journal, also indicate that Hammer ordered in a memo that the museum construction be held within the original $50-million budget.

A series of factors--ranging from the discovery of an underground stream during excavation to cost underestimates of expensive marble veneers--have apparently driven up the price beyond even the highest initial estimates.

Some of the problems were alluded to by Hammer in a deposition taken earlier this year in one of the pending shareholder lawsuits. Hammer said the subterranean stream and the discovery of a foundation of a former building on the site added $3 million to the museum price tag alone.

The museum is being constructed behind the existing Occidental Petroleum headquarters building on a site bounded by Wilshire Boulevard, Glendon Avenue, Westwood Boulevard and Lindbrook Drive. Original estimates were that a parking garage below the museum would cost $23 million and the museum space itself, another $27 million. The garage is the structural support for the museum, which is to be connected to the first four floors of the oil company building.

In addition to committing as much as $60 million in museum construction costs, Occidental has agreed to purchase a $36-million annuity to subsidize the museum in its first five years of operation.

Kauffman had estimated that Occidental’s total potential financial exposure could be as high as $160 million. But in a telephone interview earlier this week, Kauffman said the $160 million figure “has absolutely no meaning” and was derived from estimates at the start of the museum project when “all kinds of figures were being thrown around.”

Hammer announced plans to build the museum in late 1987 after he abruptly withdrew from a previous commitment to donate his art collection to the Los Angeles County Museum of Art. The agreement was canceled after the museum balked at a series of demands by Hammer, including that names of other donors who gave money for galleries where his paintings would be displayed be stripped from the spaces and that life-sized portraits of Hammer and his wife be permanently displayed with his art collection.

Hammer also demanded that the county museum hire a curator for his collection who would not be answerable to the county museum director, and that the museum pledge never to exhibit works along with Hammer’s collection other than those he donated.

Meanwhile, in an another development, Occidental has failed to meet an Oct. 6 deadline to respond to a set of written questions in a pending shareholder lawsuit demanding to know the source of funds used to purchase virtually every work in Hammer’s art collection, the value of which has been estimated at as much as $450 million.

The filing of the questions in early September followed the disclosure by Hammer earlier this year that Occidental was the source of funds used to purchase a collection of Leonardo da Vinci drawings subsequently renamed the “Codex Hammer.”

Kauffman said Occidental refused to answer the questions because they were filed late and because Occidental has moved to dismiss the shareholder suit. Attorneys for New York investor Alan Kahn, the plaintiff in the lawsuit, said they would seek a court order compelling Occidental to reply.

The $5.8-million purchase of the “Codex Hammer” in 1980 was announced at the time as an undertaking of the Armand Hammer Foundation. Court documents made public several weeks ago revealed, however, that Occidental Petroleum provided the money in the form of a gift to the foundation.

The disclosure prompted more court action last month. The California Public Employees Retirement System, the state’s largest pension plan and owner of 2.4 million shares of Occidental stock, filed court papers demanding that any part of Hammer’s art collection purchased with Occidental funds be returned to the oil company and that the museum building itself be sold.