U.S. Hired L.A. Firm Against Expert Advice, Papers Show
Under apparent pressure from prominent California politicians, the Clinton administration ignored its own experts’ warnings and awarded a $3.2-million contract to a financially troubled Los Angeles company in 1994--only to see the project fail, as officials had predicted.
The contractor, Cordoba Corp., was chosen for a federal contract to run a downtown Los Angeles business center that was supposed to supply financial, marketing and management assistance to minority-owned businesses in seven states. It was the biggest single project ever undertaken by the Commerce Department’s Minority Business Development Agency.
But one year later, the center was closed amid allegations of poor financial management, forcing the Commerce Department to abandon the effort.
The center would still be operating today, officials familiar with the program say, if the administration had followed normal contracting procedures and heeded the warnings of the department’s office of the inspector general that Cordoba was not financially strong enough to run the center.
Top Commerce Department officials had been advised in March 1993 by the inspector general’s office that Cordoba “will not be able to complete the MBDA award based on its extensive debts and unstable financial condition.”
Internal Commerce Department documents obtained by The Times show that administration officials knew when they awarded the contract that Cordoba was running a large operating deficit, had nearly $1 million in unpaid tax liens against it and had been accused of improperly obtaining an $825,000 government-backed loan.
And Cordoba was not initially the preferred bidder for the project.
Despite that fact and the company’s problems, several agency officials who declined to be identified say they felt pressured by top Commerce Department appointees to choose Cordoba.
Political Backing
The company won the contract after letters of recommendation were written by several California politicians who had influence with the administration--including Sen. Dianne Feinstein and Rep. Matthew G. Martinez of Monterey Park, both Democrats, as well as then-Deputy Los Angeles Mayor Al Villalobos, a Republican appointee of Mayor Richard Riordan. Villalobos; his son, Eric; and Martinez’s son, Matt, were later hired to work for the center.
State Democratic Party Chairman Art Torres holds a $150,000-a-year position with the firm but has declined to discuss what his job entails.
In the end, the loss of the Los Angeles center proved to be more of a setback for other minority businesses in the region than it was for Cordoba.
Not only was the company permitted to keep the $3.2 million it received for the anticipated three-year project, but Commerce Department officials are also considering Cordoba’s request for an additional $269,000 in so-called close-out funds on the contract.
Officials say Cordoba is likely to receive the money even though it has never returned $137,000 that the federal government says the firm owes for overpayments. The figure was determined by auditors who found that Cordoba had overcharged the government for some expenditures and had used federal funds to pay employees who were not authorized by the government.
Cordoba owner George L. Pla, who declined to be interviewed but answered written questions from The Times, disputes the government’s contention that he owes it money. He defended his company’s qualifications for the contract, saying Cordoba had operated several minority-business enterprise programs since it was founded in 1983.
Before obtaining the minority business center contract, Cordoba had undertaken other projects for local municipalities, including the city and county of Los Angeles, with mixed success.
Its part in a 1992 post-riot cleanup project was criticized by federal officials for delays and high administrative costs. Cordoba also abandoned a study on affirmative action in city contracting, contending that records were inadequate.
Pla has boasted of his willingness to use political connections to gain contracts for his firm.
In an interview by Harvard Business School students several years ago, he credited much of his success to his political friendships.
“It’s all about relationships,” he said, according to a case study still in use at Harvard. “Companies that go through the whole [government-contracting] process and expect to be selected on the merits of their proposal really don’t understand the business. . . . There has to be something more.”
In national politics, Pla served on the prestigious 1992 Democratic National Convention site-selection committee and the executive fund-raising board of the Clinton campaign. Membership in both groups was reserved for especially influential Democrats.
The Los Angeles facility--or MEGA Center, as it was called--was supposed to serve a seven-state area and provide an expanded menu of services, such as advice on international sales, that is unavailable at other centers of its kind. Minority businesses were promised help in obtaining financing, marketing their products and managing their businesses.
A federal panel of civil servants that selects Minority Business Development Agency contractors judged as second-rate Cordoba’s initial proposal to operate the MEGA Center, according to a panel member who declined to be identified. It was rated a full 10 points lower than a plan submitted by the accounting firm of Grant Thornton, the panelist said.
Nevertheless, Thornton’s proposal was rejected by top Commerce Department officials--including then-acting MBDA director Gilbert Colon. They ordered a second round of bidding and selected Cordoba.
“The political appointees obviously wanted to give Pla the award,” observed a review panel member who declined to be identified.
Colon refused to discuss the reasons for the decision. Paul Weber, the current MBDA deputy director, speculated that Cordoba was given preference because it is a minority-run firm.
Letters were written on Cordoba’s behalf by Rep. Lucille Roybal-Allard (D-Los Angeles); Ed Edelman, then-Los Angeles County Board of Supervisors chairman; Feinstein; Martinez; and Villalobos. In MBDA’s file, these politicians are listed as Cordoba’s patrons.
