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MTA 'Played Favorites' Giving Apple an Edge in Grand Central, Audit Finds

By Mary Johnson | July 30, 2012 3:52pm

MIDTOWN — In the epic battle of Mac versus PC, the Metropolitan Transportation Authority may be a Mac.

According to a new audit released by the New York State comptroller Monday, the MTA gave Apple a distinctive edge in the process of leasing out space on Grand Central Terminal's east balcony, working with the tech company for more than a year before an official request for proposals for tenants looking to occupy the space was issued.

“While Apple may turn out to be a good tenant, the MTA set a troubling precedent when it played favorites and gave Apple a competitive edge over others for the Grand Central space,” said State Comptroller Thomas P. DiNapoli in a statement. “The company even signed a $2 million agreement with the current tenant to vacate its space five days before the MTA issued the RFP.”

DiNapoli outlines a process in the audit that he said was not fair for all potential occupants interested in that space.

The auditors found that Apple began negotiating a buyout with the MTA and Metrazur, which occupied the space before Apple took over, more than a year before the request for proposals was issued.

Those negotiations resulted in a $5 million buyout agreement, which ultimately became the required upfront payment amount listed in the RFP.  

Then, five days before the RFP was issued, Apple pledged to give Metrazur a $2 million advance on the buyout to encourage Metrazur to vacate the space early.

During the month in which the RFP was open, Apple was the only prospective tenant that applied. The Grand Central Apple store opened in December of this past year.

But the MTA said that buyout agreement and $2 million payment were never binding and that the lease was always expected to be subject to a competitive RFP process.

In a letter written to the state comptroller’s office, the MTA said it took pains to give the RFP wide exposure once it was posted, taking out quarter-page ads in The Wall Street Journal and in Crain’s New York.

“It is true that Apple had the space in question in mind for longer than other prospective tenants may have,” the letter stated. “However, the MTA never lost sight of its legal obligations under the Public Authorities Law to engage in a robust competitive process and made every effort to ‘level the playing field’ for all proposers.”

In a statement, MTA Chairman and CEO Joseph J. Lhota affirmed those statements.

“This audit is not fact-based, and accordingly, their opinion is worthless,” Lhota said. “The MTA’s lease process with Apple was open, transparent and followed both the spirit and letter of the law.”

As a result of the findings outlined in the audit, the state comptroller is recommending increased oversight of all public authority contracts that exceed $1 million.  

Currently, the law only authorizes the state comptroller’s office to review contracts over $1 million that are non-competitive or funded with state dollars.