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City Agency Paid Millions in Illegal Deal With Contractor, Suit Says

By James Fanelli | February 11, 2016 7:17am
 Administration for Children's Services Commissioner Gladys Carrion (right) poses outside a Close to Home facility in Crown Heights. ACS illegally paid a contractor to turn the building into a Close to Home facility, court records show.
Administration for Children's Services Commissioner Gladys Carrion (right) poses outside a Close to Home facility in Crown Heights. ACS illegally paid a contractor to turn the building into a Close to Home facility, court records show.
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Administration for Children's Services

CROWN HEIGHTS — The city’s Administration for Children’s Services illegally paid a contractor millions of dollars in a rush to build facilities for a juvenile justice reform initiative that’s “near and dear to both the governor and the mayor,” court records show.

The records include a secret recording of an ACS deputy commissioner describing how his agency circumvented city rules requiring competitive bidding on contracts — a practice the city comptroller has condemned.

The deputy commissioner, Mitch Gipson, tells a contractor in the recording how his agency was under pressure to deliver eight facilities for the Close to Home program, which puts city juvenile offenders into detention centers closer to their families.

Gipson says in the recording, made last year, that because ACS only had a few months to get the facilities up and running, the agency skirted city rules requiring them to bid out the work and vet prospective contractors.

Instead ACS chose contractors without issuing requests for proposals and paid them using an arcane and frowned-upon purchasing process, court and city records show.

Those payments are known in technical terms as "purchase order — non-commodity documents," or PON1 payments.

While PON1 payments are legal, they are meant to be used for specific purposes — and construction work isn’t one of them.

City Comptroller Scott Stringer last year sent letters to 39 city agencies warning them that PON1 payments were being widely misused.

DNAinfo New York obtained a June 30 letter from Stringer to ACS that specifically rebukes the agency for using PON1 payments to construct seven of the eight Close to Home facilities.

The comptroller also said that between July 1, 2013, and June 30, 2014, ACS made $296 million in PON1 payments to 106 vendors.

“This pattern of non-contract based payments is of deep concern and has potentially far-reaching ramifications,” Stringer said.

His letter also states that the Mayor’s Office of Contract Services had referred ACS’s inappropriate spending involving the Close to Home facilities to the city’s Department of Investigation.

A spokeswoman for the DOI told DNAinfo that an investigation into the spending is ongoing.

The court documents that include transcripts of the Gipson recording are from a lawsuit filed by contractor Michael Gianatasio in May in Westchester County Supreme Court. He claims ACS and the city owe him at least $1.67 million for his firm’s work on preparing two limited-secure Close to Home facilities in Crown Heights and Norwood.

Gov. Andrew Cuomo launched the Close to Home initiative in 2012. The goal was to get city juvenile offenders out of poorly run state juvenile justice lock-ups and move them into the care of ACS and to detention centers that were nearer to their families and home communities.

ACS was rushing to get Close to Home facilities up and running when it approached Gianatasio and his firm, MRG Engineering & Construction, about the work in November 2014, his lawsuit says.

According to a transcript of a phone conversation in the lawsuit, Gipson told Gianatasio that Close to Home was “a project near and dear to both the governor and the mayor.”

Gipson also stated ACS only had until March 2015 to get the facilities online, so bidding out the work wouldn’t have worked.

“The thought process then was that due to our procurement rules, we knew we couldn’t hire you within a timeframe that would allow us to meet the schedule, which was the end of March,” Gipson said. “Our procurement rules could’ve taken maybe three or four months, at least, and so that was a nonstarter.”

Gipson said in the recording that to get around the city’s procurement rules, ACS could have the social service providers who were subcontracted to run the facilities sign a deal with a construction firm.

In most of the eight Close to Home facilities, ACS followed this arrangement — and the agency paid the construction firms with PON1 money.

MRG Engineering & Construction’s arrangement was to be no different.

At the end of December 2014, Gianatasio inked a deal with Leake and Watts, the social service provider the city planned to use to operate the facilities in Crown Heights and Norwood.

However, ACS assistant commissioner Ana Colares, who coordinated the deal with Gianatasio and Leake and Watts, mistakenly signed the agreement as well, according to the court papers.

Colares’ signature made the deal a city contract, which must follow city procurement rules.

Since MRG was picked without following the procurement rules, it was illegal, court documents say.

ACS didn’t realize the deal was illegal until March 2015 — long after MRG had started the job and he had already been paid more than $4 million for his work.

Court records show that almost immediately after he signed the contract, MRG started submitting invoices to ACS. The agency paid two of the three invoices, according to his lawsuit.

When the third invoice wasn’t paid, Gianatasio repeatedly reached out to ACS to find out why. After many unreturned phone calls, Gianatasio was finally told by Gipson in early March about the contract problem, according to the lawsuit.

In recorded phone conversations that month, Gipson explained that ACS was talking to City Hall officials at the “highest levels” on how to fix the contracts so work could continue.

Gipson suggested that Gianatasio should sign a new contract with just Leake and Watts. But a new contract was never reached, and ACS wouldn't let MRG finish work on the sites, according to the lawsuit.

The city is currently fighting the lawsuit, arguing the contracts with Gianatasio weren’t legal and it doesn't owe his firm money.

Neither Gianatasio nor his firm have been accused of any wrongdoing.

Michael Mauro, a lawyer for Gianatasio, declined to comment.

The ACS declined to comment on the lawsuit citing ongoing litigation.

An ACS spokesman said that the two Close to Home facilities that MRG worked on have not opened — despite a May 26, 2015, press release from the agency saying that the Crown Heights facility was set to open this past summer.

The city comptroller also declined to comment because of the litigation.

However, in his letter to ACS, Stringer said that using PON1 creates “a troubling lack of transparency” and that “important steps in the city’s oversight process are being bypassed.”