Questionable contract?

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Sunday, February 22, 2015

Is the company due to receive a $2 billion contract from the DOE the same as implicated in a huge 2011 scandal?

UPDATE and CORRECTION: A sharp eyed friend just noted that this contract is really for five years, with an option to renew at four more years, so it is potentially worth over $2 Billion!  I have corrected the text and the headline accordingly.  I have also gotten confirmation that this indeed the same company as involved in the Lanham kick-back scheme.

Last week Public Advocate Letitia James, City Council Education Chair Danny Dromm and Class Size Matters sent a letter to the members of the Panel for Educational Policy, with a copy to Chancellor Fariña, urging them to release the details of a contract with a company called "Custom Computer Specialist" which they are supposed to vote on at their February 25 meeting. (Click on image to enlarge.)


This company is due to receive a five year contract for "IT networking hardware and installation services" at $224.8 million per year, with two options to renew, each for another two years, potentially totaling almost more than $2 billion, as noted in the brief summary posted above and on the DOE website.

In addition, the PEP is supposed to vote on a one year contract for Verizon, costing $42.6 million for telephone services and data network connectivity. 


In response to an earlier letter from CM Helen Rosenthal, chair of the Contracts Committee, the DOE stubbornly refused  to release any details of its contracts to the public until the day before the vote, including whether they had been competitively bid or involved companies that had been investigated for improper or illegal behavior. Actually, the full documentation for the contracts approved at last month's PEP meeting was only posted several days after the vote, and only following an email to DOE from CM Rosenthal's chief of staff, Marisa Maack.

Not until today, when I had a chance to reread my 2011 testimony before the City Council Contracts Committee that I was reminded how Verizon and Custom Computer Specialists were implicated in a 2011 massive kick-back scheme to benefit then-DOE consultant Ross Lanham, who oversaw “Project Connect," a billion dollar IT contract, according to a report from the office of Special Investigator Condon.  Both vendors overcharged DOE by millions of dollars, and in turn they enriched Lanham by hiring his consulting company at hugely inflated rates.


Without more information, it is impossible to know whether Custom Computer Specialists is the same company as the "Custom Computer Specialist" due to receive a $2 billion contract on Wednesday, as listed on the DOE document above, but it seems quite possible. This lack of information only reinforces the importance of the request in our letter that the DOE or the PEP members should reveal the details of this contract immediately, and in the future, every contract at least ten days ahead of any vote.

The IT "Project Connect" scandal became big news, and Lanham was sentenced to 37 months in prison, as well as pay $1.7 million in restitution to DOE, according to the prosecutor on the case, Preet Bahara. Judge George Daniels criticized the DOE for allowing so much money to be stolen from both the city and the feds, since the internet wiring was partially paid for by the federal E-Rate program: "There was absolutely no checks and balances, no procedure to identify and prevent the overbilling that went undetected at DOE,” Daniels said. “It was a crime waiting to happen." 


I am unaware as to  whether either company, Verizon or Custom Computer Specialists, have repaid DOE for these overcharges, which amounted to millions of dollars.  Yet in November 2014,  according to the NY Times, Comptroller Stringer wrote a letter to the Chancellor, revealing how the city was still being investigated by the feds and had been suspended from the E-Rate program because of the Lanham scandal, losing as much as $120 million in the process.   

Perhaps the DOE has now been reinstated since the brief description of this new contract says it will be paid with "Tax levy, Capital and E-Rate funds."

