Affirmative Action Derailed

With Prop. 209 looming, an airport contract battle shows how S.F. has failed to keep faith with minority business

The lawyers stream into Courtroom No. 8 like air sucked into an empty lung. Pinstripes. High heels. Briefcases. Briefs, spit from laser printers, are passed back and forth with high purpose. A clerk resorts to drawing up a seating chart, just to keep the names straight.

"All rise." Judge William Cahill enters. Cahill, considered perhaps the top civil law judge on S.F.'s Superior Court bench, confides at the outset of the hearing that the case is the "most complicated, hard thing I've ever encountered since I've taken this job."

A crackling Socratic debate ensues. At issue: whether the award on a major airport contract complies with the city's affirmative action requirements. Questions posed by Cahill are swatted back by counsel on both sides as they try to move the judge toward their view. But proceedings take a perilous turn early for senior S.F. Deputy City Attorney Mara Rosales. The judge calls the affirmative action ordinance she wrote "a mess." Indeed, the independent-minded appointee of Gov. George Deukmejian sounds particularly irreverent today. Over the protestations of Rosales, he dismisses the relevance of how S.F. has enforced affirmative action the past 12 years, saying: "What if you've been doing it wrong forever?"

To which Rosales responds, "It is unfortunate that we are here." She then acknowledges the thorny issues before the court. "In my career as a city attorney," she says, "this is the most difficult case I've had to deal with."

But Rosales' misfortune is another's good fortune. He's seated two rows back among the packed house. Terry Sanders has been working toward this moment since last summer.

Back in September, Sanders was seated in a leather armchair 10 stories above Kearny Street. He opened the Yellow Pages to Page 534. He ran his finger down the directory's listing of concrete contractors. But he wasn't in the market for concrete. He was looking for cracks.

Sanders sells and installs automated electric-powered light-rail trains. Been doing it for three decades. But 10 days earlier -- on Aug. 23 -- he had received unexpected bad news. The $155 million bid his company had put forth to construct a train for San Francisco International Airport had come in $19 million over the bid of his only competitor, Mitsubishi Heavy Industries America. Sanders is the western region senior manager for ABB Daimler-Benz Transportation Inc., or ADtranz. Needless to say, the Mitsubishi bid had practically obliterated the chances of ADtranz landing the airport light-rail contract.

Unless Sanders could find a crack -- in the foundation of Mitsubishi's low bid.

His first target: Mitsubishi's subcontractors. Specifically, the subs Mitsubishi had designated in its bid as "independent S.F. minority- and women-owned businesses" (MWBs). Under a city affirmative action ordinance, the airport had made it a condition that 12 percent of the project be handled under subcontracting agreements with local MWBs. Sanders couldn't believe Mitsubishi had met that obligation at such a low price tag.

Just nine entries down the page.
Aha.
He didn't have to look far.

B & F Concrete -- slated to perform more than $4.2 million of work under Mitsubishi, the second largest piece of the MWB pie. For Sanders, it was the first bit of good news in a week and a half. The company listed a Hayward address, a fair hint it wasn't S.F.-based; that made one likely breach of the local legislation.

Four entries farther down, the crack widened. B & F's Concrete's address, 1970 National Ave., Hayward, was also claimed by Casey Fogli Concrete Contractors, a white-owned firm. It seemed B & F was not really independent. And maybe it was a front.

His suspicion piqued, Sanders set aside the Yellow Pages. He hired a private eye. The gumshoe was able to further discredit B & F's claims to being a bona fide local minority firm by using surveillance and public records. And he raised similar doubts about another Mitsubishi subcontractor -- Metalset Inc., which was in line for the most MWB work, to the tune of $4.9 million.

If the exercise sounds distasteful and wholly self-interested, Sanders won't concede the point. "We think the social goals are worth it," he says of the city's affirmative action ordinance. "We also think the law should apply to everybody."

In the ensuing months, Sanders' detective work would lead ADtranz to the brink of snatching the light-rail contract from Mitsubishi. It also touched off an unprecedented bureaucratic battle in S.F. that has revealed some essential realities of affirmative action in the city: The policy does not exist in an ethical vacuum. It is vulnerable to abuse, and checks on exploiters are inconsequential. Legitimate MWBs lose when the city bureaucrats fail to mind the store. The universe of beneficiaries is itself racially and ethnically fractured. The agency with responsibility for monitoring compliance on big contracts has been a paper tiger. It's hard work to make affirmative action successful. Moreover, these truths have been flushed out into the open at a very delicate time.

