Before Big Fire, a City Warning Over Contractor

In early 2006, New York State development officials approved the hiring of an unknown firm, the John Galt Corporation, to help demolish the Deutsche Bank building near ground zero.

More than a year later, a blaze in the building killed two firefighters, and questions immediately emerged about Galt. Some of its top executives, it turned out, had worked at another company, the Safeway Environmental Corporation, which officials in the city’s Department of Investigation said had a history of problems with integrity, competence and financial issues.

A recently obtained document shows that on April 11, 2006, city investigators accused state development officials of not only knowing about Galt’s questionable ties before they approved its hiring, but also misleading the investigators about the subcontractor, possibly to avoid questions that might have slowed or blocked its hiring.

In that document, a six-page letter, city investigators said they found it “shocking and disturbing” that state officials had — despite city warnings — knowingly allowed people associated with Safeway to undertake such a sensitive job. These were relationships, the letter said, that state development officials “(a) knew full well; (b) chose not to tell D.O.I.; and (c) chose to ignore in allowing John Galt Corp. to become the sub on the Deutsche Bank building project.”

Before the fire, Galt workers removed a section of a standpipe that had supplied the water needed to fight a fire on the upper floors of the building, where the firefighters, Joseph Graffagnino and Robert Beddia, died. That action is now a central part of a criminal inquiry by the Manhattan district attorney into the deaths and other issues, including the awarding of contracts on the project. A grand jury has been hearing evidence for more than nine months, and officials briefed on the inquiry have said it will probably take action in weeks.

News accounts after the fire, which happened Aug. 18, 2007, reported that city investigators had concerns about the hiring of companies associated with Safeway. But the April 2006 letter, which had not been previously disclosed, showed they accused development officials of approving the hiring of Galt not in an unwitting oversight but in a willful effort to bypass their warnings.

For example, the city investigators said state development officials asked for only a cursory background check on Galt, one that would not uncover the relationship its key executives had with Safeway.

The letter also shows the seriousness of the Department of Investigation’s questions about Galt, describing the company as having “no significant background in toxic cleanup and deconstruction” and doubting its qualifications “to be a responsible subcontractor for the complexities of the Deutsche Bank project.”

The letter, from the Department of Investigation’s chief of staff at the time, Robert F. Roach, was addressed to the head of the Lower Manhattan Construction Command Center, an affiliate of the Lower Manhattan Development Corporation, the state agency overseeing the demolition, which approved the hiring of Galt.

The Department of Investigation and Avi Schick, the president of the development corporation, who took over the agency in January 2007, declined to comment.

The city investigators had no statutory role in the selection of subcontractors for the job, who were hired by the general contractor, Bovis Lend Lease, and approved by the development corporation. But the investigators had worked with development officials for months, advising them on the fitness of potential subcontractors and, in some instances, conducting in-depth background investigations.

A Troublesome Project

The search for a demolition subcontractor was sensitive because the job was among the most dangerous and complex in city history: taking down a 41-story skyscraper potentially riddled with asbestos and other toxins in the close quarters of New York City’s financial district, with an army of regulators looking on.

Given the desire to get rid of the building, which had been severely damaged in the Sept. 11 attack, and the eagerness of Gov. George E. Pataki to show progress on the site, state officials had to balance dual objectives: the need to bring it down as quickly as possible and the necessity of doing it without unleashing a plume of toxic dust.

The job fell to the Lower Manhattan Development Corporation, which Mr. Pataki had created to develop a rebuilding plan for ground zero but was not staffed to oversee construction or demolition. Some contractors also said they did not bid because it was fraught with problems and other work was available.

In 2005, the development corporation chose Bovis, a huge international construction management company, as general contractor under a $75 million contract. Bovis intended to use Safeway as the demolition and abatement subcontractor, according to directors and staff at the state development corporation.

But development officials rejected Safeway, in part because a supermarket building the company was demolishing on the Upper West Side had collapsed on the day it was to sign its deal with Bovis and in part because city officials were investigating whether it had violated a monitoring agreement at an unrelated project. Under the agreement, Safeway had made a series of promises to city officials so as to qualify for a city contract.

The company was cleared of criminal wrongdoing in the collapse.

Safeway, then and now, has denied wrongdoing. The company’s lawyer has disputed the city’s subsequent finding that it violated the monitoring agreement, accusing it of acting against Safeway to make it appear that it had responded forcefully to the much-publicized supermarket collapse.

