Foundation’s Contracts Go to Firms With Ties to Officers : Charity: More than $6.2 million was paid last year to companies run by foundation officials working on an Olympic training center, but impropriety is denied.

The nonprofit foundation hoping to build an Olympic training center in Chula Vista paid more than $6.2 million last year on contracts with firms run by the foundation’s board members or officers, public records and interviews show.

In its 1991 report filed with the state’s Registry of Charitable Trusts, the San Diego National Sports Training Foundation listed $6,255,255 in payments to six firms that had financial ties to board members and one executive. Board members whose firms handled the most money were Newport Beach developer Donald Koll and San Diego architect Harold Sadler, the records show.

Spokesmen with national charity watchdog groups say the board-related contracts for construction, architectural and professional services are out of line with voluntary standards followed by the nation’s foremost nonprofit organizations.

Foundation board members contacted by The Times said they were aware that the self-dealing might appear inappropriate, but added that they took precautions to ensure that the contracts were fair and proper. Neither Koll nor Sadler voted on awarding the work, they contended.

“There has not been any insider play in any way,” said board member Robert J. Watkins, managing director of Russell Reynolds Associates, a San Diego-based executive search firm. “We have made a definite attempt to be fair and equitable in our dealings with people who are members of the board, who have business services that could have benefited from it.”

But guidelines established by the National Charities Information Bureau, regarded as the Consumer Reports watchdog of the nonprofit sector, discourage board-related contracts, even if the person who stands to benefit refrains from voting.

“Clearly, it is difficult for board members to review a business contract to make sure it is the best available . . . if they are actually reviewing the work of a fellow board member,” the bureau’s published standards state.

Watkins and other board members declined a Times request to examine board records and documents relating to the contracts, although much of the work is being paid with a loan of taxpayer money from the state of California.

The foundation has no written guidelines about what constitutes a conflict of interest, its top administrator said. NCIB guidelines require such a code for any charity subscribing to its voluntary standards of ethics.

Not only did the foundation originally approve the largest of the insider contracts with Koll’s firm, making it general contractor of the training center’s construction, it also hired Koll’s former San Diego division president to be the consultant in charge of picking a contractor.

The consultant, Orrin W. Miller of Del Mar, acknowledged that he was still receiving severance pay from Koll in 1989 at the time he solicited and evaluated the bids for general contractor. He eventually recommended his former employer as overseer of the prestigious construction job--and conceded that the intermingling ties appear strange.

“If I were sitting on your side of the phone, I’d be wringing my hands and saying, ‘Oh boy, isn’t this a hot deal!’ ” said Miller, who was paid $157,000 last year as the foundation’s construction consultant.

“But I want you to understand that the reason why they (Koll Co.) were selected to do this project was because they were competitive, because of their ability to do it, and that I operate totally and fully at an arm’s-length relationship with them.

“There’s nothing going on in a devious way,” Miller said. “There’s a lot of hay to be made if you want to make it, but there’s nothing going on.”

Members of the attorney general’s Charitable Trust Division, which regulates nonprofits, say California law is vague on what constitutes a violation of self-dealing by board members.

Although the law looks upon such transactions suspiciously, a financial benefit to some board members is not enough to make the payment illegal, they say.

“Unless those contracts are unfair to the charity, we can’t do anything,” said Carol Kornblum, assistant attorney general in charge of the division.

After inquiries by The Times, however, Kornblum ordered her division’s Los Angeles office to examine the training center foundation’s filings. She also characterized the series of insider contracts as a “cozy deal.”

Spokesmen for two nationally respected watchdog groups also criticized the inside contracts at the foundation.

“According to our standards, this would probably be a blatant conflict of interest, a series of conflicts of interest,” said Dan Langan, spokesman for the National Charities Information Bureau, a New York-based group that has issued guidelines for national charities since 1918. “You are not joining a board of a nonprofit to make money from it.”

