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I'm shocked!

Here's how this kind of kickback scheme works. A not-terribly-savvy building owner hires (and trusts) an architect. The architect writes up the requirements for the work and puts it out to bid. On the side, the architect arranges for a contractor to put in an artificially high bid. The architect persuades the building owner that this contractor really is the best bidder, for some non-quantifiable reason. (Or sometimes the only "competing" bids are shams.) The owner says OK to the contractor recommended by the architect. The contractor kicks back part of the extra profit to the architect. Architect and contractor are happy; owner sometimes doesn't even realize there has been a con.

Condos and co-ops are especially vulnerable to this scam, since the building "owner" is a corporation made up of the individuals who own the apartments, and the folks on the board are usually volunteers and don't have a lot of construction experience.

There was a huge scandal a while back in which the building managers hired by condos and co-ops were in on it too. They would arrange for a big job like replacing 1,000 windows or brick pointing a highrise, and the bids were all carefully orchestrated so that they were all above the market rate. The boards of these big buildings often trusted their managing agents far too much. The DA's office successfully brought bid-rigging and kickback charges against many, many companies. I was on the board of my building in NYC for many years, and we thought we were pretty savvy, but sometimes I wonder if we were getting taken for a ride too.

If the architect was acting as the construction manager or was responsible for hiring the subcontractors or approving or recommending them it would be easy. If not mistaken, the architect fee is based on percentage of total project cost so the higher the sub bills, the higher the architect fee. If the flooring contractor was acting as the general contractor ( unusual but I have seen demolition contractors act as general contractors) then he would do all the hiring of subs. However it was done, the idea was, if you want this job, inflate your bill to the client and give the overcharge to me.

I too find this story and a similar one off the AP wire to not be very clear!

Why indeed would the architect "John Passaretti of the Kurland Passaretti Group (KPG) and Zelig Fekete of Millennium Floors Inc. be able to carry out the scheme on at least seven commercial projects in which KPG was the architect, collecting more than $300,000 in kickbacks."

I hope someone on can shed some light.

Is there a part missing? Why would a contractor pay a kickback to an architect? Was the architect certifying faulty plans? Are there now buildings in JC that are not safe?

Architect Charged for Demanding Kickbacks

CBS News

NEW YORK -- An architect, accused of demanding kickbacks from contractors and others in exchange for work, and a flooring distributor were arrested Thursday after being indicted on larceny and bribery charges related to the alleged scheme.

Prosecutors said John Passaretti of the Kurland Passaretti Group (KPG) and Zelig Fekete of Millennium Floors Inc. carried out the scheme on at least seven commercial projects in which KPG was the architect, collecting more than $300,000 in kickbacks.

Manhattan District Attorney Robert Morgenthau said almost all of the kickbacks the contractors, subcontractors and fixtures providers gave the architects were paid by the clients in inflated bills. The work projects were in Manhattan and Jersey City, N.J.

Passaretti, 49, of Oradell, N.J., and Fekete, 47, of Monroe, N.Y., surrendered to Morgenthau's office Thursday. The district attorney said they are charged with second- and third-degree grand larceny, commercial bribe receiving, money laundering, restraint of trade and falsifying business records. They were to be arraigned later.

Passaretti's KPG partner, Scott Kurland, 53, Long Branch, N.J., pleaded guilty Tuesday to third-degree grand larceny, commercial bribe receiving and filing a fraudulent income tax return, Morgenthau said. His plea deal calls for him to be sentenced to one year in jail.

The Manhattan-based KPG used Fekete and his Millennium Flooring company in Brooklyn on most of the architects' projects to facilitate the scheme, Morgenthau said. He said contractors were told to inflate purchase orders on Millennium's work and pay the inflated cost, or to issue checks to Millennium for work that was never done.

In those cases, Fekete passed the unearned money along to KPG, Morgenthau said.

Assistant District Attorney Kelly Donovan, head of Morgenthau's labor racketeering unit, said investigators found at least 10 other instances of kickbacks involving KPG, most of them in New Jersey, for which they have not filed charges.

Morgenthau said neither Millennium nor Fekete had filed city state or federal taxes for the past six years.