Jacobs Engineering Case Puts Past Contracts Under Scrutiny

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Jacobs Engineering Case Puts Past Contracts Under Scrutiny

By KATE BERRY

Staff Reporter

Jacobs Engineering Group’s past contracts are facing increased scrutiny after two mid-level company executives pleaded guilty earlier this month to making false statements to prosecutors during a bid-rigging probe.

One of the Pasadena-based company’s executives, James Nagle, is cooperating with a broad federal corruption inquiry being run by U.S. Attorney Patrick Fitzgerald in Chicago. The six-year probe has resulted in nearly 60 convictions and the indictment of former Illinois Gov. George Ryan.

As part of his plea agreement, Nagle contends that other Jacobs officials were aware of the scheme to fix a multimillion-dollar contract to renovate Chicago’s waterfront convention center.

“At no point did any Jacobs official object to having the information,” Nagle stated in the plea agreement. “To the contrary, the information was discussed in a routine manner throughout the process by (Nagle’s) supervisory panel.”

Nagle, 41, who was general manager of Jacobs Facilities Inc. of St. Louis, and Elizabeth Koski, 35, pleaded guilty after being indicted in February.

Also pleading guilty to a mail fraud charge was Alexandra Coutretsis, who worked with the man running the convention center, a top aide to Ryan. The aide was also indicted, along with a leading Chicago lobbying firm hired by Jacobs that allegedly acted as a conduit for the bid information.

Randall Samborn, a spokesman for the U.S. Attorney’s office in Chicago, declined to say whether Jacobs is a subject of the ongoing investigation.

Last week, Jacobs officials did not return several calls seeking comment. The company’s Securities and Exchange Commission filings have made no mention of the matter.

Limited probe claimed

Brad Simmons, a Jacobs vice president, was dispatched to the Chicago area in the wake of the guilty pleas to assure other government clients in the area that the convention center scheme did not extend to other company officials.

He was quoted in the Chicago Daily Herald on March 3 as saying: “There’s been no implications, no hint of implications, no charges and no hint of charges,” against Jacobs. “The issue lies with a couple of individuals within the company, which is unfortunate.”

Jacobs allegedly paid at least $96,000 in 2001 to the lobbying firm Ronan Potts LLC, in exchange for information about competing bids for the convention center contract.

The company won the contract after lowering its bid to $11.5 million from $18.8 million, and eventually became the construction manager overseeing the $800 million expansion of Chicago’s convention center, McCormick Place and Navy Pier.

A former aide to Ryan, Scott Fawell, was the chief executive of the Metropolitan Pier and Exposition Authority. He is currently serving a six-year prison sentence in South Dakota after being convicted of racketeering, tax fraud, obstruction of justice and lying to a federal grand jury.

The probe into the convention center contract found that Fawell and his assistant gave confidential information on competing bids for the convention center expansion to the lobbying firm, which relayed the information to top Jacobs employees.

After the indictments were handed down in February, Jacobs’ contract was terminated, according to Billy Weinberg, a spokesman for the Metropolitan Pier and Exposition Authority, the agency that oversees the convention center project.

Weinberg said there continues to be fallout in Chicago from the scandal as other agencies scrutinize their own contracts with Jacobs.

Explanation demanded

In nearby McHenry County, the chairman of the county board’s law and justice committee is demanding an explanation of $5 million increase in Jacobs’ cost estimate for a jail expansion that is unrelated to the work in Chicago.

Also, a Chicago school board sued Jacobs earlier this month to recover up to $28 million after renovation of three local high schools came in over budget.

Jacobs is a $4.5 billion construction and engineering firm that designs and manages large infrastructure projects for the government, oil and gas and pharmaceutical companies.

The company receives hundreds of contracts every year. It is a technical consultant for the Athens Organizing Committee for the 2004 Olympic Games.

In Los Angeles, a $1 million contract for consulting services for Los Angeles World Airports came under scrutiny from City Controller Laura Chick in a December 2003 audit. The audit found that there was no documentation to support the awarding of the contract.

Analysts who follow Jacobs said the scandal has not been widely reported outside Chicago and, therefore, has not had much of an effect on the company’s stock price.

Shares of Jacobs Engineering have been treading water for the past three months and have risen 6.7 percent in the past year to $43.70 as of March 25, lagging the overall market.

“From an investment standpoint, we don’t believe this event will have a material impact on the fundamental outlook for Jacobs Engineering,” said Mike Dudas, an analyst with Bear Stearns & Co.

Stewart Scharf, an analyst at Standard & Poor’s, dropped his rating on the company to “accumulate” from “buy” after the company’s first quarter earnings indicated slower growth this year.

“They’re a very large company so it doesn’t seem to be something affecting their stock or earnings,” Scharf said.

Jacobs reported net income of $33.8 million for the first quarter ended Dec. 31, compared with $30.1 million for the like period a year ago. First quarter revenues fell slightly to $1.1 billion versus $1.2 billion in the first quarter of 2002.

The backlog of orders totaled $7.1 billion at the end of the first quarter, including $3.5 billion for its technical professional services unit. That compares to a backlog of $6.7 billion, including $3.1 billion for technical services, at the end of the first quarter in 2002.

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