Wednesday, April 25, 2012

(Bovis) Lend Lease Admits Fraud, Avoids Criminal Charges

Lend Lease (formerly known as Bovis Lend Lease) admitted to bilking major clients out of tens of millions of dollars by overcharging on projects around the New York City metro area. It will be fined $56 million, but only one person will go to jail despite the widespread practice.

You might have heard of a few of the projects on which Lend Lease worked (or is working): Citifield, the World Trade Center reconstruction, the demolition of the former Deutsche Bank building (where a fire killed two firefighters due to lack of fire suppression equipment being active in the building and corruption/negligence among those deconstructing the building) and renovations at Grand Central Terminal.

The practice that led to the overbilling is so widespread in the construction business that it has a name: eight plus two. Behind the fraud was James Abadie, 55, who faces up to 20 years in prison plus fines:
At the heart of the overbilling scheme is a practice that investigators contend — and many construction executives concede — is so widespread that it even has a name: eight plus two. The company, Lend Lease, routinely paid labor foremen for one or two hours of overtime every day that they never worked, according to court papers. The payments were an incentive for the more skilled foremen to stay on a project while the company billed clients for their fictitious labor.

In announcing the charges and what she called the largest construction-fraud settlement in New York City history, Loretta E. Lynch, the United States attorney in Brooklyn, suggested that the conduct went beyond Lend Lease, saying the investigation was continuing and “encompasses the wider part of the industry.”

The scheme carried out by the company defrauded government agencies and private developers of about $19 million, much of it tax money, Ms. Lynch said at a news conference. She was joined by officials from several other agencies to announce a deferred-prosecution agreement.

But the amount is most likely far higher because prosecutors said they believed that Lend Lease conducted the practice for decades and that it extended to other companies.

Indeed, in a sign of the extent of the corruption, the public-works projects on which Lend Lease admitted billing city, state and federal agencies for fictitious work included the new federal courthouse in Brooklyn, where the charges against the company and its former leader were filed.

The projects also included the renovation of Ms. Lynch’s offices in Brooklyn and the demolition of the Deutsche Bank building at ground zero, where a blaze in 2007 killed two firefighters.

During the three-year inquiry, investigators pored over more than a million documents and conducted hundreds of interviews, said Jan K. Fedarcyk, an assistant Federal Bureau of Investigation director, who spoke at the news conference with Ms. Lynch and the inspector of the Port Authority of New York and New Jersey, Robert Van Etten.
Prosecutors say that Lend Lease had changed its practices by the time it began working on the September 11th Memorial, but the fact remains that only Abalie will see the inside of a jail cell. Others were involved in the practices, and there was a culture that encouraged these actions.

The overbilling involved the following projects:
the United States Post Office/Bankruptcy Court in Brooklyn, New York; the Bronx Criminal Courthouse in the Bronx, New York; Grand Central Terminal; the Deutsche Bank building deconstruction in New York, New York; CitiField in Queens, New York; and the very United States Courthouse in which Bovis was charged and Abadie pled guilty this morning.
The fraud extended beyond mere overbilling. The company contended that it met terms of women and minority participation on construction projects, but it never did. The company merely shifted around its own workforce to suit its needs:
The government said the company also duped the states of New York and New Jersey into believing it had complied with programs designed to boost the participation of small construction companies and companies owned by women or minorities on public construction projects when it had not.

Although New Jersey eliminated its minority and women-owned portion of its program in 2003, obligations incorporated into contracts for public construction projects remained intact, court papers said.

As an example of how minority hiring requirements were dodged, prosecutors described an instance in which Lend Lease US Construction falsely claimed that a company certified as a minority hiring unit would perform 100 per cent of the general contract work on construction at the Bronx Criminal Courthouse.

In reality, Lend Lease US Construction performed most of the work itself by directly managing the union, the government said.

It said the company placed many of its long-term union employees on the minority-hiring compliant company's payroll, hired other workers and relegated the smaller company's role to providing paycheques for work performed by or at the direction of Lend Lease US Construction employees.
These practices also point to the reason why some projects cost as much as they do, and why cost estimates on major construction projects always seem to go overbudget. Does it address all the reasons? Not at all. But eliminating overbilling on construction projects is a start.


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