American firms claim German competitor for city bins contract has South Africa ties.

American firms claim German competitor for city bins contract has South Africa ties

Hoping to capitalize on anti-apartheid sentiments, two American companies bidding on a $70-million recycling-bin contract are quietly charging that the front-running German rival may have economic ties to South Africa, the Business Journal has learned.

The three-year contract is expected to be decided by the Los Angeles City Council before year's end.

Two of the companies bidding on the lucrative contract - Toter Inc. of Statesville, N.C., and Zarn Inc. of Reidsville, N.C. - have asked the city attorney to look into the South African connections of their rival: Otto KG, a German-based manufacturing concern, and its U.S. subsidiary, Otto Industries Inc.

"We have done business all over the U.S. for quite a while but we have never seen a situation like this," said Bill Henning, senior vice president of Toter, which claims to be the largest producer of automated trash containers in the United States.

"We were asked by the city attorney for any information we had about anyone else's connection to South Africa. We found a lot of questions (about Otto's ties to South Africa) and we have given them to the city."

Manatt, Phelps & Phillips attorney George Kieffer, who is representing Otto, quickly rejected allegations that the German company and its U.S. subsidiary had any economic links to South Africa. He noted that the Public Works Commission recommended last week that Otto get the lion's share of the contract, needed for the city's mandatory recycling program that will start up in next few years.

In an Oct. 22 letter to Deputy City Attorney Pamela Snowden, Kieffer wrote that Toter's allegations were "absolutely baseless. . . . Otto is not doing business in South Africa." A copy of the letter, along with other documents about Otto Industries Inc. and its German parent were obtained by the Business Journal.

Snowden confirmed that Otto had been cleared of any South African connection preventing it from landing the contract.

"There is no evidence to support the conclusion Otto is doing business in South Africa."

At the same time though, Katherine MacDonald, spokeswoman to Council Member Zev Yaroslavsky, said the councilman would ask the city attorney to review Otto's South African position again.

Toter, according to Kieffer's letter, charged that: Otto KG may own a subsidiary located and doing business in South Africa; that Otto BV, a related but separate company that jointly markets with Otto KG, gets royalties from a South African subsidiary, Otto S.A.; and that Otto S.A. uses the same logo as Otto KG on its refuse containers, raising questions about trademark agreements.

In 1986 the city of Los Angeles approved a law that generally forbids any non-competitively bid contracts from going to companies having business ties to South Africa.

Kieffer rejected all three of Toter's reported claims out of hand, hinting that it was a smokescreen deployed by Toter to divert attention from the fact that its bid was higher.

According to Kieffer's letter, Otto BV no longer owns the South African operation, Otto S.A., having sold its entire interest in January 1990 to Harversterhude, a West German company with no connection to Otto. The reason Otto BV divested its South African interests was to do business in Los Angeles, Kieffer said.

"To prohibit Otto from contracting with the City now, would, in essence, mean that anyone who ever had holdings in South Africa will forever be barred from contracting with the City, even if divestiture included the sale of all that company's assets," Kieffer wrote. "This policy would not promote divestiture and may, in fact, inhibit divestiture."

In the Los Angeles bids, Otto said it would charge $49.49 for each 60-gallon container. Toter bid $54.30 and Zarn said it would charge $56.90. The 60-gallon containers and a 90-gallon version will be used by city residents to separate yard clippings from trash.

The Board of Public Works, according to Kieffer, urged the City Council to give 80 percent of the contract's main provision - for the 60-gallon containers - to Otto and 20 percent to Zarn. In the provision for the 90-gallon containers, the board recommended 80 percent be given to Otto and the remaining portion to Toter.

Kieffer said that if awarded the recycling-bin contract, Otto Industries would build its manufacturing plant in a business enterprise zone in Los Angeles.

"Toter has said Los Angeles should support California business by paying more money for Toter's bid because the bins will be made at its Fresno plant," Kieffer said. "They are saying L.A. taxpayers should subsidize Fresno when Otto will open a plant here."