Did city pay for idle trucks?

Ex-mayor’s firm of­ten billed In­dus­try for un­used equip­ment, in­voices sug­gest.

Los Angeles Times - - CALIFORNIA - By Kim Chris­tensen

Week af­ter week, street main­te­nance crews criss­crossed the City of In­dus­try with a fleet of sweep­ers, pickup trucks, dumptrucks, util­ity trucks, a boom truck, a wa­ter truck and two trac­tors.

That’s what the city paid for, any­way, un­der its decades-long con­tract with Zerep Man­age­ment Corp., a com­pany owned by former Mayor David Perez and his fam­ily.

Whether it got its money’s worth is another mat­ter — and the sub­ject of sep­a­rate in­ves­ti­ga­tions by the Los An­ge­les County district at­tor­ney’s of­fice and the state con­troller, as well as a civil law­suit brought by the city against Perez and his rel­a­tives.

Zerep’s main­te­nance and mis­cel­la­neous ser­vices con­tract, which the city ter­mi­nated last Septem­ber af­ter 34 years, au­tho­rized the com­pany to charge for vehi-

cles and equip­ment based on their hours of use. But The Times’ re­view of in­voices Zerep sub­mit­ted to the city sug­gests that the com­pany rou­tinely billed the ma­chines for more hours than there were peo­ple avail­able to op­er­ate them.

In the first week of Jan­uary 2012, for ex­am­ple, Zerep charged the city for 683 hours for trucks and other equip­ment for the street crews, but rang up only 328 hours of man­power, in­voices show. Not count­ing a sweeper and mower that in­cluded op­er­a­tors’ time, the city paid for nearly 300 hours for ve­hi­cles and ma­chines that ap­par­ently were un­manned and idle.

The lop­sided ma­chin­eryto-man­power ra­tio oc­curred through­out that year and oth­ers, in­voices show.

The city’s law­suit, filed in May, ac­cuses Perez, his com­pa­nies and four neph­ews of fraud­u­lently col­lect­ing mil­lions of dol­lars through unau­tho­rized work and false or in­flated in­voices. It al­leges the Perezes en­gaged in “ex­ten­sive pub­lic cor­rup­tion and per­sonal prof­i­teer­ing,” in part by billing the city for “ser­vices never per­formed” and “rental equip­ment that was never used.”

City Man­ager Kevin Radecki, who for years reg­u­larly ap­proved pay­ments to Zerep be­fore ul­ti­mately mov­ing to can­cel the con­tract, de­clined re­peated re­quests for an in­ter­view. City Atty. Michele Vadon also de­clined.

Perez at­tor­ney Stephen Lar­son called the law­suit a po­lit­i­cally mo­ti­vated “hatchet job” on the fam­ily, whose In­dus­try roots and fi­nan­cial clout date to the 1950s. Perez’s power waned af­ter he quit as mayor in 2012, but it might have resurged Tues­day with the elec­tion of three City Coun­cil can­di­dates he sup­ported.

Lar­son dis­puted the false-billing al­le­ga­tions, say­ing that all work “was billed in ac­cor­dance with the con­tract.” He at­trib­uted the some­times-large gap be­tween la­bor hours and ma­chin­ery hours to Zerep’s long-stand­ing prac­tice of billing the city for ve­hi­cles and equip­ment kept on “standby,” in case they were needed.

“In terms of re­serv­ing equip­ment, this prac­tice by mu­tual agree­ment with city of­fi­cials was in place since the in­cep­tion of the con­tract,” he said. “The city for its part re­ceived exclusive use of Zerep equip­ment, avail­able 24/7.... That pro­vides the city with the com­fort of know­ing that it doesn’t have to scram­ble to find avail­able equip­ment, or com­pete with oth­ers to se­cure it.”

It’s not clear how much Zerep billed for ma­chines that weren’t used. Hun­dreds of in­voices re­viewed by The Times do not iden­tify any of the hourly equip­ment charges as “standby” time. Nor does the con­tract pro­vide for standby charges, or any­thing other than hourly rental rates.

When asked to cite the spe­cific au­tho­riza­tion for Zerep’s standby charges and to name the city of­fi­cials who agreed to pay them, Lar­son of­fered no re­sponse.

