Friday, November 6, 2015

DWSD Files Price-Fixing Claim Against General Chemical, Alum Pricing at Issue (UPDATED)

On November 4, 2015, the Detroit Water and Sewerage Department filed a Class Action Complaint in U.S. District Court in New Jersey against General Chemical Corporation and Frank Reichl, a former vice president of sales and marketing alleging price-fixing for aluminum sulfate (alum), a key chemical used in the water treatment process.

DWSD's lawsuit alleges that between January 1, 1997 through at least July 31, 2010, Defendants General Chemical Corporation and General Chemical Performance Products, LLC (Genchem) and Frank Reichl participated in a price-fixing and bid-rigging conspiracy involving the supply of alum.  

Alum is used in the water treatment process to remove fine particles from raw water. Alum causes fine particles to stick together (coagulate), which allows for settlement and removal as alum sludge. 

DWSD's lawsuit follows Frank Reichl's guilty plea in a federal criminal investigation in New Jersey on October 27, 2015. DWSD's lawsuit seeks certification as a class action lawsuit with DWSD as the lead plaintiff.

Comment: One stark example of how General Chemical's actions impacted DWSD can be seen in the Minutes of the April 27, 2011 Water Board Meeting, during which the Board approved a new three year alum contract with PVS Nolwood Chemical for $13,440,000. DWSD had previously contracted with General Chemical to supply liquid alum. 

DWSD requested bids from three alum suppliers. And although PVS was the only supplier to submit a bid, usually not a good sign, its quoted price to supply alum was $280 per ton. Under the previous contract with General Chemical, DWSD had been paying $404 per ton! PVS Nolwood Chemical's price was 30% less than General Chemical's price.

And in April, 2015, when the alum supply contract came up for bids again, DWSD received 4 bids. Chemtrade, a Canadian company which acquired General Chemical in December, 2013, submitted the low bid of $184 per ton! That's less than half what General Chemical had charged the Department in 2011. 

At its April 22, 2015 Regular Meeting, the Board of Water Commissioners approved a two-year contract with Chemtrade for $3,668,960 (9,970 tons x $184) with two, one (1) year renewal options at the same unit price. See Minutes, Item 15-1019.      

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