Tailoring RFP For Preferred Contractors Leads To Guilty Verdicts Of A State University’s President And Construction Executives

What Happened?

On July 10, 2018 a federal jury in Manhattan convicted a State University of New York’s Polytechnic Institute (SUNY Poly) former president, and three executives of two construction companies, of wire fraud, conspiracy to commit wire fraud, and making false statements to investigators for rigging the public competitive process. SUNY Poly is a system of public institutions of higher education which receives federal monies. It created a nonprofit entity, Fort Schuyler Management Corporation, for the purpose of engaging contractors in building development projects. Because the nonprofit entity was funded with federal monies, it must adhere to a competitive process of bidding for construction projects.

The Rundown

According to the indictment, Dr. Kaloyeros, SUNY Poly’s president at the time, oversaw the steering of lucrative state contracts worth millions of dollars to two construction companies owned by his co-defendants. The government alleged, and the jury found convincing, that Dr. Kaloyeros used his official position to tailor Requests for Proposals (RFPs) to fit the qualifications of the two construction companies. Furthermore, the construction companies worked with a lobbyist to obtain advanced copies of the RFPs and obtained secret information which gave them a distinct advantage over its competitors in bidding. The government successfully argued to the jury that the winners of the RFPs, Kaloyeros’ co-defendants, were selected before the issuance of the RFPs and that the appearance of a competitive bid was a sham. The government was able to prove that Dr. Kaloyeros used his official position and fraudulently represented to the Board of Directors of Fort Schuyler that the competitive process was fair, open and competitive when in fact, it was not. Dr. Kaloyeros and the executives of the construction companies are facing a maximum of 45 years in prison.

For The Record

Contractors and vendors often develop relationships with government officials and employees when seeking government contracts. It is a common and well-established method for vendors and contractors to establish relationships with potential buyers to sell their wares or gain a contract. While this method of selling goods and services in the private sector is sound and lawful, public employees and officials must be careful. Municipalities and public entities have a duty to prevent waste and the fraudulent use of public funds, therefore, procurement of certain goods and services must be obtained through a fair, transparent and competitive bidding.

The Take Away

Public officials and employees must keep communication with potential vendors at arms-length and avoid inappropriate communications or the appearance of inappropriate communications. There should be clear and robust procurement and ethics policies, such as prohibiting all communication with potential vendors or bidders for a certain time during the issuance of an RFP until after the contract has been awarded. Key personnel and potential vendors must be trained on the policies and compliance plans should be adopted and monitored. Failure to establish, train and monitor good governance may lead to a civil lawsuit under the False Claims Act and/or criminal prosecution.