$2.7 Million in Expenses by Rail Contractor Questioned : Transit: Agency seeks to recoup some money spent by Tutor-Saliba on such items as political gifts, fitness trainer.

Auditors have questioned $2.7 million in overhead expenses incurred by the top contractor for Los Angeles’s rail transit network, including political contributions, personal air travel and a fitness trainer for the firm’s president.

The Los Angeles County Transportation Commission is seeking to recover an estimated $200,000 of the overhead costs that auditors contend were improperly charged to the agency by Tutor-Saliba Corp. Among the disallowed expenses are football and horse race tickets, a payment to the IRS--and a portion of the company president’s $924,976 salary.

“Clearly, some of these expenses shouldn’t have been billed to us,” said Edward McSpedon, president of the LACTC’s Rail Construction Corp., which is overseeing construction of the 23-mile subway system.

But, McSpedon said, “this hasn’t been keeping me awake nights. . . . In terms of how much impact it has on us, our cost of doing business and on the taxpayers, it’s not a lot of money.”

Tutor-Saliba has challenged parts of the LACTC audit, but has agreed to reimburse or credit the commission for some of the disputed expenses, McSpedon said.

Company President Ronald N. Tutor, reached at his offices in Sylmar, denounced the audit findings, which he said should have been kept private.

“That audit isn’t reasonable,” Tutor said. “It is so trivial and mundane. . . . These are internal audits. They’re not supposed to be leaked.”

The Times recently obtained a copy of a preliminary draft of the audit, and some details were reported in the Los Angeles Business Journal.

About half of the $5.24-billion Los Angeles subway project is funded by the federal government; the remainder comes from state and local taxes and bond revenue.

Tutor-Saliba has $220.1 million in subway contracts and has finished construction on $200 million more.

Like other project contractors, Tutor-Saliba submitted the lowest bids to win its contracts. The company was not required to itemize overhead costs that were part of its bid calculation.

However, the LACTC can audit the company’s overhead whenever those expenses are billed for work under contract amendments. Such amendments are not competitively bid.

The LACTC also has the power to seek reimbursement--but only for improper expenses paid under the contract amendments.

The LACTC questioned $2.7 million in overhead expenses in 1990 and is seeking repayment of about $200,000. Among the expenses questioned:

* $10,240 for the “exclusive physical training” of Tutor and another executive.

The charge was rejected by commission auditors because federal regulations require “employee morale expenditures to benefit the entire organization.”

* $165,124 in donations to political campaigns and nonprofit organizations, including $12,808 to USC, all in apparent violation of federal contracting regulations.

A breakdown of donations, provided to the auditors by Tutor-Saliba, shows that $53,500 went to political campaigns. Recipients included the 1990 campaigns of Democrats Dianne Feinstein, then a candidate for governor; state Treasurer Kathleen Brown, and state Atty. Gen. John K. Van de Kamp, who ran for governor in the primary.

* Tutor’s personal compensation of $924,976--an increase of 122% from the previous year.

LACTC auditors are seeking to reduce the amount by $357,043, citing a federal regulation requiring such compensation to be reasonable. According to the audit, Tutor is resisting the reduction on grounds that “the increased compensation is warranted and fair compensation” for his outstanding work.

* $167,507 in air travel--none related to Los Angeles subway business.

Auditors concluded that 22.5% of the amount was for personal use. Tutor agreed to reduce the travel charge by that amount, but LACTC now wants to disallow the entire travel expenditure.

* $531,955 for rent of Tutor-Saliba headquarters in Sylmar.

Auditors disallowed $357,705, saying the amount was unreasonable. Tutor-Saliba “does not concur,” the audit states.

* $5,422 paid to the Internal Revenue Service, $1,563 for college and pro football tickets, $2,520 for liquor and $2,050 for racetrack turf club privileges.

Federal regulations disallow paying the entertainment charges and the income tax, according to the audit.

Tutor declined to discuss the areas challenged by the audit. “It’s nobody’s goddamned business,” he said, adding that he is too busy to continue using the physical trainer’s services. As for the political contributions, Tutor said: “It is legal for me to make them.”

Early this year, LACTC auditors began examining Tutor-Saliba’s overhead for contract amendments, called change orders, that the firm received in 1990.

The auditors found that Tutor-Saliba charged the commission for a portion of its $7.7 million in indirect overhead--such as lighting at its Sylmar offices--for all its contracts. Those jobs include widening the Ventura Freeway for Caltrans, restoration of the Los Angeles Central Library and additions to the Moscone Convention Center in San Francisco.

Although auditors have decided to disallow $2.7 million, or 35%, of Tutor-Saliba’s indirect overhead costs, the LACTC has not calculated how much money should be reimbursed to the county. “It would take all of IBM to probably go through all of this,” McSpedon said. “Our guesstimate is, we’re talking a couple hundred thousand dollars.”

Two months ago, the U.S. General Accounting Office opened an investigation into the LACTC’s use of federal funds. The GAO is investigation allegations by whistle-blowers who contacted a Tennessee congressman, and wasteful LACTC spending practices reported by The Times.

In May, Mayor Tom Bradley, a county transportation commissioner, criticized Tutor-Saliba’s tactics during a meeting. “Ron Tutor is the greatest change-order artist that I’ve ever seen,” Bradley said. “He submits the low bid, then makes it up on the change orders.”

Bradley was reacting to Tutor-Saliba’s work on the Union Station subway terminal. The company won that contract with a low bid of $18.9 million--but has performed additional work worth $14.8 million, an increase of 78.1%.

Tutor-Saliba received $67.4 million in change orders as of last March, according to the LACTC. In 1990, the commission granted Tutor-Saliba $13.3 million in such change orders.

The company has said the change orders were necessary to address design errors and other circumstances that are not the contractor’s fault.

McSpedon said the commission is pleased with Tutor-Saliba’s overall performance. “They are hard business people, no question about it,” said McSpedon, who is responsible for engineering and construction of the regional rail system. “They negotiate hard, they fight for their own interests, as well they should. But we’re fighting for ours as well.”

Times staff writer Claire Spiegel contributed to this report.