Interior construction keeps attracting corruption. But why?

Officials are reportedly looking into $100M worth of fraud, highlighting the industry’s checkered past

New York /
Mar.March 05, 2018 07:00 AM

Corruption seems to be an enduring theme in interior construction: Every few years, a major contractor is forced to pay hefty fines for one form of fraud or another.

Most recently, state officials and investigators from the Manhattan District Attorney’s Office raided the offices of Bloomberg L.P. and Turner Construction in October, in relation to an alleged overbilling scheme, a New York Times report revealed last week. Bloomberg overpaid Turner $1 million as part of an agreement between company executives and subcontractors to inflate contracts, according to the publication. The raid was reportedly part of a broader investigation into $100 million worth of fraud involving other contractors and clients.

Representatives for the Manhattan District Attorney’s Office declined to comment on Friday. A representative for Turner said the employees involved in the alleged scheme no longer working for the company, though didn’t identify the individuals. The representative noted that Turner “had no participation in the alleged situation and did not profit from it.”

“We firmly believe our staff takes compliance very seriously and ‘does the right thing,’” It is a shame that a few rogue employees may have acted in a non-compliant and criminal manner and tarnished the image of the companies they worked for and the industry as a whole,” a representative for Turner said in an email. “Turner, as a company, had no participation in the alleged situation and did not profit from it.”

The investigation is reminiscent of a similar scheme at Structure Tone: The company agreed in 2014 to pay $55 million after admitting to overbilling various clients, including Bloomberg, for electrical, plumbing and other work. It wasn’t the company’s first conviction, either. In 1998, Structure Tone pleaded guilty to paying bribes to secure a multimillion-dollar contract to renovate Sony’s old headquarters.

Lendlease inked a deferred prosecution agreement in April 2012 to settle claims that it paid overtime to workers that never actually took place on various projects including the renovation of Grand Central. And Tishman Construction, before it was acquired by AECOM in 2010, paid more than $20 million in fines after officials claimed the company overcharged for work on One World Trade Center, the Jacob K. Javits Center and other projects.

Despite these blemishes, the companies emerged relatively unscathed and continue to dominate the market. Structure Tone, for instance, was the top general contractor in the city for renovation and alteration work between January 2012 and March 2017, according to an analysis by The Real Deal. Turner followed in second place. Meanwhile, Lendlease and Tishman are among the biggest general contractors for ground-up projects.

When it comes to interior work, there’s a relatively small pool of companies equipped to do high-end office renovations and build-outs, said Bruce Maffeo, an attorney with Cozen O’Connor and a former prosecutor with the U.S. Attorney’s Office. While a conviction may give a prospective client pause, it’s often not enough to convince them to take a chance on a lesser-known contractor.

“That’s a hard risk to sell,” Maffeo said. “They don’t want to see corruption, but they don’t want to have slipshod construction in their flagship space.”

At the same time, there are more trades — such as drywall, flooring and electrical — involved in interior work compared to shell and core construction, so competition at the subcontractor level is fierce. One construction source, who asked not to be named due to the ongoing nature of the Turner case, said the heightened competition causes some companies to turn to bribes and gifts to maintain an edge over others.

“Once these companies have a relationship with the general contractors, they want to keep it,” the source said.

It’s also a massive industry. Spending on renovation and alteration work reached $9.3 billion in 2016, according to the New York Building Congress.

While changes have resulted from officials cracking down on construction companies — as was seen after several scandals involving minority-and-women-owned businesses — the industry still remains vulnerable.

“There have been some significant jail terms, but it doesn’t really seem to operate as a break on people who are inclined to cut corners,” Maffeo said. “You can have all the policies and procedures in place, but you can’t eradicate the human impulse to line your own pocket.”


Related Articles

arrow_forward_ios
(iStock/Illustration by Alexis Manrodt for The Real Deal)
Manhattan job losses in Q3 worst of any large county in the US
Manhattan job losses in Q3 worst of any large county in the US
Rudin Management's Bill Rudin, 1675 Broadway and Gannett CEO Mike Reed (Getty, Google Maps, Gannett)
Gannett to move its NYC office two blocks north
Gannett to move its NYC office two blocks north
A rendering of the facility at 1029 Newark Avenue in Elizabeth, Fidelco chairman Marc Berson and Elberon Development Group chairman Ann Evans Estabrook (Photos via JLL, Fidelco and Elberon)
Cold storage facility in New Jersey gets $34M loan
Cold storage facility in New Jersey gets $34M loan
Silverstein Properties' Larry Silverstein and Phase I of the Denizen Bushwick at 54 Noll Street (Getty, Google Maps/Illustration by Kevin Rebong for The Real Deal)
Silverstein offers to buy half of All Year’s Bushwick rental complex
Silverstein offers to buy half of All Year’s Bushwick rental complex
HSBC COO John Hinshaw (Getty, iStock)
HSBC to shrink its office footprint amid shift to WFH
HSBC to shrink its office footprint amid shift to WFH
SL Green CEO Marc Holliday, 625 Madison Avenue and Ashkenazy Acquisition CEO Ben Ashkenazy (Photos via SL Green, Google Maps/Illustration by Kevin Rebong for The Real Deal)
SL Green, Ben Ashkenazy duke it out over Madison Avenue office
SL Green, Ben Ashkenazy duke it out over Madison Avenue office
Heritage Equity Partners' Toby Moskovits and the Williamsburg Hotel at 96 Wythe Avenue (Moskovits via Sasha Maslov; Hotel via Williamsburg Hotel)
Toby Moskovits’ Williamsburg Hotel enters bankruptcy
Toby Moskovits’ Williamsburg Hotel enters bankruptcy
Softbank CEO Masayoshi Son and Adam Neumann (Getty/Illustration by Kevin Rebong for The Real Deal)
Adam Neumann, SoftBank near settlement agreement
Adam Neumann, SoftBank near settlement agreement
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...