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By Erin Sherbert
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After acknowledging that "We as a company are sometimes accused of writing tight specifications designed to eliminate competition," the Tremco guidelines advise the firm's sale force to get chummy with business managers and maintenance superintendents at public school districts. Convince them to let you write the specs, the guidelines urge, and then "write items into the specs which our competition does not have."
Once the competition has been squeezed out, the sole-source contractor can jack up his prices. The Dayton Daily News concluded that in Ohio, Tremco was able to charge substantially more for proprietary-spec jobs than for those where it had to bid competitively. Campbell obtained a comparison between Tremco products in use at UCSF projects and equivalent products of a competitor, Henry Co. The chart showed Tremco was charging two and three times Henry's price for comparable materials.
In April 1997, Campbell wrote a memo to her boss about proprietary specs for a roof at the UCSF dental school. She noted that the building manager had ordered the use of Tremco boilerplate specs. She said that Andrew Smith, the Tremco sales rep for UCSF, "was [improperly] paid [by UCSF] to do the specs." She also claimed that "safeguards appear to have been deleted ... [the safeguards are] necessary for Code Requirements, for accurate and lower bidding, and to be able to avoid change orders [i.e., cost overruns] and provide constructibility." She also listed 50 specs that were unnecessarily restrictive and costly.
Nelson, she says, never replied.
Campbell's crusade got some reinforcement when a San Jose heating, ventilation, and air-conditioning (HVAC) contractor filed suit last April in San Francisco Superior Court against UCSF, the UC regents, and several architects, consultants, and suppliers.
John Karamanos, owner of HVAC Sales Inc., alleges that employees of the architectural and engineering divisions at UCSF and UC Davis wrote proprietary specifications for millions of dollars' worth of HVAC equipment. Karamanos and his lawyer, Zane Negrych, say they've presented their charges to the same FBI agents who have interviewed Campbell. UC officials said they do not comment on pending litigation, and the other defendants deny the allegations.
To buttress his case, Karamanos produced a recent internal audit of the UC Davis architectural and engineering offices. Campus auditors had concluded that employees of those divisions "were treated ... to golf tournaments and related social events" by building contractors involved in six campus construction projects from 1992 to 2000.
The auditors said they found no evidence that contractors and vendors who had supplied the golf goodies had received preferential treatment in return. But they noted that "the acceptance of gifts put the University at risk of the appearance of favoritism." Their report also said that "construction culture promotes the offering of gifts to customers" and urged that university rules against accepting them be tightened. The audit said unspecified disciplinary action was taken against employees who took the golf freebies.
The audit, dated March 2000, also said that one vendor had "bundled" equipment sold to the university for four construction projects. Bundling is the practice of requiring a buyer to purchase a variety of goods from the same supplier on an all-or-none basis. In each of the four jobs, the bundling included a proprietary airflow control valve that was specifically required by the construction contract. Auditors concluded that while bundling opens the door to the university being overcharged, that apparently hadn't happened in the four projects examined, since all were completed within budget. The auditors remarked, however, that they were not able to determine whether or not the price paid for the bundled equipment was competitive.
After Karamanos sued, UCSF restored his contract to supply HVAC equipment for a multimillion-dollar animal experimentation lab, and he was given a piece of the UC Davis jobs, too. That success emboldened him to convert his breach of contract lawsuit into a whistle-blower suit, which could entitle him to share in millions of dollars in damages.
"Proprietary-specification writing is a new, complex area of construction fraud," says Matt Dorsey, spokesman for San Francisco City Attorney Dennis Herrera. "Learning about it is the cutting edge of corruption investigations."
The learning curve for Campbell and Karamanos, of course, is significantly less steep than for a layperson. Each has spent years mastering his or her trade; for them, a proprietary spec almost leaps off the page of a construction document. Law enforcers are faced with having to master the incredibly arcane -- and mind-numbingly dull -- language and mathematical formulas used in specs before they can bring civil or criminal charges to bear, when relevant. There is nothing like having a whistle-blower or two on hand to spot the improprieties masquerading as innocent specifications.
Lawyers working for City Attorney Herrera have been getting up to speed, though. Sources say Herrera is nearly ready to sue several construction contractors in federal court, alleging that they improperly used proprietary specs on projects including SFO and the de Young Museum. The lawsuits could be filed soon.