‘Fronts’ Said to Be Rife in Contracting

Some of California’s biggest construction firms routinely skirt laws intended to guarantee minority-owned subcontractors a share of government-funded projects, according to allegations in a recent series of legal proceedings.

Three lawsuits, a jury verdict and a federal indictment portray contractors as willing to evade or exploit equal opportunity guidelines. A frequent tactic is the creation of minority-owned “front” companies that are controlled by white-owned contractors.

One case ended Wednesday when a Los Angeles Superior Court jury ordered construction giant Tutor-Saliba Corp. to pay more than $29.5 million to the Metropolitan Transportation Authority for more than 1,000 acts of business misconduct during subway construction. Jurors said a key finding was that Tutor-Saliba used companies that posed as minority subcontractors to meet MTA diversity guidelines.

Government rules requiring contractors to give a specific percentage of a public job to minority-owned businesses, or to at least document good-faith efforts, have been in effect for three decades. They have long been criticized by opponents of affirmative action, who have weakened some policies through legislation and lawsuits.

Advocates of equal opportunity contracting policies say the Tutor-Saliba verdict and other recent cases demonstrate discriminatory tactics used by some white-owned companies. They also illustrate the complicity of some minority contractors who go along with these schemes. The cases include:

* A class-action lawsuit by minority- and female-owned contracting firms against Contra Costa County, accusing government officials there of failing to enforce equal opportunity policies in construction and other government contracts.

* A suit by the city of San Francisco last month against six firms, claiming the companies inflated the number of minority subcontractors to win a $22-million airport expansion project.

* A federal indictment against another San Francisco company alleging that it falsely qualified for $56 million in subcontracts intended for minority-owned firms. A senior City Hall equal opportunity official was indicted for allegedly conspiring with the contractor.

* A suit by a black-owned San Francisco concrete subcontractor against a white-owned firm. The suit charges that the contractor at first controlled the subcontractor and, when the relationship soured, tried to drive him out of business.

Public construction contracting is a multibillion-dollar business in California, and studies show that minority- and woman-owned firms are routinely underrepresented.

A recent Department of Defense study found that from 1995 to 1999, minorities were awarded less than 3% of $600 billion in contracts. In the city of Los Angeles, where minorities own a quarter of all construction companies, only 12% of the money spent on public works in the first half of this year went to minority-owned firms. San Francisco’s Human Rights Commission reported that minorities ran 35% of the city’s small construction firms, but won fewer than 20% of the city’s public subcontracts.

Fight Over Programs Based on Percentages

A series of federal court decisions in the 1990s made it more difficult for state and local governments to set affirmative action requirements for public contracting. Those cases led then-Gov. Pete Wilson and some local officials throughout California to abolish programs that set percentage goals for minority subcontractors.

Evaluating the impact of those changes was made difficult in 1996 when Wilson told state agencies they were no longer required to collect race and gender data on state contractors. Gov. Gray Davis has twice vetoed attempts to reverse Wilson’s executive order.

“At the state level there is no way of monitoring whether minority- and woman-owned businesses are getting a fair share of the contracting pie,” said Ted Wang, a lawyer with Chinese for Affirmative Action.

The definition of “fair share” depends on which agency is offering the contract, the type of work and the demographics of the area where the contractors must work. For example, federal transportation law holds that “not less than 10%” of highway and transit funds be set aside for “disadvantaged business enterprises” (the umbrella for small minority- and woman-owned businesses). But many cities in multicultural California impose diversity goals of about 20%.

Looser “good-faith efforts” at equal opportunity contracting include advertising in targeted publications, sending notices to minority business associations and contacting firms directly by mail.

Some critics say the good-faith effort standard is little more than a loophole for white-owned businesses bent on excluding minorities and women. Jose Prado, director of the West Los Angeles County Minority Business Development Center, which disseminates government contract proposals to minority business owners, gets hundreds of subcontract notices in the mail every week. But he says 70% of them come too late for a response.

In Tutor-Saliba’s subway contract with the MTA, the company was required to subcontract at least 25% of the work to disadvantaged firms. It told the MTA that it had actually surpassed its goal. But Necola Yvonne Shaw, an expert on disadvantaged business enterprises with 17 years of experience with federal agencies and transit districts, testified last month that Tutor “knowingly, willfully used fronts” to meet MTA diversity goals.

The jury in the case found that one of several Tutor front companies was a cement company named Accu-crete, which attracted tens of millions in public subcontracts throughout the state.

Man Listed Was Not the Firm’s True Owner

Tutor listed Sidney A. Buggs, a black man who ran the Accu-crete office, as the company’s co-owner. The jury found that was not true, based on a letter Buggs wrote two years ago to a Tutor executive saying: “Everyone concerned knows who the owner [of Accu-crete] is, and for certain it is not Sidney A. Buggs III.”

Tutor-Saliba Corp. President Ron Tutor said his involvement with Accu-crete was limited to helping it survive. He said minority outreach programs tend to burden big contractors with unrealistic goals.

“You’re talking about goals of 20% to 25%, but only a fraction of those disadvantaged companies can actually carry themselves,” he said.

Smaller firms are also less likely to have the financial resources needed to complete public works projects, Tutor and others say. Such projects are notorious for growing in complexity as agencies add “change orders.”

Said Tutor: “Tell me how a disadvantaged subcontractor can keep up when the public agency takes six months to pay? So rather than let these subs go bankrupt, contractors like us give them an advance. Then we’re accused of using them as fronts, which is preposterous. We’re just keeping them from going bankrupt!”

