Public Employee Press

Contractor to pay city $1/2 billion in CityTime fraud
DC 37 Executive Director Lillian Roberts demands that Bloomberg use the money to rehire laid-off members and fund a new contract.

Bloomberg's CityTime Debacle: "largest fraud ever against the city" — U.S. Attorney Preet Bharara

By GREGORY N. HEIRES

THE LEAD CONTRACTOR of the troubled CityTime automated payroll project has agreed to pay the city $500 million to avoid federal criminal charges.

U.S. Attorney Preet Bharara announced a settlement March 14 in which Science Applications International Corp. took responsibility for a complex, global scheme that stole millions of dollars through a network of shell companies. SAIC will not be prosecuted for its crimes if it avoids criminal activity for three years under independent monitoring.

"SAIC managers responsible for CityTime placed profit ahead of principle," said Bharara, who called the case the largest fraud ever committed against the city.

The project, whose original cost of $68 million mushroomed to more than $700 million over 12 years, has been a political embarrassment to Mayor Michael R. Bloomberg because of his inadequate oversight. The scandal has deeply tarnished his hoped-for legacy as a shrewd manager with business skills that could protect the taxpayers' money.

Joining Bharara on March 14, Bloomberg said that the city has tightened up its "surveillance" of contracted-out projects. "Hopefully, people will be more attentive next time," he said.

DC 37 Executive Director Lillian Roberts called on the city to use the settlement money to bring back laid-off workers and to help fund a new economic agreement for members.

In October, the Dept. of Education laid off nearly 650 low-wage school workers, primarily women and minorities. DC 37 has criticized the city for firing members as it continues to contract out. The city also relies increasingly on socalled temporary workers, who have actually become long-term employees without health insurance or other benefits. So far, the federal prosecutor has charged 11 people in the massive City Time fraud, including former SAIC project manager Carl Bell, and a subcontractor, TechnoDyne LLC. Two have pleaded guilty. Techno-Dyne owners Reddy and Padua Allen fled to India to escape arrest in a kickback scheme. They allegedly sent $54 million of city funds to companies in India that returned $15 million to U.S. shell companies run by former SAIC employees.

"This illegal enterprise was remarkable for its audacity," said Robert Ajaye, president of Electronic Data Processing Employees Local 2627, which represents the city's information technology workers. Last year, Comptroller John C. Liu forced the Bloomberg administration to cut $40 million from an SAIC contract extension and to transfer daily operations to Local 2627 members.

District Council 37 and its locals played an important role in raising the red flag about CityTime. Civil Service Technical Guild Local 375 initially pressed members' privacy concerns over the use of palm scanners. "As costs steadily increased and the project repeatedly missed deadlines, we realized it was out of control," said Secretary Jon Forster of Local 375, which has a tradition of fighting contracting out that dates from its founding 75 years ago.

CityTime became a focus of DC 37's investigations and white paper reports on contracting out in a project led by Associate Director Henry Garrido. The CityTime case is an example of Roberts' strategy of calling public attention to contract abuses to bolster the union's efforts to press for greater accountability, curb wasteful spending and fight corruption.

The perils of privatization

The union brought the CityTime debacle to the attention of City Council member Letitia James, former head of the Council's contract committee, who held hearings on CityTime in which union officials participated. In the best tradition of muckraking journalism, Daily News columnist Juan Gonzalez broke stories about the bloated salaries of computer consultants who earned as much as $400,000. Finally, in 2010, the federal prosecutor began making arrests.

SAIC is a Fortune 500 company with 41,000 employees. Government contracts account for 93 percent of its work.

"The story of CityTime is the story of the perils of privatization," Garrido said. "Right-wing and Wall Street interests have spent decades, through their think tanks, spreading the false message that the private sector can do the job cheaper and better. Yet, time and time again, corruption and waste surface in contracting out by states and cities nationwide, while government programs like Social Security, with miniscule
administrative costs, provide popular services without a whiff of corruption."

The prosecutor's agreement with SAIC occurred a few months after the City Council voted to strengthen the city's law on contracting out. DC 37 pushed hard for the law, which requires cost-benefi t studies on contracts over $25,000 and lets unions request City Council oversight hearings on contracts.

On the day of the agreement, the City Council passed a law requiring the administration to inform the legislative body about cost overruns on projects that cost $10 million or more.