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Corruption in New York 
Public Construction 
A complex and flawed municipal 
law structure, and poor private 
sector behaviors, enable crony 
capitalism and price gouging of 
the NY taxpayer.
What are the motives? 
 Simply put the prime motive for most 
any type of corruption is to make more 
money. Sometimes there is a desire 
for power also, but usually laziness is a 
stronger secondary motive than power. 
 It’s faster and easier to use corruption 
to make more money vs. building a 
better product, increasing operational 
efficiency, etc.
Basic corruption: 
 Something obvious that is in defiance 
of the law, and more importantly 
PROVABLE to be in defiance of the law 
with reasonable effort.
Basic examples: 
• Bribery 
• Bid Rigging 
• Deliberate conspiracy to prevent competitive 
bidding 
• Corrective actions more widely known: 
Transparency 
Laws and enforcement 
Policies to motivate and protect 
whistleblowers
Stealth Corruption: 
 This more complex type of corruption is 
very common in New York state. 
 These strategies can involve 3, 4, 5 or even 
more parties in a scheme for higher profits.
Stealth Corruption: 
 Multiple parties often involved. 
 No one party may feel like they are being criminal. 
 Zooming in with a microscope, things may look 
okay. 
 The ultimate test is to check costs and profits. If 
prices are far above fair market value and several 
parties have gained additional profit, there is 
corruption. 
 Financial damage to the public is often WORSE with 
this more deviant type of corruption. 
 Prosecution under the law is difficult to implement. 
Proactive reforms are more effective.
Klitgaard 1998 
 C = M + D – A 
 C – Corruption 
 M – Monopoly, corporate influence. 
Could also mean privatization. 
 D – Discretion, ability to bypass rules. 
 A – Accountability, watchdogs and 
whistleblowers
GML 103-5 Standardization 
(Monopoly/discretion) 
 “Standardizing” means to justify the use of a single 
product or service. 
 The case to standardize is built upon a net savings. 
 But typically the evidence is incomplete and biased.
The original NYS GML 
103-5 as recorded: 
 Upon the adoption of a resolution by a vote of at least three-fifths 
of all the members of the governing body of a political 
subdivision or district therein stating that, for reasons of 
efficiency or economy, there is need for standardization, 
purchase contracts for a particular type or kind of equipment, 
material or supplies of more than ten thousand dollars may be 
awarded by the appropriate officer, board or agency of such 
political subdivision or any such district therein, to the lowest 
responsible bidder furnishing the required security after 
advertisement for sealed bids therefor in the manner provided 
in this section. Such resolution shall contain a full explanation 
of the reasons for its adoption. - See more at: 
http://codes.lp.findlaw.com/nycode/GMU/5- 
A/103#sthash.YbMb89sh.dpuf
Comptroller’s office – 
Extrapolates use of GMU 
 As shown on the previous slide, 103-5 
was meant for owner direct 
purchasing, NOT construction projects. 
 Yet today 103-5 is used VERY 
frequently for construction projects. 
 Thus much of the abuse of 103-5 is 
the fault of the executive branch.
Standardization – creates 
a hidden monopoly 
 The argument to standardize is usually built with heavy 
influence from a vendor. 
 Spare parts argument: Frequently used even if the owner 
stocks no spare parts. Two times zero is still zero! 
 Inconvenience of multiple brands: Vendor builds up the fear 
in the owner for lost time and added cost from having 
multiple brands. This cost is often greatly exaggerated. 
 Designer: Benefits by extending a system with existing 
brand. Simplifies design, submittal review, etc. More profit 
$$$ 
 Prime contractors: Act as a “smoke screen” to hide the fact 
that only one vendor is bidding on an expensive item/trade. 
 Review boards: Often told of a manufacturer to imply there 
will still be competition, but specification lists the exclusive 
vendor for the manufacturer. This is deliberately deceptive.
Standardizing to save money, a 
lie when monopolizing 
 No matter what “evidence” can be 
cooked up by the owner, engineer, 
vendor to show a cost savings, once 
monopolization is enabled the future 
greed and highly inflated pricing from 
the vendor will likely far exceed initial 
projected savings. 
