Success at a Steep Price

Los Angeles’ Hyperion Waste Water Treatment Plant, once a major polluter of Santa Monica Bay, is now a gleaming model of environmental protection. But beneath the hoopla surrounding that $1.6-billion transformation are a host of costly mistakes that have already bankrupted some of the project’s contractors and may eventually cost city residents $100 million more.

The project has become so notorious that those who worked on it have given it a wry nickname: “The Hyperion Experience,” they call it, grimacing as they do.

“I have been doing construction litigation since 1969,” said Patrick Duffy, a lawyer who represents a particularly disgruntled Hyperion contractor. “I’m probably as experienced in this as any lawyer in the country. . . . It’s not uncommon to have disputes. But I’ve never seen anything like this.”

A tour of the plant illustrates some of what they are talking about.

Walls don’t quite meet, so workers have filled gaps with insulation. Glass towers that irritated neighbors with their glare have been coated with crude frosting, making it unclear why they were built with glass in the first place. Light posts are made of expensive stainless steel, rather than cheaper galvanized material. Sections of pipe once painted orange to show they carry methane gas now are being repainted white to make them less distracting. Huge doors installed to allow movement of equipment are rendered useless by motors bolted to the floor directly in the path that should have been left clear.

Some of those flaws are merely irritating. Others needed fixing, and that has cost money--lots of it. The result is a furious dispute about who should pay, contractors or city residents.

Arguments at the end of major construction projects are hardly new. They are, in fact, the rule, not the exception. What distinguishes the conflict at Hyperion is the size of the disagreements--roughly $100 million is at stake--the similarity in the problems encountered by the various contractors on the job, and the extent of the damage. Dozens of subcontractors have already been hurt in ways ranging from tax problems to bankruptcies.

City officials publicly refuse to comment in detail because the disputes are heading for court. Privately, however, some say that the problems are the fault of laggard contractors and the inevitable fallout from a project that cost more than $1 billion and that had to be rushed to completion in order to beat a federal deadline.

Contractors who worked on the project disagree. They say Los Angeles’ plans were woefully inadequate and that they were forced to improvise solutions, only to have the city refuse to reimburse them for the changes. In part, the contractors also blame an inexperienced and turnover-riddled team of city supervisors for letting the project get out of hand, then reflexively blaming the builders for the problems that arose.

“This is something we’re going to take a look at internally,” said Ellen Stein, president of the city’s Board of Public Works. “If there are problems, we’ll change them.”

Stein emphasized, however, that she believes “the people who do this work are really professional people who do a terrific job.”

Businesses Face Financial Disaster

The men and women who worked on the Hyperion plant disagree.

Typical of their grievances is that of Richard Felix, a local plumbing contractor who built a thriving company on a string of successful public works projects. Working on the Hyperion plant, he says, was the worst professional experience of his life. It forced him to lay off all but two of his 50 employees; it even broke up his relationship with his brother, who was co-owner of the firm but left it in the wake of the problems with Hyperion.

How bad was it? “It was worse than the MTA,” Felix said.

It wasn’t much better for Norie Jimenez, who owns the Fairmont-based Pacifica Insulation.

According to Jimenez, problems with the city plans for his share of the Hyperion project forced him to spend $150,000 more than he originally estimated; because his estimate was about $150,000, that nearly broke his small company, too.

He ended up in trouble with the Internal Revenue Service, which placed a lien on his property and damaged his credit rating.

And then there’s Marie Scully, whose Washington state company closed as a result of the Hyperion project. Today, she hesitates even to talk about it.

“Oh dear,” she said. “It was just terrible. Five years ago, I was considered a preferred subcontractor by the city. Now I’m not sure I’ll ever work again.”

Ironically, Felix, Jimenez and many of the others who suffered the worst damage are women or minorities who own small businesses--the very firms Mayor Richard Riordan prides his administration on helping. Today, as many as 100 of those small companies are out millions of dollars, and some have been forced to lay off workers or close their doors.

“They tell everybody they want to help out minority contractors, they want to help small business,” Felix said. “What they did here was snuff ‘em out.”

A strange aspect of the feuding at Hyperion is that the plant is the object of pride for the city and the contractors who built it. A massive undertaking, Hyperion was upgraded at a cost of $1.6 billion, and it was completed on time--in December.

Even Heal the Bay, which presses for cleanup of Santa Monica Bay, expressed its satisfaction with the Hyperion upgrade.

Mark Gold, executive director of that group, declared the plant’s opening an “incredibly momentous day for the bay.”

Government agencies are so pleased with the work at Hyperion that they are planning a major celebration in May. They’ve invited President Clinton, among others, to dedicate a facility that will allow Los Angeles to grow without further dirtying the water off its coast.

