NYC mayor demands $600M refund on software project

New York Mayor Michael Bloomberg is demanding that systems integrator Science Applications International Corporation reimburse more than US$600 million it was paid in connection with the troubled CityTime software project, a long-running effort to overhaul the city's payroll system.

"The City relied on the integrity of SAIC as one of the nation's leading technology application companies to execute the CityTime project within a reasonable amount of time and within budget given the system's size and complexity," Bloomberg wrote in a letter Wednesday to SAIC CEO Walter Havenstein.

CityTime was launched in 2003 at a budget of $63 million, but costs swelled dramatically as the project stumbled along for nearly a decade.

The recent indictment of SAIC's leader project manager on the CityTime job, Gerard Denault, as well as the guilty plea to criminal charges made by SAIC systems engineer Carl Bell, who designed the software, are "extremely troubling and raise questions about SAIC's corporate responsibility and internal controls to prevent and combat fraud," he added. Denault and Bell were charged with were charged with taking kickbacks, wire fraud and money laundering.

Also recently indicted were Reddy and Padma Allen, a couple who head up New Jersey systems integrator TechnoDyne, which was SAIC's primary subcontractor on the CityTime project. Federal authorities allege that the Allens and others conducted an elaborate overbilling and kickback scheme that siphoned millions of dollars from the project.

Federal authorities have also contended that SAIC had received a whistleblower complaint about the project as far back as 2005, Bloomberg said in the letter. "It is unclear what SAIC did at that time to investigate these serious allegations."

Although New York has "received a working system that will advance our management ability ... because the project was apparently tainted by fraud and kickback schemes, the City must be made whole," Bloomberg added.

SAIC should pay back the roughly $600 million as well as provide money for "the cost of investigating and remediating this matter," he wrote.

Separately, New York Comptroller John Liu issued a statement on Wednesday regarding an agreement with Bloomberg's office now that the contract with SAIC is over. The pact calls for a "gradual transfer of the management of the system from outside consultants to city employees for a savings of more than $20 million per year."

Bloomberg and Liu have joint control of the city's Financial Information Services Agency, which governs the CityTime project. Liu is seen as a potential challenger in the city's 2013 mayoral election, and has invoked CityTime's woes in publicly criticizing Bloomberg's management of New York's finances.

Some 71 consultants on the project will be let go, according to the agreement. Another 83 will be kept, but will undergo "extensive background checks conducted by an independent third-party." Those 83 consultants will be replaced by city workers over the next several years.

The city is also planning to launch a request for information (RFI) process in January in search of alternative timekeeping systems.

Some 163,000 workers are now using the CityTime system, compared to 73,000 in Sept. 2010, according to Liu's office.

SAIC "understands and shares the outrage expressed by the city at the fraud alleged on the part of former employees and subcontractors on the CityTime program. These actions are an affront to everything we stand for as a company," it said in an e-mailed statement Thursday.

The company is also "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," the statement added.

New York should definitely pursue all legal options to recover the lost money, but the project "likely suffers from ambiguous lines of management responsibility that will make it difficult to establish clear audit trails of legal liability," said Michael Krigsman, CEO of Asuret, a consulting firm that helps companies run successful IT projects.

The city also needs to proceed carefully with the CityTime project, lest it run further off the rails, according to Krigsman. "What you need to do is kind of stop the project and take stock of where you are, when you have a really massive failure like this," he said. "When everything is really confused and ambiguous, as I assume it is here, you have to establish a meaningful baseline."

"You need to really re-evaluate the core project needs," Krigsman added. "Do we need the project in the same form, and how to we go forward from here, as opposed to continuing the same plan?"

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris's e-mail address is Chris_Kanaracus@idg.com

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