The government-controlled system of building water and sewer lines in suburban Maryland has so frustrated developers that some have resorted to paying off the contractors who do the work, according to contractors and developers.
These sometimes questionable payments circumvent the construction system of the Washington Suburban Sanitary Commission, one of the few public agencies in the country that holds exclusive control over the water and sewer lines necessary for new homes and developments. In most jurisdictions, builders can handle this crucial phase of development.
The only clear beneficiaries of this unorthodox system are the some 30 construction companies which make much of their livelihood from WSSC water and sewer line contracts. Many of these firms, which occasionally have close ties to WSSC officials, have formed a lobbying organization that has had substantial influence on the way contractors' work is paid for and managed, a two-month Washington Post investigation found.
While local sewer contractors walked away with about $33 million in WSSC contracts last yelar, lhomebuilders and developers chafed at the expense and delays they say are built into the system. One Montgomery County builder said that WSSC has added $5,000 to the price of his homes.
The costs of the system fall largely on local homebuyers, although taxpayers' water and sewer bills pay for some. Homebuyers pay thousands of dollars over a period of years to the WSSC for their water and sewer hookups, and developers pass along the extra costs they say the agency frequently creates for them.
The Washington Post reported Sunday and yesterday how some WSSC contractors took advantage of the system by swaying prices and competitive bidding on contracts or by winning profits through "minority" firms they helped to create.
This story will explore the triangular relationship between the WSSC, the developers and homebuilders it serves, and the sewer contracting firms that do the agency's work. It is a relationship that has fostered questionable payment practices and a problem-plagued contracting system that the WSSC no longer fully controls. For example:
Some developers regularly seek to wrest control over their projects from the WSSC by giving payments to the sewer contractors who have been assigned to their job sites by the agency. The unregulated payments are intended to persuade the contractors to work faster or more efficiently. They are as much as $25,000, even though some sewer contractors concede that it often costs them nothing to do what the developers ask.
Some homebuilders, in efforts to ensure that they get the firms they want for pipeline jobs, have promised a sewer contractor thousands of dollars in advance of the WSSC bidding on a project so the preferred firms can win with the low bid. One sewer contractor called this "a form of bid-rigging." Again, in exchange for this cash, the sewer contractor is expected to speed his work or otherwise follow the developers' wishes on the job -- all under the eyes of WSSC supervisors.
For more than half of the construction contracts awarded by the WSSC eventually result in cost overruns, according to a Washington Post study of 380 contract files closed by the WSSC the last three years.The average overrun was slightly more than 9 percent, the study showed.
WSSC Engineering Department Director Robert C. Haven said the agency had never conducted such a cost analysis. He said the "maximum tolerable overrun" on any given contract in his view was 5 percent.
One WSSC inspector has sold real estate and bales of straw -- used in laying sewers -- to three contractors whose work he supervises. This inspector said two other WSSC inspectors followed the same practice in recent years. A female inspector acknowledged having a "special relationship" of friendship with a foreman of a contractor whose work she supervised daily for several months this year.
Special relationships abound between WSSC officials and contractors and among contractors themselves. There are former WSSC officials who are now contractors or who have gone to work for contractors after leaving their agency jobs. Contractors usually have favorite inspectors and inspectors have favorite contractors. Many contractors believe that these relationships influence the way their jobs are managed.
"I won't tell you we have a problem-free system," said Haven, who is chief contracting officer for the WSSC. Several years ago, our construction specifications were totally inadequate." But Haven maintained the WSSC had made enormous progress the past several years in improving its contracting, and builders and developers agreed.
Contractors and developers said the WSSC had become more professional and credited Haven for introducing steps to streamline and speed up the sewer construction process. But Robert Mitchell, head of the Suburban Maryland Homebuilders Association said, "The WSSC still has a long way to go to be where it needs to be in terms of efficiency."
