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New York GC to Pay $7M+ in Fraud

Friday, May 22, 2015

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NEW YORK CITY—A major construction concern has admitted to an eight-year systemic "overbilling scheme that impacted virtually all of its projects" but will avoid prosecution for its "criminal conduct," federal prosecutors say.

The Hunter Roberts Construction Group (HRCG) has "acknowledged and accepted responsibility" for the illegal scheme and will pay more than $7 million—$6 million in penalties and just over $1 million in restitution—to resolve the case, the Justice Department announced Wednesday (May 20).

HRCG

The Hunter Roberts Construction Group, one of the fastest-growing construction concerns in New York City, was established in 2005 and began defrauding clients the next year. Its projects included the Harvey Theater at the Brooklyn Academy of Music.

In return, the company will escape criminal prosecution.

A two-year non-prosecution agreement lays out the details of the fraud and the company's obligations to address it. The agreement, signed by HRCG president and CEO James C. McKenna, does not identify any individuals in the scheme.

Overbilling for Union

Founded in 2005, HRCG began defrauding hospitals, theaters, colleges and other public and private clients in 2006, prosecutors said.

The company "rapidly grew to become one of the largest construction firms in New York City, with more than 200 employees by 2012," the government said.

Multiple regional and federal agencies have been investigating the firm since December 2011. The fraud continued through 2013, the Justice Department said.

How it Worked

Pay rates for Hunter Robert's union labor were laid out in collective bargaining agreements negotiated with the Cement League.

The so-called "Cement League Agreement" governed pay rates of workers and foremen from Local 79 of Mason Tenders’ District Council of Greater New York and the workers and foremen of Local 157 of the New York City District Council of Carpenters.

Hunter Roberts typically acted as construction manager on projects, executing the contract that governed the "general conditions" costs.

For years, Hunter Roberts billed clients, including government contracting and funding agencies, for hours that were not worked by labor foremen, prosecutors said.

Fiterman Hall FitermanHall

Projects touched by the fraud included the $325 million rebuilding of Fiterman Hall at the Borough of Manhattan Community College. The building was devastated in the attacks of Sept. 11, 2001.

It did so by "systemically" adding one to two hours of "unworked or unnecessary overtime per day" to the labor foremen’s time sheets and by listing unworked hours as worked when foremen were absent. It also provided four hours of overtime per day to one senior foreman, whether or not he had worked that day.

For four of those years, HRCG also paid "a select group" of foremen at rates higher than those specified in client contracts, without advising the client. The clients then paid the overage.

The union has not been charged in the case.

Major Projects

The company admitted "fraudulent overbilling on a wide number of public and private projects" across the New York City area.

These projects included the:

  • $53 million Queens Hospital Center Ambulatory Care Pavilion;
  • Harvey Theater at the Brooklyn Academy of Music;
  • $325 million Borough of Manhattan Community College (BMCC) Fiterman Hall; and the
  • PAVE Academy Charter School in Brooklyn.

“Hunter Roberts defrauded its clients by fraudulently billing them for work that was not performed and at rates that were higher than contracted," said Acting U.S. Attorney Kelly T. Currie.

“Contractors that inflate invoices for union labor threaten the integrity of collective bargaining agreements and the viability of federally funded projects and private development," said the Labor Department's Cheryl Garcia.

"We will continue to work with our law enforcement partners to identify practices that jeopardize the employment opportunities for American workers."

Rot in the Big Apple

Currie said the agreement "marks a significant step in our continued effort to eliminate fraud in New York City’s construction industry."

JamesMcKenna
HRCG

Federal prosecutors did not identify any individuals in Hunter Roberts' criminal conduct. Company founder and CEO James McKenna signed the non-prosecution agreement.

New York has been in the national spotlight for construction corruption lately. In February, city officials arrested 50 city building inspectors, contractors, clerks and other defendants in a massive pay-for-play scheme.

In 2012, federal prosecutors announced a $56 million overbilling settlement with the construction giant Lend Lease—the largest such settlemnt in New York history.

“We will continue working with our law-enforcement partners on important construction contract fraud cases such as this, ensuring that the United States always gets what it bargained for,” Acting Inspector General Robert Erickson, of the U.S. General Services Administration, said Wednesday.

Agreement Terms

The non-prosecution agreement requires that HRCG "provide continuing cooperation and maintain far-reaching corporate reforms."

That includes working with the union to enforce "enhanced union time sheet recording and billing procedures."

FFTF

The six-year investigation was conducted by the President's Financial Fraud Enforcement Task Force, which includes a broad coalition of law enforcement, investigatory and regulatory agencies.

Authorities said HRCG has already:

  • Notified union workers "that only hours actually worked are permitted to be recorded on their time sheets";
  • Revised its Code of Ethics and time sheet/billing policies;
  • Improved employee training; and
  • Created the positions of General Counsel and Compliance Coordinator.

Restitution in the case totals $1,007,045.52, the agreement said

HRCG did not respond Thursday (May 21) to a request for comment.

'Exemplary Cooperation'

Authorities praised the company for its "comprehensive internal investigation, prompt and complete acceptance of responsibility for the full breadth of its unlawful conduct, exemplary cooperation, and far-reaching remedial measures."

Those factors led to the government's agreement not to prosecute Hunter Roberts for "its criminal conduct," the Department of Justice said.

The six-year investigation was conducted by the President's Financial Fraud Enforcement Task Force, which includes a broad coalition of law enforcement, investigatory and regulatory agencies.

Hunter Roberts' website homepage touts the company's "impeccable ethical behavior at all levels."

 

   

Tagged categories: Business management; Commercial Construction; Fraud; General contractors; Government contracts; Health Care/Hospitals; Labor; Schools

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