Thursday, June 10, 2010

Contractors Who Build Office Interiors Face Inquiry on Possibly False Bills

By CHARLES V. BAGLI

The interior-construction industry is hidden from the view of most New Yorkers, but billions of dollars a year are spent building and rebuilding the walls and guts of the city’s corporate towers.

(Photo left: Investigators seized records from P. J. Mechanical Corporation on Monday in an inquiry into the interior-construction industry.)
The industry is coming into public focus for the second time in a dozen years as investigators from the Manhattan district attorney’s office expand their investigation into possible corruption by contractors suspected of stealing hundreds of millions of dollars using false invoices from electrical, drywall, plumbing and mechanical contractors..

On three successive days this week, state troopers and detectives from the Manhattan district attorney’s office raided three prominent subcontractors, the P.J. Mechanical Corporation in Manhattan; Sirina Fire Protection Corporation in New Hyde Park, on Long Island; and Sweeney & Harkin Carpentry and Dry Wall Corporation, in Long Island City, Queens.


Investigators served search warrants and carried off billing records and computer hard drives, although none of the companies were charged with any wrongdoing.

They are among roughly 70 companies that the district attorney’s office is looking at as part of its inquiry.

As a matter of policy, the district attorney’s office does not discuss continuing investigations, a spokesman said. None of the companies returned repeated calls requesting comment on the investigation.

Interiors represent a significant segment of the city’s construction industry; the top 10 contractors alone accounted for more than $1.8 billion in billings last year, according to New York Construction, a trade magazine.


(Photo Right: Investigators seized records from Sweeney & Harkin Carpentry and Dry Wall Corporation this week in an inquiry into the interior-construction industry.)


Corruption in construction drives up the already daunting cost of doing business in New York, experts say, and several construction executives said the investigation is beginning to rattle the industry.

Building owners and corporate tenants hire contractors or construction managers, who in turn hire electrical, drywall and mechanical subcontractors to install wiring and air-conditioning systems and erect walls to create individual offices.

“It’s a big market, and there are a lot of players,” said Richard T. Anderson, president of the New York Building Congress, a trade group whose members include contractors and construction unions. “I guess it’s ripe for some corruption to occur.”

In 1998, the industry was rocked by a major bid-rigging scandal in which two dozen companies and 31 executives eventually pleaded guilty to bribery.

In general, the companies were found to have submitted inflated bills from subcontractors and then taken kickbacks from the subcontractors when they received their inflated payments.

The contractors regularly overcharged Fortune 500 companies, including Sony, which had given the city’s biggest interior firm, Structure Tone, a $500 million contract to build interiors in its offices on Madison Avenue and 56th Street. Structure Tone pleaded guilty to charges related to the scheme and paid a $10 million fine.

As a result of that investigation, Howard and Gerald Lazar also pleaded guilty to bribery charges as part of a plea agreement that allowed their company, Lehr Construction, to avoid related charges. Howard Lazar was forced to leave the industry after serving time. His brother Gerald continued to run the business.

The current investigation, which began under the former Manhattan district attorney, Robert M. Morgenthau, picked up steam in recent months and quickly focused on a number of companies and figures involved in the 1998 scandal.

In January, the district attorney charged one company, the Builders Group, and three of its officers with stealing nearly $7 million from clients at five condominium and office projects.

A month ago, investigators again swept through the offices of Lehr Construction on Broadway near 21st Street. According to a law enforcement official who declined to be identified because he was not authorized to discuss the investigation, they picked up a trove of information from binders lying atop file cabinets.

No charges have been filed against Lehr, which declined to comment, but its business has suffered. After the raid, Lehr was replaced by another firm as construction manager for the Gap’s new offices in Lower Manhattan.

The district attorney is also inquiring about Lehr’s work at Goldman Sachs’s new downtown headquarters, according to the law enforcement source. Lehr is still working on the firm’s trading floors and health club, and Structure Tone worked on the same job, laying the office floors and building the conference center. And P. J. Mechanical, the company raided by investigators on Monday, did duct work there for both Lehr and Structure Tone.

Goldman Sachs had hired Blake Cappotelli of Kroll, the private investigations firm, to review the construction work. Mr. Cappotelli was the assistant district attorney who led the 1998 investigation into the interior-construction industry. He declined to comment on the investigation, as did Goldman Sachs.

24 comments:

  1. lets see - back in 1998, it was Structure Tone and Lehr and .....  Today, in 2010, it is Structure Tone, Lehr and ....

    They have done nothing to fix the problems.  Just like in the NYC DC, you still have the exact same players in place, and nothing being done about it.

    ReplyDelete
  2. I totally agree with you..the issue with interior-construction industry is happening from years and still the same. Obama should also add this problem to his list and hope he will resolve this issue for us!


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