- Associated Press - Wednesday, June 29, 2011

NEW YORK (AP) - Mayor Michael Bloomberg demanded Wednesday that a multibillion-dollar technology giant and federal contractor repay the city more than $600 million spent on the scandal-plagued CityTime payroll technology project.

Federal prosecutors have said that nearly the entire sum the city spent on the project was tainted by an epic fraud that involved hundreds of contractors, systemic overbilling and an international money-laundering conspiracy.

In a letter to the chief executive of SAIC Inc., Bloomberg said he was making the request based on those accusations, along with the arrest of two of the company’s employees and prosecutors’ claim that SAIC was warned of the fraud by a whistleblower as early as 2005 _ five years before it was discovered by city investigators.

“It is unclear what SAIC did at that time to investigate these serious allegations,” Bloomberg said in the letter to CEO Walter Havenstein.


The company said in a statement that it “understands and shares the outrage expressed by the city” and “is ready to discuss appropriate resolution of this matter, considering the breadth of the fraud alleged and the fact that SAIC delivered a system that the city said this week is working well.”

SAIC, which reported $2.69 billion in revenue in the three months ending with April, has continued to receive U.S. government contracts following the May announcement of charges against its senior manager in charge of the New York City project. Earlier this month, prosecutors said a second SAIC employee, the project’s chief systems engineer, had pleaded guilty to charges including wire fraud and money laundering, and was cooperating with investigators. The senior manager, Gerard Denault, maintains his innocence.

Prosecutors say SAIC received a whistleblower complaint in 2005 claiming that Denault was delaying the project, apparently accepting kickbacks and hiring staffers who were receiving high salaries while doing nothing for weeks at a time. Bloomberg’s administration says the city was never informed of the complaint.

The mayor has said that, while the alleged fraud is despicable, he is satisfied overall with the technology that resulted from the fraught project, which automated timekeeping for about 165,000 city employees working under various contracts.

Members of Bloomberg’s administration have said they believe the technology will ultimately save the city money. As recently as last week, the mayor said he believed most of the associated cost increases were legitimate and the project’s price tag was initially underestimated. Days later, Bloomberg conceded that he didn’t pay enough attention to the project.

CityTime was expected to cost $63 million when the effort launched in 1998 _ but ballooned tenfold in cost as it grew into what prosecutors say was an international conspiracy with lead contractors earning a set dollar amount in kickbacks for each hour worked by consultants _ an incentive to hire unneeded staff and falsely inflate the number of hours billed to the city.

Eleven people and one company, an SAIC subcontractor, have been charged in the case. Of those charged, two are believed to have fled the country, two have pleaded guilty and one has died. The remaining six have pleaded not guilty.

The announcement of the mayor’s letter came hours after a city board decided to explore whether the city could save money by throwing out the technology entirely. The decision by the board of directors of the Financial Information Services Agency was announced by Comptroller John Liu, who has been a fierce critic of the project.

Liu, who jointly controls FISA with Bloomberg, also said the city expected to reduce the CityTime operating costs to $24 million a year, down from $44 million, by moving the management of the system in-house and phasing out contractors.

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Samantha Gross can be reached at www.twitter.com/samanthagross