Freeway Work Opens Doors for Some : High Failure Rate Haunts Minority Contract Efforts

When Willa Porter, who owns a small Orange County contracting business, was awarded a $50,000 subcontract on the Century Freeway, she thought she was witness to the birth of a new civil rights movement.

Porter had been in and around the construction business for 20 years but had never come close to getting a job on a major project. Such work was not for women, she had come to believe.

But then came the Century Freeway, being built under a federal court consent decree that includes high goals for female and minority business participation, and Willa Porter suddenly found herself with a $50,000 contract to pour concrete for one of the Century’s major contractors, Brutoco Construction Co.

“It was a real heroic idea,” Porter said. “I thought, ‘This is what it must have been like to be a black in the ‘60s--if you walk over enough dead bodies, the world changes.’ ”

But a year later, Porter was less enthusiastic about this latest version of the Emancipation Proclamation.

Everything went wrong. Porter bid the job too low. Then, Porter said, she hired an inept crew to do the work. The crew poured more concrete than Porter had budgeted for, and the concrete they poured was of a higher quality, hence more expensive, than the contract required.

Instead of making about $10,000 profit on the $50,000 job, as Porter expected, she lost $30,000. When interviewed, she was packing her belongings and preparing to sell her pleasant home in the Orange Hills and move into a small condominium, to pay off the debt.

“I’m kind of embarrassed,” Porter said. “I’m not usually an ineffective contractor. I was probably a little too ambitious. . . . I wanted to fit into the (Century) program, but it’s kind of hard. You don’t get much help from the prime contractor or Caltrans or anybody else. It just didn’t work out.”

Staggering Failure Rate

With heartbreaking variations, Porter’s sad story has been played out again and again on the $2.5-billion Century Freeway project, where the failure rate for small female- and minority-owned businesses has been staggering.

Nobody knows how high the failure rate is because no study has been conducted. But those close to the program believe that at least 80%, perhaps as many as 90%, of the minority and female businesses that tried to take advantage of the Century Freeway’s high affirmative-action goals have gone broke or dropped out of the program.

Working on the Century “has been the downfall of a lot of contractors,” said Nina Tate, president of Nationwide Construction Co. of Downey, one of the few female-owned firms to benefit from its Century Freeway experience.

Even some Caltrans officials agree.

A large, federally financed project such as the Century “might be the worst place for a minority or female company to get started,” said Courtlandt Burrell, a Caltrans division chief, because of the burdensome paper work requirements, long payment delays and other problems.

The program’s defenders said it has been good for small minority and female contractors, despite the high failure rate.

Before the Century Freeway, only a handful of Caltrans contracts went to minority or female-owned companies, according to Channing D. Johnson, former chairman of the Century Freeway Affirmative Action Committee, an independent body that monitors affirmative-action aspects of the consent decree.

“It was an ‘old boys’ club,” he said, “and nobody else got a shot at it.”

But the Century Freeway has provided “an unprecedented opportunity to put dollars in the pockets of minority contractors,” Johnson said, because of the requirement that at least 35% of highway construction dollars, and about 47% of housing dollars, be funneled to minority or female firms.

One such beneficiary is Joseph A. Valverde, a Mexican-American pipeline contractor whose business has flourished as a result of Century work.

Valverde, who described himself as a conservative Republican, started his company in 1972 with $5,000 and built gradually to the point where he could bid on major contracts. But he was never awarded one.

“We had the capability to do the jobs but we couldn’t get the jobs,” Valverde said in a recent interview in his Santa Fe Springs office. “It was pretty hard to break into that ‘old boy network.’ ”

But the Century Freeway project enabled Valverde to double his business in the last fiscal year, to about $7.5 million.

“This is a great program,” Valverde said. “It says, ‘Hey, you’ve got to let these people into the system. They’re paying tax dollars, too. They’ve got to share in some of the benefits.’ ”

The Century project also has been good to Evan Williams, a tall, muscular black man whose Las Vegas-based Dalton Construction Co. has built about 200 apartments as part of the Century Freeway Housing Program, an ambitious effort to build several thousand affordable housing units along the freeway route as replacements for housing destroyed by freeway construction.