Mitchell said the main problem builders have with the WSSC system is that they "don't have control over the major land development item in their projects," planning and building a sewer system for a subdivision often takes 18 months or more. And builders have no control over the timetable, even though the timing of their developments is the key to their financing and the eventual cost of the homes.
As a result, some builders who cannot move forward on their projects until the WSSC is finished, frequently resort to drastic -- and questionable -- means to regain control of their projects from the WSSC. Unregulated Payments
The most common tactic is an unregulated payment by the builder to the sewer contractor the WSSC has hired to lay subdivision water and sewer lines. Even though the WSSC is supposed to be paying for, managing and supervising water and sewer construction, some builders will pay sewer contractors $25,000 or more to do a better or quicker job than the WSSC asks.
Without these payments, several developers maintain they could not survive under the WSSC system.
Some of the sewer contractors say they sometimes accept these payments as bonuses because it often costs them nothing to lay pipe as a builder requests. "This is all profit," said Robert Taylor, a longtime WSSC contractor. "Where are my expenses? I'm already doing the work for the sanitary commission."
Said Mitchell: "it's very prevalent. I know when you first hear about this -- a developer takes the contractor off in a dark corner and hands him an envelope full of cash -- it looks really bad. But developers need to have some control over this process, and this is a way of getting it."
The size of the payments, contractors and builders said, depends on what the developer wants from the sewer contractor, how much he wants it and, often, how much the sewer contractor feels like charging.
"Once you're out on a site with a contractor," said Mitchell, who stressed that he did not make such arrangements, "he's got you over a barrel and he can name the price if you need him. He's going to get as much money out of you as he thinks he can get away with."
Consider what happened on the Kentsdale Estates project. The Morton H. Levine and Associates development firm was building the Kentsdale Estates subdivision in Potomac last year. Trible Construction was awarded the $325,000 contract to lay the water and sewer pipe.
Trible was given seven months to do the job by the WSSC, but the Levine firm needed part of it finished much quicker so it could pave streets and meet its construction timetable. So the Levine firm payed Trible $25,000 to finish the project at the speed the company was capable of, not the speed required by the WSSC.
Judy Trible of Trible Construction said his arrangement with Levine was normal and even commonplace in the world of WSSC contracting. He said he had received an equally large payment from another developer, Land Development Associates, on another project. Land Development officials said they did not remember the transaction.
Officials of most of the some 20 sewer contracting firms interviewed by The Washington Post agreed that payments between builders and contractors often occur and that their firms had benefited at one time or another.
Most defended the arrangements as normal and proper business transactions between private companies. They noted that the contractors still had to conform to WSSC specifications, regardless of what they agreed to do for developers. Several also said that speeding up or changing the sequence of pipe-laying for a builder often meant extra startup or labor costs for contractors, so the payments were not entirely profit.
WSSC counsel Paul Sisson and development lawyers said the payments apparently did not violate state or federal laws or WSSC regulations. But Haven said the WSSC disapproved of the payments and would consider action if "someone came forward and gave us information about instances" where they had occured.
Haven and legal authorities also took a more serous view of two variations of the agreements between builders and contractors, saying they might involve violations.
In one of the practices, several sewer contractors have deliberately planned the construction sequences of their projects to cause the most inconvenience to developers, and force a payment, according to two regular contractors who asked not to be named but said they had direct knowledge of such cases.
A sewer contractor might, for example, plan to lay pipe last in a subdivision that is otherwise the closet to being completed, forcing the developer to wait extra months to finish that section unless he negotiates a payment with the contractor, the sewer firm officials said.
In other instances, several builders have tried to ensure that a cooperative sewer contractor will work at a homesite by promising him thousands of dollars to lower his bid on the WSSC contract.
According to contractor Taylor, the builder will sometimes fund the contractor by promising additional work outside the WSSC contract, such as building storm sewers not under the WSSC's control. "They'll add [extra profits] onto the storm sewer you are doing for them or the on-site work,' Taylor said. "That way it's legal."
Taylor said he had benefited from such arrangements only "twice in five years." Said Taylor: "I don't trust builders. It's a type of bid-rigging."
