Bills Called 'Outrageous' Put on Metro Rail Tab : Transit: Consulting firm charges taxpayers for vacation trips and an employee's mortgage payments.


Under pressure to open the city's first subway line on time in 1993, Los Angeles County transportation officials have paid millions of dollars to a consulting firm that has charged taxpayers for expenses ranging from vacation trips to England and mortgage payments on an employee's house to doughnuts and orange juice for office meetings.

In one instance, the firm, Booz-Allen & Hamilton Inc., billed taxpayers more than $17,000 for an employee's near-daily commute between Los Angeles and his home in the San Francisco Bay Area.

For its work on the Metro Rail project, Booz-Allen already has been paid $14 million, much of it to help speed up production of the city's new subway cars, which are seven months behind schedule. Booz-Allen's bills now average $300,000 a month and are expected to reach a total of $20 million by 1993.

The payments are a small fraction of the $45.9 billion that will be spent to construct the region's vast rapid-transit system during the next 20 years. But some officials say the Booz-Allen contract is a symbol of a free-spending agency that is losing control of its finances as the nation's largest public works project burgeons.

Don Knabe, a delegate to the Los Angeles County Transportation Commission, called some of the Booz-Allen billings "outrageous." He said the commission, which oversees Metro Rail construction, was never informed by its staff of any questionable bills.

"There's not a commissioner I know of who, if they saw doughnuts or that kind of thing, they wouldn't raise some questions," Knabe said. "It's totally inappropriate."

G. Leslie Elliott, the Booz-Allen official in charge of Metro Rail work, said last week that the firm scrupulously follows both contract and federal government guidelines in billing its clients.

"By and large, I think we do a pretty good job of making sure that things which are properly chargeable to a client are charged to a client," Elliott said. "We're not infallible. I'm sure from time to time we make mistakes. But I think we have a pretty good track record with all our clients."

A Times examination of hundreds of bills, receipts and accounting documents showed that the LACTC paid not only hourly wages for Booz-Allen employees and hefty overhead charges--common practice for government consulting contracts--but also hundreds of thousands of dollars in additional expenses.

Some examples: a $9,455 real estate broker's fee for a Booz-Allen employee who was moved from Georgia to Italy, a $4,000 fee to store the employee's household goods and $1,646 to move his belongings, including three bicycles, to Italy. Several Booz-Allen employees have moved into Italian hotels at the expense of taxpayers as part of the effort to speed up work at the factory in Pistoia, Italy, where the subway cars are being built.

"There was a time that on a very small basis you could watch these contracts," said Knabe, county Supervisor Deane Dana's delegate to the LACTC. "Now everything is coming so fast and furious."

Knabe said it may be necessary to create a position of inspector-general to keep an eye on LACTC finances and report directly to the board of commissioners. He said that Neil Peterson, executive director of the LACTC, may not have the resources to manage the array of consulting and construction contracts awarded in recent years.

Peterson acknowledged that the LACTC, which took over responsibility for Metro Rail 18 months ago, has given the billings only a cursory check before paying them.

"There probably has been some sloppiness on both sides in the way they (Booz-Allen) have invoiced, and in the way we have handled it," Peterson said.

He said his accounting staff has been beefed up considerably in the last year and he has ordered an interim audit of the Booz-Allen contract, which expires in 1993.

"The good news here is that we can clean this up in a second, in a heartbeat, and the public will never have lost a dollar," said Peterson.

Booz-Allen, which specializes in technology and transportation consulting, has its headquarters in Bethesda, Md., and branch offices throughout the United States and overseas. Its annual revenues are $400 million.

During the past eight years, the firm has been assigned a variety of highly technical tasks related to the planning and construction of Metro Rail. Nearly all of its work at present is aimed at getting the subway cars built, shipped to the United States and tested in time to open the Red Line in September, 1993. The first leg of the line will run from downtown to MacArthur Park and later segments will extend to the Mid-Wilshire district and North Hollywood.

Already delayed more than two years, the 1993 inauguration date is viewed by transportation officials as critical to winning the public's confidence in the new rapid transit system.

As overseer of the subway car contract, Booz-Allen is a key element in the race to meet the deadline.

Peterson and other LACTC staff members said they are happy with the quality of work performed by Booz-Allen. Peterson credited the firm with helping to solve some complex technical problems and with helping to speed up the delivery of the subway cars.

But there are some suggestions that the LACTC may be paying an unusually high price for the service.

