Honorable Andrew (31101110 Governor of the State of New York. Executive Chambers 633 Third Avenue New York. New York. 1003.7 1 ?1 QUE d8 33E Err" guidance sotuticns com Guidepost Sol?utions LLC. 415 Madison Avenue 11th ?15001 New York, NY 10017 T: 2128126700 F: 212.812.6728 April 17, 2017 Re: ant?ale Protects Dear Governor (31101110: I write concerning our wo1lr1ega1dingthe Buffalo B1llion/N ano P103 sets and to supplement my letter of September 22 201. 6. State of?tnal l-s have advised. as that they are in a p0sit10n to take ever the work we were asked. to p01 form and to iinpiernent the Review Protocols that we suggested. Summary of our work from September 23 throueh December E. 6. 2017 Payi $311.13.. Reg nests We have continued to review and'analyze pawnent and billing requests and the processes followed to do so, for equipment, prefessional, materials. construction fees and. costs (?Requests?), bringing the total amount reviewed and analyzed to approximately $4l 7 million. As you are aware, we made recommendations to the funding agencies involved for each of the matters we reviewed (?Recommendations?) For most of the additional Requests presented upon 1? 1st review they. tacked sufficient information and. documentation to estabhsh that required precedes es had been foltowcd E11 those segues we1ecornmended against I I I I the payment of the amounts requested until proper information was received and. questions answered. Eventually. we received the necessary intonnation for all but approximately $49 million of the additional Requests, As to the $49 million, issues of insuf?cient documentation, appropriate authorization. or other issues surfaced during the reviews, which indicated to us that we should recommend that payment should not he made or should be withheld until answers to questions and production of additional documentation were provided and we continued our reconunendation that payment be delayed or not be made - (collectively ?Withheld Recommendations?). As 31011 are aware, the Withheld Recommendations. were forwarded to the funding agencies involved for each 0fthe matters we reviewed for which we recommend funds be witldqeld. En addition, for each. request for payment a st l?ionorabie Andrew M. April 17, 2017 Page 2 reviewed: we. recommended that the fanto-n Grantee and/or Sir-?ayee3 each execute an Eillily specific certification with regard to tack: othriberv, collusive procurement and fair pricing which practice we believe should continue. Review Protocols The Review Protocols that we recommended as part of the system of controls to help guide the revievvs to be conducted. in the future, previously provided} have been reviewed. by operational and legal staff from various State agencies and authorities including your staff and. the staffs of the funding agencies. We have me with both and we have had. additional. interaction and. meetings with those who: we are informed? will be conducting future Reviews. Most recently, we had. discussions of the implementation and. revisions to the Protocols and the transition of the review process from Gnidepost to the ESDC staff. We believe that this implementation. should help provide adequate and more transparent review of the grant, procurement andpayin ent processes. Areas of Cement We have since September 22;, followednp on a. number of previously identi?ed areas of concern, including ?hiring goals and practices? and the ?change order process?. With regard to subcontractors? we have had a number of conversations and meetings with various personnel from the Chamber and from the agencies in which we discussed our concerns based on our reviews. We provided information about-a number of sub-contractors. We have been advised that broader inquiries are being made so that controls may be strengthened. With regard to the ?Change Order of hrocess": after the commencement of our review of the RiverBend' ParkCapital Requisitions both for the contractors: the equipment and. the machinery suppliers: we the relevant parties that we believed that the combined prices for construction, machinery and equipment exceeded the allowed amount 'in'the Grant Disbursement Agreement, as" amended: and that the total cost to the State for the entire RiverBend Park Capital project could exceed the applicable Legislative appropriations for such project and the amount approved by the Public Authorities Control Board for it. We made specific recommendations to resolve this issue and additional recommendations to prevent this from occurring in the future and to assure that the total cost to the State will he within the amount set by the Legislature. Honorable Andrew M. Cuon'io April 2017 Pace 3 Transition. to ESDC a Our review of payment requests has been conclmied. We had been advised by" Chamber personnel that any requests forwarded to as for review after Monday, November 2i 20%, as well as others for Which Goidepost had not commenced its review, will be reviewed by ESDC staffand not by the Guidepost "learn. Transition meetings, as indicated above have been ongoing. Reviews for pending payment requests will now be conducted by ESDC. Attention to Processes and Procedures We have found issues with many phases of the contracting process including the grant and payment pi ocensses the procurement bid pr ocess; the sole source so .ection procedures; the change order approval process and hiring of subcontractors. Our activities have made clear that appropriate processes, procedures and. protocols must be followed in all phases of construction projects. Given that criminal charges were leveled on September 23, 2016, against officers and persoiniel of some of the contra-rotors inyt'ilvcd in some of the projects under review, and given some contractors invoices pi esented thei 1.iringg'oal1ssues described above, we have necomniended against payment to those entities on outstanding payments due to them for retainage, general conditions and self-performed work for Buffalo Billion and Nano projects or, have recommended that if some payments for such items be made, sufficient balances be held, in the event of an adverse decision. against the entity or a finding made of improper credit, and have further recommended. payment to their subcontractors be made only by two-party check or by direct payment to the subcontractors. Conclusion Consistent with. your instructions and the requests from the US. attorney?s office for. the Southern District of New York, we have limited our reyiew of the procurement for construction projects to be sure that we did. not interfere with the Southern Districts investi ation and now prosecution. this, of course, is not unusual when a law enforcement inquiry is underway. As you requested, our'focus has been to'create fair but rigorous review process to protect the taxpayers of the State and to see that work properly done is paid for in a timely manner. During this project we have reviewed approximately $4l7,000,000.00 in payment requests and recommended that over $190,000,00000 be delayed or withheld until appropriate information and documentation were delivered, so that taxpayer funds were spent only in accordance with the grant agreements, contractual. requirements and proper procedures and protocols. 