NEW PROBE DELAYS RED LINE CONTRACT : SUBWAY PROJECT TAKES DRAMATIC TURN.

Byline: David Bloom Daily News Staff Writer

The controversial award of a $63 million contract to oversee construction of the east side extension of the Metro Red Line subway was derailed Wednesday with the disclosure that a ``criminal'' investigation was under way into the bidding process.

The Metropolitan Transportation Authority board was scheduled to consider the recommendation of agency Chief Executive Officer Joseph Drew that the contract be awarded to the last-place finisher in the bidding process, Metro East Consultants.

But the board went into a closed-door session before the matter came up, and later emerged with board Chairman Larry Zarian announcing that the matter had been pulled from the agenda and that an investigation was being conducted by the agency's Office of Inspector General.

``The board consideration of this item is postponed until further notice,'' Zarian said in a brief statement to a packed auditorium in the county Hall of Administration where the board meets.

``All employees will cooperate fully with the inspector general and . . . we hope this investigation will be completed as quickly as possible,'' he said.

After reading the brief statement, Zarian was prompted by a board member, and said, ``Yes. It's a criminal investigation.''

No information was offered as to who was being investigated or what criminal allegations were the subject of the inquiry.

Board members who were in the closed door session with MTA Inspector General Arthur Sinai said few details were revealed to them.

``The inspector general said he was receiving information as late as (Wednesday) morning regarding the case,'' said board member and county Supervisor Gloria Molina.

The criminal investigation also involves ``a prosecutor,'' though it was unclear whether it was the county district attorney, state attorney general or U.S. Attorney's Office, said board member and Supervisor Zev Yaroslavsky.

``I don't know what it is, don't know what it means,'' said Yaroslavsky. ``It's bizarre, but nothing would surprise me about this contract. The process stinks to high heaven. There's no telling what may have gone on here.''

While leaving MTA headquarters during the meeting, Sinai declined to comment, saying he can't discuss ongoing investigations.

The Inspector General's Office is an independent wing of the MTA, with the full subpoena and investigatory powers of a law enforcement agency.

The delay was another dramatic turn in the ongoing controversy over the lucrative contract, estimated at $63 million, to manage construction of the $980 million east side extension of the Metro Red Line subway.

The controversy arose last spring, when the inspector general found numerous shortcomings in the first round reviews of bids submitted by Jacobs Engineering Group of Pasadena, Bechtel Infrastructure Corp. of Los Angeles, and Metro East Consultants, a group headed by O'Brien Kreitzberg Associates Inc. of Encino.

The initial reviews by MTA staff members lacked basic background and financial reference checks, the Inspector General's Office said.

The board then established a panel of seven outside experts to review the written proposals, and conduct oral interviews with the bidders, and a final round of discussions to rank the bidders.

Jacobs was ranked first, Bechtel second and MEC third by the panel. But Drew disregarded the rankings and in a controversial move two weeks ago recommended that the board choose MEC, a consortium with some partners who have close political ties to Eastside Councilman and MTA board member Richard Alatorre.

Drew said Jacobs was too busy overseeing subway tunneling through the Hollywood Hills for the Red Line's North Hollywood extension to do the east side project also.

And Drew threw out the last phase of the expert panel's work, saying it gave no rationale for putting Bechtel in second place over Metro East.

Last week, Molina said ``corruption'' in the agency was the only explanation for bypassing the expert panel's recommendation.

And while grilling Drew over his recommendation at a committee hearing last week, Yaroslavsky said it appeared Drew was misrepresenting information, possibly even lying to the board, in an attempt to justify his decision.

Alatorre subsequently released a statement supporting Drew's decision, and criticizing Yaroslavsky for his rough treatment of the chief executive officer.

``Nothing improper has taken place and there is nothing to hide,'' Alatorre said in the statement.

Unconfirmed rumors swirled through the MTA staff with the announcement of the inspector general's investigation. The only detail that could be confirmed by MTA officials was that Michael Gonzalez, the agency's construction chief of staff and a key figure in preparation of the recommendation to award the contract to MEC, had been interviewed by investigators.

Alatorre also was unavailable for comment after the meeting but released a statement through press deputy Leila Cobo-Hanlon.

``We just hope the investigation is completed as quickly as possible, because there is a dire need to get a construction manager on the east side project,'' she said.