When deputy director Richard Scott left the Houston Department of Public Works last September, good things started happening to TSC Engineering Co. In the 14 months prior to Scott's departure, the city assigned TSC $161,000 worth of tasks as both a prime contractor and subcontractor. Less than two months after he moved on, TSC landed more than $2 million worth of city business. Another $114,000 with TSC's name on it is headed for approval.
Scott resigned after public works director Jerry King gave him a choice: Either he or his wife, deputy director Hilda Garza Scott, would have to go, as their positions near the top of the department's ladder seemingly violated the city's nepotism standards. The couple ultimately agreed that Richard would move on, and Hilda became head of the Capital Projects Division, where she oversees design and construction. Richard Scott took a job as senior vice president of a local engineering firm.
The firm was TSC.
Scott has apparently made TSC a better company from top to bottom: His arrival signaled an increase in the salaries the firm's employees make off city taxpayers by an average of about $3 an hour, secretaries included. And the multiplier that engineering firms are allowed to tack on to those salaries, allegedly to cover overhead, has increased for TSC from 2.6 to 3.25. The difference elevates a contract's value by thousands of dollars.
Since the job switch, all the official requests for City Council to authorize contracts in which TSC has a stake have the same signature at the lower right corner of the cover page: Hilda Scott. As one of three primary directors who evaluate and recommend engineering firms for King's approval, she has ample authority in determining how millions of dollars in no-bid contracts are awarded.
King says there may be an innocent explanation for TSC's sudden burst of good fortune. The percentage of prime engineering contracts given to minority firms has soared since Mayor Lee Brown took office (TSC, owned by Terence Cheng, is registered with the city as a minority business), and Brown's first year saw an overall increase in city design contracts.
Still, only TSC showed up as a subcontractor on 11 deals approved by City Council in a span of three and a half weeks beginning last October. "There's a rumor now," says a public works employee who deals regularly with engineering firms. "Just [hire] TSC as a 'sub,' and you get the project."
That may be an exaggeration, but even King admits that the flood of contracts and escalating charges commanded by TSC looks a little squiggly under the circumstances. Not to mention Hilda Scott's signature on the documents, although that appears to be changing. Scott now says she didn't mean to sign all those forms. She has taken steps to retroactively remove her signature from at least one TSC authorization and replace it with that of senior assistant director Gary Oradat.
Of course, simply swapping the names only masks the problem as long as Scott continues to wield influence over contracts. The solution, King acknowledges, is to deal directly with the conflict of interest. "What we need to do is come up with a system where she stays out of the selection process," he says.
Under former director Jimmie Schindewolf, the awarding of engineering and consulting contracts was a closely guarded process controlled by a small circle of honchos, including Richard Scott. Once it was decided who would get the most lucrative deals, oversight and accountability lagged: Schindewolf and his minions renewed multimillion-dollar contracts with no formal evaluation, and shoddy design work was rewarded with more business.
King has tried to inject a measure of fiscal accountability into the department's veins, but it hasn't yet permeated. Huge consulting firms such as Montgomery Watson, Rust/Lichliter Jamison and Lockwood, Andrews & Newnam can no longer bank on the free ride they enjoyed during the Schindewolf regime. But the awarding of engineering contracts remains subjective and prone to error and abuse.
Some public works employees who have served under both administrations say the system remains deeply flawed. They say Scott and her underlings accept inflated proposals that cost the city millions. In the past, they charge, project managers would negotiate fees more rigorously. "Now, whatever the consultants ask for, we give it to them," says one city engineer.
Engineering contracts, which by law can't be competitively bid, are supposed to be apportioned to firms based on their qualifications, experience and track record on city jobs. Both former mayor Bob Lanier and Lee Brown have emphasized the need to spread the wealth, so politics plays a role as well. The city tentatively selects a firm and requests a proposal, which becomes the starting point for negotiations.
