State and local law requires contractors to meet certain minimum diversity standards for the hiring of Eligible Business Enterprises (EBEs) as sub-contractors. The RSMP’s Diversity Plan, as adopted by the Rochester Joint School Construction Board (RJSCB), required contractors to subcontract 20 percent of their work to EBEs: 15 percent of their work to Minority Business Enterprises (MBEs) and five percent of their work to Women Business Enterprises (WBEs) or to obtain waivers for these requirements. The Diversity Plan was incorporated by reference into the contracts with every prime contractor, and prime contracts were awarded only to contractors that certified that they would meet the diversity sub-contracting requirements.
An investigation by the Attorney General’s Office (OAG) found that the contractors submitted bid proposals, presented pay applications, and/or arranged false sub-contracts in connection with the RSMP that misrepresented their utilization of EBEs, in violation of both the RSMP’s Diversity Plan and state law.
“Women and minority owned businesses have historically been shut out of government contracts for all the wrong reasons. That’s why our state, and localities, implement reasonable diversity standards to level the playing field. These contractors engaged in flagrant schemes that flouted the diversity rules they were required to meet, and in the process, denied minority- and women-owned businesses a fair shot at winning valuable sub-contracts,” said Attorney General Schneiderman. “My office will continue to aggressively enforce the law against contractors who game the system.”
The Attorney General’s investigation found that the contractors engaged in “labor pass-throughs,” whereby contractors would hire non-EBEs to perform work, but then run the money and paperwork through EBEs to create the appearance that an EBE had performed the labor. The investigation also found that certain contractors engaged in “supplies pass-throughs,” whereby the contractors would order supplies from non-EBE manufacturers, but then run the money and paperwork through EBEs to create the appearance that the EBE had supplied the materials.
For example, Concord Electric claimed credit for over $400,000 worth of work purportedly performed by B.S.V. Metal Finishers (BSV), a certified MBE supplier; but in reality, Concord actually ordered the supplies directly from a non-EBE (Zeller Corporation). Concord dealt solely with Zeller in the selection, pricing, and delivery of materials. In many instances, BSV supplied blank letterhead, and representatives from Zeller put their quotes on the BSV letterhead to give the appearance of BSV’s participation, when in fact BSV served only as a pass-through entity. Meanwhile, Concord paid a percentage of the contract to BSV, although BSV had served no commercial function.
In another example, Michael A. Ferrauilo Plumbing & Heating hired a non-EBE sub-contractor to perform certain labor, but to meet the diversity requirements, Ferrauilo arranged the paperwork as if an EBE, Cannon & Noto (C&N), had hired the non-EBE sub-contractor to do the work. Payment was made by check written by Ferrauilo to C&N, but C&N merely endorsed the check so that the non-EBE sub-contractor could deposit it. Meanwhile, Ferrauilo paid a percentage of the contract to C&N, although C&N had served no commercial function.
The monetary terms of each settlement agreement are as follows:
- Concord Electric Corporation ($350,000);
- Manning Squires Hennig ($200,000);
- Hewitt Young Electric, LLC ($160,000);
- Michael A. Ferrauilo Plumbing & Heating, Inc. ($90,000); and
- Mark Cerrone, Inc. ($25,000).
As part of the agreement, the Attorney General secured commitments from all five contractors to submit to extensive, multi-year compliance, remediation, and training requirements. The Attorney General’s Civil Rights Bureau will actively monitor the contractors’ adherence to these requirements.
Also as part of the settlements announced today, Hewitt Young Electric, Manning Squires Henning, and Mark Cerrone will fund a total of $400,000 in reserves, which will assist EBEs in meeting their costs, helping them to take advantage of sub-contracting opportunities. This is an innovative program designed by the Attorney General to address the difficulty of small-business sub-contractors which must regularly pay their labor force, but are often forced to “float” months of salary while awaiting payment from the project’s developer and then the prime contractor. These long periods of outlay are often too much for small M/WBEs to endure. To address this difficulty, the Attorney General has secured an agreement from these prime contractors to fund a “reserve” from which M/WBE sub-contractors can draw in order to make their payrolls. Then, when the prime contractor is eventually paid by the RJSCB for an M/WBE’s work, it will replenish the reserve.
Thirteen Rochester schools were renovated during the largely-completed first phase of the Rochester Schools Modernization Program, which was budgeted at $325 million, including $278 million in State funds.
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