One in­di­ca­tion that not ev­ery­one was on board with the prac­tice emerged in 2014, when the city be­gan de­mand­ing de­tailed in­voices for Zerep’s work — and as­sur­ances that standby fees were not charged. The new bills in­cluded the dis­claimer: “Con­trac­tor’s equip­ment listed is used to sup­port tasks and billed by the hour, as per con­tract, for time used and does not in­clude any standby time.”

Zerep’s billings for street sweep­ing and other ser­vices were thrust into pub­lic view in April, when KPMG au­di­tors brought in to re­view records af­ter Perez re­signed re­ported that his fam­ily’s busi­nesses had reaped $326 mil­lion from city con­tracts since 1995. They found that the com­pa­nies’ in­voices lacked de­tailed de­scrip­tions of the work that was billed.

“With­out sup­port­ing doc­u­ments or de­tailed de­scrip­tion of the ser­vices ren­dered, it is nearly im­pos­si­ble to de­ter­mine with ab­so­lute cer­tainty that the la­bor and equip­ment costs as iden­ti­fied on the in­voice are rea­son­able, ac­cu­rate and com­men­su­rate with the work per­formed,” the au­di­tors’ report noted.

Lar­son also called the KPMG re­view a “hatchet job” and said the Perezes have hired ex­perts to con­duct their own foren­sic au­dit.

For most of the last three decades, as the provider of such ser­vices as build­ing and land­scape main­te­nance, graf­fiti re­moval and weed abate­ment, Zerep had wide lat­i­tude in choos­ing the work it per­formed in the San Gabriel Val­ley in­dus­trial sub­urb east of Los An­ge­les.

Lar­son said that was be­cause Zerep served as In­dus­try’s “de facto mu­nic­i­pal main­te­nance ser­vices de­part­ment.” The ben­e­fits to the city in­cluded that it bore no in­sur­ance bur­den or other ex­penses for the com­pany’s work­ers or equip­ment, he said.

The ar­range­ment did not come cheap: The city paid $28 mil­lion for ve­hi­cle and equip­ment rentals from 2003 to 2014, in­clud­ing $4.9 mil­lion just for lawn mow­ers, at up to $237 an hour.

Zerep billings in­cluded $15.6 mil­lion over the same pe­riod for street cleanup. That works out to about $118,200 a month, au­di­tors said, more than seven times the amount charged by R.F. Dickson Co., the city’s new street-sweep­ing con­trac­tor.

Dickson charges $201,000 a year to scrub all 65 miles of In­dus­try’s thor­ough­fares and its mu­nic­i­pal park­ing lots, ac­cord­ing to city records. Zerep charged more than that just for the park­ing lots, records show.

Dickson cleans In­dus­try streets with a sin­gle sweeper, which it runs for 40 to 50 hours a week, in­clud­ing park­ing lots. Zerep billed about twice as many sweeper hours each week, not count­ing the park­ing lots, af­ter steadily in­creas­ing them from 40 in 2010 to 80 in 2013, dur­ing a time when the di­men­sions of the 12-squaremile city did not change sig­nif­i­cantly.

Last year alone, Zerep col­lected $1.6 mil­lion for street main­te­nance, in­clud­ing $158,000 for a five-week pe­riod just be­fore its con­tract was can­celed. It billed an av­er­age of more than 650 hours a week for la­bor dur­ing that stretch — the equiv­a­lent of 16 full-time em­ploy­ees.

Lar­son de­fended the billings, say­ing that Dickson has only a “nar­row” con­tract to sweep streets, while Zerep’s work in­cluded mi­nor road and side­walk re­pairs, graf­fiti cleanup, hand-wa­ter­ing of some plants, lit­ter re­moval, fix­ing street lights and re­plac­ing street signs.

Zerep also billed for many of the same types of ser­vices un­der sep­a­rate in­voic­ing cat­e­gories such as “graf­fiti re­moval” and “sign in­stal­la­tion and re­pair.” Lar­son said the com­pany rec­on­ciled man-hours and time cards to pre­vent dou­ble billing.

‘In terms of re­serv­ing equip­ment, this prac­tice by mu­tual agree­ment with city of­fi­cials was in place since the in­cep­tion of the con­tract.’

— Stephen Lar­son,

Perez at­tor­ney, de­fend­ing the firm’s billings

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