In an Aug. 31, 1993, letter, Martinez praised Cordoba for its “professionalism and expertise.” In a similar letter written the previous day, Villalobos pledged that if Cordoba were chosen, the city would assign one of his deputies to sit on the MEGA center board and head the city’s Minority Business Opportunity Committee.
At first, Martinez told The Times that he never wrote a letter on behalf of Cordoba. After the letter was found in Commerce Department files, a top Martinez aide said it was written and signed without Martinez’s authorization by an employee of the congressman.
Villalobos, who resigned as deputy mayor as a result of reports about his own troubled business history, said he has no recollection of writing a letter to the Commerce Department.
“I wrote letters to support anyone who wanted to create jobs in Los Angeles,” he said. “I had no way of knowing whether they would succeed.”
Pla said he did not solicit political support for his proposal and saw no conflict in choosing Villalobos, his son and Martinez’s son to work on the project. He noted that Villalobos was actually employed by a subcontractor, Telacu, another East Los Angeles Latino-owned firm.
Martinez said he does not know why Pla hired his son to work in the MEGA Center, but he speculated that it might have been a gesture designed to win his approval. “George and I have been sort of estranged,” Martinez said. “He has made attempts to bury the hatchet.”
Pla’s generosity apparently was wasted on him, however. “That’s not the way you ingratiate yourself to me--hire a relative,” Martinez said.
Feinstein’s Letter
For his part, Pla acknowledged hiring Martinez’s son. But he added: “Congressman Martinez had no decision-making authority in the operation of the MEGA Center. Therefore, no conflict of interest exists.”
Feinstein’s rather generic-looking letter asked the agency to give “strong consideration” to Cordoba but said nothing about the firm’s qualifications.
Feinstein’s office declined to comment on the recommendation.
Before the contract was awarded to Cordoba, a routine review by the inspector general revealed that the company had nearly $1 million in outstanding tax liens against it by the Internal Revenue Service and the state of California.
In addition, documents show, inquiries by the inspector general turned up evidence that Cordoba had borrowed as much as $825,000 from Wells Fargo Bank with the backing of the Small Business Administration and failed to disclose the tax liens, as required by law.
SBA auditors said some of the loan money was improperly diverted to Pla’s sister, while another portion was improperly used to pay off one of Cordoba’s tax liens. The case has been referred to the FBI.
Doubts About Firm
Noting that SBA rules prohibit the use of loan funds to pay delinquent taxes, the auditors said: “The SBA loan gave Cordoba the financial means to repay IRS. Although we could not directly trace the loan proceeds to IRS payments, the result was the same.”
Pla denies these allegations and says he has not been questioned by the FBI.
The inspector general worried that Cordoba, which was operating at a deficit, “may use MBDA funds to pay off its remaining debts to IRS,” according to one internal document.
In addition, documents obtained by The Times show that Commerce Department officials suspected Cordoba had misrepresented some of its qualifications in its application. Among other things, Pla told government officials he had recently been involved in establishing a $150-million investment fund, but Dun & Bradstreet Corp., a financial services company, found no record of it.
Although Commerce Department officials spurned the inspector general’s recommendation not to award the contract to Cordoba, they took some precautions. The firm did not receive the money until it agreed to submit to monthly audits by the government and to pay back taxes by August 1994.
But even with the help of the $3.2-million federal contract, Cordoba was unable to stem its operating losses. In 1995, the inspector general recommended that the firm be removed from the project. According to an audit done at the time, Cordoba’s overhead and administrative costs for the MEGA Center were equal to 54% of its direct operating expenses, which auditors viewed as excessive.
Around the same time, the Los Angeles MEGA Center reported expenditures of more than $2.4 million in 10 months, while the Chicago MEGA Center--which was operating successfully in a 10-state area--spent $1 million in a 12-month period.
Not only was Cordoba continuing to operate at a deficit, according to the government auditor’s report, but the firm once again had fallen behind on federal taxes and had defaulted on its Wells Fargo loan. In addition, auditors found Cordoba was collecting reimbursement for office rental from the government while failing to pay the rent.
Pla tells a much different account of why the contract was canceled. He said it was Cordoba’s decision to close the center because the government did not provide sufficient funds to operate it. He insisted that his firm “met every goal set by MBDA” for the project.
He noted Cordoba spent nearly $557,000 of its own funds on the project, and he insisted the center was living up to its goal of assisting minority businesses at the time it went out of business.
Funding Questions
Minority Business Development Agency officials say they do not know why Cordoba was never asked to reimburse the government for a substantial portion of the $3.2 million, which was intended to be spent over a three-year period.
As for the additional $269,000 that Cordoba is still seeking from the government, Pla explained: “Once the MEGA Center was closed, Cordoba was instructed to forward a close-out budget reflecting the costs of closing the project. Cordoba is simply seeking to recover these costs.”
Weber, the current MBDA deputy director, said the effort to establish a minority business center in downtown Los Angeles was abandoned in 1995 after Cordoba lost the contract because his agency’s funding was being trimmed by Congress.
