Philadelphia collects $109,700 from contractor under local-preference law

An electrical contractor who won a $1.1 million municipal contract in 2007 because of a law that gives preference to Philadelphia businesses has paid the city nearly $110,000 after the Nutter administration determined that the company was based in the suburbs.

Without admitting any wrongdoing, Mulhern Electric Company Inc., of Abington, wrote a $109,700 check last month to settle the city's allegation that Mulhern claimed to be a "local business entity" under the city's laws, but was not.

The action against Mulhern could be the first of many in which the city will pursue damages of 10 percent of the contract amount, as outlined in local regulations, officials said. Inspector General Amy Kurland and City Procurement Commissioner Hugh Ortman said they were looking into a number of other cases, and one contractor said he had complained to the city about fraudulent "local" businesses for years.

"Our purpose is really to send a message to companies that do business with the city, that we will not tolerate any attempts to gain an unfair advantage," Kurland said in an interview.

Mulhern would not have won the contract to upgrade the electrical system at the Belmont Water Treatment Plant without the 5 percent advantage that Philadelphia-based businesses are given in the bidding process. That means that a Philadelphia company that bids $1 million to perform a job is considered - on paper, at least - to have submitted a bid of $950,000, helping it to beat out any non-city company that bids more than $950,000.

The local preference, which is available only to prime contractors, was established in 2003 in a bill sponsored by then-City Councilman Michael Nutter. About are 200 businesses registered for the local preference.

In this case, Mulhern's bid was $4,000 more than that of Wescott Electric Co., in Delaware County. Mulhern got the bid because the 5 percent advantage put its bid under Wescott's.

Jim Wescott, owner of Wescott Electric, formed by his father in 1945, said he did not like the local business entity advantage because it was frequently abused.

"I would not object to the law if it worked," he said.

Wescott said he had complained to the city about losing bids to supposed local businesses in this and other cases.

Ortman did not have to look far. On the bid sheet dated July 23, 2007, Mulhern Electric's address is listed as 1828 Eckard Ave. in Abington. That differs from the Englewood Street rowhouse in the city's Mayfair section listed on the company's applications for local business certification from 2005 through 2009 and signed by company president John T. Mulhern Jr.

City regulations require that a firm occupy an office in a commercial space in the city for at least 18 months before qualifying as a local business. The Englewood Street address provided by Mulhern is owned by a company headed by Jerome Mulhern, according to city property records. Jerome Mulhern is listed as the treasurer of Mulhern Electric on state incorporation documents.

While the business can also have an office or even a headquarters outside the city, more than half of its full-time employees have to work in the city at least 60 percent of the time.

Mulhern's attorney, Lane Kelman, did not return calls seeking comment, sending only this e-mail:

"Mulhern fully cooperated with the City in its investigation. Mulhern is and remains a responsible contractor that will continue to provide electrical construction services to its public sector clients, including the City of Philadelphia. By settling this dispute with the City, Mulhern can concentrate on ongoing and future projects."

In its settlement agreement with the city, the company states that it "has agreed to enter this agreement and to pay the amount referred to herein to avoid the expense and burden of litigation and to ensure its future compliance with regulations relating to local bidding preferences for procurement contracts."

In return, the city has agreed not to seek further action against Mulhern - including reporting the company's conduct to state or federal agencies or moving to bar the company from future city contracts. A spokeswoman for District Attorney Seth Williams said the city's agreement would not prevent the District Attorney's Office from investigating the matter, but "whether or not this case rises to a criminal act would require further investigation."

Wescott, the second-place finisher in the 2007 bid, said he was not interested in suing anyone over the lost contract, but just wanted a level playing field.