For one, the local ordinance under which S.F. steers business to its minority- and women-owned firms expires June 30. Before a replacement ordinance is introduced, the city must justify it legally, a time-consuming job that will entail both public hearings and the commissioning of a so-called "disparity study."

A seemingly endless stream of federal court challenges to the law is also in play, generally brought by whites alleging reverse discrimination. A half-dozen thus far have been deflected when judges declared that S.F. has acted with due care -- that it has demonstrated clear evidence of discrimination by its own municipal departments, and that its affirmative action remedy has been gradual and "narrowly tailored" to cure the identified social harm. But more are in the pipeline.

Oh, and by the way, all of this is roiling against the backdrop of litigation over state Proposition 209, the voter-approved initiative to end affirmative action in government hiring, contracts, and public school. If allowed to take effect, Prop. 209 would repeal S.F.'s affirmative action programs and other programs in California that seek to redress discriminatory governmental and educational practices.

All in all, the ADtranz-Mitsubishi brawl shapes up as an evolving case study for the affirmative action policy debate that has raged in California from the landmark Bakke reverse-discrimination case to Prop. 209. And many supporters of affirmative action won't like what they see.

On Oct. 3, in the midst of ADtranz's sleuthing around the Mitsubishi bid, 30-year-old Marivic Bamba became S.F.'s new director of the Human Rights Commission (HRC), the city's affirmative action clearinghouse.

Overseen by a group of civilian commissioners, the HRC's job is to certify MWBs as eligible beneficiaries of the affirmative action in contracting ordinance; to work with departments, like the airport, to decide when contracts ought to be set aside for MWBs, and what level of MWB participation should be established for major contracts put out to competitive bid. It also has responsibility for monitoring compliance.

For such a boastfully progressive city, however, S.F. was late to share the wealth of municipal contracts with local businesses owned by blacks, Hispanics, people of Asian descent, and women. By the early 1980s, a majority of S.F. residents were minorities, as were 31 percent of private-sector construction-business owners. Yet these minority-owned businesses got less than 1 percent of city construction spending. The Board of Supervisors only passed a response to the disparity in 1984. Titled the Minority/Women/Local Business Utilization Ordinance, it directs all city departments to take affirmative steps to steer business to independent, local minority- and women-owned business enterprises.

The rationale was written directly into the text: "Policies and programs that enhance the opportunities and entrepreneurial skills of minority owned, women owned, and local businesses will best serve the public interest, because the growth and development of such businesses will have a significant positive impact on the economic health of the city and will serve to reduce racial tension in our community."

Since passage, the old disparities have narrowed. According to the most recent annual report of the S.F. Human Rights Commission, the value of contracts to local MWBs certified to participate in the program reached $92 million in fiscal year 1995, which was 21.5 percent of all contracts awarded to business during the period.

The agency's new director, however, knows that statistics aren't the only measure of success. "Affirmative action can no longer be a sheer numbers game," Bamba said in a recent interview. "It should focus on the viability of its constituency. The causes of being a disadvantaged business person have to be addressed."

To take the S.F. job, Bamba left a similar post as director of contract compliance for the city of Richmond. Earlier, as a private consultant, she had prepared disparity studies, which is a current legal prerequisite before a public entity can grant preferences along racial or gender lines. Think of it as the bureaucratic equivalent of driving pilings before erecting a bridge.

Bamba also got a long peek behind the curtain in S.F. before moving into the director's chair, having in February 1996 become a member of the Human Rights Commission, the mayoral-appointed body that sets policy and oversees the HRC agency staff. In that role, she paid close attention to the MWB program. As a commissioner, she said, "I heard complaints from the community about a lack of enforcement."

As director, she would be in a position to do something about that. Her first big chance came after less than a month on the job. The episode, Bamba said later during public hearing testimony, would be her "baptism by fire."

Informed of the disturbing results of ADtranz's probe into the Mitsubishi airport bid -- self-interested as it was -- the new director moved quickly. Bamba assigned a veteran HRC compliance officer to the case.

