Roadblock : Outside Contractors Lose Vital Caltrans Work in Legal Tussle

Flush with new contracts for surveying work, Ruel del Castillo moved his company into much larger quarters in Irvine early this year and bought two more vans as he geared up to handle the jobs that the California Department of Transportation promised to send his way.

But the work stopped suddenly a month ago when Caltrans Director James W. van Loben Sels--facing court action by his own in-house staff of 8,000 highway designers--froze indefinitely all contracts with outside architects, engineers and land surveyors.

The state design employees, part of the 20,000-member Caltrans work force, asserted that they--not outside consultants--should be developing the projects.

The director’s dramatic action shut down work on $159 million worth of projects that had been awarded to the private sector but not yet begun. Any work earmarked for outside firms in the next fiscal year beginning Thursday also will be frozen while the agency figures out how to salvage its 4-year-old contracting program.

Del Castillo’s Coast Surveying Inc. and nearly 600 other architectural and engineering companies throughout the state now face huge layoffs and, in some cases, bankruptcy during a freeze that industry leaders expect will last at least two to three more months. The industry also expects less work from Caltrans even if the freeze is lifted.

Major design firms could lay off up to 20% of their staffs, and smaller minority and women-owned firms could drop up to 80% of their employees--if they manage to stay in business.

“There are going to be significant layoffs coming in the industry,” said civil engineer Timothy Psomas, head of Psomas & Associates in Santa Monica. “The ripple effect will create huge holes. If one engineer loses his job and isn’t replaced, five construction workers go home.”

In addition, design work on a host of road projects--like the elevated Harbor Freeway transit-way and the interchange widening at the Santa Ana, Garden Grove and Orange freeways--could face delays. Caltrans already has canceled 13 small contracts outright, and it will likely delay work on requests for simple but low-priority tasks like putting up new traffic signals.

The agency allocated only 11% of its architectural and engineering budget to outside contracts this year, but those contracts involve the firms in 80% of the agency’s projects. All construction is done by outside firms.

“If we are unable to contract out (design) work, that will translate into lost jobs and long delays in transportation improvements,” said Caltrans spokesman Jim Drago. Van Loben Sels wouldn’t talk about the issue.

Caltrans staff, which had been growing until a year ago, will try to pick up the slack mainly through overtime work until the issue is resolved.

Neither the agency nor private industry has been able to come up with good estimates yet on the impact of the freeze on jobs and projects, though some company owners believe that the private sector will be forced to lay off as much as 30% of its work force.

Van Loben Sels took his drastic action after a court ruling in May cleared him of criminal contempt for violating a previous court order, but threatened future sanctions--a jail term and a personal fine--if he continues to follow similar procedures in deciding what work goes outside.

Civil servants, though, say the freeze is unnecessary.

The agency can hire outside engineers any time it wants, so long as it justifies the need, said Loren E. McMaster, a Sacramento attorney for the Professional Engineers in California Government, the union covering Caltrans design staff.

PECG relies on state constitutional provisions designed to halt cronyism and other unethical conduct of the spoils system. As interpreted by courts, the provisions require that state work be done by civil servants unless the work falls into certain exceptions, such as a lack of expertise among state employees, a need to act quickly to avoid loss of local or federal funds and an effort to use consultants for short-term increases in work, thus avoiding mass hiring and layoffs of state personnel.

“What we’re fighting is the use of contract work to do normal civil service work,” McMaster said. “The workload is going up, and the state isn’t hiring more architects and engineers as it should be.”

Both Caltrans and outside contractors are taking their cause to the Legislature, which authorized the agency in 1989 to contract with outside firms to help develop projects.

State Sen. Marian Bergeson (R-Newport Beach), who lost a close vote earlier this month on a bill to permit contracting on a variety of government jobs, introduced a bill Wednesday in an effort to come up with a quick fix for Caltrans. The bill gives Caltrans new authority to develop guidelines for sending work to consultants.

Bergeson, however, expects that the union will go back to court. “I thought we had solved this issue before, but apparently we hadn’t,” she said. “A constitutional amendment is the only way, and I think there would be public support for it.

But time is not on the side of nearly 600 Caltrans-certified contractors, especially those 150 firms owned by minorities and women.

“I laid off seven people already and may have to lay off another 15 people, which is 40% of my staff--which is going to hurt big time,” said Ruel del Castillo of Coast Surveying.