 Give the fox keys, he will take 
chickens. How many? Who knows.
State contract purchasing – 
more extrapolation 
 New York state provide a means for purchase of 
certain products/services through pre-established 
pricing. 
 The process biases tenders towards the larger 
vendors. Price lists can be thousands of pages.
Government contracts: 
 This creates a difficult environment for smaller, 
locally owned and operated businesses as they do 
not have the resources to manage the complex 
government price lists. 
 Beware of “loss leader” tricks whereby a fraction of 
the work is at the pre-established price, but the 
lion’s share of work is done at vendor set prices. 
 As with GML 103-5 standardization, most language 
in laws adopted by the legislature refer to “eyes on” 
owner direct buying, not passing off the mandate to 
buy from a single source to a contractor.
Sidebar- losing resources 
from bypasses 
 Both standardization and contract buying 
arrangements tend to direct purchases 
towards large, multi-national corporations. 
 How many profits leave New York and/or 
the USA? 
 Are goods more likely to be made offshore 
vs. when supporting a local business? 
 This is off the topic of corruption but 
demonstrates further damage that is likely 
to occur from over-use of this discretion.
Money affects reason and 
belief 
 Gifts create a bias towards believing a message.
Bias from gift receipt 
 Preference towards certain products, technologies, and 
vendors is often a matter of opinion and such opinion can be 
persuaded via gift giving. 
 The vendors who do the most gift giving are often trying to 
bridge a wide credibility gap, and gifts help to bridge that gap. 
 Vendors are not charities. When they give gifts, they expect 
to get than money back, AND MUCH MORE, by having limited 
or no competition for future sales. 
 New York state has very weak policies concerning gift receipt 
by public sector employees. Example: A school facility 
manager who might be involved in a construction renovation 
project that will receive a great deal of state aid, should be 
held to strict standards concerning gift receipts. So should 
engineering firms that design projects.
Hyper-bundling. (M) 
 A specifying engineer may work with a particular 
vendor on the project and the vendor will be listed 
as “basis of design”.
Hyper - Bundling 
• A vendor will put together a unique mix of 
products, and if even just one product is exclusive, 
the vendor can have a lock. 
• The vendor will put out a large scope of work, 
including the special product(s), and will refuse to 
itemize the pricing. 
• Contractors often don’t make much of any effort to 
fight this because they don’t want to be blacklisted 
by the vendor, and it’s more convenient to get one 
equipment price in the mad scramble to meet bid 
deadlines. It’s not the contractor’s money that is 
wasted. The contractors actually profit slightly from 
“cost-plus” arithmetic when input costs are higher.
Beware the influenced 
expert (M) 
 Specifying engineers attend trade 
shows/educational conferences and hear 
“expert” testimony about new technologies. 
 Very often the “expert” is financially 
connected to a manufacturer.
Self serving specifications 
(D) 
 Specifications require the use of a 
certain entity by the contractor. Entity 
is connected to the specifying agency.
Deviant Specs: 
 Specifying engineer requires what seems to 
be an unusually large amount of testing 
procedures for a project. 
 The engineer is affiliated with the company 
that will do the testing. In this way the 
engineer will increase their financial reward 
from the project. 
 Financial connections between design firms, 
construction firms, and suppliers create 
opportunities for conflicts of interest and 
abuse of the public trust.
Separate pocket 
syndrome 
 A dollar from the state is not treated 
with as much value as a dollar from 
local government. 
 A local municipality may spend $10 of 
state money to save $1 of local funds. 
This particularly comes true when 
money is spent for added 
“convenience” for a local authority.
Executive branch 
discretion: 
 As mentioned earlier, GML 103-5 
standardization has been greatly 
expanded upon by the NYS 
Comptroller’s office. 
 Large DOT projects have been short-listed 
to certain contractors by the 
executive branch. This is another 
over-use of discretion and executive 
authority.
Best Value discretion, GML 103- 
16, a new problem perhaps? 
 Be careful of “mixed metaphors”. Detailed plans 
and specifications, AKA “plan and spec”, bidding 
processes lend themselves to a lowest responsible 
bidder selection criteria. 
