SAIC Pays $500 Million In Record Settlement With NYC

Deal allows government outsourcer to escape criminal fraud charges in connection with HR system that ran millions over budget.

Paul McDougall, Editor At Large, InformationWeek

March 15, 2012

3 Min Read

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Outsourcer SAIC has agreed to pay more than a half-billion dollars to settle charges that it bilked the City of New York by overcharging for work and ignoring kickbacks on an employee time-management system that came in millions of dollars over budget.

The company will pay a total of $500.4 million in fines and penalties, most of which will be returned to the cash-strapped city's coffers. The project, called CityTime, was launched in 2000 and originally was supposed to cost $73 million, but the tab eventually topped $600 million.

"For seven years, fraudsters working on CityTime had a field day at the City’s expense," said Manhattan U.S. Attorney Preet Bharara, in a statement. "Today, the people of New York City have more than a half billion reasons to celebrate, and corporations that deal with the City have more than a half billion reasons to do so honestly."

Bharara said an SAIC subcontractor, Technodyne, was responsible for much of the overbilling, waste, and kickbacks that inflated the project's cost, but said SAIC had an obligation to monitor subcontractors.

[ Lots of governments large and small have problems with IT projects. Read Top 10 Government IT Flops Of 2011. ]

"This investigation revealed that SAIC managers responsible for CityTime placed profit ahead of principle, time and again. A half billion dollars is a staggering sum, but it is a sum that is commensurate with the staggering scale of the crimes and misconduct we've uncovered, and it is an amount that makes the City whole."

Bharara's office said the sum is a record for a case involving state or local government contract fraud. In addition to monetary penalties, SAIC agreed to have its business practices monitored by an appointee of the U.S. Attorney's office for three years. A criminal fraud charge against SAIC has been deferred, and will be dropped if there are no further violations in the three-year period.

"We welcome this settlement as an important step in our efforts to move forward as a better, stronger company dedicated to the highest standards of ethics and performance for our customers," said SAIC CEO John Jumper, in a statement.

Fraud on the CityTime contract was first reported by a whistleblower in 2005. A former SAIC chief systems engineer for New York, Carl Bell, admitted to illegal activity. Another program manager, Gerard Denault, is alleged to have received kickbacks from subcontractors.

Bharara accused TechnoDyne principals Reddy Allen and Padma Allen of facilitating kickbacks to Denault and others in exchange for more than $325 million worth of work on CityTime.

Bharara's office said the investigation into fraud on the CityTime contract remains ongoing, and that more charges may be forthcoming.

InformationWeek's 2012 Government IT Innovators program will feature the most innovative government IT organizations in the 2012 InformationWeek 500 issue and on Does your organization have what it takes? The nomination period for 2012 Government IT Innovators closes April 27.

About the Author(s)

Paul McDougall

Editor At Large, InformationWeek

Paul McDougall is a former editor for InformationWeek.

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