Williams has faced some frustration--two of his projects had to be abandoned because of opposition from middle- and upper-middle-class homeowners who did not want low-to-moderate-income Century Freeway housing in their neighborhoods--but Williams has turned a handsome profit on other projects and hopes to build more units in the future.

“I’ve learned the system,” Williams said. “I’ve learned where the real bad pitfalls are. I’ve learned to protect myself.”

Nina Tate’s 4-year-old Nationwide Construction Co. has rehabilitated two dozen single-family homes as part of the housing program and has also completed about $500,000 worth of steel reinforcing (“rebar”) work as a subcontractor on the freeway itself.

Statewide, her firm now has landed about $15 million in steel reinforcing subcontract work. Tate employs eight people at Nationwide’s Downey headquarters and has opened a three-member office in San Francisco.

“Fifteen years ago, I wanted to open my own steel company, but 15 years ago no women did rebar work,” Tate said. “When I got my first rebar job, building the new Sacramento County Jail, 35 men threatened to walk off the job because they didn’t want to work for a woman.

“But the minority business program has really opened the door. Now they need me and they have to talk to me, and work for me, whether they like it or not.”

Different Story

But Tate, Williams and Valverde were all experienced contractors with established lines of financial credit when work on the Century Freeway began. For the inexperienced, under-financed minority or female contractor--and that is most of them--the story has been different.

“A lot of them have lost their shirts,” Tate said.

Most of these small subcontractors failed because they lacked sufficient capital or managerial skills, or both, or because they tried to grow too fast. But disputes with the major contractors for whom they were working, and lack of concern on the part of Caltrans and other state agencies, have also been contributing factors.

Banks and other financial institutions do not like to make construction loans very much, even to established, Anglo-operated companies. They have been even less willing to make loans, or extend credit, to struggling small female- or minority-run firms, officers of many of these companies say.

A special state bonding and loan guarantee program was established in 1985 to help with this problem, but only a handful of bonding packages have been approved and loan guarantees have been almost as scarce.

Lack of managerial skills has also hurt many small minority contractors.

“If you’re an excellent craftsman, that doesn’t necessarily translate into business sense,” said John Bates, director of engineering and construction in the Federal Highway Administration’s regional office in San Francisco. The administration is providing 92% of the funding for the freeway and the housing.

Many small contractors who tried to cope with the bureaucratic demands of the Century project without accountants, bookkeepers or lawyers have slipped beneath the waves.

The Century Freeway Technical Assistance Project was established by the consent decree to advise small companies, but Mal Evans, the program’s director, said many subcontractors ignored the advice or did not seek help until it was too late.

Too Big Too Fast

Some have failed because they tried to become too big too fast.

In the project’s early days, in 1982 and 1983, small unknown subcontractors suddenly took on several million dollars worth of work, most of which they were unable to complete.

“You can’t start big, you’ve got to start slow and grow,” said Jeff Kasler, chairman of the board of Kasler Corp., one of the major Century Freeway contractors. “They’re just giving them jobs that are way too big.”

But prime contractors such as Kasler are under heavy pressure to hire minority and female subcontractors, no matter how inexperienced, because of the Century Freeway’s high affirmative-action goals. In their desperate efforts to meet these goals, large contractors are overloading minority and female subcontractors and, in many cases, helping to bring about their demise.

The relatively few competent and qualified firms are bombarded with offers from prime contractors and must be careful not to accept too many.

‘Watch Carefully’

“You have to watch carefully that you don’t get overly extended,” said Joyce Meredith, president of Avar Construction, a Northern California company that has been doing a substantial amount of prestressed concrete work on the Century Freeway.

Many minority subcontractors blame their financial problems on disputes with prime contractors, usually over slow payment or no payment.