 Using a best value selection process in an RFQ is 
inappropriate. Best value logic belongs in an RFP, 
where inherently more than just price is to be 
evaluated. 
 New York State has a new law which could 
potentially confuse a best value process with a plan 
and spec process: 
https://www.osc.state.ny.us/localgov/pubs/piggyba 
ckinglaw.pdf
Scaffold Law Reform: 
 Over the years the original intent of 
the scaffold law has been re-interpreted 
by the courts in NY to be 
an absolute liability standard. 
 Contributory negligence by employees 
has no bearing on awards. 
 See this group: 
 http://www.unshackleupstate.com/
Wicks Law: 
 New York State has required the use 
of separate prime contractors for 
larger projects, i.e. school renovations. 
 Many feel that this results in higher 
costs, more finger pointing, and 
possibly more corruption.
Prevailing Wage Law: 
 Wage standards are set for 
construction projects. 
 Some projects go a step further and 
require a PLA, project labor 
agreement, which further forces the 
need for organized labor.
Scaffold, Wicks, and Prevailing 
Wage Laws- Blue Collar detractors 
for white collar corruption: 
 School boards, the public, media, etc. 
are all very much galvanized around 
Wicks and Prevailing wage laws. 
 Such focus is on these factors, that 
the design firms, facility managers, 
etc. are not properly scrutinized for 
their substantial role in price gouging 
and corruption for public projects.
Prescription: More 
Procurement oversight (A) 
 New York’s government overseeing bodies 
for construction are loaded with architects 
and engineers, the same job classification 
as who they oversee.
Close the revolving door: 
• The revolving door whereby employees within NYS government 
level design & construction groups regularly change positions 
with architects & engineers in the private sector is a conflict of 
interest. Bad habits will sneak into the system. Propaganda 
can spread and poison the truth. 
• There needs to be an outside SUPERVISORY influence to help 
reign in the problems in this process: 
• Risk assessment. 
• Monitoring of the design development process. 
• Monitoring of the bidding process. 
• Post bid protest procedures. 
• Data analysis, surveys to see that the market is fair and 
competitive at all levels. 
• Post construction cost metrics and evaluation.
Above all - simplicity 
limits corruption
Thank you 
 Prepared by: 
Rich Purtell 
Climate Control Technologies 
Cell 607-425-9730 
email rpurtell2@stny.rr.com

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Corruption in New York Public Construction

  • 1. Corruption in New York Public Construction A complex and flawed municipal law structure, and poor private sector behaviors, enable crony capitalism and price gouging of the NY taxpayer.
  • 2. What are the motives?  Simply put the prime motive for most any type of corruption is to make more money. Sometimes there is a desire for power also, but usually laziness is a stronger secondary motive than power.  It’s faster and easier to use corruption to make more money vs. building a better product, increasing operational efficiency, etc.
  • 3. Basic corruption:  Something obvious that is in defiance of the law, and more importantly PROVABLE to be in defiance of the law with reasonable effort.
  • 4. Basic examples: • Bribery • Bid Rigging • Deliberate conspiracy to prevent competitive bidding • Corrective actions more widely known: Transparency Laws and enforcement Policies to motivate and protect whistleblowers
  • 5. Stealth Corruption:  This more complex type of corruption is very common in New York state.  These strategies can involve 3, 4, 5 or even more parties in a scheme for higher profits.
  • 6. Stealth Corruption:  Multiple parties often involved.  No one party may feel like they are being criminal.  Zooming in with a microscope, things may look okay.  The ultimate test is to check costs and profits. If prices are far above fair market value and several parties have gained additional profit, there is corruption.  Financial damage to the public is often WORSE with this more deviant type of corruption.  Prosecution under the law is difficult to implement. Proactive reforms are more effective.
  • 7. Klitgaard 1998  C = M + D – A  C – Corruption  M – Monopoly, corporate influence. Could also mean privatization.  D – Discretion, ability to bypass rules.  A – Accountability, watchdogs and whistleblowers
  • 8. GML 103-5 Standardization (Monopoly/discretion)  “Standardizing” means to justify the use of a single product or service.  The case to standardize is built upon a net savings.  But typically the evidence is incomplete and biased.