Below are relevant excerpts from Condon's 2011 report:
An investigation conducted by this office has substantiated that Ross Lanham (“Lanham”), while employed as a consultant for the Department of Education (“DOE”) to oversee “Project Connect,” billed millions of dollars to the DOE for five consultants whom he employed through his company, Lanham Enterprises, Inc., without the knowledge and/or agreement of the DOE….. All of the vendors profited, to some extent, from Lanham’s scheme.   The investigation also established that Verizon, in order to be awarded a multi-million dollar contract, agreed to Lanham’s demand that Verizon use subcontractor Custom Computer Specialists (“CCS”) at a higher cost to the DOE than Verizon would have charged for the same services. …

Custom Computer Specialists

In an interview with SCI investigators, a Senior Manager at CCS, which was a subcontractor to IBM on Project Connect, stated that Lanham approached him in April 2002, and asked him to hire two consultants, Michael Ginzburg at $70 per hour and Jennifer Thornton at $30 per hour, and to pay them directly. The Senior Manager stated that CCS would then bill Lanham Enterprises, a consulting company owned by Lanham and his wife, Laura, at $75 and $35 per hour respectively for their services. The Senior Manager stated that in April 2002, service agreements were executed between CCS and Lanham Enterprises and CCS and each of the consultants. The CCS Senior Manager told investigators that, at some point, Consultant Tamika Stevenson “came on board.”

When investigators asked the Senior Manager whether he contacted anyone at the DOE regarding CCS hiring the consultants, the Senior Manager indicated that he did not and added that he also did not know whether anyone else from CCS ever contacted the DOE about this matter. …Iacoviello [DOE Director of Deployment and Implementation] recalled that Lanham had in formed him that the DOE did a lot of business through IBM and CCS, and had said that CCS will “become your best friends, because without them nothing gets done around here.”…. Iacoviello stated that he then began to question Lanham about the price that CCS was charging for construction and integration costs which averaged approximately $75,000 per school, and sometimes higher.  Iacoviello recalled that when he asked the Business Account Manager why the DOE was paying so much money, he replied that Lanham told Verizon that Verizon had to use CCS if they wanted to get the work.  Iacoviello told investigators that when Lanham directed Verizon to use CCS, he acted on his own and bypassed both the Verizon and City bidding processes. ….

Lanham subsequently added three more consultants, Lanham’s brother, Robert Lanham, Tamika Stevenson, and Karen Tempio, using a similar pass-through arrangement, but using Verizon instead of IBM. Although these consultants were being paid $60 to $70 an hour, Lanham billed CDC $225 per hour for each of these consultants.  CDC then either billed Verizon $247.50 an hour for the consultants, or submitted their invoices to CCS, who in turn billed Verizon $247.50 an hour. The DOE was subsequently billed at least $290 an hour by Verizon….

CCS facilitated Lanham’s concealment of the employment of the consultants.   CCS also benefited by Lanham’s threat to Verizon that they would lose millions of dollars in business if they did not hire CCS. SCI was not able to determine the extent of the relationship between Lanham and CCS....

Verizon concealed from the DOE and law enforcement that they got millions of dollars in contracts through Lanham only after agreeing to hire CCS as a subcontractor. All of the subcontractors named in this report, except Bayview, facilitated the concealment of the fact that Lanham was profiting from the DOE while he was being paid to represent the DOE….[emphasis added.]

It is the recommendation of this office that the DOE recover all the money paid to IBM and Verizon for the Lanham consultants. It is further recommended that the DOE bring in outside auditors to determine any additional cost to the DOE and the Federal government engendered by Verizon’s use of CCS as a subcontractor on work that Verizon could have done at a lower cost.


Ms. Tsouris said...

Why isn't this front page news?

Anonymous said...

This is unreal!

Anonymous said...

127 million per year on the contract notes. Not the amount you have listed.

Anonymous said...

The upcharge that is applied to work done by Custom is not limited to hardware installations. They maintain the same practice for delivering professional development services as well. No one has an issue with a nominal fee charged for procuring and paying consultants, but charging double the rate the actual consultant makes is disgusting. Also, teaming up with Dell is no prize either - they also mark up their service delivery costs in a similar manner. These are tax payers dollars - and the Panel should stop this in its tracks before a long term commitment is made which will allow them to continue to rip off the taxpayer and overcharge the schools for services rendered.