Herrera Sues Airport Contractors For Defrauding City’s Minority Contracting Ordinance

City Attorney calls bidding scam, ‘a mockery of San Francisco’s long-held values of tolerance, diversity and equal opportunity’

City Attorney Dennis J. Herrera today filed suit against two construction companies and three individuals involved in numerous contracts at San Francisco International Airport for attempting to defraud the City’s Minority Business Enterprise/Women Business Enterprise (MBE/WBE) program, an ordinance that for nearly two decades has ensured equal opportunity and fairness to businesses traditionally under-represented in the municipal bidding process.

The construction companies charged in the suit are Brisbane, Calif.-based F.W. Spencer & Son, Inc. and Brisbane Mechanical Company, and a joint venture called San Luis Gonzaga/Brisbane Mechanical Company. Named individually as defendants are William D. Spencer, owner of both F.W. Spencer and Brisbane Mechanical, and employees of those companies, William McGahan, Bruce Bonar and Lou Thomas.

“San Francisco has seen enormous benefits from progressive reforms that have replaced favoritism with fairness in its government bidding process, truly leveling the playing field for everyone,” said Herrera. “Efforts to defraud programs such as these aren’t just greedy — they’re a corrosive influence on the integrity of our civic institutions and a mockery of San Francisco’s long-held values of tolerance, diversity and equal opportunity.”

The MBE/WBE ordinance was enacted in 1984 to redress identified discrimination and ensure that minority and women-owned businesses have an equal opportunity to participate in contracting opportunities. The law requires prime contractors bidding on San Francisco contracts to either make use of MBE and WBE subcontractors in City projects or to demonstrate good-faith efforts to provide equal opportunities to MBE and WBE subcontractors. The City’s Human Rights Commission determines which businesses qualify as a minority or women business enterprise.

Because Spencer’s companies were neither minority-owned and operated – nor sufficiently disadvantaged in economic terms to qualify – neither company could have been certified by the Human Rights Commission to participate in the MBE program. Nevertheless, Spencer pursued fraudulent “joint ventures” with companies that could be certified to participate in the program, according to the complaint filed today.

“Spencer’s elaborate scheme sought to attract the attention of prime contractors who typically bid on large public works construction contracts by offering them the promise of increased credit under San Francisco’s MBE program,” said Chief Deputy City Attorney Therese Stewart. “In reality, the joint venture was a sham – a front created solely to enable Spencer’s companies to gain undeserved advantages in lucrative public works contracts.”

In March 1996, Spencer’s Brisbane Mechanical Company formed an agreement with the owners of San Luis Gonzaga – a construction firmed owned by a Filipino couple. Applying to the Contractors State License Board to obtain a joint venture contractors license soon after, the venture began promoting itself to prime contractors looking for subcontractors who would qualify to receive MBE participation credit on San Francisco public works contracts. Together, the defendants formed the venture as a front, enabling Spencer to gain advantageous treatment in bidding for public works contracts – even while not being qualified to participate.

The fraudulent joint venture claimed that both San Luis Gonzaga and Brisbane Mechanical would contribute equal amounts of start-up capital for the projects, with the former owning 51 percent of the venture and shouldering responsibility for procuring necessary equipment and labor. After winning several subcontracts for projects at San Francisco International Airport, however, the joint venture allowed Spencer’s two companies – neither of which was qualified to participate in the program – to perform all of the work on the contracts.

Although the defendants agreed in advance that the minority-owned San Luis Gonzaga would not provide any actual labor on the projects, Spencer promised to pay it 2 or 3 percent of the revenues generated by the contracts as a payoff for participating in the scam, according to the City Attorney’s suit. As part of the scam, which lasted for about four years, Spencer and other defendants directed San Luis Gonzaga’s owners to submit fraudulent forms and invoices to the general contractor and the City, falsely attesting to its participation in the work supposedly being performed by the joint venture.

As a result of the scheme between March 1996 and 1999, the joint venture obtained subcontracts totaling more than $8 million, most of which went to Spencer and his companies. If they had not engaged in the fraud, they would not have been awarded these contracts. The City Attorney’s suit – which alleges violations of the RICO Act, the California False Claims Act and unfair competition laws – is seeking damages on behalf of San Francisco in the amount of all moneys paid by the City to the defendants under the contracts in question.