CORRECTION to List of Suspended Contractors

DWSD Update confirmed earlier this morning that one of the contractors we originally included in the list of contractors affected by the Water Board's December 21, 2011  suspension resolution -- D'Alessandro Contracting Group -- was NOT included in the final resolution that was voted upon by the Water Board.  D'Alessandro Contracting Group is NOT suspended  and NOT barred from being awarded contracts with the Detroit Water and Sewerage Department. Crain's Detroit Business has also noted this correction (here).

Detroit Water Board Declares 13 Bidders Non-Responsible, Suspends them from Bidding DWSD Work for 3 Years (UPDATED)

Earlier this afternoon, the City of Detroit, Board of Water Commissioners conducted a Special Meeting  and adopted a resolution declaring 14 13* contractors to be non-responsible bidders and suspended them from bidding DWSD work for a period of 3 years. 

The contractors suspended from bidding on DWSD contracts until December 31, 2014 are among the contractors cited in the federal indictments unsealed last December against disgraced-former Mayor Kwame Kilpatrick, his father, Bernard Kilpatrick, contractor Bobby Ferguson, and former DWSD Director Victor Mercado.  

The contractors affected by the Water Board's action today include the following: 

• A&F Environmental
• A&H Contracting, Inc.
• D'Agostini & Sons, Inc. 
• *
• DLZ Laboratories, Inc.
• E&T Trucking
• Ferguson Enterprises, Inc.
• Inland Waters Pollution Control, Inc.
• Inland Management and Inland Rehabilitation Pipe Co.
• Johnson Construction Services a/k/a Johnson Consulting Services
• Lakeshore Engineering Services, Inc.
• Maestro Associates, LLC
• Walbridge Aldinger Company, Inc.
• Xcel Construction Services, Inc.

The Water Board included the following administrative appeal procedures as part of its resolution:

The Board shall reconsider the parties and suspension period upon receiving additional information from the U.S. Attorney's office. A company may appeal the application of this policy to an ad hoc committee of the BOWC, appointed by the Chair, which shall receive evidence and information and report to the entire Board. The suspension can only be modified by motion of the Board. 

Following adoption of the suspension resolution, the Board proceeded to approve a $13,117,000 contract for the Rouge River Outfall No. (RRO-2), Contract PC-786, with the third bidder, Walsh Construction, bypassing Walbridge Aldinger, who was second in line for the contract after the low bidder, Lakeshore Engineering, retracted their low bid.

Comment: The Water Board's actions today have enormous implications for the affected companies, many of which perform federal contracts, and a huge impact on the local contracting community.  The Board's actions, which the Chair reported were supported by Oakland, Macomb and Wayne Counties, will be felt well beyond DWSD. Two of the named contractors are among teams who proposed on the bio-solids contract (PC-781). If their suspensions are upheld, it would surely jeopardize their proposals.

Update (12/22): Crain's Detroit Business has an article (here), which quotes several of the Water Board Commissioners and adds further insight into the reasons for yesterday's suspension resolution.  

Update (12/23): DWSD Update confirmed earlier this morning that D'Alessandro Contracting Group was NOT among the contractors included in the final suspension resolution adopted by the Board of Water Commissioners on Wednesday. They were included in the proposed resolution, outlined in the Board Agenda, but NOT included in the actual resolution, as read into the record by Commissioner Fred Barnes, and NOT included in the final vote. To be clear: D'Alessandro Contracting Group has NOT been suspended nor barred from receiving DWSD contracts.  

For more about DWSD Update, click here.

PC-783, Detroit Contracting (DCI) Submits Low Bid on Electrical Ductbank Repair Project

Detroit Contracting, Inc. (DCI) submitted the low bid earlier this afternoon on the project known as DWSD Contract PC-783, "Underground Electrical Ductbank Repair and EB-1, EB-2 and EB-10 Primary Service Improvements at WWTP and Replacement of Selected Roads at WWTP."

