County Repays FAA $480,000 for False Billing

Orange County has been forced to repay $480,000 to the Federal Aviation Administration after the U.S. Department of Justice concluded that the county withheld that amount from a paving contractor but still billed the federal government.

A federal prosecutor specializing in fraud spent more than a year investigating county airport staff and considered bringing a “false claims” action against the county. Airport officials had withheld money from the construction contractor in April 1991 but requested reimbursement for the same amount in the form of an FAA grant less than two months later.

The county’s actions involving the FAA grant “create a prima facie case that JWA knowingly submitted an inappropriate claim,” Assistant U.S. Atty. Stephen A. Shefler wrote in a Dec. 17, 1999, letter to the county.

However, Shefler concluded in his letter, “For a variety of reasons, we have decided to seek restitution on the basis of payment by mistake.” Shefler would not comment Wednesday but sources close to the investigation said prosecutors did not have evidence of fraud.

The federal investigation was kept secret from Orange County supervisors until this month, when they were informed by the county counsel they should approve the FAA reimbursement as part of a settlement agreement between county attorneys and Shefler. Supervisors did so Tuesday, taking the money from airport funds.

Federal officials discovered the overbilling problem during an investigation--which ultimately ended without charges--into claims that paving contractor Ball Ball & Brosamer Inc. used faulty construction materials at several airports around the country, including John Wayne Airport. Company officials could not be reached for comment Wednesday.

County Counsel Laurence M. Watson agreed that the billing was a mistake.

Watson said county officials asked the FAA to cover the cost of paving work done by BB&B; in 1990 for a major expansion of the airport. However, local officials failed to disclose that the county had refused to pay for much of the paving work covered by the grant after accusing BB&B; of doing shoddy work.

“The FAA wanted the money back [and] it wasn’t right that we should keep it,” Watson said this week.

Supervisor Todd Spitzer said he was troubled that supervisors weren’t told about the yearlong federal investigation into the FAA grant nor the circumstances of the overbilling until just days before having to vote.

“They never disclosed this to board members and they should have,” he said. “This better be the last time that the board is kept in the dark about potential mishandling of funds.”

Federal investigators were dubious late last year that the county’s billing of the FAA was a mistake.

In a letter to John Wayne Airport officials, Shefler said the timing of the transactions didn’t add up: In April 1991, county supervisors approved a $2.1-million payment to BB&B; for paving work, but withheld $600,000 because sections of the pavement didn’t pass stress tests. Two months later, the county submitted a grant request for $837,481 to the FAA, including $480,000 for the same paving work for which the county had refused to pay BB&B.;

The Department of Justice originally suggested that the county repay the $480,000 grant amount plus 5% interest since 1991, for a total of $744,638. But county officials balked.

“JWA has enjoyed long standing good relations with the FAA and wishes to maintain a positive relationship,” airport counsel Richard Oviedo wrote Shefler in March. “Therefore, JWA has advised me that it concurs with your recommendation to seek resolution of your claim for reimbursement on the basis of ‘payment by mistake.’ ”

The expansion of John Wayne Airport came after more than five years of stormy debate over how the county would handle its growing demand for air travel--a debate that echoed much of the current controversy over whether to build an international airport at El Toro.

Approved in 1985, the expansion project was widely criticized for being more expensive than expected--some $26 million over budget by 1990, including $22 million in cost overruns for the Thomas F. Riley terminal. The project at that point was nearly six months behind schedule, blamed on design, management and construction problems.

The problem-plagued project eventually cost then-John Wayne Airport Director George Rebella his job. He was replaced in 1990 by Jan Mittermeier, then the airport’s assistant manager who rose to become the county’s chief executive. She left her post Tuesday, following months of controversy--over plans for El Toro.

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Reimbursement Chronology

Feb. 28, 1989: Orange County awards a contract to Ball Ball & Brosamer Inc. for extensive pavement rehabilitation work at John Wayne Airport as part of an expansion project completed in 1991.

Aug. 15, 1990: Paving work is completed for a total cost of $16 million. BB&B; later submits a claim to the county for $3.7 million for additional work.

April 9, 1991: Board of Supervisors approves $2.1 million worth of additional payments to BB&B;, deducting $600,000 because of substandard pavement work that didn’t pass strength tests.

June 6, 1991: Orange County submits a $837,481 grant request to the FAA, including $480,000 for the same paving work for which the county refused to pay BB&B.; The county never tells the FAA that the contractor reimbursed $600,000 for the work. The grant subsequently was approved and paid.

Late 1996: US attorneys office began an investigation against BB&B; pursuant to the federal False Claims Act, alleging fradulent work at various airports around the country, including John Wayne Airport. Investigators discover the overbilling by the county for the disputed JWA paving work.

June 30, 1999: John Wayne Airport Director Alan Murphy, project manager for the 1991 expansion, is deposed by federal prosecutors on the overbilling.

December 1999: US attorneys office decided not to pursue its claim against BB&B.;

April 14, 2000: Asst. US Atty. Stephen a. Shefler accept’s the county’s offer to repay the $480,000 amount of the grant. Shefler had asked for 5% interest from 1991, for a total of $744,638.

June 16, 2000: County Counsel Laurence M. Watson informs Orange County supervisors of the overbilling controversy in a confidential memo. He places approval of the repayment on the board’s June 20 agenda, though the matter is held for a week at the request of Supervisor Todd Spitzer.

June 27, 2000: Board approves the repayment in closed session.

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Reporting by JEAN O. PASCO / Los Angeles Times