Critics riding transit agency on small contracts handling: county commission hit on overruns, bundling deals.

For some businesses, the costly drive to end the stranglehold of traffic congestion has become the hottest game in town.

Engineering the campaign is the Los Angeles County Transportation Commission, whose 30-year, $184 billion spending blueprint is the envy of local government -- and the subject of fierce contractor battles. The stakes are both enormous and high profile, as illustrated by the flap when a Metro Green Line rail car contract initially went to a Japanese firm.

Less visible, however, is the rash of smaller commission pacts for professional services -- agreements inked without LACTC board approval because they involve less than the $50,000 threshold set by law. Those represent a growing portion of the estimated $35 million for non-construction services the LACTC staff will expend this year in its $2.63 billion budget.

A review by the Los Angeles Business Journal of the $50,000-and-under contracts awarded between 1987 and May 1992 turned up a world where contracts are sometimes packaged, legal limits are pushed and even former government officials garner agreements.

Since 1987, the LACTC has let 721 individual contracts under $50,000 to a bevy of companies, the majority of them law and environmental firms, transit specialists, management consultants and executive search firms. The value of those contracts, according to documents obtained under the California Public Records Act, was nearly $15.6 million.

But when the cost of service agreements that exceeded their original award amounts is included, the aggregate sum of the smaller professional service contracts soared to $24.4 million.

Yet, that is only part of the story. Of those 721 agreements, nearly one in 10 was awarded in the $48,000-$49,999 range, with another 12 pacts let for exactly $50,000. In addition, scores of contractors won multiple pacts in compressed times frames, sometimes on the same day.

Commission Executive Director Neil Peterson defended his staff's handling of the service contracts in light of LACTC progress advancing Metro Rail work, buying commuter rail rights-of-way and securing public transit money.

"When you're running an operation as big as this, the chief executive needs to have the authority to cut $50,000 contracts," Peterson said, noting it is standard practice in public works to confer numerous contracts to the same firm for specialized projects. While he said it is better to underestimate a job than over value it, he added LACTC upper management has been moving aggressively to install tighter contract controls.

In the 1986-87 fiscal year, the LACTC awarded only nine contracts under $50,000, for $168,571, with 44 percent of them eventually exceeding their original contract. Two years later, commission staff gave out 32 smaller service contracts, for a sum of $716,133, with 47 percent of them going into overruns. Last year, 335 pacts under $50,000 were signed, for a total of $6.9 million, though the overrun rate had dropped to roughly 17 percent.

Nonetheless, during the past five years, an average of one out of every four smaller contracts eventually surpassed the initial award amount. (Contract changes typically occur when the LACTC staff adds amendments to change or expand a project's scope. Then too, agency workers have yet to gauge how many agreements incur overruns because of poor specifications or contractor abuse or defaults.)

Here are some examples of practices assailed by commissioners like Nick Patsaouras, who believes LACTC uses consultants "too loosely."

* Robinson & Pearman, a Mid-Wilshire-based law firm, landed 14 contracts, all on July 1, for a total of $168,500 in work to analyze everything from bus service and commission staff structuring to permitting procedures. Eventually, amendments pushed the value of those contracts to $218,500.

* Cerritos-based Geoffon Environmental Inc. won 10 LACTC contracts, six of them on Aug. 2, for $225,626 worth of consulting services tied to hazardous waste clean-ups of rights-of-way. While only two of Geoffon's pacts went over the original contract value, one rose from $4,750 to $38,350.

* Even two big accounting firms won deals close to the $50,000 limit. On Aug. 1, Coopers & Lybrand was awarded $49,000 to do a management study, the same amount Ernst & Young got a month later to study a tow truck fleet that aids stranded motorists.

Documents show that 1991's first quarter was no aberration.

Take Baltimore consultant Booz-Allen Hamilton Inc., which racked up 13 contracts below $50,000 from March 1989 to November 1991 for $531,000. Seven of those 13 covenants -- for auditing, market research and bus manufacturing studies, among other things -- had contract values in excess of $49,000 each.

Meanwhile, Pasadena's Converse Environmental was granted eight agreements totaling about $189,000, six of them last year.

LACTC Commissioner Jackie Bacharach said she is "bothered" about the bundling of smaller contracts and those that are awarded close to the $50,000 limit.

"I've been angry about them, and I've tried to tell staff that if you know contracts are going to go above $50,000, then come see the board," said Bacharach, a Rancho Palos Verdes councilwoman. "People around here are sincere in trying to get the job done, but they aren't always doing it in a smart way. . . . It seems a little loosey-goosey."

