On Wed, Mar 14, 2012 at 7:27 PM, Eubulides <autoplectic at gmail.com> wrote:
> http://www.nytimes.com/2012/03/15/nyregion/contractor-in-citytime-payroll-scandal-to-pay-record-500-million.html
>
> March 14, 2012
> Contractor Strikes $500 Million Deal in City Payroll Scandal
> By MICHAEL M. GRYNBAUM
>
> A major government contractor agreed on Wednesday to pay a record $500
> million to avoid federal prosecution for its role in the
> scandal-tarred CityTime project, an effort at modernizing New York’s
> payroll system. The project was plagued by widespread fraud and weak
> oversight and became a lingering embarrassment for Mayor Michael R.
> Bloomberg’s administration.
>
> Under an agreement with federal prosecutors, the contractor, Science
> Applications International Corporation, will reimburse the city for
> about 80 percent of the money it spent on the project, whose budget
> ballooned to nearly $700 million, from $73 million, and was described
> by the United States attorney in Manhattan, Preet Bharara, as “a
> fraudsters’ field day that lasted seven years.”
>
> The $500 million, in restitution and penalties, is believed to be the
> largest amount ever paid to resolve an accusation of contract fraud
> involving a state or local government, said Mr. Bharara, who announced
> the agreement at a news conference.
>
> Mr. Bloomberg hailed the deal as “a major victory for taxpayers,” but
> the scandal remained a potential taint on the legacy of a mayor who
> prides himself on managerial efficiency and the power of the private
> sector to reform government operations.
>
> The CityTime project, with its promise of millions of dollars in cost
> savings thanks to newfangled technology like biometric readers,
> epitomized Mr. Bloomberg’s technocratic approach to governing. City
> Hall officials say the payroll system, which was put in place despite
> the fraud, has improved a timekeeping operation once dependent on pen
> and paper. But the kickbacks and the ballooning costs raised doubts
> about the administration’s ability to police its many outside
> contracts.
>
> “CityTime is an example of how an allegiance to the notion that
> outside people are always better can be faulty,” said Susan Lerner,
> the executive director of Common Cause New York, who added that the
> Bloomberg administration had been overly eager to outsource projects
> to high-priced contractors rather than handle them in house.
>
> “This administration has erred on the side of ‘somebody outside will
> always be better,’ and that’s not always the case,” Ms. Lerner said.
>
> The federal government agreed not to press fraud charges against
> Science Applications International, a Fortune 500 company, if over the
> next three years the company complied with a series of reforms,
> including whistle-blower protections and the hiring of an independent
> monitor.
>
> But the government’s broader investigation into the CityTime scandal
> is continuing. Mr. Bharara’s office has indicted 11 people working for
> private contractors in connection with the fraud: Two have pleaded
> guilty, and one has died. Prosecutors said Wednesday that they would
> seek to seize millions of dollars’ worth of assets from the primary
> subcontractor on the project, TechnoDyne.
>
> On Wednesday, Mr. Bloomberg said that his administration had “zero
> tolerance for corruption,” while conceding, in a phrase he used twice
> during the news conference, that “there will always be one or two bad
> apples.”
>
> “Should we have known? Could we have known?” the mayor asked. “We keep
> strengthening all our surveillance, and, hopefully, we’ll catch
> anything that happens again.”
>
> The United States attorney’s office began its investigation into
> CityTime after receiving evidence of criminal activity from the city’s
> Department of Investigation, which collaborated on the ensuing case.
>
> The City Council approved a bill on Wednesday that required the mayor
> to notify lawmakers about significant cost overruns on certain large
> city contracts. And late last year, the Council overrode a mayoral
> veto to enact a measure requiring City Hall to provide a cost-benefit
> analysis before it outsourced certain city projects.
>
> “What we all have to learn from CityTime is we have to do a better job
> monitoring contracts every step of the way,” the Council speaker,
> Christine C. Quinn, said.
>
> The CityTime project began in the Giuliani administration as an effort
> to modernize an onerous payroll system then managed entirely by hand.
> The Police Department, for instance, was generating 1.5 million sheets
> of paper each month for timekeeping.
>
> Science Applications International took over the project in 2000, when
> it was worth $73 million, and prosecutors say that an elaborate
> kickback scheme emerged soon after, involving TechnoDyne, that
> provided staffing for the project in return for millions of dollars in
> kickbacks. In 2005, the company failed to report a whistle-blower’s
> complaint to the city. Science Applications later hired hundreds of
> consultants from TechnoDyne for the project, significantly increasing
> costs, to $620 million as of last year. On Wednesday, the city said it
> had paid a total of $652 million for CityTime and had refused to pay
> an additional $41 million sought by Science Applications.
>
> Throughout the project, the Bloomberg administration said that
> CityTime would be worth the growing cost. The system was finally
> started last year, and officials say it has saved the city tens of
> millions of dollars in annual costs, although the city could not
> provide an exact figure.
>
> Mr. Bloomberg has demonstrated a proclivity for relying on outside
> expertise, particularly for projects involving modern technology. A
> study by the Fiscal Policy Institute, a research group partially
> backed by unions, found that costs for contractual services had risen
> significantly during his administration, although labor costs for city
> employees have increased, as well.
>
> Marc LaVorgna, a spokesman for the mayor, said in a statement that the
> city looked at every project individually to determine whether a
> contractor or an outside consultant was necessary.
>
> “We evaluate each goal and make a decision on how to achieve it
> effectively and efficiently,” Mr. LaVorgna wrote. “Sometimes that
> means completing the work internally; sometimes it means using
> external support.”
>
> Carol Kellermann, a former deputy commissioner of finance in the Koch
> administration, said outside contracts were unavoidable for a
> sprawling city government, particularly in major products involving
> technical expertise. But, she added, “It is important to maintain very
> tight and sophisticated internal controls over the management of such
> projects.”
>
> Despite the record agreement on Wednesday, one financial observer said
> the penalty would not create much of a problem for Science
> Applications International, whose numerous government contracts
> generate annual revenue that has exceeded $11 billion.
>
> “It has a lot of happy customers across the government-contracting
> world, so it’s hard to burn your reputation with a single incident,”
> said Tim Quillin, a research analyst at the investment bank Stephens,
> based in Arkansas.
>
> The $500 million payment, Mr. Quillin added, “is a big settlement
> relative to the economic damage they may have done to the City of New
> York.”
>
> “But in terms of S.A.I.C.’s ability to pay, this is not meaningful.”
>
> And John C. Coffee Jr., a law professor at Columbia University and an
> expert on corporate governance, said the agreement would spare Science
> Applications International “the collateral consequences of a criminal
> conviction,” which could include not only the bad publicity of a
> trial, but also civil liability, the loss of licenses and a ban on
> access to public contracts.
>
> Shares of Science Applications International Corporation closed at
> $12.84 apiece on Wednesday — up 0.7 percent on the day.
>
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