Without a subcontractor, Bovis began proposing alternatives that included hiring companies with little or no experience with complex demolition or abatement projects that would use Safeway’s executives, workers and equipment, according to documents and interviews.

In each instance, the development officials ran the plans past the city investigators, who rejected any company with connections to Safeway.

Among their concerns was the fact that Safeway’s former owner had been Harold Greenberg, who years earlier had been convicted of bribery and bid rigging and who federal authorities said had ties to organized crime. City investigators questioned whether Mr. Greenberg had truly divested his interest in the company. Safeway said he did.

City investigators also questioned why Bovis seemed to be pressing for the inclusion of Safeway, according to correspondence with state officials. Bovis kept presenting Safeway-affiliated companies as the only available option, according to the investigators, who had said in an earlier January letter that they wanted to question Bovis executives about why the company was “continually selecting Safeway in various reincarnations rather than other possible qualified demolition companies.”

Finally, officials began considering the hiring of the John Galt Corporation for the demolition work. Galt, a corporate shell that had not been active for years, became an arranged marriage of sorts between executives from Regional Scaffolding, a company already working at the site that had no building demolition or asbestos abatement experience, and former Safeway executives.

Bovis, Galt and Safeway all declined to comment, and it remained unclear whether any current or former Safeway executives pushed for the Galt shell to be used.

It was particularly galling to city investigators that two men with central roles for Galt were former Safeway executives, Mitch Alvo and Don Adler, who had worked closely with Mr. Greenberg during a period when Safeway ran afoul of the city.

The men, according to interviews and documents, had stopped cooperating with the investigation agency’s inquiry into whether Safeway had violated its monitoring agreement. And city investigators had specifically told development officials in early 2006 they disapproved of a role for Mr. Alvo and “expressed deep reservations” about Mr. Adler, according to the letter.

Some Strings Attached

State development officials ultimately approved the hiring of Galt in early 2006. As a condition of the approval, under an agreement crafted by the development agency’s general counsel, Irene Chang, and made part of the contract, Galt was required to ensure that Mr. Alvo and Mr. Adler would cooperate with the city investigation of Safeway.

At first glance, the provision would appear to have been an effort to respond to some of the city investigators’ concerns.

But Department of Investigation officials did not view it that way. For one thing, they did not find out about Galt’s hiring or the cooperation provision for weeks. And they were upset, according to the April 2006 letter, because they viewed the provision as an attempt to make it appear that their agency, which would have balked at Galt, had been involved in approving the deal.

“Frankly,” Mr. Roach wrote, “this strikes us as a disingenuous fig leaf intended to put the imprimatur of D.O.I. on your arrangement.” He called the reference to his agency “unauthorized” and noted it was included in the contract “without D.O.I.’s knowledge or consent.”

Charles Maikish, then the head of the construction command center and the person to whom the investigators’ letter was addressed, acknowledged in a letter the next day that he had been “remiss in not fully communicating” with city investigators over the Galt contract and the inclusion of Safeway executives. He said that their work would be strictly monitored and that he had mentioned the “possibility” of hiring Mr. Alvo and Mr. Adler in a February meeting.

Mr. Maikish, through his lawyer, Charles E. Clayman, declined to be interviewed.

A Turf Skirmish?

His sentiment was also held by Ms. Chang, who people briefed on the matter said played a major role in the process by which the development agency approved Bovis’ hiring of Galt. Ms. Chang, several people said, had bristled at the notion of a city agency telling a state entity which contractors it should or should not approve.

Ms. Chang also declined to be interviewed. It remained unclear what actions, if any, were taken by the investigators or other city officials after the letter to find a replacement for Galt or to focus more scrutiny on its work.

Galt was chosen in part, according to documents and several people briefed on the matter, because of its price.

But Mr. Roach had noted in his letter that New York City has a policy of hiring the lowest responsible bidder, emphasizing the word “responsible” in bold type, “in part, because nonresponsible contractors such as Safeway and its officers frequently cost the city more in the long run by virtue of delays and mistakes.”

Before the fire, the demolition of the bank tower was supposed to be completed at the end of 2007 at a total cost that was already tens of millions of dollars over the original $75 million budget. Now, the costs are expected to top $150 million, and the project is not expected to be completed until next summer or fall.