Some minority subcontractors remain silent about fronts because they stand to benefit. Others fear reprisals. Ann Cervantes, a Latino architect in San Francisco, said she was approached two years ago by a contractor to do 10% of the work on a large government project.

Cervantes said her presence enabled the prime contractor to fulfill its 20% diversity goal and win the project. “Then they offered me 1% of the subcontract to sit out. They threatened me: ‘Take this or get nothing.’ ”

Lynda McGlinchey, supervisor of the Los Angeles Department of Public Works’ minority outreach program, says enforcement is hampered by slender resources: Her staff of four must review 4,000 proposed jobs and about 400 actual projects each year. She is apologetic when she says her office found that only 1% of all public works contracts had not performed adequate diversity outreach or had engaged in discrimination. Industry insiders call that figure laughably low.

The lawsuit filed by minority contractors against Contra Costa County claimed active discrimination by government agencies. Plaintiffs’ lawyers used county documents to argue that from 1997 to 2000, only 4% of all county construction contracts went to minority-owned firms, which were 14% of the available market.

More recent studies showed similar rates, but the county did not reveal those documents until the end of trial, prompting an angry judge to threaten sanctions that could include a ruling against the county. A verdict is expected soon.

The most sweeping allegations of contracting abuse stem from San Francisco International Airport’s expansion project.

San Francisco City Atty. Louise Renne sued six firms, saying one of them, Dillingham Construction Co., lied to city officials about meeting its 17% minority- and 6% woman-owned business participation goals.

The lawsuit accuses Dillingham of paying black-, Latino- and Filipino-owned firms to pretend to be functioning subcontractors. In fact, Renne said, Dillingham reduced the subcontractors’ involvement, did the work itself or brought in a white-owned firm to take over.

Dillingham President D.E. Sundgren called the charges “silly” and said his firm is a strong supporter of minority outreach programs.

Another San Francisco airport contract led to criminal charges. A federal grand jury indicted a San Leandro-based company and a tiny black-owned San Francisco firm that formed a dubious partnership.

Scott Co. of California, which does $200 million in construction work a year, teamed with the black-owned firm Al Norman Plumbing Inc. to create Scott-Norman Mechanical Inc.

On paper, Alvin Norman and his wife, Jacqueline, had a 51% controlling interest in Scott-Norman. In 1996, Tutor-Saliba, one of the airport expansion contractors, gave Scott-Norman $56 million in subcontracts to meet Tutor-Saliba’s minority participation requirement.

The odd pairing soon caught the eye of Kevin Williams, an official at the San Francisco Human Rights Commission, which oversees equal opportunity compliance. Williams requested funds for an audit of Scott-Norman, but says he was repeatedly refused. He subsequently sued his bosses for allegedly retaliating against him and is on paid sick leave.

The Scott-Norman partnership later turned bitter: The Normans tried to bar Scott executives from the joint venture’s bank account and filed a Human Rights Commission grievance against Scott. The commission advised the city to withhold payment from Scott-Norman.

Desperate to gain control of the partnership’s accounts, Scott sued the partnership. In doing so, Scott admitted that its executives actually conducted “the financial and administrative management of the company”--not the Normans, as advertised to San Francisco authorities. Scott lawyers also acknowledged in court documents that Scott had paid Alvin and Jacqueline Norman--who purportedly ran and owned the partnership--only 1% of company revenues to be minority figureheads.

After two months of legal wrangling, Scott paid the Normans a $1.5-million settlement. The Normans agreed to withdraw their Human Rights Commission grievance.

Federal Grand Jury Indicted City Official

The commission’s most senior outreach compliance officer, Zula Jones, advised various city officials that the Scott-Norman partnership remained valid. A federal grand jury decided she knew better. It indicted her, along with Scott executives Joseph Guglielmo, Robert T. Nurisso and Richard Davis, and the Normans for allegedly making false statements to a government agency. Their trial is expected to begin this fall.

Jones, who did not return phone calls to her office, is still employed at the commission. Executives from Al Norman Plumbing and Scott Co. also did not return phone calls.

Experts say the third San Francisco airport expansion case illustrates how contractors seduce, then marginalize minority contractors.

Willie Ratcliff, the African American owner of a firm called Liberty Builders, said he was surprised when Hensel Phelps, a major contractor, asked him to bid on a small share the company’s $67-million airport contract.

Liberty had just emerged from bankruptcy and was still $1 million in debt. The $3.2-million subcontract would be its largest in 20 years.

Ratcliff and Williams said Hensel Phelps executives persuaded Ratcliff to let the corporation control Liberty’s payroll--compromising the company’s status as an independent, minority-owned firm.

Ratcliff said that when he later refused to fire his mostly black crew for Hensel Phelps’ mostly white crew, the corporation retaliated. According to Williams’ July 1998 Human Rights Commission investigation, Hensel Phelps also denied Liberty Builders essential services like parking, phones, water and electricity. Hensel Phelps also failed to provide promised heavy machinery to do necessary work.

Williams’ boss, commission director Marivic Bamba, joined Williams and wrote to Airport Director John Martin to suggest that he withhold payments from Hensel Phelps unless it changed its behavior. The city took no action.

Tensions were further inflamed after a black Liberty Builders employee saw a noose hanging above the desk of a Hensel Phelps foreman. At a City Hall public meeting, Hensel Phelps executives told a packed room that the noose was not intended to refer to the history of Jim Crow lynchings and slavery--drawing jeers and boos.

The FBI is looking into the incident as a possible federal civil rights violation.