Defrauding in Tongues

Due diligence schmiligence! Alameda County falls victim to a fraud it could have exposed with a simple phone call.

Someone at Alameda County should have picked up the phone and dialed. That’s all it would have taken to expose a fraudulent bid by an Oregon firm for a $1 million public contract. Instead, county officials awarded the contract first and asked questions way, way later. Actually, the geniuses didn’t pick up that phone until after a rival bidder complained, alleging fraud by Portland-based Telelanguage Inc. Now it’s unclear if the lazy public employee(s) will be sanctioned, or whether County Counsel Richard Winnie will take the duplicitous contractor to court.

Although the fraud surfaced just last month, it stems from a requirement that portions of public contracts be awarded to small, local businesses. The county and other East Bay public agencies adopted the set-aside policy in the late 1990s after Proposition 209 invalidated affirmative-action quotas in public contracting. The idea was that minority- and woman-owned contractors would benefit because they tend to be small and local.

But the program also has attracted cheaters. The abovementioned example originated last fall when the county solicited bids for its multilingual translation service. For years, the county has hired private contractors to translate for non-English speakers. The translators don’t actually work in county offices, but are available by phone.

The three-year contract was valued at nearly $1 million. In the request for proposals, officials told bidders they would get bonus points if they were a “small, emerging local company.” If none of the bidders fit that profile, officials said they wanted the winning bid to subcontract at least 20 percent of the work to small, local businesses.

But just two companies submitted bids, and neither was from the East Bay. The first, Language Line Services of Monterey, has provided translation services to Alameda County for thirteen years. The second was Telelanguage Inc.

The Oregon firm quickly won the contract after county officials disqualified Language Line’s bid. The losing company had proposed that only 10 percent go to small local businesses, explaining that it couldn’t find enough qualified subcontractors who wanted the work.

Telelanguage, on the other hand, promised to subcontract 20 percent to ATI Inc., an Emeryville-based company that fit the county’s criteria. Telelanguage submitted a document bearing the signature of an ATI official as part of its bid. The only problem: It was forged. Meanwhile, no one at ATI had even heard of Telelanguage. “We have no relationship at all with that company,” chief financial officer Steve Karthan told Full Disclosure last week. “And we have never signed any such documents.”

County officials were unaware of this because they didn’t bother to scrutinize Telelanguage’s bid before awarding the contract in January. In fact, the forgery went unnoticed — as did another fraud — until Language Line protested and filed a lawsuit against the county last month.

Language Line’s attorney, Kathryn Doi, noted in court papers that Telelanguage had claimed in its proposal to be “in good standing with the state of California and has all the necessary licenses, permits, certifications, approvals, and authorizations to perform the obligations” of the contract. But after some basic online research with the California Secretary of State, Doi found that Telelanguage, at the time of its bid, was not registered to do business in the state.

On March 22, Alameda County revoked its contract with Telelanguage. In a letter to owner Andrei Lupenko, contract specialist Dorian Makres said the county was terminating the deal because Telelanguage’s bid “was fraudulently submitted.” In an e-mail on the same day, Makres asked Language Line if it would extend its old contract for six months. Language Line agreed, and promptly dropped its suit.

In an interview, Makres clamed the lawsuit “had nothing to do” with her after-the-fact decision to investigate Telelanguage’s bid. She also defended the county’s original decision to disqualify Language Line’s bid.

Doi, Language Line’s lawyer, declined comment, as did other company officials. Telelanguage honcho Lupenko told Full Disclosure he took “responsibility” for the fraud and forgery, but then blamed a former employee whom he refused to identify. “The person is nowhere to be found,” he said. “I’m still trying to get in touch with him.”

Smell test result: iffy. When told about Lupenko’s claim, county counsel Winnie responded: “We hold the boss responsible. We hold the company responsible. We’re very indignant about this.” But he would not say what action the county might take beyond canceling the contract. He said the District Attorney’s Office “is aware” of the fraud, but is unsure whether charges will be filed. Nor have Winnie and top county officials decided whether to sue Telelanguage for damages.

As long as they’re sitting around contemplating, our brave leaders may want to rethink their current policy. It makes no sense to mandate a strict 20 percent set-aside when there aren’t enough qualified small, local companies interested in the work. Such inflexibility only invites fraud. Oh, and next time, tell your people to pick up the phone before they dole out the contract.

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