Controller Looks At Subcontracts For DWP Work
By AMANDA BRONSTAD
Fleishman-Hillard Inc.’s $3 million-per-year contract with the Los Angeles Department of Water & Power, now under scrutiny by city, county and federal investigators, included a subcontractor whose billing practices apparently bucked industry convention.
Consensus Planning Group billed Fleishman-Hillard for DWP work at rates charged to private and corporate clients, forgoing the industry practice of cutting billable rates for government clients.
While not claiming they had been told to inflate bills, former Consensus employees said in interviews with the Business Journal that their DWP work had been billed at higher than the standard rate for other public entities.
“The average was $50 for an associate at my level, and for DWP it was $150,” said one former employee who requested anonymity.
City Controller Laura Chick, who began an audit of the Fleishman-DWP contract in April, last week confirmed for the first time that all six subcontractors on Fleishman-Hillard’s DWP contract are being examined.
Separately, L.A. District Attorney Steve Cooley and prosecutors at the U.S. Attorney’s Office in L.A. are pursuing a criminal investigation into Fleishman’s overall billing practices.
Jane Robison, spokeswoman for the District Attorney’s Office, said her office has not “indicated anything about subcontractors,” but “as an investigation unfolds, it’s not uncommon for it to expand.” It is not known whether the federal inquiry involves the firm’s subcontractors.
Julie Gertler, Consensus Group’s founder and president, denied that billings related to the DWP business were higher than the standard rate. She insisted that because it was a subcontract, the firm’s client was Fleishman-Hillard, not DWP.
“We didn’t negotiate rates with the department,” she said. “It was Fleishman we worked with. We were instructed by Fleishman. If they gave us work, then we did it.”
But the firm listed DWP not Fleishman among its clients in data submitted to the Business Journal last spring for the list of largest public relations firms. As recently as last week, the DWP was listed as a client on the firm’s Web site. Fleishman was not.
“Nobody’s Web site is up to date,” Gertler said, adding that the DWP reference was to a direct contract with Consensus Planning in the early 1990s.
Without addressing specific rates charged in the subcontract, Richard Kline, regional president and general manager of Fleishman-Hillard’s L.A. office, said the DWP was kept apprised of and agreed to all charges.
“Every contract or every subcontractor was approved by the Department of Water & Power and absolutely nothing was done without their knowledge and without their approval,” he said. “When we enter into an agreement with a subcontractor, they tell us their rates just as we tell our client, in this case the DWP, our rates. And they are agreed to as a part of the program that our client accepts.”
As part of its contract with the DWP, the local office of the St. Louis-based PR firm was required to hire woman- and minority-owned subcontractors that would account for 22 percent of the fees generated by the overriding contract.
Downtown L.A.-based Consensus is a woman-owned firm. However, much of the DWP work was supervised by Josh Gertler, Julie Gertler’s son, who had been with Fleishman-Hillard before joining his mother’s firm in 2001. At Fleishman, he had worked on the DWP contract under Douglas Dowie, who is at the center of the investigations and who has been put on paid leave from his post as general manager of the firm’s L.A. office.
In billing at full freight, Consensus appears to have been in the minority among Fleishman’s DWP subcontractors.
“We would charge a government agency less than we would charge Disney or Wal-Mart,” said Kerman Maddox, managing partner of Dakota Communications, one of the six subcontractors. “You’re talking about taxpayer money, so you want to be sensitive. You charge what is competitive.”
He estimated that he charged between $100 and $200 per hour for each of the three people assigned to the project, less than the firm’s corporate rate.
Manuel Valencia, a partner at Valencia Perez & Echeveste Inc., another subcontractor, said he negotiated with Fleishman-Hillard for rates that ended up lower than the firm’s standard hourly rate.
“These are public funds,” he said. “Because there is a clear accounting that has to be made for the funds, we know and we’re very sensitive to this. It’s always trying to understand what the budget is and making sure the budgets do fall where the public is likely to believe they’re getting their bang for the dollar.”
Bill Imada, chairman and chief executive of subcontractor Imada Wong Communications, could not recall what he charged Fleishman-Hillard, but said that under similar circumstances the firm often charged a rate lower than its standard $250 per hour on government contracts.
Emma Schafer, principal of Schafer Communications, declined comment about the specifics of the firm’s contract with Fleishman-Hillard. Officials of Caraway Group did not return calls.
Fleishman-Hillard’s most recent DWP contract was awarded in September 2002, and the deal between Fleishman and Consensus was completed the following month.
Signed by Julie Gertler and Dowie, the contract calls for Consensus to develop a community relations plan and conduct community forums related to a recent water rate increase at the DWP. It contains no base or cap on fees.
In the rates outlined in the contract with Fleishman, Consensus was to bill $175 to $215 per hour for project managers. Supervised associates, who work under project managers, were to bill between $150 and $165 per hour, according to the contract, a copy of which was obtained from the City Attorney’s office.
The rates Consensus charged Fleishman on the DWP contract, several former employees said in interviews, exceeded those on other projects handled by the company.
Wendy Villa, a former Consensus associate who was not involved in the DWP subcontract, said rates for her position were typically between $80 and $100 per hour.
A former Consensus project manager, who like Villa left prior to the DWP subcontract, said that associates typically billed public clients between $75 and $90 per hour.
Gertler dismissed the former employees’ assertions.
“There’s no former employee at any level within the last 10 years who would understand what the rate structure is,” she said. “They’re not senior enough.”
Gertler declined to discuss in detail how the firm came up with the rates on the Fleishman-Hillard contract.
She said rates vary depending on a variety of factors, including costs, overhead and the long-term relationship with the client, and that the company changed its billing structure in early 2002 because of changes within the public relations industry, not because of any single contract.
“We weren’t doing it as skillfully as we might have,” she said. “We were doing media and public relations, but I felt like we needed to have a higher competency level in that area. That’s why I was lucky I had a family member, my son, in the business and was able to recruit him.”
Josh Gertler said rate negotiations with private clients are “a confidential business decision, much like salaries and any other confidential financial decision. In this case, the client was Fleishman-Hillard.”
Founded in 1986, Consensus Planning reported net fee income (total income less direct project expenses other than payroll) of $2.7 million for 2003.
It has handled community relations and public outreach for clients including Lincoln Property Co., Donahue Schriber and Home Depot. More recently, the company was hired by the Metropolitan Transportation Authority as part of an assessment of the San Fernando Valley East-West Transit Corridor.
The firm also prepared public information materials and managed workshops for community members living near the 101/405 interchange improvement projects, undertaken jointly by Caltrans, the Federal Highway Administration, the MTA, the city’s Department of Transportation and elected officials.