Del Castillo, who started Coast Surveying in 1981, began taking on Caltrans work after the law took effect in 1989. Previously, Caltrans architects and engineers did all design work in-house.

A companion bill required, in effect, that 20% of all outside contracts go to so-called disadvantaged business enterprises--companies owned by minorities, women or disabled veterans. As a result, Latino-owned Coast Surveying became a subcontractor on numerous projects to help prime contractors meet the law’s requirements.

By this year, up to 80% of Coast Surveying’s work was transportation related, and most of it came from Caltrans, Del Castillo said. The agency even held seminars for disadvantaged firms to show them how to apply for Caltrans work.

Del Castillo spent six months negotiating his latest round of contracts, bought two new vans and moved in January to new quarters in Irvine that doubled the space of his old Tustin office.

But the agency’s freeze caused layoffs and now affects all 40 employees remaining. His staff has gone to reduced work weeks and applied for state unemployment benefits.

“Somehow, we’re going to survive, I hope, but it’s going to be a whole lot more difficult,” Del Castillo said.

Lynn Capouya, a Newport Beach landscape architect with nine employees, lost three projects, including sound walls for the Orange Freeway. Those projects plus Caltrans work already begun and not affected by the freeze amount to 60% of her business, and she was gearing up for more.

“I had one person waiting to be hired and two contract laborers waiting to be put to work,” Capouya said. Instead, she’s now scrambling to come up with jobs elsewhere to try to avoid any layoffs.

Wade Weaver was so angry because of the Caltrans freeze that he sent an impassioned letter to Gov. Wilson two weeks ago, the first of numerous letters the governor has since received from the industry. The African-American owner of Western Land Concepts Inc. in Rancho Cucamonga had to lay off five of his 16 employees and figures he can last only two to three months more before he shuts his doors.

“What makes this so bad at this particular stage for the architectural and engineering industry is that there’s nothing else out there,” Weaver said in an interview. “It’s not like old times when you could say that you don’t need state work, that you could go do subdivisions.”

In his letter to Wilson, Weaver acknowledged trying to save “a career and a business I have spent 25 years building.” But, he said, “personal career goals pale in comparison to the far-reaching social, moral and economic consequences of the director’s decision.”

The freeze will “turn the clock back 20 years” on minorities and women in the industry, he wrote. In addition, he said, Caltrans is morally obliged to fulfill commitments it made to disadvantaged businesses through its seminars and requirements to hire disadvantaged firms.

“Economically, the immediate death of nearly all (disadvantaged) firms is at stake,” he wrote.

Large firms, as well, are being hurt by the freeze even though they rely less on Caltrans for their work.

Psomas & Associates, with 240 employees in three offices, could end up laying off 20% of its workers, said owner Timothy Psomas. Many would likely come out of the company’s Costa Mesa office where employees were handling construction surveying for the Orange Crush--the interchange of the Santa Ana, Garden Grove and Orange freeways.

“We will definitely lay off employees unless we get better news soon,” Psomas said. The freeze on the firm’s contracts also halts work that Psomas had subcontracted to a dozen companies owned by minorities and women.

“Outside consultants are so intrinsically involved in nearly everything that Caltrans does that it’s hard to imagine how the agency can unravel it,” he said.

Robert Bein, William Frost & Associates in Irvine, which provides engineering support work on the Orange Crush project, obtains about 4% of its revenue from Caltrans contracts. Still, about 15 of the company’s 350 employees will be laid off because of the freeze, said Robert Bein, the company’s chief executive.

About 100 employees in the 10 California offices of Parsons, Brinkerhoff, Quade & Douglas Inc. could lose their jobs, said Robert H. Bramen, a senior vice president and regional manager in the New York company’s office in Orange. Even with 3,500 employees worldwide, such a layoff would have a “major impact” on the firm, he said. “That’s a lot of people that we frankly don’t have other work for,” he said.

In a meeting earlier this month with industry leaders, Van Loben Sels “was not very optimistic about solving the problem in the short term,” Bein said. “We were hoping that in the next 60 days, there would be some solution, but he didn’t hold out much hope.”

Said Weaver: “I can’t understand how this all happened in the first place. . . . Everybody is trying to downsize government, yet there’s this one small group that wants to increase government and the economy be damned.”

