Thursday, November 29, 2012

Inland Waters Settle Claims and Pending Litigation with Detroit, Cleared to Bid New Work (UPDATED)

Late Wednesday [11/28], the Detroit Water and Sewerage Department announced in a press release (here), that it had agreed to settle all pending claims and litigation against Inland Waters Pollution Control, Inland Management, Inc., and Inland Pipe Rehabilitation, LLC for $4.5 million. 
Inland, in a separate statement released on November 27th, reported that the $4.5 settlement with the Department resolved claims that were in excess of $380 million. 

Inland Waters, Inland Management, and Inland Pipe Rehabilitation were among 13 contractors originally suspended by the Board of Water Commissioners on December 21, 2011. The Board reversed itself three weeks later on January 11, 2012, and lifted the suspension on 5 of the 13 contractors, including Inland Waters Pollution Control, Inc. 

Inland Waters is still one of over three dozen Defendants in a federal lawsuit filed on July 18, 2011 by the Macomb Interceptor Drain Drainage District that remains pending. The allegations in that lawsuit focus on the cost of repairing a sewer line that collapsed in 2004.   However, several recent decisions in that case have gone against Macomb, and its questionable now whether the Drainage District will be able to continue its lawsuit against Inland Waters and the other 40 contractors in that case.  

Comment: I'm not familiar with all of the claims made by the City of Detroit in the federal litigation against Inland Waters, but if the City's claims were on the order of $380 million (a number that seems very high, but probably includes alleged treble (3x) damages), Inland's $4.5 million settlement was a pretty good deal. Maybe even a great deal. The settlement amount was less than  $0.02 on the dollar! And, even better, Inland has been declared to be a Responsible Vendor, cleared just in time to bid on two new sewer repair contracts the Department is planning to advertise for bids in December, Contracts DWS-886, and DWS-887. 

What do you think about the terms of Inland's settlement? Was this a good deal for DWSD?

Update (1/7/13): The Department is now planning to advertise four (4) new sewer repair contracts during Q1 of 2013 -- DWS-886, DWS-887, DWS-889, and DWS-890. 

Update (2/25/13): The Inland Waters settlement is featured in Crain's Detroit Business (here) as one of the biggest legal settlements of 2012. 

For more about DWSD Update, click here.  

Moody's Cuts Detroit Water and Sewer Bond Rating Again, Increased Risk of Detroit Bankruptcy Cited

The City of Detroit's deteriorating financial position and political dithering continues to affect DWSD's bond rating. 

On Wednesday [11/28], Moody's Investor Service downgraded the Department's water and sewer bond rating for the second time in 7 months. 
Concurrently, Moody's has downgraded the ratings for the Detroit Water and Sewage Enterprise Revenue debt one notch to Baa3 (Senior Lien) and Ba1 (Second Lien) as the rising risk of a city bankruptcy filing brings ongoing uncertainty regarding the treatment of these securities in the event of a filing. Ratings for the Detroit Water and Sewage Enterprise Revenue Bonds have been removed from review for possible downgrade and the outlook has been revised to negative. The negative outlook for the water and sewer debt is based on the increasing possibility that the city could file for bankruptcy over the next 12 to 24 months. 
The last downgrade of DWSD's bond rating by Moody's occurred on April 9, 2012, as we reported here.  

For more about DWSD Update, click here

Tuesday, November 20, 2012

Detroit City Council Rejects EMA Contract, Plan to Downsize DWSD. What's next?

Last week, the Detroit City Council took no action on a $48 million contract with EMA, the consultant behind a controversial plan to reduce DWSD's workforce by some 81%. 

Earlier today, the Detroit City Council took action, but voted to reject the EMA contract outright and along with it DWSD's restructuring plan. The Detroit Free Press reports (here) that the City Council vote was unanimous. Council member Ken Cockrel Jr. cited the EPA's October 12, 2012 request for 45 days to review the EMA plan as a key reason to delay approval. 
“Those 45 days have not elapsed yet," Cockrel said. "We have not heard from the EPA. They have not indicated that they have no concerns. And I think when you have a federal agency that’s in charge of regulating environmental concerns for the country…I think we ought to give them the time to do it.” (Cite: Michigan Radio 
The Board of Water Commissioners, anticipating this outcome, last week voted to proceed with EMA under a $2.0 million stopgap contract. This is only a temporary solution. 

Comment: So what's next? Will the Water Board acquiesce (uh, not likely) or proceed with (24) consecutive $2 million contracts, each one just small enough to avoid a City Council vote? (Possibly) Or will Judge Cox resort to "more drastic measures" as he has alluded to in several of his rulings this past year? (What will that look like?)  And is this any way to run a public utility, one that serves 4.3 million people? Really?  

For more about DWSD Update, click here.     

Thursday, November 15, 2012

Water Board Approves Stopgap Contract with EMA as City Council Fails to Act on Larger Contract

Confronted with the Detroit City Council's failure to take action toward approval of a $48 million contract with Minneapolis-based consultant EMA, the Detroit Board of Water Commissioners yesterday held a Special Meeting and approved a resolution authorizing Director Sue McCormick to negotiate a stopgap agreement with EMA, for an amount not to exceed $2.0 million.  

The term of this agreement will cover the period from November 14, 2012 to June 30, 2013. And because of the dollar amount, this contract will not require City Council approval. 

Comment: It is unclear to me why City Council was required to approve EMA's $48 million contract -- it was approved by the Water Board on September 7, 2012 -- after all of the steps taken in the past 12 months by Judge Cox and others to separate DWSD from the rest of the City of Detroit. DWSD now has its own general counsel, HR department and finance. Submitting a contract that comes with an 81% staff reduction, to an elected body for approval, is a suicide mission. The Board of Water Commissioners knows this; Judge Cox must know it too. 

This situation probably explains a November 8, 2012 Root Cause Committee Report that requests, in part, that DWSD be allowed to exempt certain contracts from City Council approval. Without the Court giving the Board of Water Commissioners sole authority to approve the entire $48 million EMA contract, it will surely languish with City Council taking no action for the foreseeable future. 

On the other hand, what are the limits of Judge Cox's authority? Can he effectively divest City Council of its role in reviewing and approving significant contracts? Does enforcement of the Clean Water Act trump these concerns? What do you think? 

Update (11/20): Earlier today, the Detroit City Council voted to reject the EMA contract. The Detroit News reports (here) about Council's decision. Now what?  

For more about DWSD Update, click here.     

Monday, November 5, 2012

Former DWSD Director Victor Mercado Pleads Guilty in Public Corruption Case

Earlier today, Victor Mercado, former Director of the Detroit Water and Sewerage Department, pleaded guilty(*) to a single count of conspiracy in connection with his role in the Kilpatrick Enterprise. The Detroit Free Press reports this development here. Its unclear whether Mr. Mercado will testify against his Co-Defendants or remain in the background. No date has been set for sentencing. 

The pending corruption trial involving the former Mayor, Kwame Kilpatrick, his father, and contractor, and friend Bobby Ferguson is currently on hold until November 13th due to a medical condition affecting Ferguon's attorney. 

(*) For readers with a PACER Account, Victor Mercado's Rule 11 Plea Agreement was filed 11/5/2012 in Case No. 2:10-cr-20403 at Dkt #247.  If you're interested in a copy, I'd be glad to e-mail it to you. Just write me and put "Plea Agreement" in the reference field.   

For more about DWSD Update, click here.