Bennett Weiner, head of the Better Business Bureau’s Philanthropic Advisory Service in Washington, said it is “rare” for charities to have transactions with board members. Even when legitimate, such self-dealing is like a “red flag” to potential contributors.

Both men said nonprofit groups are especially worried about insider transactions in the wake of the United Way of America scandal earlier this year. Longtime United Way president William Aramony was forced to resign from the nation’s largest charity because newspaper stories revealed he was receiving $463,000 annually in compensation, traveled in high style and hired friends and his own son to work in three independent, taxable companies formed by the United Way board with Aramony’s support.

“Any charity that becomes involved in this, even though it may feel it has the best deal, it should be concerned about the public image and perception,” Weiner said. “When these facts come to light, the donors are upset to hear about them.”

Chula Vista Mayor Tim Nader, whose city is considering a $3-million to $4-million loan to the foundation, also expressed concern about the self-dealing.

“Certainly, you raise some larger issues that someone should be looking at, and we should be aware of,” Nader said. “Quite frankly, this is the first I’ve been told that.”

Charity experts say nonprofits usually shun such deals, and voluntary guidelines published by both the BBB and the National Charities Information Bureau stress that board members should have no material conflict of interest and should serve without compensation.

“You’re joining it (a nonprofit board) because you want to see the disease cured or you want to see the needy helped or you want to see the bay rid of pollution or because you want to see this thing built for whatever purpose,” said NCIB’s Langan. “So you pitch in and do it.

“You just don’t sit down and say, ‘OK, you do this, you do that and we’ll give you this much money for it,’ ” he said.

The Olympic training center foundation in San Diego is most closely controlled by an executive committee consisting of nine unpaid board members. It is chaired by former San Diego City Councilwoman Gloria McColl and includes Horton Plaza developer Ernie Hahn; Atlas Hotel chairman Terry Brown; attorney J. Stacey Sullivan, whose grandfather founded the United States Olympic Committee; Herb Klein, editor-in-chief of Copley Newspapers; former Great American Savings Bank vice president Peter Hall; accountant James H. West, and Watkins.

The executive committee is augmented by 26 unpaid “trustees” who are invited to meet less frequently and ratify policy decisions.

Trustees listed in the foundation’s 1991 filing included Koll; Malin Burnham, chairman of John Burnham & Co insurance company.; Ranney Draper, chairman of Diversified Shopping Center; David B. Kuhn and Ron Lane, developers who donated the land for the training center; Donald Sammis, president of Sammis properties; developer Harry L. Summers; Walter Zable, president of Cubic Corp.; William Campbell, president of the Sacramento-based California Manufacturers Assn., and San Diego architect Sadler.

It was during their tenure in 1991 that the foundation paid the $6.2 million on these self-dealing contracts and services:

* Nearly $5.1 million with the Koll Co.’s San Diego division, which as general contractor of the project is responsible for coordinating and paying subcontractors.

Koll kept 3.1%, or about $158,000, as profit before paying the subcontractors and expenses, foundation officials said. The contract and Koll’s profits are expected to grow as the construction continues.

* Almost $1.1 million with Tucker, Sadler & Associates, the architect of record. Sadler said his firm coordinates 18 engineering and design subcontractors. Sadler said his firm kept 31%--or $330,000--from which its expenses must be paid.

* $93,001 with John Burnham & Co. for liability insurance covering board members, as well as construction performance bonds.

* $11,310 to Joseph A. Schneider, a certified public accountant who is also the foundation’s vice president of finance and administration. In addition to the contract, he was paid $78,105 in salary and benefits last year, the foundation’s annual report shows.

* $8,070 to the accounting firm of West, Kuhn, Turnquist & Schmitt. West, the firm’s president and founder, is not only a board member but also the foundation’s treasurer.

Of the five, the two smallest payments--to Schneider and West’s firm--were authorized by David C. Nielsen, the foundation’s top executive, who was paid $119,000 in salary and benefits last year. Nielsen resigned Dec. 1 but has a three-month contract as a consultant at $60 an hour.