These arguments are common in the construction business but they take on added importance on the Century Freeway because so many small, financially marginal minority and female firms are involved in the work.

Major contractors complain that the Century’s high affirmative-action goals force them to hire unfamiliar subcontractors who sometimes bid for jobs they are not competent to do, then disappear halfway through the work, leaving behind a large stack of unpaid bills from suppliers.

Subcontractor Complaints

But many subcontractors said the prime contractors do not pay them on time, or in full, or sometimes at all. When problems arise, they said, prime contractors move swiftly to replace them with Anglo-owned firms they have used for years. Prime contractors are permitted to do this if they persuade Caltrans that they have made a “good faith effort” to find a substitute minority or female firm.

Many subcontractors tell tales of woe.

Felix Fredieu, a black man who wears a cowboy hat and sports a large mustache, started a dirt-hauling company called “Dirtmasters” 10 years ago.

Fredieu now owns 30 trucks, employs 50 people and claims to have done more than $5 million worth of business last year.

“We did great until we ran into Caltrans and the Century Freeway,” Fredieu said in an interview at his office on Slauson Avenue. Now, Dirtmasters is involved in a $250,000 dispute with one Century prime contractor and a $100,000 controversy with another. The $350,000 total represents much more than his profit on the two jobs, Fredieu said, and if he cannot collect it, and pay the money he owes to his workers and suppliers, Dirtmasters may be forced out of business.

Blame on Both Sides

Caltrans civil rights officials who are looking into the disputes said there is blame on both sides and they hope to resolve the problems, but Fredieu is not hopeful.

“The prime contractor can do what he wants,” he said. “They wine and dine the big boys (Caltrans officials) up in Sacramento. There’s no way you can compete with that.”

Charles Bender has been in the asphalt-paving business for 27 years, the last 10 as president of the Madison Paving Co. in Signal Hill. He bid on almost 50 Century Freeway jobs, unsuccessfully, before winning a $300,000 contract last September.

But $50,000, more than the job’s profit, is tied up in a dispute with the prime contractor and the experience has soured Bender on the Century Freeway.

‘Dangerous Thing for Me’

“I did think it would be a good thing but now I realize it’s a dangerous thing for me to do,” he said. “I was spending 50% of my sales time looking for that kind of work, but it’s only accounting for 1% or 2% of my total sales and I’m having trouble collecting that.”

Another tale from the annals of asphalt paving involves Jo Ann Sprague, who conducts the affairs of the Ocean Asphalt Co. from aboard the Anitra, a 12-meter yacht berthed in Wilmington Harbor.

Sprague was a small asphalt contractor, doing business of $300,000 to $400,000 a year, when she decided to bid on two big Century Freeway subcontracts, worth a total of about $3 million and, much to her surprise, was awarded both.

Bid Too Low

The prime contractor was Steve P. Rados Co. of Santa Ana, one of the largest Century Freeway contractors. Rados had never used Ocean Asphalt before but was searching for female or minority subcontractors in an effort to meet the Century’s high affirmative-action goals.

But Sprague bid too low on the first project, allowing herself little or no profit, and then withdrew. Irked by this, Rados insisted that she put up a performance bond of $1.3 million before beginning the second job. Unable to obtain the bond, Sprague has been dropped from the second project as well.

An angry Sprague said the performance bond demand was part of an overall effort by Rados to replace her with Industrial Asphalt, a large paving company run by Anglo males.

“They only needed me to get the job in the first place,” she said. “Once they had the contract (from Caltrans), they couldn’t wait to get rid of me.”

Performance Bond

But Stephen S. Rados, vice president of the Santa Ana firm, said he insisted on the performance bond “because of the problems we were having with the first contract” and because “we heard some stories about her not being able to pay people working for her” in the past.

What can be done to help subcontractors like Felix Fredieu and Jo Ann Sprague?

Federal Judge Harry Pregerson, who presided over a long Century Freeway lawsuit and signed the 1981 decree under which the project is being built, said it is “very sad” that so many minority- and female-owned firms have failed.