In a recent case, Warren Halle, a builder based in Lanham, arrived at the Wssc's bidding session on the water and sewer contract for his property with the contractor he wanted to be low bidder, Ennis and Son of Camp Springs, and promised Ennis $6,000 in advance so he could submit a low bid.
But Ennis, who submitted a bid of over $200,000 on the project, lost it to C. Marinucci Co. Inc., which in turn lost it to the second lowest bidder, Suburban Utility, because of a mistake in addition on Marinucci's bid documents, according to several of the parties involved.
Halle then tried to negotiate an arrangement under which Suburban Utility would hire Marinucci crews or subcontract part of the job to them so the work could be done faster than the WSSC required.But Marinucci would not make this arrangement after winning new contracts at a subsequent WSSC bidding session.
Still determined to have the task performed as he wished, Halle arranged to pay an as-yet unspecified sum to Suburban Utility, Halle and Suburban's O.D. Upchurch confirmed, Marinucci officials could not be reached for comment.
This tale of a builder's roundabout efforts to control the construction schedule of his project is not particularly unusual, contractors said.
The WSSC's records of completed contracts offer ample evidence of why the builders feel so frustrated. Fully 55 percent of the 380 contract files studied by The Washington Post showed price overruns, and many of these were paired with delays in work schedules.
The overruns ranged from .02 percent of the contract price to 155 percent. The average overrun was 9.1 percent. The schedule delays frequently involved several months, and in a few cases were a year or more.
Most of the overruns, according to the records and agency officials, resulted from what are called "change orders" -- expansions of the amount of work in a contract after it had been awarded. Records show that these orders often are initiated by the contractors, not the WSSC.
Other increases were attributed to billings by the contractors for thousands of dollars of "contingent items" -- materials such as gravel and wooden supports for trenches. Under WSSC rules, contractors do not have to include these items in their bids, but can bill for them later -- at a set rate -- for however much they use.
Many contractors acknowledge that their success in winning change orders or other contract claims to a significant degree depends on their rapport with the WSSC officials who supervise their work -- the on-site inspectors and the contract managers.
"The [specification] book is always there, but it has a loophole for everything the inspector wants to do," explained one contractor who asked that his name not be used.
"It can make a world of difference who you have as an inspector," said an official of another major WSSC contractor, who also asked not to be named. "Sometimes rock excavation can be made a contingent item, sometimes not. It helps to have someone who's understanding. There's a certain margin of error in everything and sometimes they'll overlook things." Close Ties
The ties between some inspectors and contractors are close. WSSC inspector Ralph Torbeck, for example, said he conducted real estate business with principals or relatives of two WSSC contractors. He also acknowledged selling bales of straw, used in laying sewer, to three firms.
Torbeck, 51, owns a farm in northern Montgomery County and runs a real estate firm, Torbeck Realty, with his wife. He said he had sold straw to Calcon Co., DiMeglio Construction and and another firm based in Montgomery County, and that the most he had ever sold was 150 bales at 75 cents a bale. Tom Callahan, the head of Calcon, remembered a price of $1 to $1.25 a bale, which he said was still below usual rates.
Torbeck confirmed that he also sold a house to a member of Callahan's family, and once years ago sold a piece of a property he owned to Julian DiMeglio Construction. DiMeglio refused to be interviewed.
Callahan said he recently had Torbeck as his on-the-job inspector for a WSSC contract. He noted that Torbeck had forced his crews to stop working on a day when it rained, as required by WSSC specifications. "He doesn't usually do things like that," Callahan said. "But that's okay, it's in the specs."
After learning of Torbeck's strawselling activities from The Washington Post, WSSC officials suspended him for five days without pay for violating the WSSC ethics code.
Torbeck said he knew of two other inspectors who had owned farms and sold straw to the contractors they supervised, but added that both had retired several years ago.
