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Behind complaints about Buffalo Billion contracts

ALBANY – A major component of the Buffalo Billion program, which eventually became SolarCity’s project at RiverBend, still can’t shake off sharply different interpretations over how the state conducted its bidding process.

In one camp: the state wanted to get economic development moving quickly in Buffalo and thus sought a big, experienced local company that could handle development and construction tasks for future projects not yet on the drawing boards. That meant pre-selecting a vendor, and that meant some built-in flexibility in the bidding process. ¶ In the other camp: a concern that political connections and political donations affected the awarding of what became two contracts in a process whose outcome changed so much from the beginning that it should have been re-bid. That is believed to be among the areas federal prosecutors are pursuing in their probe of the Buffalo Billion program.

Gov. Andrew M. Cuomo announced the Buffalo Billion program in 2012, and it is transforming parts of Buffalo, giving renewed hope to a city battered by decades of decline.

Still, the way in which a major component of the program was awarded, including to one of Cuomo’s major campaign supporters, has caught the attention of a federal prosecutor in Manhattan who has made it his business to try to root out corruption in how Albany doles out money, contracts and favored legislation to political insiders.

U.S. Attorney Preet Bharara has made no specific allegation of wrongdoing against the Buffalo Billion program. And state officials insist the Buffalo projects were issued legally and they are proud of the impact they are having on the city. Still, the subpoenas Bharara’s office issued five months ago that demand a slew of information from state and private entities about the bidding process used to pick a contractor for RiverBend and about campaign donation activities have people from Albany to Buffalo on edge.

The Buffalo News over the past couple months interviewed state officials, real estate developers, construction executives and others with direct knowledge of the major Buffalo Billion component that began in the fall of 2013 and that would later morph to include the giant RiverBend project now under construction.

A state official provided dozens of documents intended to illustrate that the checks and steps the government took in awarding the project were on the up and up. However, with federal investigators still looking into the matter, the project’s critics are unsatisfied with the explanations. Though The News talked to many more people, including one who would talk only through a third-party filter, the most direct criticism of the project’s process came from three business executives who had direct knowledge of the Buffalo Billion bidding. They spoke on condition of anonymity, out of fear that using their names could harm current or future efforts dealing with the state or city.

Several company executives involved in the bidding, including Buffalo’s Uniland Development Co., the sole losing bidder at the end of the process when only three firms were left in the running, declined comment.

The complaints

The complaints start at the very beginning of the process.

When the state goes looking for bidders, which it does thousands of times a year for anything from office furniture to road paving, agencies often advertise in the New York State Contract Reporter to spread the word. The Contract Reporter is considered the bidding bible for government contractors.

But when the state in 2013 wanted to spread the word it was looking for developers for what would eventually become the $750 million RiverBend project, it took out a legal notice on page B11 of The Buffalo News, next to the crossword puzzle. To be fair, at the time of the bidding, nothing of the project’s eventual size was anticipated.

The state said in its legal ad it was seeking a company with “the credentials, experience, and capacity to design, construct, finance, market and lease state-of-the-art facilities and cutting-edge infrastructure as well as partner” with the state on “strategic economic development initiatives.”

There was no mention of what projects might be under consideration, or of a timetable, or of who might occupy the new facilities. While the ad said the state was looking for Buffalo-area developers, it wasn’t entirely clear that the projects would be in Buffalo. The ad directed interested parties to contact the Fort Schuyler Management Corp. in Utica to get a bidding package with more details in return for signing a confidentiality agreement.

One corporate executive said he only heard about the bid request from watching local TV news. Another said he only found out when a Buffalo News reporter called asking for comment.

There were other concerns, according to interviews with the three executives who had first-hand knowledge of that bidding process in the fall of 2013.

• While the original ad was vague, the request for proposal – the formal bidding document that came later – was so murky that at least one company stayed out of the process in fear that the RFP’s vagueness suggested the state already had companies in mind for the contract.

• The state made clear to out-of-town companies – by specifically stating in the bidding documents that it wanted a “qualified developer in the Greater Buffalo area” – that they need not bother applying for the Buffalo Billion development effort.

“Nobody knew ultimately what they wanted. If they wanted to do a construction project, they should have just said so,” said one business executive involved in the bidding process who spoke on condition of anonymity.

In the end, RiverBend became just “a regular construction contract” with the state financing it and filling it with tenants, including SolarCity, this source said.

However, Frank Ciminelli, senior vice president of LPCiminelli, whose company won the major bid for RiverBend, said the state’s process speeded up a timetable often used by government procurement contracts, and thereby ensured it would get done quickly, unlike many other government projects in the Buffalo area in the past.

Had the state taken the slower approach with RiverBend that some critics favored, “we’d be lucky to have steel in there now,” Ciminelli said.