The contractors who actually built the plant have not been invited to participate.

Public Works Board President Stein acknowledged that the claims against the city are large, but attributed their size to two main factors: the size of the project and the speed with which it was built. Hyperion was upgraded under the watchful eye of a federal judge after the city signed a consent decree to end a lawsuit by the federal Environmental Protection Agency.

Although they declined to be identified, city officials involved in drafting the blueprints for the plant say that they did their work quickly but well. Proof of that, they say, is that each of the major construction companies bid for work on the Hyperion project based on the plans the city presented. Company officials respond that their bids were premised on the city’s assurance that the designs were complete and sufficient when, in fact, they were not.

Faced with such a sharp disagreement, last fall, city officials and representatives of one of the leading contractors, Dillingham Construction, agreed to mediate their differences.

Dillingham’s argument was based largely on what it said was the inordinate number of changes made during the construction of its phase of the project. Normal projects, even large ones, generally produce so-called change orders on about 4% to 8% of the overall number of construction tasks, according to experienced construction industry observers. In this case, Dillingham says that more than 25% of the work was changed from the original designs.

Deal Was Made, Then Killed

In all, the city processed about 250 change orders, internal Dillingham documents show. One of those, the now-infamous “Change Order 22,” required more than 120 actual changes at the plant.

City officials will not say precisely how they responded to Dillingham’s arguments, but in general they blame Dillingham and the other major contractors for the problems. According to city sources, Dillingham did not assign enough people to the project. The result, city officials say, was unnecessary delays that were Dillingham’s fault, not the city’s.

On Sept. 14, representatives of both sides agreed to a deal. It would have paid Dillingham and its subcontractors $25 million. An assistant city attorney signed the deal for the city, and was joined by representatives of Dillingham and other companies involved in the project.

As is customary, that settlement was presented to the city’s Board of Public Works. There, however, an unusual thing happened. The board balked, refusing to agree to the deal negotiated by its own lawyers. Since then, Dillingham has filed a claim against the city, precursor to a lawsuit; the company says it is owed $56 million.

The deciding vote in rejecting the claim came from Stein, a fact that has further angered Dillingham and its backers. Stein is married to Ted Stein, a prominent San Fernando Valley lawyer, friend of Riordan and former electoral opponent of City Atty. James K. Hahn. That Ellen Stein would reject a deal negotiated by Hahn’s office irks supporters of the contractor.

But city sources say Stein’s vote against the settlement was not influenced by her husband’s past conflict with the city attorney. Rather, those sources say, Stein opposed the deal because she believes the city attorney’s office in general should fight harder and longer before approving agreements.

Stein also dismissed the allegation. “Whoever says that paints a picture that is so inaccurate,” she said. “It does a disservice to everybody involved.”

On the contrary, Stein added that she has enjoyed a productive and professional working relationship with the city attorney’s office, an assessment echoed by officials in that office.

Meanwhile, other contractors are similarly angry.

Kiewit-Pacific Construction Co. has filed two lawsuits seeking a combined $54 million, and a third firm, Mortenson Construction, is pressing for resolution of about $40 million in disputed bills on its portion of the plant. That leaves only one major contractor, Tutor-Saliba. It is trying to work out smaller problems, and observers say that Tutor-Saliba had the advantage of getting involved in the project last, so many of the problems that the other companies ran into had been resolved by the time it began work.

Steve Hanau, who managed Dillingham’s portion of the project, echoed that sentiment and noted that this project stands out in the city’s relationship with Dillingham. In 1989, Dillingham won a contract to build a water reclamation plant in Van Nuys. That $44-million job was finished three months early, and Dillingham got a $3-million bonus.

Between a Cone and a Hard-to-Paint Place

At Hyperion, the experience has been the exact opposite.

One of Hanau’s favorite examples of how Hyperion went awry is invisible. Standing next to one of the plant’s 20 gigantic sewage digesters built by Dillingham, he pointed to the exterior and noted that inside each digester is an empty space, a gap between the bottom of the digester’s cone and the exterior wall. Because that space is entirely enclosed, it cannot be entered either from the outside or the inside.

Nevertheless, Hanau said, the city reviewed Dillingham’s work and decided that the closed-off area around each digester met the definition of a “non-air-conditioned room.”

“As such, they told us it had to be painted,” he said. “We said: ‘Why? Where’s the door? What’s the point?’ ”

City officials were unrelenting. They insisted on the painting--which Dillingham paid for--and then refused to reimburse the company. Today, Dillingham wants the city to pay up; the city is holding fast.

“This was game-playing,” Hanau said, “not building.”