“So what do you do?” Pregerson asked during an interview in his Pasadena chambers. “Here you have a good program set up on paper and you presumably have good people to execute the program. . . . If you’re not getting the rate of success that you’d like to achieve, what does this indicate? That we’ve got some really deep-seated problems in our society.”

Prop Up Subcontractors

Large contractors can prop up smaller subcontractors by providing bonds and insurance, lending them equipment and money, even agreeing to co-sign each check that goes to a supplier.

Some have done all these things and more.

“The only way to get the work done fast is by getting in bed with the subcontractors,” said a Century Freeway prime contractor who asked not to be identified.

But such close collaboration runs the risk of being labeled a “front” operation, in which a supposedly independent female or minority firm is actually controlled by a larger Anglo-run company. Such “fronts” may be declared ineligible for Century Freeway work by Caltrans.

Caltrans and the state Department of Housing and Community Development (HCD), which runs the Century Freeway Housing Program, offer little assistance to struggling female and minority subcontractors.

“We contract with the prime and he contracts with the sub,” said Robert J. Norris, interim director of the housing program. “We’re concerned about the problems of the subcontractors but we really are not in a position to mediate.”

‘Definite Improvement’

Several Caltrans officials said the failure rate among Century Freeway minority enterprises is no worse than it is among new small business ventures in general.

One said, “If 5% or 10% of the firms that are participating in the highway or the housing programs succeed, that’s a definite improvement” over pre-Century conditions.

But Clarence Broussard, former executive director of the Century Freeway Affirmative Action Committee, said, “If you’re going to settle for 5% or 10%, you don’t need an affirmative-action program. You can get that much with the law of averages.”

Some Caltrans officials do worry about the problems of the minority and female subcontractors and about their high failure rate.

Until recently, Jeff Davis, manager of contract compliance in the Caltrans Los Angeles office, said he and his staff of five spent “at least 40% of our time” trying to resolve disputes between primes and subs.

‘Program Is Excellent’

Davis, who has worked for Caltrans for 18 years but has been in this job only a year, said “the program is excellent at providing these opportunities but stops short” of what could be done.

“Right now we say to the MBE’s (Minority Business Enterprises) and WBE’s (Women’s Business Enterprises), ‘Look, we’ve forced the prime contractors to use you, now you’re on your own,’ ” Davis said, “but many can’t make it on their own and we should do more to help.”

Davis said Caltrans should supervise highway construction payments, as the agency now does with the housing program, to make sure subcontractors are being paid the correct amounts and are being paid on time.

If primes and subs are jointly signing checks to suppliers, it should be up to the subcontractor to decide who gets paid first, Davis said, because “the primes’ priorities are not always the same as the subs’.”

Davis also proposed that a prime contractor not be able to withhold money from a sub on one job just because there is a dispute between the two parties on another project, something that is commonly done now.

The moribund Century Freeway bonding program should be replaced by loan guarantee programs Davis said, because “a subcontractor doesn’t need a bond until a crisis arises, whereas a guaranteed loan would enable the sub to get the job in the first place and then get the job done.”

Proven Track Record

Davis also said he thinks that prime contractors need assurance that minority and female subcontractors who have been certified by Caltrans not only are legitimately owned and operated by racial minorities or women but also that they have the proper licenses, enough financing and a “track record” good enough to indicate that they can complete the work.

“If you’re going to have a successful (affirmative-action) program, the state is going to have to become more intimately involved,” Davis said.

But few believe that this is going to happen in the present conservative political climate, with both the federal and state governments maintaining a lukewarm to hostile attitude toward affirmative action in any form.

As a matter of fact, several non-Caltrans sources reported that Davis has been ordered to reduce the amount of time he and his staff spend on trying to resolve disputes between prime contractors and their minority and female subs.

It appears that “sink or swim” will remain the operating mode for minority and female subcontractors trying to make a buck on the Century Freeway.