The National Charities Information Bureau points out the supervising role of an executive director as a particularly thorny one when a charity deals in inside contracts.

“Even more difficult is the situation of an executive director who must review the performance of a professional service with a board member who has a special interest in it, since the board member can also influence the board’s decision to renew the executive director’s employment contract,” the bureau’s guidelines say.

But Nielsen said the foundation has a “longstanding relationship” with West’s firm, which prepares the foundation tax returns and can be called upon for spot-accounting work. “It’s hard to get anyone in for an hour here and an hour there,” Nielsen said.

West signed the foundation’s 1991 public filing, which includes a copy of the federal tax form for nonprofits. Nielsen said the foundation’s annual audit is performed by another firm, Ernst & Young. West didn’t return repeated telephone calls.

Nielsen also said he decided to hire Schneider’s wife, Ruth, on an emergency basis to fill in for a secretary on maternity leave and to help install a new accounting program on foundation computers. Her salary was paid to her husband’s accounting business and was below market value, he said.

The three larger contracts were awarded by foundation board members, and some said there was nothing wrong with giving business to their colleagues.

“I would not see anything that would say to me that someone was doing something that is unethical,” said Watkins, who serves on the foundation’s executive committee. “I’ve seen other organizations do that. I’ve seen other organizations where work has been handed off to people that were members of the board without any consideration of anybody else whatsoever. Or people being hired into groups without any consideration of what has to be done.”

Indeed, Watkins said, after his firm was hired to find a new director of the Natural History Museum of San Diego, he was invited to join the board.

And Sadler said his firm has been hired before by other boards of which he was a member, including his church and the YMCA.

“I’ve had contracts with other boards that I’ve served on and never, never have I based my participation on the fact that some day I might get a contract doing that,” Sadler said.

Edward Whittler, the board’s attorney, said the foundation’s decision-makers considered the contracts to be “fair and reasonable.”

Board members voted to give colleague Burnham the insurance business because his firm was the only one that would provide liability coverage for board members, Nielsen said.

As for the Sadler contract, Nielsen said he and other board members approached the well-known San Diegan and asked him to bid on becoming the architect of record. Nielsen said the foundation sent requests for proposals to other firms but always considered Sadler, then a voting member of the board, to be the best qualified.

A big reason: Sadler’s understanding of the project. He helped nurse the training center project from its inception, even traveling to Europe at his own expense to view 14 training center sites.

Asked if Sadler’s board affiliation gave him an advantage, Nielsen said: “Camaraderie had nothing to do with it. He certainly had experience and understanding of the issues. No one’s ever done this before. It’s a unique project.”

Sadler said he raised the specter of conflict of interest when approached, but that the board’s attorney said winning the contract would not be a problem.

He said he didn’t vote on the award; other board members said he left the room when the continuing contract was discussed and approved in March, 1989. He served as a voting board member until May, when he was put into an honorary position to help with fund-raising.

As for Koll, board members said he never influenced the decision to hire his firm. And, in fact, the Newport Beach developer hasn’t shown up for a foundation meeting since he was named to the board in December, 1988. Nielsen said Koll voluntarily resigned from the board in May. The developer did not return telephone calls from The Times.

Although Koll didn’t influence the contract, one of his former employees did. In March, 1989, Koll’s San Diego division was going through a reorganization, and its president, Orrin W. Miller, decided to leave the firm after 16 years.

During his tenure with Koll, Miller had a hand in the construction of such San Diego landmarks as Koll Center and the Wells Fargo Bank Building downtown; the Omni Hotel at Horton Plaza and the Carlsbad Research Center. Before he left the company, he even served on an ad hoc committee of the foundation to help select a training center site.

Within a month of his departure from Koll, the foundation hired Miller to help select the general contractor for the project. Miller said he did not put out a written invitation to bid but, based on his experience, decided to contact three firms that would be able to handle the work: Koll; Snyder Langston Real Estate & Construction Services; and Nielsen Construction (no connection to foundation director David Nielsen).