1.   Detroit Contracting - - - - - - $26,921,543

2.  Lakeshore Engineering - - -  $27,107,427

3.  Weiss Construction - - - - - $27,620,000*

4.  Walbridge - - - - - - - - - - - - $28,488,000

5.  Motor City Electric - - - - - - $29,839,970

The electrical portion of the project consists of installation of a new 120KV electrical feeder from DTE, replacement and addition of transformers, switchgears, MCC's and motor starter line ups. In addition, other electrical work including lighting, ground and lightning protection for buildings EB-1, EB-2 and EB-10.

For more about DWSD Update, click here. 

*Update (2/22): Weiss Construction was awarded this contract by the Water Board on February 22, 2012 (here). 

Second Verse, Same as the First: Judge Cox Denies Second AFSCME Motion to Intervene

For the second time in less than a month, Judge Sean Cox has denied a local union's motion to intervene in the 34 year old lawsuit against the City of Detroit, Water and Sewerage Department. 

This time, Judge Cox considered and denied a Motion to Intervene by AFSCME Local 207 and the Senior Accountants, Analysts and Appraisers Association (SAAA). The reasons cited by the Court were virtually the same ones Judge Cox cited when he denied AFSCME Council 25's motion on November 18, 2011: Local 207's motion was untimely.

2011-12-13.Opinion and Order Denying AFSCME Local 207 Motion to Intervene

For more about DWSD Update, click here.

40th Anniversary of Tunnel Explosion Marked in Fort Gratiot

On Sunday, December 11, 2011, some 80 people gathered at the Fort Gratiot County Park to mark the 40th Anniversary of the Port Huron (Detroit) "water tunnel explosion," an accident that claimed the lives of 22 tunnel workers who died in a methane gas explosion.

The men were working at the time on a intake tunnel for the Port Huron Water Treatment Plant, then being constructed by the Detroit Water and Sewerage Department. The accident still ranks as one of Michigan's worst industrial accidents.

Additional resources:

• Daisy, Michael. “Disaster under Lake Huron.” Michigan History Magazine 89.2 (2005): 46+. [Gale Document No. GALE A163097965]
• DWSD, "Remembering those who died" (2003) (link) 

For more about DWSD Update, click here.

City of Detroit Seeks 10 Percent Cut from Suppliers, Including DWSD Contractors

Detroit Mayor Dave Bing is seeking a 10 percent price reduction from City of Detroit suppliers effective January 1, 2012. Crain's Detroit Business reports today that the Mayor's request extends to companies that do business with the Detroit Water and Sewerage Department.

In a December 2, 2011 letter, which was received by suppliers last week, Mayor Bing writes:

The financial participation of all stakeholders, including suppliers, has been identified as a key component in this overall cost reduction strategy. Given the importance of the supplier community, the City of Detroit will be contacting all suppliers to begin an earnest dialogue around the City's financial position and its implications.

2011-12-02.City of Detroit - Letter to Suppliers Re 10 Percent Price Reduction

Update (12/13): The Detroit Free Press (here) and Crain's Detroit Business (here) are reporting that the City of Detroit has already stopped paying some of its vendors.  I've not heard or read of anything similar happening on DWSD projects, however.  Have you?

Update (12/14): The Chair of the Board of Water Commissioners, James Fausone, indicated at today's regular Water Board Meeting that the 10 percent cut requested by Mayor Bing would be discussed further at a Special Meeting of the Water Board on December 21, 2011. 

For more about DWSD Update, click here. 

Emergency Financial Manager, Appointment Would Trigger "Credit Event" and Hit DWSD Hard

Governor Snyder's announcement last Friday that the State of Michigan was initiating a review of the City of Detroit's finances, the first step in the appointment of an Emergency Financial Manager (EFM), has triggered concerns about the financial impact such an appointment would have on the Detroit Water and Sewerage Department.

