Once seen by Gov. Andrew Cuomo (D) as a centerpiece of New York state’s high-tech future and of its Buffalo Billion program to boost upstate economic development, the long, low building erected in 2015 at a former steel plant site on the bank of the Buffalo River has turned out to represent some things it was never intended to: corruption in government, loopholes in award of contracts to campaign donors and the demise of a half-century-old general contracting operation.
On July 13, a federal jury in New York City convicted on bid-rigging charges the key government and industry players that had been selected to develop and build what was seen as a jobs-producing clean-energy factory in Buffalo, N.Y. Louis P. Ciminelli, former CEO of contractor LPCiminelli, and state development guru Alain Kaloyeros are due to be sentenced in October. The $500-million-per-year firm was forced to auction off its equipment fleet on a snowy Buffalo day last winter (ENR 2/19-26 p. 21). Attorneys for Ciminelli and Kaloyeros promise appeals, but the charges and convictions show much about why there are selection process rules covering requests for proposals.
In 2012 and 2013, Cuomo’s economic strategy revolved around high-tech industries blooming in upstate New York cities long seen as weary industrial has-beens. In the lead role he placed Kaloyeros, a high-profile nanotechnology scientist who was president of the State University of New York’s Polytechnic University in Albany.
Apparently sensing opportunity, Cuomo’s one-time top advisor, Joseph Percoco, and longtime aide lobbyist Todd Howe sought payments and favors from contractors and developers. A jury in February convicted Percoco, two Syracuse developers and a power company executive on other related charges growing out of the state development plan. Howe pleaded guilty and is in prison.
To facilitate the development plan, the state created a nonprofit corporation, Fort Schuyler Management Corp., which allowed Kaloyeros to avoid state fair-contracting laws for hiring vendors and contractors. Kaloyeros communicated about the RFP in emails with Ciminelli—all completely legal, said defense attorneys, because of Fort Schuyler’s nonprofit status. Federal prosecutors said Fort Schuyler’s selection of developers was represented as a fair competition, but that it was orchestrated and that Kaloyeros and Ciminelli’s pre-bid contacts amounted to fraud and bid-rigging. A grand jury indicted them in 2016.
Among other actions, Kaloyeros shared the template for the request for proposals and allegedly molded it to fit LPCiminelli. The first version of the RFP required 50 years of experience in business. When that was first noticed in 2014 by reporter Jim Heaney, the founder of Western New York-based Investigative Post, Fort Schuyler reduced the years to 15, attributing it to a typo, and heavily redacted further information Heaney sought. The RFP also called for the developer to be locally based, and to include various capabilities, such as design and legal resources, under its own roof—further narrowing the field of competitors.
Campaign donations are routine for New York contractors and others with business before Albany lawmakers, and Ciminelli’s company had contributed $48,600 to Cuomo’s most recent reelection war chest. Just before trial, however, prosecutors dropped charges they had made that portrayed the campaign donations as a quid pro quo.
A turning point came when Kevin C. Schuler, LPCiminelli’s vice president, chose in early May to plead guilty to fraud and conspiracy charges and to testify in exchange for a hoped-for lighter sentence. Sitting only a few feet from his former boss at the trial in federal court in Manhattan, Schuler told the jury, “We had significant influence over the project, influence over the RFP and influence over the process that was going to select a winner.”
Paul Shechtman, Ciminelli’s Manhattan-based defense lawyer, pointed out that Schuler once referred to the charges against him and Ciminelli as “trumped up nonsense.” The prosecutors never called Howe, who worked for both Kaloyeros in his role at SUNY Polytechnic and also for a time represented Ciminelli, as a witness. Neither Ciminelli nor Kaloyeros testified at the trial.
The prosecutions in the Buffalo Billion program are part of a concerted effort to clean up corruption among state lawmakers. Numerous state contracts and grants are made via non-profit corporations and through commissions and authorities that may operate outside of state contracting rules—potentially giving their top officials broad discretion in handpicking contractors and vendors. The Buffalo Billion contract awarded to LPCiminelli, which supervised and constructed work at the Buffalo industrial site, was open-ended and eventually grew to cover $750 million worth of work.
What made the Fort Schuyler Corp. process illegal? At a conference about the charges with U.S. District Court Judge Valerie E. Caproni, who presided at the trials, an assistant U.S. attorney argued, “We have to prove that the defendants had the intent to tailor these RFPs.” The fact that few other companies tried to win the big Buffalo contract wasn’t important to proving the charges, according to legal filings, although only two other developers sought the work.
Fair Contracting Distinctions
Ironically, the key to fair contract awards, say experts in procurement, is distinguishing between legal and necessarily pre-release public comment on the RFP and post-release contact with competitors. The former is generally benign, and the latter is cause for suspicion unless it is channeled through a single contracting official and documented.
“Do pre-solicitation meetings and discussions with vendors—critical to creative sourcing—have the ‘appearance of impropriety,’ or could they be seen as favoritism for a particular company?” asked a former purchasing officer and an attorney writing for American City and County, a publication for government officials.
The National Association of State Procurement Officials has also recognized that pre-solicitation input is especially helpful in determining scope. But procurement rules should include nondisclosure agreements, experts say, and clear language that stops consultants involved in the preparation of requests for proposals from taking advantage of that work to get a leg up on competitors once the proposal is released.
An important difficulty occurs when a procurement official lacks a good understanding about the scope and nature of construction services. When these officials are underprepared to write RFPs, they may rely on outside consultants to aid them, says Andrea Rutledge, CEO of the Construction Management Association of America. The strongest state contracting policies, rules and procedures, she says, include nondisclosure agreements and unambiguous language that prohibits organizations that provide pre-release consulting services from bidding on the project.
John Kaehny, executive director of Reinvent Albany, an advocate for state government reforms, says the rigged selection made possible by the use of a nonprofit corporation wasn’t a case of innocent officials making honest mistakes. “This is not one where a couple of unlucky people stepped over the line and got zapped with lightning thrown down by Zeus,” he says. “This was baked in to the process from the first millisecond.”
This year, broad legislation supported by reform groups covering government contracts and nonprofit corporations remains stalled in the state legislature. Following the guilty verdicts, Cuomo said he had “no tolerance for those who seek to defraud the system to advance their own personal interests.” After the indictments, he transferred management of the Buffalo Billion projects to the Empire State Development Corp. Its contract awards are covered by state finance law, which has rules that govern permissible communication between potential vendors and staff.
By Richard Korman, with Debra K. Rubin