  • 9. The original NYS GML 103-5 as recorded:  Upon the adoption of a resolution by a vote of at least three-fifths of all the members of the governing body of a political subdivision or district therein stating that, for reasons of efficiency or economy, there is need for standardization, purchase contracts for a particular type or kind of equipment, material or supplies of more than ten thousand dollars may be awarded by the appropriate officer, board or agency of such political subdivision or any such district therein, to the lowest responsible bidder furnishing the required security after advertisement for sealed bids therefor in the manner provided in this section. Such resolution shall contain a full explanation of the reasons for its adoption. - See more at: http://codes.lp.findlaw.com/nycode/GMU/5- A/103#sthash.YbMb89sh.dpuf
  • 10. Comptroller’s office – Extrapolates use of GMU  As shown on the previous slide, 103-5 was meant for owner direct purchasing, NOT construction projects.  Yet today 103-5 is used VERY frequently for construction projects.  Thus much of the abuse of 103-5 is the fault of the executive branch.
  • 11. Standardization – creates a hidden monopoly  The argument to standardize is usually built with heavy influence from a vendor.  Spare parts argument: Frequently used even if the owner stocks no spare parts. Two times zero is still zero!  Inconvenience of multiple brands: Vendor builds up the fear in the owner for lost time and added cost from having multiple brands. This cost is often greatly exaggerated.  Designer: Benefits by extending a system with existing brand. Simplifies design, submittal review, etc. More profit $$$  Prime contractors: Act as a “smoke screen” to hide the fact that only one vendor is bidding on an expensive item/trade.  Review boards: Often told of a manufacturer to imply there will still be competition, but specification lists the exclusive vendor for the manufacturer. This is deliberately deceptive.
  • 12. Standardizing to save money, a lie when monopolizing  No matter what “evidence” can be cooked up by the owner, engineer, vendor to show a cost savings, once monopolization is enabled the future greed and highly inflated pricing from the vendor will likely far exceed initial projected savings.  Give the fox keys, he will take chickens. How many? Who knows.
  • 13. State contract purchasing – more extrapolation  New York state provide a means for purchase of certain products/services through pre-established pricing.  The process biases tenders towards the larger vendors. Price lists can be thousands of pages.
  • 14. Government contracts:  This creates a difficult environment for smaller, locally owned and operated businesses as they do not have the resources to manage the complex government price lists.  Beware of “loss leader” tricks whereby a fraction of the work is at the pre-established price, but the lion’s share of work is done at vendor set prices.  As with GML 103-5 standardization, most language in laws adopted by the legislature refer to “eyes on” owner direct buying, not passing off the mandate to buy from a single source to a contractor.
  • 15. Sidebar- losing resources from bypasses  Both standardization and contract buying arrangements tend to direct purchases towards large, multi-national corporations.  How many profits leave New York and/or the USA?  Are goods more likely to be made offshore vs. when supporting a local business?  This is off the topic of corruption but demonstrates further damage that is likely to occur from over-use of this discretion.
  • 16. Money affects reason and belief  Gifts create a bias towards believing a message.
  • 17. Bias from gift receipt  Preference towards certain products, technologies, and vendors is often a matter of opinion and such opinion can be persuaded via gift giving.  The vendors who do the most gift giving are often trying to bridge a wide credibility gap, and gifts help to bridge that gap.  Vendors are not charities. When they give gifts, they expect to get than money back, AND MUCH MORE, by having limited or no competition for future sales.  New York state has very weak policies concerning gift receipt by public sector employees. Example: A school facility manager who might be involved in a construction renovation project that will receive a great deal of state aid, should be held to strict standards concerning gift receipts. So should engineering firms that design projects.
  • 18. Hyper-bundling. (M)  A specifying engineer may work with a particular vendor on the project and the vendor will be listed as “basis of design”.