Item by item, fee by fee, the project manager who will oversee the work for the department then hammers out an agreement that will earn the company a reasonable profit and protect the public interest. If the two sides cannot agree, the city is supposed to try another firm that will be more receptive. But that, says King, rarely happens. "We probably have to be willing to do that and probably have been reluctant to do that in the past," he says.
Case in point: On a water line replacement project, a city engineer tried to ratchet down the design contract price with the engineering firm of Ratnala & Bahl (co-owned by former public works engineer Vishwa Bahl, a familiar face at department headquarters). Senior assistant director Showri Nandagiri took the project away from the city engineer and gave it to someone more willing to knuckle.
The result was a contract worth nearly $1 million that included a couple of unusual features. Survey work, which firms usually bill for between $2.75 and $3 per linear foot, will cost the city $4, for an extra $100,000 or so in Ratnala & Bahl's pocket. And Ratnala got to tack on 10 percent more (almost $40,000) to the basic services fee, which is supposed to be a fixed rate based on a percentage of the estimated construction cost.
The city defends the contract, claiming that the job was scattered all over Houston and therefore required more running around and general inconvenience. The 10 percent "difficulty factor," according to Gary Oradat, was negotiated down from the firm's initial proposal of 30 percent. And though Ratnala received higher survey fees than usual, King claims the city has paid even more for other surveying jobs.
But that water line project must be unique among the dozens the city has built over the years, because no one can recall any other firm being granted a similar difficulty factor for anything other than especially complex and specialized construction jobs such as upgrading a sewage treatment plant. And informal guidelines produced during Schindewolf's tenure set $3.50 as the maximum surveying fee for a large paving project, which is far more involved than a water line replacement. "We've never paid more than $3.50 a foot, and that's for a major thoroughfare," says a veteran city engineer.
In fact, charges for such standard design services as surveying and geotechnical studies have been multiplying. In a written response to questions from the Press, Oradat attributed the increase in part to the fact that the firms doing the work are operating at full capacity. The city must therefore pay its employees overtime in order to meet the project timetables, which pushes up the fees.
This rationale puzzles even Jerry King. "We shouldn't be paying them overtime," he says.
Line items for specific services may be inflated, but that's small potatoes compared to the contract the city recently awarded to Walter P. Moore & Associates (King's old firm) to design a paving project on Little York. The project, originally slated for construction in the early 1990s, was put on the shelf when money ran out to buy needed right-of-way. A pair of engineering firms produced a complete set of plans for $436,000.
The plans, according to a summary supplied by Oradat, need to be updated to account for changes in the area and to accommodate new design criteria and other requirements. Ordinarily the city would go back to the original engineering firm for the update or do it in-house for a fraction of the original cost. But that didn't happen. David Brown, principal of the firm Lott & Brown Consulting Engineers, who did the original drawings and has the plans, says he was never contacted about doing an update. And though the city has plenty of engineers capable of doing the job, that function is now privatized.
Instead, the department fed the contract to Walter P. Moore -- for $1.3 million, three times the initial cost.
Without seeing the details, Brown won't speculate on how much he would charge the city to update his plans. But he's sure it wouldn't be close to $1.3 million. "I think it would be fair to say that it would be less costly to redesign the existing project than to start all over," he says. Pressed on the issue, he adds a clarifier: "Far less."
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The Press identified five other "updates" awarded to new firms to design from scratch at a total cost of more than $3 million. King says that in one case the city tried to use the original firm, but negotiations stalled and the department had to go elsewhere. King could not explain why the public works department had not attempted to negotiate with the original firms in the other cases.
Little hemorrhages like these may pale in comparison to the excesses of the Schindewolf years, but they continue to plague the department. King says he addressed the update issue, for example, though the message doesn't seem to be getting through. "I really do want to rein that in," he says.
Whether or not the many holdovers from the last administration will buy in to King's reform plans is a question that has yet to be answered. Sources indicate that at least some top managers are more interested in undermining King's efforts.
Meanwhile, the director struggles to keep his footing. As proof of yet another unnecessary drain of funds is put before him, King groans. "We've got to have a better process," he says, covering his face with his hands. "Oh, Lord.