City alleges minority contract scam

The city's inspector general charged Thursday that three companies involved in a $1 million weatherization contract violated Philadelphia's minority contracting program by pretending to buy equipment from a minority supplier who wasn't actually used.

Similar arrangements were discovered on at least 14 other city contracts involving two of the firms, the city alleged.

"We have had so many complaints," Inspector General Amy Kurland said in a telephone interview. "This is the first of what we think are many investigations that are going to follow."

The city announced it would revoke the 25-year-old minority certification of JHS and Sons Supply Co., owned by John Simon.

The city also moved to bar contractor William Betz Jr. Inc., from city-related business for three years.

UGI HVAC Inc., a heating and air-conditioning subsidiary of UGI Corp., doing business as Servicemark, held the prime contract for the weatherization. It settled its role in the dispute by agreeing to pay the city $100,000 and to increase its use of legitimate minority-owned firms on future work with the Philadelphia Housing Development Corp.

Inspector General Amy Kurland said her investigation established that Servicemark had agreed to work toward its minority contracting goal by purchasing boilers, furnaces and chimney-liners through JHS.

Instead, UGI bought the materials directly from Betz, which paid a 3 percent fee to JHS to pretend that it was involved, Kurland alleged.

The amount of money involved was relatively small, according to details provided by the inspector general. The IG documented $54,000 paid to Betz; under an oral agreement between Betz and JHS, the minority firm was to receive $1,620.

But Kurland said her investigators found that both UGI and Betz "had generated false invoices to cover their tracks" and alleged that "Betz had used JHS as a sham minority contractor on at least 14 other city contracts."

"This is really important to us," Kurland said. "With Betz and JHS alone there are about 15 other city contracts we're looking into and some larger contracts, with people all over the city, involving alleged minority pass-throughs."

Simon told the Inquirer Thursday that he was confused by the city's allegations. "Betz was my supplier," he said. "I have a warehouse but I don't have all the materials that the contractors want. . . . Betz being our provider, all the moneys went directly to them, and then Betz gives 3 percent to us."

Robert L. Pistor, vice president of UGI HVAC Enterprises, said UGI believed it had entered into a legitimate supply agreement with JHS and Betz to comply with the city's minority-contracting goals. "We were never aware of any fraudulent invoices being sent," he said.

Betz president Rudy Betz could not be reached Thursday.

Kurland said the scam was discovered when the city's Office of Housing and Community Development contacted JHS to see if UGI's subsidiary was complying with its minority-contracting agreement.

Those contacted at JHS, the alleged minority contractor, "didn't know who UGI was," Kurland said.

Angela Dowd-Burton, executive director of the Office of Economic Opportunity, in charge of the city's minority-contracting efforts, said the JHS payments would be legitimate if the supply firm performed valuable services, such as identifying manufacturers, managing deliveries and handling billing.

Instead, Dowd-Burton said, it appeared that Betz had handled the real supply work.

"Our goal is to make sure we have authentic inclusion on city business," she said. "I'm disappointed to find that there are companies working to circumvent our strategy."

Similar allegations, that minority-certified firms have been paid to let their names be used on city contracts, have swirled around the city's minority-contracting efforts since they got off the ground in the mid-1980s. Enforcement efforts have been rare.

Last May, Ernest J. Bock & Sons agreed to a 20-month ban from city contracts for failing to use minority firms it had agreed to use on a $35.9 million airport contract.

Mayor Nutter called the agreement "unprecedented," saying the city "has turned a corner" on enforcement, putting contractors on notice that "we mean what we say.