Monday, July 30, 2012

City's Construction Giants Face Criminal Probe for Billing Fraud

Monday, July 30, 2012 

        News Staff: Bob Hennelly (Picture 2 Cropped)

By Bob Hennelly
Just a few stories remain at the Deutsche Bank building in lower Manhattan.
(Stephen Nessen/WNYC)
"The message should be clear to all who are engaged in similar contract billing fraud: You are in our sights. And the defense that ‘everyone does it’ will not be a shield against law enforcement."

— Loretta Lynch, U.S. Attorney for the Eastern District of New York
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Months after one of the city’s biggest construction giants agreed to pay nearly $60 million for inflating costs on public works projects, WNYC has learned that the criminal probe into billing fraud has expanded to other major contractors.
Bovis Lend Lease, which avoided indictment in the 2007 Deutsche Bank fire that killed two firefighters, agreed in April to pay $56 million in penalties and restitution for overbilling.
Now, WNYC has confirmed federal prosecutors are looking into the billing practices of Turner, Plaza, Skanska and Tishman construction companies. The construction contracts under scrutiny run into the billions of dollars.  
The firms are linked to major public projects like the Croton Filtration Plant, the extension of the 7th Avenue Subway and the World Trade Center.
In April, Janice Fedarcyk, the head of the FBI’s New York office, zeroed in on the impact of Bovis's fraudulent inflation of public construction costs.
"The over billing fraud affected city, state and federal public building projects,” she said. “If you are a New York City resident, Bovis indirectly swindled you on three different levels. For 10 years the pattern of fraudulent over billing was a standard practice, business as usual.”
At the heart of the probe is what prosecutors say is an industry-wide practice known as "8 and 2" in which construction companies fraudulently bill clients for hours not worked by labor foremen.
Bovis would add two hours of overtime pay on top of regular hours for as many as 60 foremen and falsely listed unworked hours as worked, prosecutors said.
The standard contract states that the union foremen get $34.24 an hour with no guaranteed overtime.
Federal prosecutors say the union foreman were not charged and did not break the law because they played no role in Bovis’s fraudulent billing.   

(A few stories remained at the Deutsche Bank building in lower Manhattan in 2010. Stephen Nessen/WNYC)
At the Bovis announcement in April, Loretta Lynch, U.S. Attorney for the Eastern District of New York, had a warning for the city's construction industry.
"The message should be clear to all who are engaged in similar contract billing fraud: You are in our sights,” she said. “And the defense that ‘everyone does it’ will not be a shield against law enforcement."
In a statement to WNYC, Tishman’s corporate parent, AECOM, confirmed that in December 2011 it was served with a grand jury subpoena in the billing investigation. The company said that it was cooperating with prosecutors.  
A spokesman for Turner would say only that the company "could neither confirm nor deny" it was under investigation. Skanska and Plaza declined to comment.
Brian Aryai, a 13-year veteran of the Treasury Department, was a former senior vice president at Bovis. He is the whistle blower credited by prosecutors with tipping them off to the 8-and-2 billing scheme that set off the probe.
Aryai, who could collect a substantial reward under the federal False Claims Act, said that what Bovis admitted to is a common industry practice.
"I think within the industry there was such rampant corruption that the people who were entrusted with being in positions of accountability and power overlooked very visible symptoms of the issues that have been uncovered," Aryai said in an interview with WNYC.
One of the former Bovis employees who pled guilty is James Abadie, a leading contractor trade group and former chairman  of the powerful Contractor Association of Greater New York.
Abadie  is awaiting sentencing and faces 20 years in jail. His guilty plea has sent off shock waves in construction circles, because he was so well regarded across the industry, according to Louis Coletti, president of the Building Trades Employers Association.  
Coletti said Abadie’s fall and the wider probe has the industry “reeling.”
He says the across-the-board nature of the continuing probe is a challenge for builders at a time when contractors are dealing with thin profit margins.
(Photo: Croton Filtration Plant in Van Cortland Park in the Bronx. The $3.5 billion dollar project is being built by Skanska. Bob Hennelly/WNYC)
Coletti defended the industry's "8 and 2" practice as a cost of doing business. He says the money paid to the foremen was to assure jobs got done on time.
"This was not a question of over billing. There is some question about procedures and compliance issues," Coletti said.
Prosecutors say what matters is how contractors represent these costs to their customers in their bills.
Coletti predicted the fallout from the focus on billing practices would force the industry to be more transparent in how it does business.
He conceded the industry has had a tough time shaking its image of being plagued by 'no show jobs' linked to organized crime. He says, in reality, those days are the stuff of TV and the movies.
"There is a certain excitement to thinking that kind of activity goes on on a regular basis. It’s like the Sopranos TV show. It was a very popular show. I don't know if we are over going to overcome that kind of perception, unless we begin to do very publicly the kind of things I am talking about with you now," Coletti said, referencing the industry’s efforts improve transparency. 
Ronald Goldstock, former director of the New York State Organized Crime Task Force – which investigated the infiltration of the construction trades by the Mafia – says law enforcement has been successful in rolling back the mob's dominance in construction. But he says the organized crime legacy still makes the industry vulnerable to corruption like the "8 and 2" billing arrangement.
"Over time customs and practices are set up within the industry. They do become internalized. People don't think about them as being corrupt necessarily,” he said. “Over time it is an accommodation between both sides, and no one really knows which it is anymore.”
As federal prosecutors pursue white-collar cases in the construction industry, one challenge they may encounter is that the bigger the construction firm, the more limited their enforcement options may be.  
This was the case with Bovis. US Attorney Loretta Lynch struck a deferred prosecution deal with the Australian-based multinational building firm. She cited concerns that criminally prosecuting Bovis would do more harm than good for the city because Bovis was so central to so many ongoing projects.
This is not the first time Bovis avoided criminal prosecution because of its size and dominance in the city’s construction industry.  
In 2008, Bovis benefited from similar forbearance by Manhattan District Attorney Robert Morgenthau for the firm's role in the Deutsche Bank Building fire.  
Two firefighters were killed, and the DA’s investigation determined that Bovis was partially responsible as the prime contractor. In that case Bovis was granted a non-prosecution agreement.
It paid the families of the firefighters $16 million and agreed to reform its management of subcontractors.