Behind state’s approach

The state says the bidding process that began in the fall of 2013 was smarter than many procurement deals because it allowed Buffalo to get work – and jobs – moving more swiftly.

The Buffalo goal was simple, according to a New York State official: The state would pre-select companies that could act quickly once deals were made. That’s one reason state officials wanted someone with Buffalo development and construction experience. And, yes, the state official said, because of the desire for local companies the state did not seek as wide a pool of bidders as some other state procurement efforts.

The state official, who talked with The News in an extended interview on condition that he not be named, stressed that bidders knew from the start that the process was intentionally general. Further, bidders knew both in writing and from discussions that the state maintained the right to change what it was seeking in Buffalo Billion development because project ideas were evolving and Albany officials did not yet have precise information about what companies would locate in Buffalo or when, the official said.

What critics see as vague, the state official said, was really about flexibility. This flexibility was not only legal but is used often in other state and federal vendor bidding, and was the process used for similar state development plans in Rochester, Syracuse, and the Albany area – including with a preference for local contractors. There were several levels of approval or oversight from Cuomo’s budget division and economic development agency, the official said.

What’s more, the edict to act quickly was made clear in the October 2013 RFP, which sought companies able to “rapidly” move on projects.

Such an edict was hardly a surprise, people involved in the bidding say. Cuomo has complained of bold talk coming out of Albany in the past but plodding or no action. That would not happen with important projects during his administration, Cuomo repeatedly said, whether with the Buffalo Billion at one end of the state or with the Tappan Zee bridge replacement at the other end.

The state official noted the RFP process was flexible in another way: there is no guarantee that LPCiminelli will be the contractor for all future projects under the contract.

One private sector defender of the process, speaking privately, chalked up criticism to one thing: sour grapes by local and out-of-area firms that did not join the bidding, were cut out of it for geographic or other reasons, or lost.

Frank Ciminelli, who ran his firm’s response to the Buffalo Billion RFP, said the project was bid differently than many previous state contracts the company has won. But he said it was a route previously taken with nanotechnology projects in Albany and Utica.

He said other states and the federal government are increasingly pre-selecting contractors to handle future construction projects.

The more defined route that critics say should have been taken is “too clumsy and too slow,” he said.

Process begins

Nine companies originally expressed interest in the Oct. 15, 2013, newspaper advertisement seeking bids for a Buffalo-area “developer” to be involved in “strategic partnerships” with the state.

The state official said the RFP was well-known in Buffalo circles.

“Is there a secret in Buffalo?” the state official said of the close-knit real estate and construction industries.

Fort Schuyler Management Corp., a not-for-profit corporation that SUNY Polytechnic Institute created, issued the RFP. Fort Schuyler was formed in part so that the state could provide space and equipment to private companies on public lands, like RiverBend.

Because Fort Schuyler is a not-for-profit corporation, SUNY Poly was told by an outside legal counsel that it didn’t have to use an RFP process, the state official said. But Empire State Development Corporation, the state’s economic development agency, steers the funding for the Buffalo Billion, and the bidding process for RiverBend, followed guidelines of that agency, the state official said. That added layers of eyes at other government agencies, the state official said, though unlike thousands of state contracts each year, the RFP process was not subject to the pre-approval of the state comptroller’s office.

Among those involved in the drafting of the RFP was Dean Fuleihan, the state official said. Fuleihan was a longtime top fiscal negotiator for Assembly Democrats before being hired as a senior aide to Alain Kaloyeros, founder of the nanosciences college in Albany, SUNY Poly. Fuleihan, who also served on the Fort Schuyler board, is now New York Mayor Bill de Blasio’s budget director.

Six companies signed “confidential disclosure notices” that enabled them to receive the RFP. Three bidders missed deadlines for submitting information and were denied participation in the bidding, according to state documents.

One element of the RFP that made potential bidders suspicious: The original RFP demanded that a winning bidder have at least 50 years of “proven experience” in a variety of real estate experience in Buffalo.

The state official knowledgeable about the process said it was “an honest mistake” that was changed to 15 years after only two RFP packets were sent to interested bidders in October 2013.

The 50-year edict was not included in the legal notice newspaper ad for the RFP. That “negates” critics’ concerns that the state was trying to scare off bidders in a move to help bids from LPCiminelli or McGuire Development, the state official said. Both of those company’s websites note 50 years’ worth of various business dealings in Buffalo.

Additionally, the same 50-year mistake was made in an RFP for a Fort Schuyler project in Syracuse, but that mistake was changed before any RFPs went out, the state official noted.

Andrew Shaevel, of Mensch Capital Partners, said his group decided not to proceed because it didn’t think a site it owned in Amherst would be suitable for the state’s Buffalo Billion vision.