Another inspector, Kathleen Harrington, said she had to cope with -- but avoided -- a potential conflict recently when she spent several months as the on-site inspector at a job done by Ennis kand Son. An Ennis superintendent, Jim Passero, has a "special relationship" of friendship with her, she said.
Harrington said she had known Passero for years, had frequently socialized with him and "thought the world of him." She said the relationship had never been romantic in nature. Once, she said, Passero had driven her to work at the Ennis and Sons job, but said she had not seen him much there and had "yelled at him like anyone else."
Passero agreed with Harrington's account and added, "There was no special favoritism."
Other WSSC officials have made their living from contractors after leaving the agency. On his retirement several years ago as chief of contract bidding for the WSSC, Robert Fey, immediately became executive secretary of the Public Works Contractors Association of the Greater Washington Area. The managers of another regualr WSSC contracting firm, Oak Port Construction, started as inspectors for the WSSC.
But the local sewer contractors are even more closely linked to each other than they are to the WSSC. Among the about 30 local firms who regularly win contracts at the WSSC, eight are related by family ties and others were started by men who first worked together for years with more-established WSSC firms.
Many of the WSSC contractors who are not linked by family are members of the Public Works Contractors Association, which meets regularly to discuss WSSC policies and plan lobbying activities with the agency and other arms of government.
Contractors say their lobbying has helped discourage at least one construction firm not based in the local area which in the local contractors' view did not meet area standards.
That company was District Associates, a New Jersey-based firm which set up a local office late in 1978 and quickly won five WSSC contracts, worth nearly $7 million, by submitting far lower prices than the regular bidders.
Members of "the clan" were enraged.
"These outsiders come in and think they can get away with it," said Gino Ventresca of Ventresca and Sons. "What would you do if someone took the bread off your table?"
What several of the contractors did was to follow closely every District Associates job, collecting evidence of every deficiency they could find and turning it over to the WSSC. They complained about a range of alleged problems and of what they claimed was unusually favorable treatment of the company by the WSSC.
Finally, the WSSC held a hearing in May 1979 to determine whether District Associates should be denied further contracts because of alleged deficiencies. The agency decided to allow the company to continue working, but District Associates has not taken another contract since.
Engineering director Haven and other WSSC officils say now that any problems District Associates had were largely those that might routinely occur when a large sewer contracting firm begins working with a new agency in an unfamiliar area. Company officials declined to comment.
The WSSC officials deny that the contractors had anything to do with the actions taken against District Associates. The contractors, however, say it was their pushing that, as one of them put it, "drove those guys out of town."
The contractors association claims many victories in negotiations with the WSSC, some of which the agency acknowledges.
In 1978, for example, when contractors' bid prices were considered too high by WSSC officials, a meeting was held with contractors and developers, according to Haven and WSSC General Manager Robert S. McGarry.
The result of the meeting: McGarry promised to increase the time allowed to contractors for their jobs by 25 percent in the hope they would do it cheaper.
According to Haven, the WSSC has gradually decreased the amount of time allowed to contractors since then. But it still enrages many local developers that the agency would allow the contractor to work at a slower pace.
In addition the contractors association persuaded the WSSC this summer to hold what in effect are price negotiation sessions on the "contingent items" three times a year. At these meetings, contractors suggest a set rate -- with a built-in profit -- they should be paid for such materials they can justify using on a project. The price is then debated by the two groups before it is reset by the WSSC.
Officials of most other public agencies and local governments not only do not discuss such prices with contractors, but do not even have provisions for special use of materials in their contracts. Rather, contractors are expected to account for the possible use and cost of such items in their competitive bids.
WSSC officials say their policy of removing gravel and other materials from the competitive bidding process saves the agency money because contractors lower bids when they do not have to worry about paying for these items.
The most successful lobbying the contractors have done recently may not have happened at the WSSC, however. Last winter, the contractors association helped defeat a bill the WSSC asked the Maryland legislature to pass. That bill would have allowed developers to build sewer lines in Maryland -- without WSSC contracts -- for the first time in 62 years, since the WSSC was created.