By Hillel Aron
By Joseph Tsidulko
By Patrick Range McDonald
By David Futch
By Hillel Aron
By Dennis Romero
By Jill Stewart
By Dennis Romero
Discontent at the DWP has inspired some city officials to probe deeper. A typical DWP response to scrutiny is illustrated by a recent appearance by Assistant General Manager Thomas Hokinson and Materials Manager Arnie Netka before the Commerce Energy and Natural Resources Committee of the City Council. In August, City Councilman Tony Cardenas asked Hokinson to respond to complaints about the Empire contract within 60 days. A month later, in a letter from Martinez to Cardenas, the DWP reported that Empire is beating the prices of its closest competitor and including 33 percent of the minority business community as subcontractors on the mega-contract. When Cardenas asked for proof, he hit a brick wall, according to one of his staff. When he asked for a response to allegations of retaliation by a local vendor who criticized Empire and then lost his bid on an unrelated contract, Hokinson and Netka fudged their rationale for denying the bid.
Last week, Cardenas sent a letter to DWP Board President Dominick Rubalcava demanding an explanation. “It makes us wonder what else the DWP managers have not been straight about,” says a spokesperson for Cardenas, adding that employee complaints appear linked to contracting disputes. “We’re concerned the situation is systemic, that one thing is leading to another.” Which is why Miranda and her colleagues asked the City Council last week to look deeper as well. “Management is notorious for giving bogus reports,” Miranda said in a tearful speech that forced members to halt their sidebar conversations and take heed. “We want the truth to be told to our city’s leaders. We are afraid of our managers, what great lengths they have gone to, to protect one sole source vendor.”
Empire Cleaning Supply has a long history. Founded in 1936 by David Levan and Frank Malet, a Russian immigrant who moved to Los Angeles in 1933 from the Catskills in New York, Empire dominated the cleaning-supply market during the 1940s. Malet and Levan founded the Southern California Sanitary Supply Association, expanded into real estate and gave generously to charity, says Robert Cronyn, president of Empire. Cronyn and Jerry Elkind, distant relatives of Empire’s founders, met while working for the company in the 1980s. Elkind swept floors; Cronyn was a receptionist. In 1991, Cronyn and Elkind, who along with his wife acquired a 16 percent share of Empire in 1979, bought the company. They struggled at first, Cronyn says, adding that the cleaning-supply business is notorious for unscrupulous competitors known as “specialty chemical companies.” When the city’s mega-contract came along, however, they rose above that grind.
In October 1999, the city’s General Services Department put a cleaning-supply mega-contract out to bid under the Purchasing, Receiving, Inventory Management and Accounts Payable program, or PRIMA. A Deloitte Touche study had found that the city was losing out on discounts and spending too much on transaction costs by maintaining too many small contracts, according to Ken Desowitz, director of purchasing services. Under PRIMA, the mega-contract for cleaning supplies covered 37 city departments and had no spending limit, he says. Empire did not submit the lowest bid, he says, but after the city disclosed all the bids and ordered a second round of bidding, Empire emerged as low bidder and was awarded a multimillion-dollar contract from 2000 to 2007.
Once Empire had the mega-contract, the city’s three proprietary departments — airport, harbor and the DWP — “piggybacked” on it, meaning they contracted with Empire without comparing other companies’ bids. By 2001, after all three piggyback contracts were in place, Empire was rolling. “The contract with Empire has been good for the city,” Desowitz says, pointing to savings of $2 million and cuts in inventory and warehouse staffing as a result of all PRIMA contracts.
The cleaning-supply contract has been even better for Empire, which has sold the city $8.65 million in supplies since 2000. Elkind estimates the contract is worth a total of $25 million. Last December, the DWP approved $5 million to be spent over three one-year periods, with an annual review set for this December. (The airport and harbor authorities did not release contract amounts for this story.) Their success has allowed Elkind and Cronyn to leave their little warehouse on Lamar Street for an industrial park off South Figueroa Street, near El Segundo Boulevard. Sitting in their wood-paneled office with a stocked bar built into the wall, a burgundy Hummer out front, a portrait of Frank Malet hanging in the foyer and a framed photograph of the race car they sponsor ready to be hung, Elkind and Cronyn marvel at their good fortune. “We earned every sale we got,” says Elkind.
Vendors and city employees question the manner in which the city awarded the mega-contract and complain about the effect it has had on minority businesses. John LeDay, of Southend Janitorial Supply, saw it coming. He predicted to city officials that the lowest bidder would get the contract, that prices would be driven down so low that the prime vendor would pass its costs on to the city, and that smaller businesses would not be able to compete. “I’ve done business with the city for 43 years,” he says. “This is not in the city’s best interest, and it definitely hurts minority businesses.” Says another vendor, also critical of the process, “In 20 years in this business, I’ve never seen bids disclosed, then canceled to allow a second round. If the main factor is price, you are not entitled to hear everyone’s price and then do it over.”