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You can't say that the New York City CityTime payroll and timekeeping system project scandal is boring to watch.

Yesterday evening, news outlets reported that Mayor Michael Bloomberg had sent a letter to SAIC's CEO Walter Havenstein demanding the company return some US $600 million it was paid in its position as prime contractor on the project.

In the letter, dated yesterday and copied to United States attorney Preet Bharara, Mayor Bloomberg writes:

The city relied on the integrity of SAIC as one of the nation's leading technological application companies to execute the CityTime project within a reasonable amount of time and within budget given the system's size and complexity....

The recent indictment of...SAIC's lead project manager...and the guilty plea of...SAIC's chief systems engineer...are extremely troubling and raise questions about SAIC's corporate responsibility and internal controls to prevent and combat fraud....

The scheme to defraud was so pervasive that the United States attorney for the Southern District of New York...stated that 'virtually the entirety of the well over $600 million that the city paid to SAIC on the CityTime project was tainted, directly or indirectly, by fraud.' ..."

Because the project was apparently tainted by fraud and kickback schemes, the city must be made whole. I am, therefore, requesting that SAIC reimburse the city for all sums paid to it, approximately $600 million, as well as the cost of investigating and remediating this matter. I am forwarding this correspondence to the United States attorney so that the city's position as a victim can be taken into consideration.

I say bravo to Mayor Bloomberg (I suggested something very similar in my post last week), who finally admitted on Tuesday that he—and the city—screwed up in keeping proper watch over the CityTime project. Quoting from a blog post at the New York Daily News, Mayor Bloomberg said, "Certainly nobody paid as much attention to it as they should have, from me on down."

And according to the Wall Street Journal, last week SAIC voluntarily refunded the city nearly $2.5 million for the money it was paid for SAIC's lead project manager's supposed "work."

The New York Times reported that SAIC released a statement following Mayor Bloomberg's letter, saying in part that

SAIC understands and shares the outrage expressed by the city at the fraud alleged on the part of former employees and subcontractors on the CityTime program. These actions are an affront to everything we stand for as a company. SAIC is ready to discuss appropriate resolution of this matter, considering the breadth of the fraud alleged and the fact that SAIC delivered a system that the city said this week is working well.

Of course, SAIC has not said why it failed to catch the alleged fraud, even though whistle-blowers came forward in 2005 complaining about possible mismanagement and alleged kickbacks on the project, a point also raised in Mayor Bloomberg's letter.

The Wall Street Journal also said the city is looking into a civil suit against SAIC, presumably to try and get its money back if SAIC balks at the mayor's demand.

I should note that Mayor Bloomberg said as recently as last week, even after the new criminal indictments were filed, that he thought that the cost increases on the CityTime project were generally legit and that they stemmed from the city and SAIC's "underestimating the complexity and cost of the project and then, as they went along...adding things." The mayor's comments may come back to haunt him if a civil suit ever goes to trial.

New York City still owes SAIC $32 million for completion of the project, but it won't release the money until the criminal probe is complete. Given Mayor Bloomberg's letter, SAIC may never see that money, no matter how many times it says the CityTime software is working well.

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