The compliance officer, Kevin Williams, wrote Bamba two memos summarizing his findings on Nov. 6. (Coincidentally, it was the same day that S.F.'s civil rights establishment rushed to federal court to block implementation of Prop. 209.) According to the memos, Williams not only supported ADtranz's allegations about the Mitsubishi subcontractors being possible fronts, but he also sounded a wider alarm about shabby HRC procedures. He wrote, "I strongly recommend prompt review of other errant certifications ...[,] establishment of a uniform [certification] process through in-services training[,] and development of a compliance officer's manual to avoid such flagrant error in the future."

What Williams reported seeing when he opened the HRC's certification files is less than reassuring. According to one of his memos, an HRC staffer had certified B & F Concrete as a bona fide independent, local MWB in August 1994, even though the listed minority owner, Jeffrey Otani, had no equity in B & F Concrete. Instead, Otani and another man, Robert Aquirre, bought $31,500 of shares each in July 1994, using a promissory note. Other shareholders, Vincent Ippolito, Eldor Lien, Thomas Lien, and Robert Lien, all whites, also happened to own Casey Fogli Concrete Contractors, the outfit ADtranz's Terry Sanders noticed listed in the Yellow Pages at the same Hayward address as B & F Concrete. Though B & F Concrete claims an S.F. address, 2211 Quesada Ave., it is a warehouse occupied principally by the Perche No! Gourmet Italian Ice Cream Co. A "B & F Concrete" sign is fixed against the building's exterior, but Williams found that a two-room office that the ice cream company employees identified as belonging to B & F Concrete was uninhabited on Nov. 4. (It turns out that B & F Concrete was recently dropped from eligibility for affirmative action under a program of the S.F. Redevelopment Agency, which is run separately from the city's program.)

With regard to the other Mitsubishi contractor, Metalset, which was certified by the HRC in March 1996, Williams noted that the agency's certification file was missing the required tax, lease, and utility bill documentation. Of his inspection of the S.F. address that Metalset listed with the HRC, Williams wrote, the company's office is within the fenced operations yard of another outfit, Sheedy Trucking, Crane, and Rigging Co. Metalset apparently had designated a portable trailer as its place of business -- another red flag under HRC regulations. "Outdated plan drawings and office furnishings are arranged to give a feeble appearance of an active office environment," Williams wrote. "However, it appears unused and inactive."

Reached by telephone, Metalset's owner, Ricardo Rosales (no relation to the deputy city attorney), recently declined comment. Otani of B & F Concrete, whose telephone is answered by the offices of Casey Fogli, defended his firm: "We are legitimate. We had gone through certification. They [the HRC] are trying to drag up anything they can because they have egg on their faces."

There's clearly blame aplenty to go around. But it isn't likely to help B & F Concrete's case. Williams' recommendation to Bamba on Nov. 6 was decertification of B & F Concrete and Metalset from the city's affirmative action program.

How does Mitsubishi Heavy Industries America end up signing on the likes of B & F Concrete and Metalset as MWB subcontractors -- and, for that matter, doing so under penalty of perjury?

Turn back the calendar to 1995. The airport had just launched a $2.4 billion expansion. In the works for the air travel and shipping hub were a new international terminal complex, new highway ramps and circulation roads, and the automated light-rail train to move passengers and employees around the entire facility.

Beginning the light-rail project, which is to be the linchpin of the expansion, airport management started by engaging industry in a discussion about the state of the art in light-rail technology. The staff arrived at a set of specifications for its train system, estimated to cost up to $165 million. As an affirmative action measure, the project was then parsed into components that might reasonably be carried out by MWBs. Finally, an MWB participation goal of 12 percent was established and the project advertised in February 1996.

The deal caught the eye of a New Yorker, Gino Antoniello, of Sumitomo Corp. Antoniello pitched Mitsubishi on a partnership. The plan Mitsubishi ultimately blessed entails Sumitomo acting as the consultant responsible for assembling the bid, with Mitsubishi serving as the general contractor that will actually deliver and install the train system.