Following the Governor's announcement, The Bond Buyer, a national trade publication that covers the municipal bond industry, warned (here) that DWSD could face "huge fees" triggered by the appointment of an EFM, which would be a "credit event" under insurance policies that accompany $1.6 billion worth of water bonds.

[T]he appointment of an emergency manager . . . would trigger termination events on [credit default] swaps that hedge $948 million of pension obligation certificates issued in 2006 and $1.6 billion of water bonds. Detroit in early 2009 narrowly avoided a $400 million termination fee tied to the pension certificates after it was hit with a downgrade that prompted a termination event. Local officials negotiated for months with the two counterparties to achieve an amended agreement that avoided the payment. If the state appoints an emergency manager, Detroit would face the same problem again.

* * * 

Last April, Fitch Ratings downgraded the city's $2.1 billion of water bonds, citing in part an extensive derivative program at the Detroit Water and Sewerage Department that hedges $1.6 billion of the debt. "In recent years the negative fair value of the department's swaps have risen, increasing the termination risk associated with the swaps," Fitch's Doug Scott wrote. "Should the department be required to post collateral, it would negatively affect the department's financial profile to some extent."

The city is planning to come to market with a water bond refunding to shed the swaps and avoid termination payments. The price tag of the termination fees remains uncertain, but it would likely be in the hundreds of millions. At the end of 2010, the negative valuation of the water and sewer bond swaps was $165 million. (emphasis added)

Cite: "Detroit May Face Huge Termination Fees for Swaps." The Bond Buyer 2 Dec. 2011

The issue (and risk) of termination fees is discussed in the financial notes section of DWSD's 2010 Water Fund Financial Statement (here) beginning at p. 25.

Comment: I profess no expertise in this area, but this report seems rather alarming to me. At a minimum, faced with penalties in the "hundreds of millions" range, DWSD would have to delay or defer a number of significant capital improvement projects. If someone with a background in public finance or municipal bonds (or credit default swaps) can shed light on this issue, please comment. Your input would be appreciated.  

Update (12/6): The Detroit News reports this morning (here) that "The [State of Michigan] has yet to approve a deficit elimination plan Detroit submitted in July, a delay that puts a hold on the sale of about $900 million in bonds for capital improvements of the city water-sewer system."

Additional Resources:

• “Moody’s: Detroit Ratings On Review For Cut On Possible State Takeover,” Wall Street Journal, December 7, 2011 (subscription required)
• “Detroit on Review by Moody’s Will Pay $211 Million to Cut Swaps,”  Bloomberg Business Week, December 8, 2011 
• “Moody’s Puts Detroit GO, Water Debt on Negative Watch,” The Bond Buyer, December 8, 2011 
  

For more about DWSD Update, click here.

Detroit Water Board Votes to Hire Ridgway to Advise on Technical Matters (UPDATED)

Update (1/11): At the Special Meeting on January 11, 2012, Commissioner Mary Blackmon, reported that Jim Ridgway had declined the contract offered by the Water Board. It appears that the Board will consider another candidate for this position.   

The Board of Water Commissioners voted yesterday to approve the hiring of Jim Ridgway as Technical Advisor to the Water Board.

Mr. Ridgway has a B.S. in Environmental Engineering and a M.S. in Civil Engineering, both from the University of Michigan. Mr. Ridgway also has prior DWSD experience. He served as Assistant Director of Wastewater Operations for 5 years during the mid-1980s. Click here for his LinkedIn profile. 

Mr. Ridgway joins Butler Benton, who has been hired as the financial advisor to the Board of Water Commissioners.  Messrs. Ridgway and Benton will assist the Board in reviewing rate setting, capital projects and other financial and operational matters. 

Staff positions were created under the February 11, 2011 Order, and formalized under Article VII of the Board's Amended By-Laws. A third staff position, not yet filled, will advise the Board on legal matters.

For more about DWSD Update, click here.