When Caltrans announced its plan in 1985 to use outside consultants, its employee union sued.

While the agency always had been able to go to consultants under limited circumstances, its own design staff did practically all the work. By the mid-1980s, though, the agency’s five-year building plans were taking seven years or longer to complete, and it wanted to use consultants whenever “obtainable staff” couldn’t perform the work quickly.

A 1989 state law authorized the agency to use consultants as well, and Sacramento County Superior Court Judge Eugene T. Gualco, after a trial on the union’s lawsuit, upheld the law in April, 1990, but invalidated the agency’s methods, saying Caltrans had to figure out some other way to determine how much work is shipped outside.

Subsequent legal action was settled, Gualco cleared the director in 1991 of contempt and the Legislature amended the law that year to get around some of Gualco’s initial findings.

But last Jan. 15, the union asked Gualco to hold Van Loben Sels in criminal contempt for using faulty figures to determine how much work outside contractors received in the current fiscal year. The union asserted that work had been increasing every year and that the agency should hire more workers, not send more work outside.

In a May 18 ruling, Gualco agreed that the workload was increasing and that Caltrans predictions about workloads weren’t reliable. The agency, he said, used “questionable factual assumptions and reasoning which, at a minimum, underestimate both the workload and the civil service staff needed to perform it.”

But he found that Van Loben Sels didn’t intend to violate his 1990 order and, therefore, wasn’t in contempt. The judge warned, however, that the director would be subject to sanctions if he continued to use similar procedures to determine the allocation of work.

Gualco said that some major design work that Caltrans called temporary--such as the $1.6-billion seismic retrofitting project arising from the 1989 Loma Prieta earthquake in Northern California--might really be long-term work that employees should be doing.

The judge’s order even struck at cities and counties that use locally raised taxes for transportation projects that are on back burners at Caltrans.

Many local transportation agencies, while raising funds and deciding what projects to take on, have turned to Caltrans to handle the design work. Caltrans typically has sent that work to outside contractors, saying that such jobs are temporary and can’t be counted on in determining how much work it does every year.

But Gualco suggested that regardless of whether a project is funded entirely by local taxes, Caltrans may have to do the work itself because it regularly obtains enough local work every year to justify hiring more employees.

Some local agencies, like the Orange County Transportation Authority, saw the handwriting on the wall long ago and stopped using Caltrans.

“We have about 20 locally funded projects, like the El Toro Y widening (Santa Ana and San Diego Freeway confluence), and we’re not asking the state to do work for us on any of those projects,” said Tom W. Bogard, OCTA’s manager for project development.

He doesn’t expect much of an effect on the county’s transportation program funded by Measure M’s half-cent sales tax increase, which voters approved in November, 1990. Through the end of March this year, $213.2 million in Measure M funds had been spent, a fraction of the $3.1 billion the tax is expected to raise over 20 years.

But if Caltrans begins urging all local agencies to retain consultants themselves for the design work, its union will likely step in.

“The so-called Measure jobs were not part of the lawsuit, but there are those among us who believe the principal is the same,” said Bruce Blanning, the union’s executive assistant. “If Caltrans tries to give that work back, that would be a complete departure from its historic role. . . . We’re waiting for their response.”

Caltrans’ Workload Builds

Outside contracting for the state Department of Transportation was set up mainly to handle additional, unexpected or specialized short-term work. If the amount of work awarded to consultants grows for several years, the agency is supposed to increase its design staff and rely less on outsiders. Here’s how Caltrans’ workload has increased, contrasted with its consultants’:

Caltrans’ Consultants’ workload* workload* 1986-87 5,647 270 1987-88 6,137 425 1988-89 6,983 1,047 1989-90 7,113 937 1990-91 7,921 1,207 1991-92 8,858 1,305 1992-93** 8,823 1,285

* Number of people needed to complete all work in one year. ** Budgeted hours; others are actual. Caltrans’ Workload Builds

In the 1990-91 and 1991-92 fiscal years, Caltrans went on a hiring spree for its project development staff. This year the agency will only cover most of its expected attrition.

990-91 1991-92 1992-93 Openings from attrition 130 611 500* Hiring target 1,010 1,556 435 Actual hires 1,010 1,269 172**

* Estimate ** As of Oct. 30, 1992 Source: California Department of Transportation