When it came to hiring second-tier contractors and subcontractors, however, Antoniello was at a disadvantage, compared to Sanders of ADtranz. Sanders had been in the Bay Area since 1972. Where Sanders was familiar with local players, Antoniello leaned heavily on intermediary contractors with S.F. profiles to recruit certified, second-tier MWB subcontractors. A team materialized, nonetheless, and a bid was delivered by the June 10, 1996, deadline.

At the airport, the sheer magnitude of work seems to have contributed to the failure to detect the stark shortcomings of B & F Concrete and Metalset earlier in the game. As of the close of 1996, the airport had already awarded more than $1 billion in contracts related to the expansion -- major projects that would carry MWB-hiring goals. Yet, under an arrangement whereby the airport paid to have HRC compliance officers on staff at the facility, only two officers were requested, leaving little leeway for thorough examinations of minority- and women-owned businesses tapped by big contractors. Accordingly, compliance reviews were limited to a check merely to see whether a sub appeared in the HRC's database of certified MWBs, and whether they held the proper licenses for the job they'd been designated to carry out.

Complicating matters on the light-rail contract, a senior compliance officer who was familiar with the contract specifications was on leave in August and September when Mitsubishi was due for its compliance review. A junior staffer, Richard Norton, then cleared Mitsubishi -- and sent airport management a memo advising them of the outcome.

On Nov. 7, the day after receiving Williams' investigative report on B & F Concrete and Metalset, HRC Director Bamba ordered Antoniello to her office for a Nov. 12 meeting to discuss his familiarity with the two subs, and how he recruited certified MWBs to meet the affirmative action goals.

The notice came as a surprise. Remember, the HRC had certified B & F Concrete and Metalset in 1994 and 1996, respectively. To Antoniello, if the agency was looking for culprits, perhaps it should have looked in the mirror rather than at him. Moreover, the airport-based HRC staff person's memo clearing Mitsubishi had been given to airport management Sept. 18.

Bamba considered that notice invalid, however, because it had been issued without HRC front-office approval, by a junior staffer, and during a three-week window when the HRC was between permanent directors. (Ed Lee, Bamba's predecessor, had become S.F. purchaser Sept. 10.)

Bamba's come-to-Jesus meeting at the HRC office was a well-attended, tense affair.

Aside from Bamba, Williams, and Antoniello, it drew two other HRC staffers, three other figures from Mitsubishi and Sumitomo, three lawyers from City Attorney Louise Renne's office (two who work for the airport, the other for the HRC), a senior airport manager, and Mitsubishi's politically wired counsel, William Coblentz, of the law firm Coblentz Cahen McCabe & Breyer.

Williams, the HRC compliance officer, put Antoniello through the paces, as revealed by a meeting transcript.

Williams: "Where is Metalset located?"
Antoniello: "They have a small office on Michigan Street."
Williams: "What equipment does Metalset own?"

Antoniello: "They provided us with an equipment list. I would have to check it again."

Williams: "Where is everything kept?"
Antoniello: "Either at job sites or their place of business."
Williams: "Have you or anyone else visited the site?"
Antoniello: "I visited on one occasion."
Williams: "Did you see any equipment?"
Antoniello: "Some minor stuff."
Williams: "What did you see?"
Antoniello: "I don't remember exactly."
Williams: "Did you ever visit [B & F Concrete's] site?"
Antoniello: "No."
Williams: "[Were] there any other concrete firms solicited?"

Antoniello: "No." [He then explained that he left those matters to his intermediary subcontractors.]

Williams' supervisor, Zula Jones, one of the other HRC staffers in attendance, concluded the interrogation, asking Antoniello whether B & F Concrete had a business location outside San Francisco.

"I'm not sure," he said.
When the grilling concluded, Antoniello aired his dismay over the inquiry and expressed clear doubts about the propriety of the proceedings.

"We've done all that is appropriate, and it is a shock to us that we are even being questioned about our good-faith effort," he said, his frustration showing. "Some of these questions are very pointed, and we will cooperate and are cooperating, but we would like some clarification as to what this process is really trying to achieve -- and what the intended outcome is."

Responded Bamba: "There were some significant and critical issues that I felt needed to be addressed." She pledged to deliver her findings swiftly to airport management.