Added Gerry Hertzberg, the LACTC proxy for County Supervisor Gloria Molina: "I think the commission has abused their authority. That's why I want to lower (Peterson's spending) authority to $25,000."

At least 24 agreements that started below $50,000 since 1987 ended up with contract values in excess of $100,000, documents indicate, though it was unclear if they were all professional service contracts. One Booz Hamilton deal ballooned from $49,700 to $124,700, records show. Similarly, a $44,000 contract to Reeves Associates Architects for interior space planning grew to $582,000.

A financial-management review of the LACTC by auditors from the city and county of Los Angeles found other troubles as well. The review, released last May, was sparked by a March Los Angeles Times story detailing the commission's freewheeling spending on travel, food and miscellaneous staff expenses.

Auditors, for instance, were unable to find proof that one contract they randomly inspected was bid according to LACTC policies. Most startling, perhaps, was that in looking at how commission staff scrutinized contracts, the auditors noted little focus on the "contract amendment processes and no attention on contract performance reviews."

Under state and federal law, contracts between $1,000 and $25,000 must receive at least three price quotes. Agreements valued between $25,000 and $50,000 require a formal request-for-proposals, though sole sourcing -- or awarding of contracts without competition -- is allowed in certain cases.

Overseeing much of Peterson's campaign to rectify contract troubles is Jerry Givens, who became the LACTC's No. 2 staffer in March 1991 during a major shake-up of Peterson's lieutenants, internal commission memos show. Givens now heads a new management-audit group as well as a special task force that monitors professional service agreements.

The 10-year LACTC veteran said what worries him most about the $50,000-and-under contracts is the amount of sole-sourcing requests by staff, problems minority firms have in competing against more entrenched companies and the fragmentation of contract data through the commission's planning administrative and construction divisions.

"People should realize we are very concerned about protecting taxpayer dollars, but it's a difficult job for an agency where the administrative underpinning did not keep pace with its growth," Givens said. "But in this political climate it is hard to get everyone's attention on our successes in controlling what is being viewed as runaway costs."

Given said his requests to add more contract administration officers or other staffers to cut down on the LACTC's reliance on consultants have been shot down by those same commissioners critical of agency spending during a recession.

Just two months from now, federal transportation officials will descend on the LACTC for an audit of commission contracts and record keeping.

Overall, Givens said, the commission this year trimmed $1 million in service contract costs, created an "early warning system" to alert administrators when a pact is about to exceed its award amount and hopes to implement procedures "where there is no doubt about standards of competition or cost."

Documents also reveal that Peterson has authorized at least $700,000 in small contracts for executive searches, counseling and testing during the three years he has been commission chief. Personnel Resource Consulting, a small firm based in Bellevue, Wash., has done particularly well, landing five agreements for $160,000.

Still, one test given by PRC to gauge the aptitude and temperament of roughly 90 LACTC workers in 1990 became controversial when public affairs staffer Bob Mooney claimed the test was mandatory and that he couldn't get the results -- an allegation Peterson said was untrue.

After making inquiries about PRC, Mooney's attorney last year received a letter from the Medical Board of California Central Complaints and Investigation Unit, a copy of which was obtained by the Business Journal. That unit said PRC President Charles Knoke had no license with the state psychology and behavior-science-examiners boards, urging the district attorney be called in to probe the legality of tests administered without "the benefit of licensure."

In an interview, Knoke, an Australian-born management consultant, said he only gives tests prepared by psychologists, thus avoiding the need for him to be a Ph.D., and that the bulk of what he does for the LACTC is "team-building." Proud of that effort, PRC even has a picture of the Blue Line in its company brochure.

Peterson, who met Knoke when he worked in Seattle in the mid-1980s, said PRC has an "excellent reputation" and that he'd "use Knoke again."

As of press time, the Business Journal was unable to determine why Knoke's first LACTC contract was sole sourced. That $30,000 pact eventually rose to $48,500.

Records also show that some public officials, both former and current, are lining up to get contracts in the $50,000-and-below category:

* John Dyer, general manager of the RTD until 1988, was awarded $5,000 in 1989 to study a congressional funding agreement for Metro Rail. Ironically, when the federal money came through, it helped the LACTC and Peterson win control of the giant subway project from RTD. Dyer's contract eventually doubled.

* Ex-Orange County Supervisor Bruce Nestande got a $49,500 contract last September to analyze commuter rail electrification. Three months before he became an LACTC contractor, Nestande resigned his post as a board member of the California Transportation Commission, which authorizes state and federal monies to local transit agencies like the LACTC. In fiscal year 1990-91, the CTC approved more than $200 million for County transit projects.