Failure to Disclose Suit Threatens Bid on Subway Work

A business team’s controversial bid to manage subway tunneling on the Eastside is in serious jeopardy because it did not disclose that one of its partners has been sued for allegedly overcharging the MTA for previous work, according to executives at the transit agency.

In its application for the Eastside job, Metro East Consultants did not reveal that DeLeuw, Cather & Co. was the subject of a false claims lawsuit filed in court in 1994, county transit chief Joseph E. Drew said Wednesday.

The Metropolitan Transportation Authority joined the lawsuit in state court Friday, accusing Parsons-Dillingham, a consortium in which DeLeuw Cather is also a key partner, of overbilling the agency by nearly $20 million.

Jamie Brown, spokeswoman for the Parsons Corp., the Pasadena-based parent of DeLeuw Cather, said Wednesday that Metro East Consultants was unaware of the pending litigation at the time of its application for the Eastside job in July “because the case was under seal.”

The lawsuit was filed under seal to protect the identity of the whistle-blower, J. Martin Gerlinger, who was a finance manager for Parsons-Dillingham. The lawsuit was unsealed April 26 when the U.S. attorney’s office decided not to join Gerlinger in the lawsuit after determining that only 10% of the alleged false claims involved federal funds. The case was then refiled in Los Angeles Superior Court.

Drew said he only became aware of Metro East’s failure to disclose DeLeuw Cather’s involvement in the lawsuit on the morning of Oct. 23, a few hours before he was ready to recommend that the MTA board hire the team for the $65-million Eastside management contract.

In making that recommendation, Drew overruled his staff and a panel of seven independent construction experts that had ranked the team last among three bidders for the job.

Drew said Wednesday that DeLeuw Cather’s role in the whistle-blower lawsuit was not discovered by MTA contract administrators in a search of legal actions against bidders or in a search of newspaper accounts of incidents that reported unfavorably on them. The Times reported on Gerlinger’s suit against Parsons-Dillingham on May 21, and spoke to Drew about it.

“I didn’t make the connection,” he said. “Quite frankly, I did not remember that DeLeuw was part of Parsons-Dillingham.”

Parsons-Dillingham has earned $300 million from Metro Rail subway contracts over the past decade and now manages the construction of tunnels and stations in North Hollywood and Hollywood.

Firms seeking the Eastside contracts were required to state whether they had been sued in the last five years in state or federal court over allegations of contract fraud.

Drew said he has asked the agency’s inspector general and internal audit department to determine whether the flaw in the application is sufficient to disqualify Metro East from receiving the contract. He said that Metro East and DeLeuw Cather would be given an opportunity to explain why the lawsuit was not disclosed.

If he is not satisfied with the answer, Drew said he would have the option of asking Metro East to substitute another partner in DeLeuw’s place or disqualifying the consortium.

“I am very concerned that this issue has arisen at such a very late hour,” he said.

Larry Zarian, chairman of the MTA board, said that the burden was on Metro East to report the lawsuit in its application.

“The fact that they did not divulge the lawsuit is incredible, it is unacceptable, it borders on insanity,” he said. “If they did not tell the truth, it would not bother me at all to have them disqualified. If they can’t play by the rules, they should pay the consequences.”