Kalyoeros, a Fort Schuyler board member and the point person Cuomo entrusted to help lead the Buffalo Billion process that spawned RiverBend, abstained when the Fort Schuyler board voted Jan. 28, 2014, to select Ciminelli as the construction contractor at RiverBend and McGuire in the smaller contract to help fill space in a new Buffalo Billion tech center at Key Tower, a college document stated.

The timeline

The timeline is one that federal prosecutors are certain to try to unravel.

Three months before the Buffalo Billion RFP was issued, on July 3, 2013, the non-profit Fort Schuyler signed a confidential memorandum of understanding with green energy company Silevo, a California solar energy manufacturing firm, said the state official who spoke to The News. The original idea was to spend $25 million to convert an existing building on the former Bristol-Myers Squibb site on Forest Avenue in Buffalo. Environmental problems at the site killed that idea, the state official said.

When the RFP was issued on Oct. 15, 2013, no decision had been made about a Silevo location, the official said. That changed by Nov. 21, when Cuomo visited Buffalo to announce that Silevo, along with green lighting manufacturer Soraa, would locate facilities at RiverBend. The state would invest $225 million – $49 million of which would be for the construction costs – in a building that the SUNY Research Foundation would own, he said. When Cuomo announced the Silevo and Soraa project, he did not say who would build the facility because, the state official said, the bidding process was still under way. (Several weeks ago, Cuomo announced that Soraa would not move to Buffalo, but would instead locate outside Syracuse.)

Two days before that RiverBend announcement, Cuomo flew to Buffalo to raise money for his campaign at two fundraisers, including one that LPCiminelli’s owner Louis Ciminelli hosted at a Buffalo restaurant.

A month later, LPCiminelli, McGuire and Uniland became the only companies of those originally interested to submit bids on the RFP. The RFP did not change to reflect the new Silevo-Soraa project. The state official said the RFP did not change because the award was never intended to be RiverBend-specific, and that other unknown projects were to be included in the contract at some point down the road.

LPCiminelli was selected for many reasons, the state official said, not the least of which was its ability to front large construction costs while waiting, sometimes many months, for the state to reimburse it. Ciminelli said the company fronted the state money especially in the early months of RiverBend construction.

The Empire Development Agency approved and funded the projects after the Fort Schuyler board approved the selection of LPCiminelli and McGuire, the official said.

Up from $49 million

In May or June 2014 – at least seven months after the RFP and four months after the contract was awarded – the state learned the RiverBend project was changing from a $49 million construction contract to something much bigger.

Sometime in May or early June that year, Silevo notified the state that it had three potential buyers. The official identified them as a group led by Boeing, another group led by one or two major oil companies and a third by billionaire Elon Musk’s California-based SolarCity. Silevo “assured” the state that RiverBend was a go even if sold.

SolarCity announced on June 17, 2014, that it was acquiring Silevo. After the announcement, a new message was sent to Albany.

“Musk said he wanted a facility five times the size of the Silevo facility and … wanted it up and running in 18 months,” the official said.

SolarCity officials then met with LPCiminelli and said they were satisfied, as was the state, that the company could accomplish the far larger task in the tight time period, the official said.

The state’s investment in the bigger SolarCity effort rose to $350 million for just the construction. A team, including Ciminelli, said the factory would cost $480 million, the state official said. “SUNY Poly said the state would not pay more than $350 million,” the official said, and that became the state’s price ceiling.

A separate $400 million pot will pay for equipment at the plant. The state will own the building and equipment while SolarCity – and perhaps other tenants in the future – will use it, the state official said.

Though it was clear soon after the June purchase announcement that SolarCity would continue with RiverBend, Cuomo formally announced a larger, 1.2-million-square-foot project with SolarCity on Sept. 23, 2014, saying it would create more than 3,000 jobs. That was the same day SolarCity’s purchase of Silevo was completed, according to U.S. Securities and Exchange Commission filings.

Neither RiverBend nor Key Tower was selected when the RFP was issued in October 2013, the official stressed.

“Even if they were selected – which was not the case – mentioning them in the RFP before acquiring them would have certainly driven their prices through the roof, as it was observed in deals in other parts of the state. It would have been a stupid and unadvisable business practice,” the official said.

Those raising questions about the RFP process say the project should have been re-bid when it became clear that the original intent – picking a developer to finance and market future projects – changed. One private sector executive with direct knowledge of the RFP process called it confusing and that it was hard to get many specifics about what the state wanted with the program.

Another executive also part of the process dismissed the state’s reasoning that the vague RFP worked, or that there was no need to re-issue the bidding after the RiverBend project dramatically changed following SolarCity’s entry.

“It’s great that all this is happening,” the executive said of development in Buffalo. But, this source said, the project ended up being something “that wasn’t even what they asked for in the RFP.”