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2 Indicted, $19.6M Fine Set In NY Public Works Scam

Monday, April 4, 2011

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Two contractors face 40 years in prison and construction giant Skanska will pay a $19.6 million fine in a federal corruption probe into the abuse of Disadvantaged Business Enterprises (DBEs) in public works contracts in New York.

Richard Cavallaro

Skanska USA CEO Richard Cavallaro
said the company had “recommitted
itself to best practices.”

Balu Kamat and Carmine Desio, president and vice president, respectively, of Environmental Energy Associates Inc., have been indicted on charges of wire, mail and other “systematic fraud” involving “countless projects” with New York’s Metropolitan Transit Authority, Port Authority and other agencies, authorities said.

EEA, of Ridgefield, NJ, is a certified Disadvantaged/Minority/Women Business Enterprise (D/M/WBE) that did demolition and environmental work for Skanska USA Civil Northeast Inc. on the projects.

Skanska, the general contractor, has agreed to pay a $19.6 million settlement and cooperate with authorities in the continuing investigation. In return, the company will not be prosecuted in the case.

‘We Will Not Tolerate Corruption’

“The alleged conduct of these defendants deprived legitimate DBEs from receiving millions of dollars in lucrative government contracts,” said Manhattan U.S. Attorney Preet Bharara.

“The message of today's criminal charges and $19.6 million settlement should be loud and clear: Every company has to play by the rules, and we simply will not tolerate corruption in our government programs."

Kamat and Desio were arraigned in Manhattan federal court after surrendering to authorities.

Kickbacks and Third Parties

World Trade Center Transportation Hub Project

EEA was involved in the World Trade
Center Transportation Hub Project.

Prosecutors said Kamat and Desio were involved in “countless” federally funded New York-area projects, including the Fulton Street Transit Center Dey Street Concourse (an MTA project), the World Trade Center Transportation Hub (a Port Authority project), and an airline terminal at John F. Kennedy International Airport (a Port Authority project). Authorities said Kamat and Desio:

• Entered into subcontracts to perform work that they knew EEA was incapable of doing;

• Arranged or agreed to have third parties perform the work EEA was contracted to perform;

• Received a markup or fee for the work others performed; and

• Purported to, but did not in fact, do work for which primary contractors claimed DBE credit.

On the concourse project, for example, EEA entered into a $5.2 million subcontract with Skanska USA Civil Northeast to perform concrete and miscellaneous demolition work, although Kamat and Desio knew that EEA lacked the labor, equipment and funds to perform the work, prosecutors said.

Fulton Street Transit Center Dey Street Concourse

The Fulton Street Transit Center
Dey Street Concourse project was
just one of the projects that
Environmental Energy Associates
contracted to do, knowing it could
not handle the work, authorities said.

Skanska then “effectively self-performed the work it had subcontracted to EEA and helped create the appearance that EEA had done commercially useful work on the project,” according to a statement by authorities.


The U.S. Department of Transportation launched the DBE program in 1980 to increase the participation of minority and disadvantaged business enterprises in federally funded public construction contracts.  To become certified as a DBE, a company must:

• Be owned and controlled by socially and economically disadvantaged individuals;

• Be an independent business whose viability does not depend on its relationship with other firms;

• Employ its own work force and own equipment necessary to perform its work; and

• Be able to meet its financial obligations.

Recipients of USDOT construction grants are required to establish a DBE program that establishes goals for the percentage of a project's work that should be awarded to DBEs ("DBE goals"). General contractors on construction projects must make good-faith efforts to meet the relevant DBE goals, and funds paid to attain DBE goals may be counted only if the DBEs performed a "commercially useful function." 

Skanska: ‘Regret’

Stockholm-based Skanska Group, parent company of Skanska USA Civil Northeast, is one of the world’s 10 largest construction companies and is involved in several of New York’s largest public works projects. While admitting no wrongdoing, the company said in a statement that it had already accounted for the $19.6 million “agreement” in its fourth-quarter numbers and had “reinvigorated” its M/D/WBE compliance program beginning in 2009.

“Skanska takes pride in its industry leadership in the area of diversity and we recognize, and regret, that we did not follow best practices with respect to our use of EEA as a D/M/WBE on certain projects,” said Skanska USA president Richard Cavallaro.

“We’ve learned a tough lesson, and we urge others in the industry to learn from it.”

Prosecutors said Skanska would “undertake a comprehensive review of all its existing minority and women-owned business subcontracts to ensure that they are in compliance with all applicable rules and regulations.”

‘We Will Exact a Heavy Price’

MTA Inspector General Barry Kluger said the case should alert the construction industry that “we and our investigative and prosecutorial partners are serious about enforcing compliance and will exact a heavy price from those who abuse the program."

Robert Panella, who heads the Labor Department’s Office of Labor Racketeering and Fraud Investigations, said his office would “continue to aggressively investigate contractors who allegedly defraud the minority and disadvantaged business enterprises process by falsifying payroll records on federally funded construction projects in violation of the Davis Bacon Act.”

Port Authority Inspector General Robert E. Van Etten said the case shows “how individuals in the construction industry have manipulated and circumvented the intent of the Minority and Women Business Enterprise Program by utilizing firms as fronts….”

Van Etten urged people with knowledge of such cases to report them: “Working with our law enforcement partners. we will continue to vigilantly investigate allegations of fraud in the construction industry." 


Tagged categories: Construction; Contractors; Contracts; Government contracts; Laws and litigation

Comment from Tom Schwerdt, (4/5/2011, 8:39 AM)

A single project was $5.2 million in fraudulent subcontracting. They were involved in "countless" projects. Let's say the total is only 10x the single project value. That gives us fraud of $52 million, and a fine of only $19.6 million. Sounds like the fraud is still profitable, even with this fine.

Comment from Jerry LeCompte, (4/5/2011, 10:08 AM)

Isn’t it time that our legislators understand the commonality of fraud in government designed programs regardless of the premise of intention? Simply put “Low bidder wins” abates fraudulent opportunity.

Comment from Tom Schwerdt, (4/6/2011, 8:10 AM)

Jerry, you don't think that "low bidder wins" has any incentive for bidders to cut corners or commit fraud (such as not actually doing all the work) in order to win the bid?

Comment from Jerry LeCompte, (4/6/2011, 10:12 AM)

Tom, Pre bid qualification usually root out the contractors that would commit fraud. However, “not actually doing all the work” would constitute “non performance” which is a lot easier to identify and litigate than fraud. It’s the boutique designed programs that allow a greater presentation for fraudulent opportunity.

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