MTA Launches Probe of Eastside Subway Contract

The MTA’s inspector general announced Wednesday that he has launched a criminal investigation into the agency’s handling of a controversial contract for supervising subway tunneling on the Eastside, forcing transit board directors to put off a decision just minutes before an expected showdown vote.

In announcing the inquiry, Metropolitan Transportation Authority board Chairman Larry Zarian stunned an audience packed with lobbyists and executives of all three bidders for the $65-million contract.

Inspector General Arthur Sinai provided no details to the board. However, two MTA executives who asked not to be identified said investigators seemed to be interested in allegations that senior transit agency staff members conspired to change an expert panel’s scoring of the bidders.

A bitterly divided board had been expected to select a business team ranked last by the construction experts, despite a threat that the vote could cost the project funding support in Congress.

Transit chief Joseph E. Drew had recommended that the board award the contract to Metro East Consultants even though the panel of seven independent experts had recommended that the job go to a consortium called JMA. The panel ranked Bechtel Infrastructure Corp. second and Metro East third.

MTA spokeswoman Rae James said that U.S. Senate investigators examining Metro Rail have requested all documents, notes, video and audiotapes used by Drew to make his decision.

The MTA sources said the inspector general’s investigation, which began about two weeks ago, took a dramatic turn late Tuesday when MTA construction staff director Michael Gonzales called the inspector general from his office about 10 p.m. to say he had found documents that “scared the hell out of him.” By 2 a.m. Wednesday, sources said, the inspector general had asked Gonzales, his secretary, Mercedes Meneses, and construction contracts administrator Robert Webb to go to a downtown hotel room.

About 11:30 a.m., Sinai arrived at a closed session of the MTA board. Board member Gloria Molina, a county supervisor, said Sinai’s eyes were bloodshot and it looked as if he had not slept. While Sinai stood in the back of the room, she said, MTA attorney David Kelsey announced Sinai’s investigation, and recommended the decision be delayed.

Another board member said Sinai announced that he was working with a prosecutor on the matter. When the board convened in public soon after, Zarian declared that the vote had been postponed. “All employees will cooperate fully with the inspector general,” Zarian said in a prepared statement.

Sinai has the power to subpoena people and documents and would refer possible criminal wrongdoing to county, state or federal prosecutors.

LeRoy H. Graw, who was construction contracts chief at the agency until he was fired in late September, said that special agents for the inspector general took a detailed report from him about the contract bid process Oct. 12. He said he told them that a proper analysis of the expert panel’s scoring showed that JMA finished first on technical merit. Graw said the team was also the consensus first choice of the panelists after consideration of the bidders’ full proposals.

A Sept. 18 memorandum to the board drafted by Graw on behalf of the construction department recommended JMA for the contract. Graw’s boss, MTA construction chief Stan Phernambucq, has told board members that he took that recommendation to Drew for a signature.

Phernambucq has told the board that he, Drew and Drew’s chief of staff, Frank Cardenas, jointly reviewed the panel’s findings.

In a memorandum to the board dated Oct. 7, Drew told directors that panelists’ scoring on technical matters favored Metro East and recommended the consortium for the job. Drew could not be reached for comment.

Phernambucq defended the selection process in an interview even though he said he favored JMA.

“There was no cooking of the numbers,” he said. “Mr. Drew has the authority, the responsibility and the legal grounds to look at all aspects of a procurement, and make the decision based on his business judgment.”

Metro East includes several executives who have worked for influential transit board member Richard Alatorre or managed his political campaigns; the wife of one is the Los Angeles city councilman’s chief of staff.

The contract has been closely watched from Boyle Heights to Washington.

The winning team will supervise tunneling under 250 homes and businesses, more than any other segment of Metro Rail, and through tricky soil conditions compared by one expert to the minefields of Bosnia.

Tunneling, already a year behind schedule, is scheduled to begin next year for extending the subway from Union Station to 1st and Lorena streets in Boyle Heights.

This is the second investigation of the contract process by the inspector general, who is appointed by the board and works independently of the MTA staff. The staff earlier this year selected Metro East, but the recommendation was tossed out by Drew after the inspector general discovered weaknesses in checking references and credentials of some of the bidders.

Neil Papiano, an attorney representing Metro East, said Wednesday that none of the business team members have been contacted by the inspector general.

He defended the selection of Metro East, saying its executives are familiar with the Eastside.

Drew has previously said that he put aside the expert panel’s recommendation because he believed Metro East had the best tunneling expertise.