Under Bamba's predecessor, Ed Lee, "the HRC settled its [affirmative action] differences with other departments behind closed doors," says an S.F. lawyer familiar with the commission's practices, who spoke on condition of anonymity. "He understood how to finesse it."

But Bamba marches to a different beat. Though declining to discuss the light-rail contract, citing litigation on the matter, Bamba says she intends to bring more stringent attention to MWB contract compliance: "Consistency and enforcement of the letter of the law," as she puts it.

S.F.'s affirmative action bureaucracy got the message on Nov. 18 when she issued her Mitsubishi bid findings to S.F. Airport Director John Martin. Bamba didn't exactly go ahead and pull the trigger however. Having already gathered damning evidence that B & F Concrete and Metalset weren't legitimate local, independent MWBs, she refrained from immediately decertifying the companies. Instead, in her report to the airport, Bamba recommended rejection of Mitsubishi over a more esoteric matter. Noting that Mitsubishi was lavishing large sums on the two subs -- plus a third certified MWB with an unproven track record, Aladdin Builders -- she took issue with how the dollars would flow under the bid. Essentially, Bamba argued, the three companies were serving as "pass-throughs" or "conduits" for dollars that would actually go to non-minority equipment and materials suppliers. She concluded that the MWB credit claimed by Mitsubishi was therefore inflated.

Just six weeks on the job, Bamba couldn't have liked what she found in the light-rail contract. Were "certified" MWBs of this ilk -- essentially paper entities without a work force that had been created only to take advantage of the system -- the exception or the rule?

For Mitsubishi, the HRC director's report to the airport carried potentially grave consequences. Had she simply disqualified B & F Concrete and Metalset, the revelation presumably could not be used against Mitsubishi (absent evidence the company should have known better).

On the other hand, if Mitsubishi inflated the credit it was due under its subcontracting deals with MWBs -- and consequently was deemed to have fallen short of the affirmative action goal, as Bamba concluded -- then ADtranz would be in position to land the light-rail contract.

All of which was beginning to throw the city's affirmative action regime into turmoil.

Bamba rebuffed a request from the City Attorney's Office, which represents all city agencies, that she withdraw and amend her findings. Meantime, the HRCdirector inquired about the feasibility of hiring private counsel -- apart from the city attorney -- only to be rebuffed herself by City Attorney Louise Renne. The need for separate lawyers arose because Airport Director Martin rejected Bamba's analysis of the contract, and was recommending that Mitsubishi be awarded the deal. Ultimately, it would be left to the city's five-member Airports Commission to choose a side between Mitsubishi and ADtranz, and, consequently, between the City Attorney's Office and the HRC.

On Dec. 23, the Airports Commission met. The third-floor Public Health Department meeting room filled. Mitsubishi and ADtranz officials were joined by their hired devotees: lawyers, lobbyists, and their would-be subcontractors. Having received divided advice on the $136 million bid, the panel confronted a second split. Like the city's lawyers and bureaucrats, the universe of intended beneficiaries of affirmative action was bifurcated.

African-American business owners -- some of them signed onto the ADtranz bid, others who felt snubbed by Mitsubishi -- chose their perches accordingly. Most notable among them was James Jefferson, a business consultant slated by ADtranz to manage the post-installation train system personnel. Across the room, Mitsubishi's subcontractors in attendance were predominantly Latino and Asian-American.

Black trucker Charlie Walker, the first subcontractor to testify, summed up the African-American complaint: "We are still the last hired and the first fired. We still can't get bonded, and we still can't do any of the jobs." Echoed by others, Walker charged that Mitsubishi had never done "any outreach" to blacks through African-American business associations.

In fact, the racial split was a logical consequence of how Mitsubishi and ADtranz had gone about assembling their teams. For instance, Mitsubishi had turned to Rosendin Electric Inc. of San Jose, a first-tier contractor for Mitsubishi, to put together a team of second-tier subs to meet MWB participation goals. Not unsurprisingly, Rosendin -- a highly successful company that was a Hispanic business at the start -- signed on many Latinos. By contrast, Sanders, whose ADtranz office is in Union City, had called on a minority East Bay transit engineering firm for assistance. The company, called Mindseed Corp., happens to be owned by a native San Franciscan who is black. That person, in turn, recommended Jefferson, who among other things is former president of the S.F. Black Chamber of Commerce.

