The current working directory for a given 'sh' command here is the source directory.
In terms of where ci-tooling lives, that's checked out into a subdirectory of the workspace.

In terms of making a build unstable (yellow) - given we manipulate the build status from the Groovy code already (see the top line of this) that is probably the easier way to do this.

See https://jenkins.io/doc/pipeline/steps/workflow-basic-steps/#code-readfile-code-read-file-from-workspace for how we'd check the file contents.

Note that due to how Pipelines work, regular Groovy code for interacting with files should not be used as Pipeline code itself may be executed on the master rather than on the build node.