CITYCONTRACT1214/30″/mike1st/mark2nd By EDVARD PETTERSSON and HOWARD FINE Staff Reporters More than 60 percent of the money being spent by the city of Los Angeles for major contracts is going to companies headquartered outside the region, according to a Business Journal survey. The situation remains virtually unchanged from the early ’90s, when the predecessor agency to the Metropolitan Transportation Authority awarded a major railcar contract to a Japanese firm, sparking a public outcry. While city officials still talk of the need to steer contracts to locally based companies, they have not acted on a voter-approved charter amendment Proposition G, passed in the aftermath of the railcar contract controversy designed to do just that. “We have a change to the city charter that has not been implemented,” said Deputy Controller Timothy Lynch. “The charter amendment required the City Council to enact an ordinance to specify domestic content and work guidelines. Nobody carried the ball on this. The ordinance was never enacted.” As a result, the percentage of contract dollars flowing to locally based firms is virtually the same as it was in fiscal 1993, when 62 percent of major contract payments went to companies based outside L.A. County. (The Business Journal defines “major contract payment” as any amount in excess of $3 million.) Upon hearing of the findings, L.A. City Councilwoman Rita Walters said, “I’m startled that so few companies were actually based within L.A. limits. It’s hard to believe we can’t find some locally based companies to do these things.” Walters said there should be more incentives for locally based contractors although she acknowledges the difficulty. “In my district, we got a contractor to set up a business there,” Walters said, referring to Los Angeles-based Plastopan, a maker of garbage cans. Plastopan was given a 10 percent bid preference and awarded a city contract in 1992 to make two-wheeled trash containers. The company spent $8 million to open up a factory in South Central L.A. and hired local residents. But when the five-year contract came up for renewal late last year, the council voted not to renew the bid preference. As a result, Plastopan lost out to Otto Industries Inc. of Charlotte, N.C., which came in with a lower bid. “We offered a point preference for their locating in the district and continuing to do business here after the contract expired,” Walters said. “But that particular situation was fraught with difficulty and ultimately did not work out.” (Companies get points for various factors, such as the hiring of local workers.) Another reason that $364 million of the $605 million spent on major contracts went to companies outside L.A. is that local contractors have kept busy with private-sector work, especially given the economy’s current growth. They have chosen to stay away from what’s considered a cumbersome city contracting process for comparatively low-margin work. Meanwhile, organized labor seems unconcerned with city contracts going to out-of-town firms because union officials have successfully pressured contractors whether based here or outside the region to hire locally. Only eight of the 25 largest L.A. city contractors are based in L.A. County; and only five of those are based within L.A. city limits. Those include Tutor-Saliba Corp., En Pointe Technologies Inc. and Ampco Parking. Dan Penn, president and chief executive of Los Angeles-based Peck/Jones Construction Corp., says his company is not interested in working on public projects because they are not as profitable as those in the private sector. “Public building is based on the lowest cost, and competition is strictly on the basis of price,” said Penn. As a result, the bulk of these contracts is awarded to a core group of firms that specialize in public works and, for the most part, are not locally based. Out of the 63 primary contractors on the city’s books that received more than $3 million in payments during fiscal 1998, only 27 were local firms. Fourteen of the 36 companies that are headquartered outside the county have offices here. Many city contracts specify that companies must have a “local presence” as part of their bid. Typically, these offices are supplemented on an as-needed basis by managers and specialists from corporate headquarters. City contracts, as specified in the charter, must be awarded to the lowest responsible bidder. This means that unless the low bidder is incapable of doing the work for the amount bid, the contract must to be awarded to that bidder. “The city is beholden to get the best deal for the taxpayers,” said Gordon Clint, assistant board secretary at the Board of Public Works. “Contracts usually go to the lowest bidder unless there’s a damn good reason why they shouldn’t a reason that would stand up in a public hearing.” In the private sector, other factors besides cost can play a role in contract decisions. For example, private-sector clients typically look at the reputation and track record of bidders, and many contractors have longstanding relationships with their clients. “We work with a regular clientele, and most of our business is repeat business,” said John Gormly, a senior vice president with Oltmans Construction Co. in Whittier. In fact, most of Oltmans Construction’s work consists of design/build projects in which contracts are negotiated rather than simply determined by bid. Besides the low-bid requirement, another factor that deters contractors is the city’s procurement process. L.A. requires that project plans be prepared, or at least approved, by its Bureau of Engineering, and contractors are required to follow these plans to the letter. Many contractors said the requirement takes away their incentive to reduce project costs. Todd Whitlock, vice president with Altadena-based Charles Pankow Builders Ltd., sees this as adversarial to the contractor. Although one of the largest construction firms in L.A. County, Pankow does not bid on city contracts, but prefers to concentrate on the private sector where there is more flexibility. Yet another factor is the maze of regulations. “It takes it lot more to handle the city of L.A. than most other institutions because it involves so much bureaucratic headaches,” said Craig Alper, vice president at Ziebarth & Alper in Huntington Beach. According to Alpers, whose company worked on the city’s Hyperion Treatment Plant project, other local governments are easier to work with, including Orange County. Among the city requirements are that a certain percentage of the work be subcontracted, and that contractors submit a certified payroll showing that the workers are paid prevailing wages. (This is comparable to union wages and considerably higher than the city’s “living wage.”) Councilwoman Laura Chick said the city needs to strike a better balance between getting the best value for taxpayer dollars and making more contracts available to local businesses. She is in favor of local content laws, which would make it easier for area companies to bid on city contracts. “There is a great deal more we can do to streamline the process,” she said.