Hewlett-Packard Co. (HPQ:US) overbilled New York City $163 million for improvements to the municipal 911 emergency-communications system, Comptroller John Liu said.
The “questionable selection” of the Palo Alto, California-based company as system integrator may result in $362 million in cost overruns, Liu, 45, said in an audit. The project, seven years behind schedule, has increased in cost to a projected $2.3 billion, from $1.3 billion, he said.
Liu released the audit before a June 30 deadline on the city’s $68.7 billion fiscal 2013 budget, now under negotiation between Mayor Michael Bloomberg and the City Council, with members resisting cuts to early-childhood education, youth programs and fire companies.
“With devastating cuts on the table, taxpayers should be outraged at the fleecing that transpired under City Hall’s watch,” Liu, a possible 2013 Democratic mayoral candidate, said at a news conference, surrounded by union leaders.
The 70-year-old mayor, an independent who is founder and majority owner of Bloomberg News parent Bloomberg LP, is barred from serving a fourth term.
Lillian Roberts, who represents 121,000 workers as president of District Council 37 of the American Federation of State, Municipal and County Employees, the city’s largest union, said the audit showed “how contracting out wastes taxpayers’ dollars.”
Liu said he would ask for a review of the contract by Manhattan District Attorney Cyrus Vance Jr. “because of the possibility of fraud in the solicitation and billing process.” He declined to elaborate.
Tracy Golden, a spokeswoman for the district attorney, declined to comment.
“HP delivered every significant item that they were scheduled to deliver,” Caswell Holloway, deputy mayor for operations, told reporters outside City Hall. “It’s clear that the comptroller is not going to allow the facts to get in the way of the story that he wants to tell.”
David Kelly, HP’s account executive for the job, said the company denied the allegations in Liu’s audit.
Kelly rejected the assertions of Deputy Comptroller Tina Kim, who supervised the audit and who told reporters that the company billed as much as $192 an hour for such tasks as opening doors for visitors, removing restroom garbage and eliminating insects from a project site.
“HP did not bill the city for anything outside the scope of the contract,” Kelly said.
HP shares declined about 0.26 percent in New York today. They’ve fallen 11.7 percent in 2012.
Liu’s audit said that Hewlett Packard shouldn’t have been hired for the 911 work because it failed to meet the city’s technical requirements. The city’s Department of Information Technology and Telecommunications allowed the company to “drastically mark up” subcontractor bills, with project consultants overbilling the city, it said.
The Bloomberg administration, in a response appended to the audit, disagreed that the city wrongly awarded the work to the company, whose chief executive officer, Meg Whitman, is cutting jobs and streamlining businesses as the company grapples with slower demand for printers, services and data-center equipment.
In On Time
Bruce Gaskey, director of the mayor’s Office of Citywide Emergency Communications, said in a letter to Liu’s office that the auditor ignored the fact that Hewlett Packard completed its work for $34 million less than the maximum in the contract and that the city pressed the company to improve performance.
The city will review Liu’s findings looking for costs it might claw back, he added.
The project’s overrun, “for which the city is pursuing and expects to receive a substantial recoupment,” resulted from delay in delivery of the 911 emergency telephone system, not from Hewlett Packard’s management, he wrote.
Liu said the 911 system’s flaws echo faults in city oversight of an automated Internet-based payroll system called CityTime, for which Science Applications International Corp. (SAI:US) in March agreed to pay $500.4 million in restitution under a deferred-prosecution agreement to resolve charges of fraud against the city.
“We have long feared that CityTime was not an isolated incident, and unfortunately what we have learned today is that our fear has become a reality,” Liu said.
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