As the airport commissioners listened, however, the essential question before them was jurisdictional. Their counsel, Deputy City Attorney Mara Rosales, had delivered a crucial piece of legal advice behind closed doors before the hearing. It would be the same position she'd set forth fewer than six weeks later in Superior Court to a skeptical Judge Cahill.

It was simple. Rosales cited the city charter -- the supreme law of municipal affairs -- as giving the Airports Commission absolute authority to decide if a bid met all contractual requirements, including whether the certified MWBs were in fact bona fide for purposes of any particular project at hand. The charter states that the commission: "shall have charge of the construction, management, supervision, maintenance, extension, operation, use and control of all [airport] property, as well as the real, personal and financial assets."

Which, in Rosales' view, means the commission is authorized to award contracts to whom it pleases for work it pleases, a power limited only in one regard: The S.F. Administrative Code requires awards to the "lowest, reliable, responsible and responsive bidder." And that, technically, was the question before the commission Dec. 23. As for the authority of the HRC director, her conclusions about Mitsubishi's bid weren't binding, Rosales said. The HRC certifies companies as local MWBs, but it was the Airports Commission's call as to whether the bidder used certified MWBs appropriately.

The commission voted 3-2 in favor of Mitsubishi. And, although Rosales knew she would be back in court defending it, she didn't expect trouble. She had defended the city MWB ordinance on a half-dozen occasions in federal court, and had a perfect record.

But this was a different kettle of fish. It was not a constitutional attack on the legality of the ordinance. This was about what happens in S.F. when the rubber meets the rails.

Come Jan. 30, it was left to Judge Cahill to make sense of the mess. ADtranz had sued, challenging the city attorney's opinion to the Airport Commission -- that it was free to ignore the conclusions of the HRCdirector.

HRC Director Marivic Bamba was the court's most conspicuous figure by virtue of her absence. Cahill not only wanted her absence explained, but he went out of his way to praise Bamba's willingness to go the extra mile on scrutinizing subcontractors: "She's actually choosing to go out and see." The clear implication of the exchange that would follow was that Bamba was being kept out of sight by the City Attorney's Office, which considers itself the arbiter in contracting works in S.F.

"I kind of wonder who the client is here?" Cahill asked Rosales. Rosales assured the judge that she represented both the airport and the HRC, indeed the city as a whole, and that no conflict existed. (To her right sat another deputy city attorney, a private lawyer specialist in contract law hired by the airport, and Jonathan Bass, of the Coblentz firm, the counsel for Mitsubishi. To her left: ADtranz's team.)

"You represent people who have two different interests, and I'm really having trouble with that," Cahill bristled.

Cahill asked Rosales what she had told the HRC director about her conclusion that Mitsubishi had failed to meet the affirmative action goals. "You advised her she is wrong?"

Responded Rosales, "Yes."
"What if she's right?" the judge said.

Judge Cahill had not answered that question by press time. But in one regard the verdict was clearly in: Though statistics show great strides in affirmative action in municipal contracts, the light-rail clash reveals that those numbers don't tell the whole story. Fortunately for S.F., the current MWB ordinance expires June 30. Between now and then, S.F. has an opportunity to repair the bureaucratic rifts and seal those cracks exposed by Terry Sanders. But making the system work won't be easy.

First, more resources are needed. When Bamba took over, the HRC directory that lists "certified" MWBs was an inch or two thick. Discovering the suspect companies, such as B & F Concrete and Metalset, would take legwork. This, at a time when the Board of Supervisors has heaped substantially more responsibility on the agency, charging it with implementing the controversial new ordinance that requires city contractors to provide the same benefits to registered domestic partners that they do for married couples.

As is the case in Richmond, where Bamba worked before joining the HRC, S.F. could make a policy of offering incentives to contractors to racially diversify their teams of subcontractors. That is achieved by giving bidders added credit for meeting race-specific hiring goals above and beyond MWB participation thresholds.

But perhaps the biggest lesson S.F. needs is that corruption and sloth thrive in a vacuum. That it is time to clearly designate the HRC as the legal arbiter of affirmative action compliance in big municipal contracts.The city should never be in the position that it was before Judge Cahill. As he concluded, "There's no rules here basically."

It's about time to make some.

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