In a review of Metro Rail finances conducted by Deloitte & Touche and the Kellogg Corp. last November, analysts pointed out that planned staffing levels for the Booz-Allen contract were "higher than we would normally expect."

They pointed out that Booz-Allen's work on the Red Line cars amounted to 13% of the vehicles' total costs, while a similar contract for work on the Blue Line cars amounted to only 6% of the car price.

Peterson rejected the criticism, saying the contract with Breda Construczioni Ferroviarie, the Italian car builder, has been much more problematic than the contract with Sumitomo, the Japanese firm that built the Blue Line cars.

Officials said the travel expenses billed by Booz-Allen are the inevitable and necessary price of meeting a tight schedule and overseeing a production process on another continent. And Breda can be difficult to deal with, especially by long distance, several officials said.

Trips to Italy and other European countries to oversee the subway car production have cost the LACTC tens of thousand of dollars. Travel expenses have approached $100,000 in several recent years and are likely to be substantially higher this year.

Round-trip air fares to Italy in business class have reached as high as $4,497 per person. One Booz-Allen employee submitted a $179 bill for one month's laundry and a $904 telephone bill for a one-week period while he was staying in Italy.

As part of his agreement to move to Italy, Dennis Allen, a Booz-Allen engineer, was promised six five-day vacations in England. Booz-Allen agreed to pay for his transportation, which cost between $700 and $1,000 per trip and was later billed to taxpayers.

Delmar Pierce, a manager in Booz-Allen's Los Angeles office, described Allen as an expert transit vehicle engineer who moved to Los Angeles from his home in England specifically to work on Metro Rail. He was later moved temporarily to Italy, and the LACTC has been paying $200 a month for more than a year to store Allen's car in Burbank while he is away.

The LACTC's Peterson said the trips should be viewed as "R & R," not vacations, and are legitimate expenses under the contract, as are the car storage fees.

Another engineer, Robert Vliek, was offered an array of inducements to move from his home in Kennesaw, Ga., to Italy. Many of the perks were later billed to the LACTC. Among them were a real estate broker's fee on the sale of his house in Georgia, the $4,000 storage bill for its furnishings and mortgage, utility and tax payments totaling about $1,000 a month before the house was sold.

"Our company policy is that the employees shall not incur undue expenses as a result of unusual assignments," Pierce said. "It's not an unusual thing for a company to offer to pay real estate fees as an incentive for a person."

The broad range of Vliek's expertise made him a prime candidate for the job, Pierce said. "In a contract like this we have to have those one-man-band type of individuals and sometimes we have to pay a little bit for these things."

Elliott, the Booz-Allen official in charge of the Metro Rail contract, said the broker's fee is a legitimate expense chargeable to the LACTC. However, he said he was not certain whether the firm should have billed the LACTC for mortgage payments.

Several years ago, taxpayers were billed $55,000 for moving expenses and real estate fees when Booz-Allen moved Elliott and another employee to Los Angeles from their homes on the East Coast, Elliott said.

Peterson said the real estate fees appear to be legitimate, but any mortgage expenses billed to taxpayers will be found in the pending audit and rejected.

The Southern California Rapid Transit District, which managed Metro Rail contracts before 1990, conducted two audits of the Booz-Allen billings between 1984 and 1990.

In the first, the auditors studied a sampling of Booz-Allen expense accounts and concluded that "numerous" extra charges made for travel and living expenses on the road "appeared to be more of entertainment and public-relations type expenses." They disallowed $9,554 in such bills.

But the auditors also concluded that Booz-Allen had underestimated its overhead costs in the first three years. Booz-Allen sought and won an additional $99,000 from the RTD board.

In 1989, auditors conducted a partial review and found a slight overcharge for the firm's overhead. But they disallowed about $800 for meals that Booz-Allen charged to the taxpayers.

The auditors also pointed out that a Booz-Allen employee had been commuting to Los Angeles on an almost daily basis from the San Francisco area, and had run up travel expenses of $17,164. The charges were paid, but auditors suggested that Booz-Allen consider moving the man to Los Angeles to save money.

In recent years, The Times found, Booz-Allen billed for some expensive meals, both overseas and in California. One dinner for two in Italy cost taxpayers $183. Three employees spent $182 for a dinner in Paris. And a Booz-Allen official bought dinner for three representatives of the Italian subway car company at a resort in Palm Springs, then sent the $210 tab to the LACTC.

