Slide show describing some of the various problems with public construction in New York state which serve to drive up costs for the taxpayer.

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