A New Jersey contractor tasked with making a federal building more energy efficient under President Obama’s 2009 economic recovery stimulus program concealed its relationship to a mysterious subcontractor, kept price negotiations off the books and billed the government for costs it hadn’t yet incurred.
The General Services Administration awarded a nearly $6.5 million contract in 2010 to Newark-based MERIT Investigative Services to “reduce energy consumption” in the Joseph P. Addabbo Federal Building in Jamaica, N.Y., according to the federal housekeeping agency’s inspector general.
Company staff “front loaded” their costs to GSA by charging the agency for services that their subcontractor, Universal Heating & Air Conditioning, had not yet performed. The contractor ultimately billed GSA “substantially more” than what it paid Universal.
As an example, MERIT charged the agency $330,000 for boilers before it had ever paid the subcontractor for the equipment. The actual cost of the boilers was redacted from the report.
But after an investigation of the contract was launched, Universal officials told government investigators that its subcontract was actually with a company called Reva Inc., which “was supposedly MERIT’s construction manager,” despite the fact that the relationship was never disclosed to the GSA. Federal regulations require contractors to disclose its subcontractors to insure the government knows who is being paid for what and to avoid situations like the Addabbo building contract mess.
It was Reva, not MERIT, that paid Universal for its services. Universal staff told the IG they submitted the subcontract bid directly to MERIT but ended up doing business with Reva.
The president of Reva used a MERIT email address, but his company’s involvement in the project “was not apparent,” investigators said. “Reva’s name was virtually absent from the project file.”
Hitesh Desai, president of Reva, pleaded guilty in 2013 to bribing a government official in Jersey City so two companies with which he was affiliated could receive “favorable treatment” from the Department of Veterans Affairs. Court documents omitted the names of the companies.
According to the Justice Department, Desai offered to pay a VA official, who is not named in court documents, in exchange for his help in placing Desai’s companies on a list that would allow them to obtain “lucrative” construction contracts.
The GSA watchdog pointed to a VA-sponsored mentor agreement forged between MERIT and Reva four months after the agency awarded the Addabbo contract as further evidence of the “very close” relationship between the two companies.
Both Reva and MERIT listed their addresses as being in the same Newark building in May 2010, the report said. MERIT won the $6.5 million contract under Small Business Administration set-aside funding programs for “disadvantaged” companies.
However, SBA officials told the GSA in 2008 that Reva was not eligible to receive the set-aside contract because the company was set to graduate from the program in 2010, the report said. Small businesses owned by “socially or economically disadvantaged individuals” may remain in the program for nine years.
Neither GSA officials nor MERIT contractors could produce documentation of the price negotiations that are supposed to precede a contract award. The IG called the lack of price-negotiation records “problematic” and cited a “large disparity” between the cost calculated by GSA officials and the higher one MERIT proposed, although the costs are redacted from the report.
The contractor also failed to submit a quality control report despite being contractually obligated to do so.
MERIT officials produced the report and claimed they had already given a copy to the GSA after investigators began asking questions on the subject, but no one at the agency could remember ever receiving it and the document itself lacked any mention of the Addabbo building.
The IG said it was “questionable” that the contractor ever submitted the quality control report.
