Suit Says MTA Was Overbilled $20 Million

A former finance manager for a subway construction consulting firm has accused his ex-bosses in federal court of overcharging the Metropolitan Transportation Authority by nearly $20 million, according to a suit filed 1 1/2 years ago but unsealed by a judge only last month.

J. Martin Gerlinger alleges in his whistle-blower lawsuit that the overcharges in part resulted when Metro Rail construction manager Parsons-Dillingham failed to reimburse the government for at least $9 million in overestimated labor costs and billed the MTA for legal fees stemming from the firm’s unsuccessful defense of wrongful-termination suits.

In addition to many other accusations, he alleges that the firm charged Metro Rail for time employees spent with transit agency officials at football games and billed too much for overtime work.

Gerlinger said in an interview Sunday that government auditors failed to catch the overcharges from 1991 to 1993 because they never examined his former employer’s accounting for labor costs. “I’m sure that millions went down the drain--all missed by the MTA’s auditors,” he said.

Gerlinger, 50, has filed a separate suit in Los Angeles Superior Court that accuses Parsons-Dillingham of firing him after he brought what he termed the “illegal practices” to light in a meeting with supervisors.

Parsons-Dillingham is an engineering joint venture that has earned $300 million from Metro Rail contracts over the past decade and now manages the construction of subway tunnels and stations in North Hollywood and Hollywood. A spokeswoman for the company said the suits lacked merit.

“Mr. Gerlinger’s accusations are absolutely false. He is a disgruntled employee who was removed from the Metro Rail project as a result of poor performance,” the spokeswoman, Jamie Brown, said Friday. “It’s P-D’s belief that he fabricated these absurd allegations in a crude attempt to garner publicity and coerce P-D into a monetary settlement on his lawsuit.”

MTA chief executive Joseph E. Drew declined comment except to say that the transit agency’s inspector general is examining the allegations in Gerlinger’s suit. A source close to the MTA said the inspector general, Arthur Sinai, had been studying the case for a year and considered Gerlinger to be credible. The source said Sinai will decide within 30 days whether to join the suit and whether to ask state or county prosecutors to consider bringing criminal charges.

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Gerlinger, believed to be the highest-ranking individual ever to file a False Claims Act suit against an MTA contractor, says that he was hired to work as Metro Rail project finance manager by Parsons-Dillingham in August 1991 and was lauded for “outstanding” work in performance reviews before being fired in November 1994.

In the interview, the German-born resident of Sierra Madre said he had previously worked in high-level financial jobs around the world for Ralph M. Parsons Co., British Petroleum and other firms.

A retired Parsons vice president, Walter O. Siler, said Monday that he supervised Gerlinger on a Chile construction job and admired his ability to handle and report on complex problems. He confirmed that Gerlinger is a longtime member of the Financial Executives Institute, an international organization whose members must win the endorsement of colleagues and supervisors to gain admittance.

At least half a dozen employees of the MTA or Metro Rail contractors have won whistle-blower suits totaling $3.5 million in the past two years. Gerlinger’s suit, however, is the first from a manager with check-writing responsibilities, and claims by far the greatest amount of fraud.

Gerlinger said in the interview that he was “amazed” during his tenure on the Metro Rail project that the MTA never audited his firm’s labor-charging practices.

“I felt uneasy about what I was ordered to do, but there was not much I could do about it,” he said. “The attitude was that the client was accepting these things, so let’s not change.”

The False Claims Act, which dates to the Civil War, allows individuals to sue contractors on behalf of the government and share 20% to 25% of any recoveries. The U.S. attorney’s office in Los Angeles investigated the case for two years before deciding not to join the suit a month ago. As a result, the case was unsealed by a federal judge on April 30.

Assistant U.S. Atty. Howard F. Daniels, chief of the civil fraud unit in Los Angeles, would not say why his office had declined to join the case. But he added: “We can still recover 70% to 75% of the proceeds if the plaintiff wins.”

Mark Harris, the assistant U.S. attorney responsible for coordinating federal criminal investigations of Metro Rail contracts, declined to comment on whether he is investigating Gerlinger’s allegations.

One of Gerlinger’s attorneys, Daniel R. Bartley of Larkspur, Calif., said he had been told by prosecutors that they stepped aside after determining that there was not enough federal money involved.

Daniels said he believed the federal government would be owed 10% of the possible $20 million in damages. The amount could jump past $60 million if a jury were ultimately to assess all allowable penalties, according to the suit.

Bartley said he amended the suit Monday to include charges under the state’s False Claims Act and will attempt to enlist the state attorney general as a co-plaintiff. He said he will seek a jury trial.

Gardena Councilman James Cragin, who is a member of the MTA board’s legal committee, recalled that he told the MTA’s inspector general when he was hired “that there was so much smoke around here that there has to be fire. We are going to get rid of the leeches around here.”

Parsons-Dillingham--a joint venture between Parsons Co. of Pasadena, Dillingham Construction Inc. of Honolulu and De Leuw, Cather & Co. of Washington--has been one of the MTA’s most prominent partners in Metro Rail construction.

In 1994, the transit agency attempted to phase out the firm’s involvement in subway construction after it was accused of being partly responsible for such problems as the sinking of portions of Hollywood Boulevard, but ultimately allowed it to keep the North Hollywood and Hollywood work.

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Gerlinger’s lawsuit lists 20 specific and several more general allegations of suspected unethical practices by Parsons-Dillingham. They range from complex issues of accounting to questions of whether the MTA should be billed for the time a consultant is being entertained.

In his suit, Gerlinger alleges that:

* MTA and federal contract rules specify that labor costs were to be estimated and charged in advance each year, then adjusted at the end of the year when compared to actual labor costs. The firm never made the annual adjustments, the suit alleges, resulting in an estimated overpayment by the MTA of $9 million between 1991 and 1993.

“Parsons and Dillingham prepared these figures every year but never submitted them because the client never asked for them,” Gerlinger said.

* Parsons-Dillingham billed the MTA on an accrual rather than a cash basis since Jan. 1, 1992, in contravention of its contract and federal rules. Gerlinger said the contract requires that costs not be billed until after they are paid. The firm, he said, bills before costs are incurred--thereby earning interest on the ‘float” of funds for 90 days. He estimated in the interview that the practice has cost the MTA at least $3 million since 1992.

* Dillingham “illegally” charges a 50% overhead markup on overtime labor costs. The contract, he said, calls for the markup to be charged only on workers’ straight time. The practice has cost the MTA at least $1.2 million, according to the suit.

“I tried to correct this with several memos, but no one paid attention,” said Gerlinger.

* Gerlinger was ordered to pay $40,000 from Metro Rail accounts to two law firms that defended Parsons-Dillingham in wrongful-termination suits. “How can you hold the client responsible for making a mistake when you dismiss someone?” he said. Gerlinger said the cases resulted in a $1.4-million jury award to a Parsons-Dillingham safety inspector and a $200,000 award to an engineer who also made complaints about safety.

* Parsons-Dillingham’s project manager once asked Gerlinger without documentation to make out a $1,000 check from Metro Rail funds to the project manager’s secretary after he had spent an evening entertaining MTA officials.

* Parsons-Dillingham employees working on Metro Rail regularly billed the joint venture for time spent on the job without any supporting documentation.

* Parsons-Dillingham billed the Metro Rail project for time its employees spent on outings with transit agency personnel at the Rose Parade and football games.