Firm Accepts 20-Year Ban on County Work

One of the nation’s biggest building firms, Dillingham Construction Inc., has agreed not to bid on any public works projects with Los Angeles County for 20 years to avoid a major courtroom fight over allegations that the company fraudulently billed the county.

The unprecedented ban is part of a sweeping out-of-court settlement approved Tuesday by the county Board of Supervisors.

After being sued by Dillingham five years ago, the county countersued and alleged that the construction giant submitted false claims for work while building the county’s Emergency Operations Center in East Los Angeles.

“We owe it to the public to shine a light on this kind of abuse,” said Supervisor Zev Yaroslavsky in urging approval of the settlement. “It’s amazing to me how brazen people are who do business with us, and they think they can get away with it.”

But Dillingham general counsel Dennis Haist said in an interview that the company made no admission in agreeing to settle the case, which was set for trial in Superior Court next month.

Haist agreed it was “extraordinary” that the company would refrain from bidding on any county construction project for 20 years. The settlement agreement allows the county to rescind the ban, if it chooses.

Dillingham’s attorney said he does not believe it is in the best interests of the company’s stockholders to do business with the county because of “the current attitude that this particular agency has toward filing” of false-claims allegations.

County Counsel Lloyd W. Pellman said the settlement approved Tuesday “signals a new day with respect to vigilance that we’re starting to exercise . . . to try to bring greater accountability to those in the construction industry that deal with public agencies.”

Yaroslavsky told Pellman that he wished the Metropolitan Transportation Authority had been as vigilant in pursuit of Dillingham as the county has been.

The MTA is engaged in a protracted legal battle with a joint venture, Parsons-Dillingham, over alleged overbilling on the Metro Rail subway project. The MTA is expected to pay Parsons-Dillingham an estimated $267.5 million for work managing construction of the Red Line subway project by the time all the bills are in next year, an MTA spokesman said.

MTA counsel Steve Carnevale said the agency believes that it has been overcharged by as much as $10 million, primarily on work billed by Dillingham. Under state law, a government agency or individual whistle-blower who prevails in a False Claims Act case can recover triple damages.

Steve Madison, attorney for Parsons-Dillingham, denied the MTA’s allegations and said there is no evidence of overcharging the agency. “We will be seeking a dismissal of the false-claims allegations,” he said.

The county’s contract with Dillingham called for construction of the two-story Emergency Operations Center for $9.5 million. The budget increased to about $10 million, with change orders approved by the county.

Because of major problems with construction of retaining walls for the project, completion was delayed more than a year. The county withheld more than $1 million in damages. As a result, Dillingham sued the county in 1995 seeking a total of $11 million for defective design, extra work and delay damages.

The county then filed a countersuit alleging that Dillingham knowingly submitted claims for payment that had no factual or legal justification. In the course of discovery, attorneys for the county said they found a copy of a letter from a Dillingham lawyer to a subcontractor that said some of the costs included for payment were not incurred by the subcontractor. Despite this, Dillingham submitted the request for payment to the county three days later.

Haist said in response that the request for payment on an $8,000 item was an error. “That was not a false claim. There has to be some intent to defraud” and none existed, he said.

He said Dillingham “delivered a world class facility” for the county’s emergency operations despite suffering significant financial losses on the project.