Miller said he asked each company to submit a “fee” bid, in essence telling the foundation how much percentage each would take in profit. Nielsen declined to bid, but Snyder Langston said it wanted to make 3.2% profit and Koll said 3.1% profit, Miller said.

Based solely on those numbers, Miller said he recommended Koll Co. for the job. The board approved the contract in June, 1989.

Meanwhile, Miller said, he was receiving payments from Koll as severance. He said the company paid him 16 weeks worth of his executive salary starting in April, two months before the foundation board approved the Koll contract.

Miller said his contact at the Koll Co. during pre-bid discussions was a man he had hired as the construction firm’s regional president.

Neither the money nor the former professional relationship affected his recommendation or handling of the bids, Miller said.

“If you want to characterize this as not being appropriate, it’s easy to do because I had a relationship with the Koll Co.,” Miller said. “The selection that was done was totally arm’s-length, done on a totally professional and academic perspective. There is nothing hidden in this selection process.”

Tom Tourtellott, Nielsen’s senior vice president, said Koll’s position as foundation board member, along with the expectation that the Newport Beach developer would make a sizable contribution, was the primary reason his firm decided to pass on the project, which he agreed was prestigious and large.

Tourtellott said he talked about this in a pre-bid meeting with Miller about the contract.

“I said, ‘Isn’t Don Koll on the board? Isn’t he going to make a contribution?’ ” Tourtellott said. “He said, ‘He may.’ I said, ‘If he is, then he should get it (the contract)’

“I just felt if he was going to contribute something, then he should get the project,” Tourtellott said, adding that Miller “didn’t disagree.”

Peter Hall, the former Great American Savings Bank vice president who is now working for a capital formation group in Orange County, said the money going to Miller from Koll did not affect handling of the contract bidding for the foundation.

Still, Hall agreed that some members of the public could have problems with board member contracts, including the one awarded to Sadler.

“Yeah, you’ve got the perception of a conflict,” Hall said. “And, to a lot of people, perception becomes reality.”

But one board member said he was unconcerned about how people might interpret the foundation’s actions.

“You do the best you can. You take on a volunteer job and spend many hours doing it. You’re trying to build something that is a wonderful thing for this area, the state and the country. You do your best in troubled times,” said J. Stacey Sullivan, a San Diego attorney.

“I’m not going to sit here and worry about how somebody thinks about it.”

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Inside Contracts

The San Diego National Sports Training Foundation, which hopes to build an Olympic Training Center in the Chula Vista area, had $6.2 million worth in business dealings in 1991 with companies run by its own board members or officials of the foundation.

Name: Donald Koll Foundation position in 1991: Board trustee Outside affiliation: Chairman and CEO of Koll Co., a Newport Beach development co. Contract money paid in 1991: $5,076,497 to Koll Co. as general contractor

Name: Harold Sadler Foundation position in 1991: Board trustee Outside affiliation: President of Tucker, Sadler & Assoc., architectural firm Contract money paid in 1991: $1,066,375 to Tucker, Sadler for architectural services

Name: Malin Burnham Foundation position in 1991: Board trustee Outside affiliation: Chairman of John Burnham & Co., insurance company Contract money paid in 1991: $93,000 to John Burnham & Co. for liability insurance and construction performance bonds

Name: Joseph A. Schneider Foundation position in 1991: Vice president, finance andadministration Outside affiliation: Owns Joseph A. Schneider accounting firm Contract money paid in 1991: $11,310 paid to firm for office and accounting work by Schneider’s wife

Name: James H. West Foundation position in 1991: Board trustee, executive committee Outside affiliation: President of West, Kuhn, Turnquist & Schmitt, accounting company Outside affiliation: $8,070 to West, Kuhn for tax preparation and accounting

Source: Registry of Charitable Trusts, 1991 filings; Researched by RALPH FRAMMOLINO / Los Angeles Times