The federal investigation into Lend Lease Construction is likely to extend far into the New York construction industry and is just one example of what some experts consider a widespread practice of fraudulent billing. The firm, formerly known as Bovis Lend Lease, agreed to pay $56 million to settle charges of over-billing clients at projects ranging from the construction of Citi Field, the home of the New York Mets, to the renovation of Grand Central Terminal more than a decade ago, in an investigation led by Brooklyn-based U.S. Attorney Loretta Lynch.
James Abadie, principal of Lend Lease’s New York office, pleaded guilty to fraud Tuesday, and the company is expected to cooperate under a plea agreement that could extend the investigation for another two years.
Experts say the allegations against Lend Lease are not isolated to one firm, but indicate a widely employed pattern of undercutting the competition to get a job, then padding the books to boost revenues on the back of a sometimes unsuspecting client — yet often with the client’s knowledge or complicit approval.
“This is every day practice,” said Mike Kessler, president of Kessler International, a Manhattan-based corporate investigation firm that examines construction practices across the country. “We do a lot of construction audits and we’re constantly finding they’re charging for employees that are not on the job.”
Barry LePatner, a Manhattan-based attorney at LePatner & Associates, who specializes in construction issues, said that contractors often submit below cost bids for projects in a competitive bidding process, and then drag out a project by using incomplete site drawings or numerous change orders to bring in extra money.
“They bid at or below cost to secure the job and therefore would never make a profit [and then have] the compelling need to drive up the costs through these unwarranted methods,” LePatner said.
Lend Lease submitted falsified invoices to its clients, which contained charges for labor when contractors were often on vacation or out sick and also billed for overtime when the workers never actually performed work, according to court documents.
Lend Lease also allegedly filed fraudulent documents showing minority subcontractors were working on the Bronx Criminal Courthouse renovation project in 2000, when Lend Lease employees were actually doing the work. As part of the plea agreement, Lend Lease had fired numerous employees, agreed to reform its billing practices, hire legitimate minority contractors as well as maintain a full-time auditor and compliance committee.
“Lend Lease takes corporate responsibility very seriously and is committed to the highest level of ethical standards,” said Robert McNamara, CEO of the Lend Lease Americas region, in a statement. “We accept responsibility for what happened in the past and have continued to make restitution to the affected clients.”
Lend Lease in 2011 agreed to pay $5 million to New York City to settle related charges to the investigation.
The agreement follows a $20 million settlement in March 2011 with U.S. Attorney Preet Bharara in Manhattan to settle fraud charges against Skanska USA, related to the construction of the $1.4 billion Fulton Street Transit Center. In May 2011, four executives at Lehr Construction were indicted by District Attorney Cyrus Vance for allegedly stealing $30 million from clients by inflating subcontractors’ costs on office buildings across Manhattan.
“There are indications that this is a broader problem than certainly this one instance,” said one official who asked not to be identified.
Legal experts say that real estate owners and developers are often willing to settle construction fraud cases out of court rather than force the issue out into the public, because they are embarrassed that a construction firm submitted invoices for no-show work or inflated building materials.
“The ownership doesn’t want to [admit] it because it makes them look stupid,” said a prominent real estate attorney, who asked for anonymity. “We haven’t gotten a call yet, but I’m sure we will because people will say ‘I think I’ve been charged much too much on this project.'”