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Fraction of Indian Blood Worth Millions in Business : Transit: Critics cite 1/64th-Cherokee contractor as example of abuses, laxity in program for minority firms.

OPPORTUNITY DERAILED: L.A. transit project's minority contracting woes. Second in a three-part series.

December 27, 1990|JOHN HURST and RONALD B. TAYLOR | TIMES STAFF WRITERS

Joining the Cherokee Nation has been worth millions of dollars in construction work to Jon McGrath.

The blue-eyed, fair-skinned contractor from Tulsa, Okla., who is 1/64 American Indian, has obtained $19 million in minority subcontracts on the rapid transit system in Los Angeles--more than any other "disadvantaged" firm.

McGrath's Cherokee ancestry is the equivalent of having a great-great-great-great-grandparent who was a full-blooded Indian. But it allowed him to gain membership in the Cherokee Nation of Oklahoma and to subsequently obtain certification for McGrath Construction Corp. as a minority firm.

Such certification--granted by government agencies across the country--made McGrath's company eligible for lucrative public works subcontracts meant for disadvantaged businesses.

The McGrath case, critics say, is an example of how the federal goal of bringing minority contractors into the white-dominated construction industry is being subverted. The case also shows that Los Angeles transit officials sometimes are unaware of important regulations governing the certification of disadvantaged companies.

The Times has found that firms with questionable minority status and companies serving as alleged "fronts" for non-minority businesses have won tens of millions of dollars in subcontracts on the rapid transit system under construction in Los Angeles.

McGrath's minority status has been repeatedly disputed by a Los Angeles-area labor union, and now the prime contractor who gave McGrath millions of dollars in public works contracts is "uncomfortable" with the fact that McGrath is only 1/64 American Indian.

McGrath says that he is a bona fide minority entitled to contracts that he has obtained as the owner of a "disadvantaged business enterprise."

Jon Michael McGrath's claim of minority standing hinges on an unusual clause in the constitution of the Cherokee Nation of Oklahoma. Under the clause, anyone who can trace an ancestor to Cherokee tribal rolls at the turn of the century can join the tribe.

McGrath, the son of a railroad contractor, joined the Cherokee Nation in 1981 at the age of 22 after showing proof that a grandmother who was 1/16 Indian ancestry had been on the rolls.

Asked why he had joined the tribe at that time, McGrath replied: "That was a turning point in my life. . . . It was time to start being responsible."

When McGrath joined the Cherokee Nation, he was vice president and 25% owner of Railroad Contractors Inc., which that year had applied for certification as a minority firm, according to Oklahoma state Department of Transportation records.

It is unclear what happened to that application for minority certification. But 3 1/2 years later, in November, 1984, the McGrath Construction Corp. was formed with Jon McGrath as president. The company was subsequently certified as a minority firm by public works agencies across the country.

These certifications made McGrath eligible to receive minority subcontracts from large non-minority prime contractors that bid on public works jobs. Federal regulations require that prime contractors seeking public works contracts make "good faith" efforts to hire minority firms as subcontractors.

During the last six years, Herzog Contracting Corp. of St. Joseph, Mo., has used McGrath Construction Corp. as a minority subcontractor on public works jobs in Los Angeles County, San Diego County, Santa Clara County, Sacramento, Portland, Baltimore, Washington, D.C., and Texas.

Herzog was awarded a total of more than $180 million, and McGrath was awarded $28.6 million in minority subcontracts, public records show.

McGrath, whose business headquarters is a trailer on a weedy lot near downtown Tulsa, said Herzog teamed up with his company because "they like our work."

The relationship allowed McGrath's business to rise virtually overnight from small rail jobs in Oklahoma worth less than $100,000 each to public works jobs worth 10 to 100 times that amount.

In March, 1987, McGrath was awarded his first subcontract on the Los Angeles transit system--a $13-million construction job on the Blue Line. Herzog, the prime contractor on that job, received $43.9 million. The companies also worked together on two other Blue Line contracts.

Now, after a six-year relationship, Herzog would like to sever its ties with the smaller company because of the "great suspicion" caused by union challenges to McGrath's claim to being Cherokee, according to Herzog attorney George Kieffer.

Herzog, the attorney said, has become "uncomfortable" with the fact that McGrath is only 1/64 Indian. Kieffer said Herzog is attempting to subcontract with black- and Latino-owned firms.

"This (controversy over McGrath's status as a Cherokee) has put a severe strain on our relationship," said Al Landes, Western states vice president of Herzog. "We almost can't afford to use Jon." The International Union of Operating Engineers Local 12 has repeatedly complained that McGrath acts as a "front" to enable Herzog to obtain contracts.

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