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SolarCity’s no-bid work may be why project is in crosshairs

When state bureaucrats set out to build the biggest solar-panel factory in the Western Hemisphere, they did not hunt for construction companies willing to bid lower than all of the others for a piece of the action in South Buffalo.

Rather than seek competitive bids for early phases of the work, the bureaucrats let their developer hand-pick subcontractors that were known quantities. They would haggle over price later – after the subs had a foot in the door.

The arrangement is not unusual for private-sector undertakings, in part because it hurries construction. But it’s rare for government-sponsored projects. And it may be one reason the U.S. attorney in Manhattan issued subpoenas in an effort to learn more about the SolarCity factory and other big publicly fed construction jobs.

As he follows the scent of corruption in state government, U.S. Attorney Preet Bharara is examining the bidding practices applied in Gov. Andrew M. Cuomo’s “Buffalo Billion” revitalization program, including its largest undertaking, the SolarCity factory rising along a bend in the Buffalo River.

Subpoenas have gone out seeking information from, among others, LPCiminelli of Buffalo, which was hired to build the modern factory and has taken on other large public projects, such as the $1.3 billion renovation of the Buffalo Public Schools. An attorney for LPCiminelli says the federal inquiry, which also includes the school makeovers, does not target LPCiminelli or its principals.

When SolarCity, of San Mateo, Calif., picked South Buffalo for its state-provided factory in June 2014, its executives expected a quick start. They wanted 1.2 million square feet available in less than two years, and they wanted full production by early 2017.

Cuomo’s people were good with that. They expected that in exchange for an investment of $750 million in public money for land, construction and equipment, 2,900 jobs would pop up at SolarCity and its suppliers. SolarCity would pledge up to $150 million for costs that exceeded the state’s commitment, for a plant that could end up costing $900 million.

LPCiminelli was selected from a handful of general contractors deemed capable of building such a facility and was allowed a 4.5 percent design and construction management fee, at least on the first $57.3 million in work, according to documents that were posted without redactions just days ago by the Fort Schuyler Management Corp. of Utica – an extension of the State University of New York.

The Ciminellis who serve as company principals donate to myriad political causes and have given $100,000 to Cuomo’s political funds just since 2010, when the downstate politician ran his first successful race for governor. While more than political generosity goes into the selection of a developer for a project as important as the SolarCity factory, six-figure donations draw notice from political figures who can make things happen. The Ciminellis’ $100,000 contribution to Cuomo’s campaign is now dwarfed by the almost $2.6 million fee the company stands to make just on the first phase of work. The total cost of construction is expected to top $400 million.

Ciminelli and Fort Schuyler agreed that to shave time, they would select key subcontractors not through slow-moving competitive bids but through a process known as “best-value sourcing.” Best value allowed Ciminelli to select companies it trusted and to establish a basic price with them. Then, through the design phase and even as construction commenced, Ciminelli, the architects and the best-value subcontractors would find ways to reduce the subcontractors’ prices by 10 percent.

One local contractor, asked about best value, said that companies knowing a 10 percent reduction is expected down the road will likely inflate their price by 10 percent at the outset. But vendors also had to agree to open their books on the project to LPCiminelli and auditors from KPMG.

“Any time we can get involved earlier in the process, we like it,” said Robert Beck, the president of John W. Danforth Co., a Buffalo contractor picked to install pipes to deliver the plant’s gas, chemicals and processed water. “It gives us an active role to take ownership in the job. It gives us accountability.”

Best-value sourcing also allowed the freedom to favor local subcontractors, giving the Buffalo-area economy a greater benefit from the hundreds of millions of dollars pouring into the project.

Through best-value sourcing, the Ciminelli firm hired JW Danforth as well as Davis Ulmer of Amherst for components of the fire-protection system; Mollenberg-Betz of Buffalo to install water and wastewater equipment; Quackenbush Co. of Cheektowaga for part of the HVAC system; and Buffalo companies Frey Electric and Ferguson Electric for various electrical needs. But it also selected a company from Albany and another from Gansevoort, just north of the state capital.

State officials said best-value sourcing allowed crews to start work last fall and continue through the winter, shaving three to six months off the time it would take to build using conventional bidding. In August, a milestone was reached when the factory’s steel structure was “topped off.” Frank Ciminelli II, LPCiminelli senior executive vice president, said at the time that workers would soon install the building’s infrastructure.

“If we didn’t do it this way, we would have lost a full winter of construction,” said Thomas O’Brien, a vice president at SUNY Polytechnic Institute, one of the key players in the SolarCity project.

Not every subcontractor was selected through “best value.” LPCiminelli turned to traditional bidding for items such as rental equipment and the steel rebar that reinforces concrete. The company this month sought bids on eight different subcontracts, for drywall, fireproofing and painting, among others.

“We chose to create a competitive process everywhere we could,” Frank Ciminelli said.

Value-sourcing methods are growing more popular across the country, according to Nallan Suresh, a professor at the University at Buffalo’s School of Management.

“It’s based on the big picture,” Suresh said. “You look at it more like a process between the supplier and the buyer.

“The purchase price is just the tip of the iceberg. You can always buy something cheaper,” he said. “You’re actually trying to save money for the taxpayer by taking the broader view. Ultimately, it benefits the taxpayer.”

At the same time, best value and the fact that the state university system is overseeing the RiverBend project hides certain details from prying eyes. For one thing, there are no formal bids for spurned contractors to challenge. And the Fort Schuyler Management Corp., which signed the agreements with LPCiminelli, is a private, not-for-profit corporation affiliated with the SUNY Polytechnic Institute, which, of course, falls under SUNY – which is not just another state agency.

In the face of some critical media reports, Fort Schuyler issued public statements seeking to reassure the public that Buffalo’s “innovation projects” receive adequate oversight – the same oversight “as any other New York government agency.” That includes a “public and transparent review” by the appropriate state agencies, the statement said, mentioning the State Division of the Budget, Empire State Development, SUNY, the state Comptroller’s Office and the Attorney General’s Office.

But the only agency that would review the dollars and cents beforehand and is not controlled by the governor does not review SUNY construction contracts, said Jennifer Freeman, the state comptroller’s director of communications. Nor can the Comptroller’s Office review contracts with one of SUNY’s private, not-for-profit corporations, such as Fort Schuyler.

While the comptroller’s auditors can go in later to examine a SUNY entity’s financial management or some other aspect of the way they handle public money, “we do not review and approve SUNY construction contracts,” Freeman said.

“They don’t follow the same exact process that state agencies do.”