O.C. Toll Panel Weighs Firing Lockheed Unit

Orange County’s tollway agencies are debating whether to fire Lockheed Martin, a subsidiary of the aerospace giant that serves as its toll collection contractor, for demanding $75 million more in fees than originally negotiated.

Such drastic action, discussed behind closed doors in recent weeks, would throw the state’s first toll roads into disarray because Lockheed Martin has been in charge of the project’s automated toll collection technology since 1992 and has long been touted by the agencies as key to the tollways’ success.

Details of the legal dispute with Lockheed were contained in a July 10 memo written to tollway officials by Peter Buffa, a Costa Mesa city councilman who is a member of the toll road board. In the memo, obtained by The Times, Buffa said the tollway agencies have discussed firing Lockheed by Aug. 1 “as an effective counterattack against them in the current dispute.”

Buffa also said Lockheed has been reluctant to divulge information that would show how much profit it is making, because company officials “felt it would give competitors an unfair advantage in bidding on future projects.”

Under the existing contract, the company could gross $600 million over the next 20 years.

Since he wrote the memo, Buffa said, Lockheed provided tollway agency officials some data, which Lockheed and agency officials declined to make public. Several tollway board members who are privy to the information say it is confusing and incomplete.

Two board members, who asked not to be identified, said Lockheed is demanding as much as $75 million more than called for in its contract, an amount the tollway staff and its lawyers strongly oppose paying.

The board members said they have discussed dropping Lockheed as its toll collector on the section of the Foothill toll road already open, and on two other roads--the San Joaquin Hills and Eastern tollways being built in future years. A seven-mile section of the San Joaquin tollway is scheduled to open Wednesday.

Company and tollway officials were mum last week about the dispute.

“In general, Lockheed Martin does not make any comments regarding contracts with its customers,” said Paul Sampedro, a Lockheed program manager. “We basically designed the system, and we operate and maintain it. We’re a soup-to-nuts contractor. As far as anything else is concerned, call the customer. The customer is always right.”

Lockheed has 80 employees on the job but expects to increase that number to 150 after the San Joaquin Hills tollway is finished late this year, according to tollway documents.

Paul Glaab, a tollway spokesman, said: “There is a dispute between the Transportation Corridor Agencies and Lockheed, but that’s not unusual for a project of this complexity. It goes with the territory. We hope it will be successfully resolved, just like the rest of the disputes.”

But Buffa’s letter indicates a more serious problem and said that a subcommittee of the toll road boards has been meeting since January to resolve the dispute.

“The issue, oversimplified, is this: how, and how much, will [Lockheed] be paid for toll collections--by lane, by segment, by transaction or some combination of all three?” Buffa wrote.

Lockheed “contends there are a number of serious inequities in the current operating agreement due to incomplete or inaccurate assumptions” in its original proposal, Buffa wrote.

The boards, Buffa said, are proceeding on two fronts: one to “wage an aggressive defense of the current agreement” before an impartial third party, and to “pursue a revised agreement acceptable” to both parties.

One board member familiar with the negotiations said Lockheed is worried that some sections of the toll roads--particularly the southern section of the Foothill between Mission Viejo and the San Diego County border--may never be built even though the company based its bid on all of the planned segments being completed.

Lockheed’s payment structure is based on a complex formula that takes into account the number of lanes built and the number of cars and trucks that use the tollways.

In his letter, Buffa warned fellow board members not to be too hasty in getting rid of Lockheed, which he defended as having a trouble-free record over the last few years.

Some board members said they would have no qualms, however, about getting rid of Lockheed if the tollway agencies could save some money.

“They are charging us a lot more than they’re charging in lots of other parts of the country,” said another board member, who said he could not discuss the situation freely because it is in legal proceedings before a dispute resolution panel.

“We need to know if they’re playing fair,” the board member said. “And if they’re not giving us the information we need, then we should move to hiring another company that wants the business.”

Lockheed holds the toll collection, installation and maintenance agreements under a contract that allows the agencies to remove the company from any of those tasks every few years. On Aug. 1, either party can sever the toll collection agreement, but if no action is taken, the agreement is renewed for another three years.

When the toll collection contract was awarded in 1992, the competition was heavy, prompting bids from Kiewet Network Technologies Inc. of Omaha, Westinghouse Electric Corp. of Baltimore, and Hughes Aircraft Co., the eventual runner-up.

According to the official statement used to market toll road bonds, Lockheed Information Management Services Co. of New York has won more than 150 government contracts throughout the country to manage parking operations, help obtain delinquent child support payments and collect tolls.

Among the “automatic vehicle identification” systems it designs and manages are those for the New York State Thruway Authority and the Metropolitan Transit Authority Bridges and Tunnels in New York City.

Lockheed also has been the county’s data processing operator for several years. Last year, with two years to go on its contract, the consulting firm of Arthur Andersen & Co. recommended the county open the contract up to competitive bidding to save the county between $1 million and $3.5 million.

County staff members argued that changing contractors would jeopardize the security and confidentiality of thousands of county records Lockheed was handling, from payroll and accounting documents to arrest warrants and state Department of Motor Vehicle information.

Last October, the Board of Supervisors voted 3 to 2 to renegotiate Lockheed’s annual $11-million contract rather than open it for bids.

The board majority argued that Lockheed had done an excellent job and that while the supervisors generally supported open bidding, the data processing contract was an exception.