Elliott, the Booz-Allen official, said the cost of meals overseas is high.

He said the Palm Springs dinner was a legitimate expense. It came at the end of a daylong Saturday meeting with three Breda officials whom he had invited to his house in Palm Springs, he said, in an attempt to work out some nettlesome design problems.

In recent weeks, after The Times requested copies of the Booz-Allen bills, LACTC auditors tagged as questionable some of the expenses for which Booz-Allen had already been paid. In particular, the auditors made note of some lunches and dinners at Los Angeles restaurants.

On April 15, for example, three Booz-Allen officials had a $39 lunch at the Marcus Steak House in Los Angeles. They described the meal as a "business lunch" necessary because of schedule conflicts that prevented them from meeting at any other time.

The auditors attached a note that read: "These don't appear to be business lunches!" A similar note was attached to a bill for a $47.73 lunch last April 12 for a Booz-Allen employee and a Booz-Allen subcontractor at another Los Angeles restaurant.

Other meals at local restaurants included a $130 dinner for three at the Sonora Cafe at which "propulsion control options" for the subway cars and "local plant inspection results" were discussed, according to the employees' expense reports.

On April 5, two Booz-Allen officials bought dinner for a job applicant and his wife and sent the $68 bill to the LACTC. Two days earlier, three employees had a $46.57 lunch at the Hamburger Hamlet. They listed "employee development and welfare" and "schedule conflicts" as reasons for the meeting.

Such bills may be legitimate, said the LACTC's Peterson. "If they're just having lunch because they've got to have lunch, we don't pay for it. We'll deny it," Peterson said. "But when there's a schedule conflict, then it gets dicier. . . . That's their time to have a meeting."

Booz-Allen's Pierce said such lunches and dinners save time for the staff, who are working under severe deadline pressure because of the Metro Rail schedule.

Regarding the $181 dinner for two at a restaurant called Enoteca da Giovanni in Italy, Pierce said, "I know this is a very expensive restaurant. That does seem a bit excessive, but I wasn't there."

Booz-Allen regularly billed the LACTC for snacks. Among them were croissants, muffins, scones and cinnamon rolls for an office meeting on Feb. 27, sodas and doughnuts for meetings last Nov. 15 and 16, and juice and cups for a meeting on Nov. 28.

The contract has no specific provision governing meal expenses, but a catch-all provision permits payment of any expenses "which are reasonable, necessary, and allowable for the proper performance of the services."

As in most consulting contracts, Booz-Allen's charges fall into three categories: hourly wages, overhead and extraordinary expenses. At 185%, Booz-Allen's overhead charges for Metro Rail work approach the high end of the normal range.

Most government consultants charge overhead rates ranging from 140% to 200% of the total hourly wages, said Ralph Kennedy, chief deputy engineer for the city of Los Angeles.

The overhead charge should include all the usual employee benefits and normal expenses of running an office, from rent to pencils and paper clips, Kennedy said. Extraordinary expenses such as foreign travel and rental or purchase of specialized equipment generally can be added as extras, he said.

The Times examination of Booz-Allen's submissions showed that the firm routinely billed the LACTC separately for lunches and dinners in Los Angeles and for an array of ordinary office expenses. The documents cover billings for August, 1990, through March, 1991.

Booz-Allen sent the LACTC bills for extension cords, size C batteries, a smokeless ashtray for an employee's office, calendar bases, pens, erasers, file folders and lead for mechanical pencils.

The city of Los Angeles would consider such items part of the consultant's normal overhead, and would reject the bills, Kennedy said.

Recognizing that the Booz-Allen contract was expensive and difficult to manage, LACTC officials decided last January to renegotiate its terms, a process that has taken most of the year. Future contracts will be structured to give the firm incentive to hold down its costs, said Ed McSpedon, assistant general manager of the LACTC. The contracts will set target levels of spending and will allow Booz-Allen to split unused amounts with the LACTC, McSpedon said.

The percentage that goes to Booz-Allen will depend on the firm's performance, which will be evaluated by LACTC officials, he said.

Such an arrangement, McSpedon said, should shift some of the burden of watching expenses to Booz-Allen. "Our job here is to build a transit system and I would like to spend as little of our time as possible in grinding through this kind of stuff and have this self-managed as much as possible," he said.

"These consultants are managing for us hundreds of millions of dollars of work and we don't want to chintz on the expertise that's making this whole thing go. But we would like them to have some incentives to take a cheaper flight."

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