  • 19. Hyper - Bundling • A vendor will put together a unique mix of products, and if even just one product is exclusive, the vendor can have a lock. • The vendor will put out a large scope of work, including the special product(s), and will refuse to itemize the pricing. • Contractors often don’t make much of any effort to fight this because they don’t want to be blacklisted by the vendor, and it’s more convenient to get one equipment price in the mad scramble to meet bid deadlines. It’s not the contractor’s money that is wasted. The contractors actually profit slightly from “cost-plus” arithmetic when input costs are higher.
  • 20. Beware the influenced expert (M)  Specifying engineers attend trade shows/educational conferences and hear “expert” testimony about new technologies.  Very often the “expert” is financially connected to a manufacturer.
  • 21. Self serving specifications (D)  Specifications require the use of a certain entity by the contractor. Entity is connected to the specifying agency.
  • 22. Deviant Specs:  Specifying engineer requires what seems to be an unusually large amount of testing procedures for a project.  The engineer is affiliated with the company that will do the testing. In this way the engineer will increase their financial reward from the project.  Financial connections between design firms, construction firms, and suppliers create opportunities for conflicts of interest and abuse of the public trust.
  • 23. Separate pocket syndrome  A dollar from the state is not treated with as much value as a dollar from local government.  A local municipality may spend $10 of state money to save $1 of local funds. This particularly comes true when money is spent for added “convenience” for a local authority.
  • 24. Executive branch discretion:  As mentioned earlier, GML 103-5 standardization has been greatly expanded upon by the NYS Comptroller’s office.  Large DOT projects have been short-listed to certain contractors by the executive branch. This is another over-use of discretion and executive authority.
  • 25. Best Value discretion, GML 103- 16, a new problem perhaps?  Be careful of “mixed metaphors”. Detailed plans and specifications, AKA “plan and spec”, bidding processes lend themselves to a lowest responsible bidder selection criteria.  Using a best value selection process in an RFQ is inappropriate. Best value logic belongs in an RFP, where inherently more than just price is to be evaluated.  New York State has a new law which could potentially confuse a best value process with a plan and spec process: https://www.osc.state.ny.us/localgov/pubs/piggyba ckinglaw.pdf
  • 26. Scaffold Law Reform:  Over the years the original intent of the scaffold law has been re-interpreted by the courts in NY to be an absolute liability standard.  Contributory negligence by employees has no bearing on awards.  See this group:  http://www.unshackleupstate.com/
  • 27. Wicks Law:  New York State has required the use of separate prime contractors for larger projects, i.e. school renovations.  Many feel that this results in higher costs, more finger pointing, and possibly more corruption.
  • 28. Prevailing Wage Law:  Wage standards are set for construction projects.  Some projects go a step further and require a PLA, project labor agreement, which further forces the need for organized labor.
  • 29. Scaffold, Wicks, and Prevailing Wage Laws- Blue Collar detractors for white collar corruption:  School boards, the public, media, etc. are all very much galvanized around Wicks and Prevailing wage laws.  Such focus is on these factors, that the design firms, facility managers, etc. are not properly scrutinized for their substantial role in price gouging and corruption for public projects.
  • 30. Prescription: More Procurement oversight (A)  New York’s government overseeing bodies for construction are loaded with architects and engineers, the same job classification as who they oversee.
  • 31. Close the revolving door: • The revolving door whereby employees within NYS government level design & construction groups regularly change positions with architects & engineers in the private sector is a conflict of interest. Bad habits will sneak into the system. Propaganda can spread and poison the truth. • There needs to be an outside SUPERVISORY influence to help reign in the problems in this process: • Risk assessment. • Monitoring of the design development process. • Monitoring of the bidding process. • Post bid protest procedures. • Data analysis, surveys to see that the market is fair and competitive at all levels. • Post construction cost metrics and evaluation.
  • 32. Above all - simplicity limits corruption
  • 33. Thank you  Prepared by: Rich Purtell Climate Control Technologies Cell 607-425-9730 email rpurtell2@stny.rr.com

Notas do Editor

  1. The objective is to get the specifying engineer to require this new and unique product for projects they are working on. The benefit may be there, but with the likelihood of zero competition, hyper-inflated pricing is almost guaranteed.