0f tlie'latter amount, we have recommended that approximately $49 million be delayed or not be paid at this juncture, State authorities have been an integral. part of these reviews as they became familiar with our procedures and protocols. We are pleased that the Chamber has been engaged with attempting to rectify the issues we have raised. We are hopeful that actions in which we have engaged will. result in stronger controls to preyent fraud, waste and. abuse. 'Hemrawe Andrew M. (31102110 Aprii 1.7, 20k? Page 4 Given the stems- eftmr assignment, we it is; time for us to end em? engage-meet? subject 10 any further instructions free}. you. We stand ready to continue to aseis? {he State if; any additiimel work requested. Once zz-Lgeim I weet 3&0 meek you for having esm?denee in me end Our team at Guidepest Very truly yeurs, Bart M. Schwa?z Guldeoost Guidepost Soiuttons LLC 415 Madison Avenue 11th Floor New York, NY 10917 By Hand September 22, 2016 The Honorable Andrew M. Cuoino Governor of New York State Executive Chamber 633 Third Avenue New York, NY 10017 RE: Buffalo Billion and Naao Proiects Dear Governor Cuomo: In late April 2016 you announced, and thereafter the Chamber agreed, that i would undertake an assignment relating to the so~called Buffalo Ethics and Nano Projects in the State. Disturbing headlines and accusations required action. You asked that the inquiry (1) determine if ongoing activities were improper or unlawful; (2) make recommendations for changes, to give the public con?dence in the integrity of the system; and, (3) investigate any past wrongdoings. You also instructed that I follow the facts wherever they would lead, but to be careful not to interfere or appear to interfere with any ongoing law enforcement investigation. You also authorized me to communicate with law enforcement as I saw necessary, Along with my colleagues, we decided to divide the work into two broad areas: Procurement and Performance. I consulted with the United States Attorney?s Of?ce for the Southern District of New York and. with their concurrence-I laid out a- plan to first focus on performance, thus making it unlikely that I would interfere with their investigation. to kee that office informed of our Although we have performed extensive reviews of payment and performance issues, I take responsibility for the decision to delay the investigation in procurement issues since my discussions with the Southern District of New York made it clear to me that we could not navigate around their investigation without the risk of mai'nteotional interference with it. The press has raised this issue and has asked for my conuneuts on it. However, I decided that it was better for me to be silent than to speak at that time about T: 21181267900 F: 212.8126?28 Guidepost the existence of con?dential discussions with the Southern District of New York. As explained to your staff, the United States Attorney?s of?ce for the Southern District of New York also requested that we delay certain interviews with individuals or entities in Whom they have an interest relating to performance. This has held up inquiries which we believe we Would have pursued, but to ignore that request could be viewed as interference with their investigation A. brief summary of what we have found to this point is as follows: a We found systemic problems With the approval, review and inspection process for the authorization to release New York State funds. 0 Our numerous reports to your staff in real time have resulted in your. placing this responsibility with new hands in the State for some of the handing entities involved. The New York State Economic Develtipment Corporation will now oversee, the Athenex Project instead of the Fort Schuyler Management Corporation. 0 To overcome many of these problems we have drafted and shared with your staff recommended protocols for review in the major areas involved in the funding process. These are being reviewed by your staff and the staffs of the funding agencies and should be rolled out to the agencies in the next few weeks by them. 0 We have identi?ed projects whic.l.1 we recommend be subjected to a ?stress audit? to see if protocols and procedures are being followed. A list of those projects was previously furnished to your staff. in a relatively brief time we have analyzed payment requests for more than $193 million for Equipment, Frofessional, Property and Construction fees. We recommended against payment of $64 million of these requests and they were denied because required procedures and required documentation were not in compliance. Once reqnired documentation was received with respect to a particular payment request, the applicable State agencies made such payments. We are currently awaiting answers to. questions and . . . production of documentation on more than another $45 million in pending requests for payments. We recommended that the State not pay approximately million for transactions in construction and property acquisition which we believe and have demonstrated, should not be paid. . We understand that the State has not made these payments. Guidepcst I hasten to add that the systemic problems do not necessarily translate into unethical or criminal behavior. However, establishment and strengthening of ?nancial and operational cootrols and discipline in spending the taxpayers? money and the insistence on the delivery of required documentation and following of prescribed procedures eliminates the opportunity for. those who have nefarious motives to take advantage of the sloppy process. We have also identi?ed other areas of concern, including compliance with ?hiring goals and practices? and the ?change order? process. We are available to follow up on these important areas and others we have identi?ed, brief government authorities so that they may begin. inquiries or perhaps some combination of the two. This is true, also, for the ?stress audits? previously described. If you would like to discuss the additional work, please let me know. I want to thankfyou for having con?dence in me and my colleagoes at Guidepost Solutions and for your patience in allowing me to proceed as i saw best, even when it led to some unwarranted criticism, Very truly yours, Barf M. Schwartz