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.      

   Class Action Complaint - DWSD v General Chemical

For more about DWSD Update, click here. 

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.  

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.   

Macomb Lacks Standing to Pursue Claims against 15 Mile Sewer Repair Contractors, Federal Court Rules

Earlier today, U. S. District Judge Robert Cleland ruled that the Macomb Interceptor Drain Drainage District lacks the legal standing necessary to maintain claims for racketeering and anti-trust violations it filed in July, 2011 against 25 of the 40 contractors involved in the 15 Mile Interceptor Repair Project. The Court granted summary judgment in favor of the contractors. The Court also ordered Macomb to show cause by September 24, 2012 why summary judgment shouldn't be entered in favor of the the remaining 15 contractors. 

In a 30 page Opinion and Order, Judge Robert Cleland determined that when Macomb County bought the Macomb Interceptor in 2009 from the City of Detroit, it did not acquire the rights to pursue all claims arising out of the repair contract. The assignment of rights provision only extended to "rights under all contracts, warranties and guarantees that apply to services or goods related to the Macomb System." Macomb County did not acquire rights to the non-contractual claims asserted in its July 18, 2011 lawsuit, which include racketeering (RICO), anti-trust (Sherman and Clayton Acts), and certain common law tort claims (fraudulent misrepresentation and tortious interference). 

Contrary to Macomb Interceptor's argument, the Bill of Sale does not grant it the right to prosecute "any and all claims" of every description, but only all such claims and rights transferred or assigned in the Acquisition Agreement. Subsection (b) strengthens the conclusion that section 2.4 did not transfer or assign non-contractual claims arising from the [15 Mile Interceptor Repair] Project and strengthens the court's determination that Macomb Interceptor does not have standing as an assignee to bring its non-contractual claims.

Judge Cleland also rejected Macomb's argument that it had standing on the basis that it allegedly paid an inflated price for the Macomb Interceptor or that it was allegedly overcharged between 2005 and 2009, when it bought the interceptor from the City of Detroit. 

The Macomb Interceptor Drain Drainage District, which did not exist in 2009, was an "indirect purchaser," Judge Cleland wrote, and "[u]nder the indirect purchaser doctrine, a plaintiff who does not purchase directly from an alleged antitrust violator generally lacks standing to sue under the antitrust statutes." 

Notwithstanding the Court's ruling, the 40 contractors involved in the 15 Mile Interceptor Repair Project are not yet out of the woods. The City of Detroit, which does have the legal standing to prosecute the non-contractual claims, was granted permission to intervene in the Macomb Interceptor Drain Drainage District's federal lawsuit in May, 2012. 

For more about DWSD Update, click here.   

Kwame Kilpatrick, Victor Mercado Corruption Trial: There's an App for That!

I don't plan to cover the Kwame Kilpatrick trial in any great detail; I'm not a criminal defense attorney and the trial is expected to go on for months. Moreover, the local media are gearing up for what promises to be near round-the-clock coverage of the trial. And if you can't wait until you're home for an update on the evening news, you feel the need to track the trial, moment-by-moment, you're in luck. There's an app for that!  My wife spotted this new app for the iPhone developed for WDIV. Enjoy! 

Check out this application on the App Store:

Kwame Kilpatrick Trial - WDIV LSN Mobile Category: News Updated: Sep 11, 2012 7 Ratings

Additional Resources:

• Detroit News - Kwame Kilpatrick Trial Blog (here)
• Detroit Free Press - Trial Blog (here)

For more about DWSD Update, click here. 

Water Board Finds Insufficient Evidence to Suspend or Debar L. D'Agostini & Sons and DLZ Michigan (UPDATED)

On March 14, 2012, the Board of Water Commissioners received the report and recommendations of the Ad Hoc Hearing Committee, which conducted Responsible Vendor Hearings on March 7th and March 14th for L. D'Agostini & Sons, Inc.  and DLZ Michigan, Inc. The Hearing Committee reported that at the present time it did not have sufficient facts or other evidence to warrant taking any action against the two contractors.

In both cases, on a 5-1 vote, with Commissioner Forte abstaining both times,  the Board of Water Commissioners adopted the findings of the Hearing Committee.

A third contractor, Inland Waters Pollution Control, reportedly reached an agreement with the Water Board which will give it 45 days to negotiate a final settlement agreement or (presumably) participate in a Responsible Vendor Hearing.
 

The lone dissenting vote against adopting the recommendations of the Hearing Committee came from the Chairperson of the Water Board, James Fausone. Prior to casting his NO vote, twice, Chairperson Fausone read a statement outlining his concerns and specific reasons regarding each contractor. Both statements contained a common thread: integrity.

The standard that applies is tied to the City of Detroit purchasing ordinance and the burden is on the vendor to demonstrate it has a "satisfactory record of integrity, judgment or performance." The burden is not on this Board. The debarment policy picks up on this on page one --"The BOWC may determine that a vendor is not a responsible vendor if there is a finding that the vendor has failed to demonstrate a satisfactory record of integrity, judgment or performance."

Additionally I would note Section III, #14 of the Debarment policy provides in terms of causes that "any other conduct or activity by the vendor that has a harmful effect upon the integrity of the bidding, contracting or procurement processes of the DWSD or the public trust or confidence in the operations of DWSD" are grounds for debarment.

So I must ask -- what is integrity? The dictionary definition is simple: adherence to moral and ethical principals; soundness of moral character; honesty.

* * * 

The need for integrity in public construction process is paramount. The burden on a vendor is high.

Chairperson Fausone stated that in both cases he believed the vendor -- based on the criminal indictment against Kwame Kilpatrick, Bobby Ferguson and others, which he said could not have been brought without the federal prosecutor satisfying a probable cause standard -- had failed to meet its burden of proof under the Department's Suspension and Debarment Policy.

Commissioner Williams, a member of the Hearing Committee, also read a statement which indicated that he was confident that the Water Board could revisit these issues at a later time if additional (new) facts come out during any subsequent criminal prosecutions or civil actions.

Update (11/15/12): For anyone who is interested to see how a Responsible Vendor Hearing was conducted, one of the participants, L. D'Agostini & Sons, recently filed a transcript of their March 7, 2012 Hearing in the 15 Mile Sewer Collapse lawsuit pending in U.S. District Court. A copy of the transcript of the March 7, 2012 Responsible Vendor Hearing for L. D'Agostini & Sons can be read here. 

For more about DWSD Update, click 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.

Oakland Macomb Interceptor Drain (OMID) Contract 3 - Owner Rejects All Bids

Earlier this morning, the Oakland Macomb Interceptor Drain Drainage Board voted to reject both bids submitted for OMID Contract 3 that were submitted on July 19, 2011 (here).  

The principal reason cited for rejecting the low bid of Inland Waters Pollution Control and second bid of L. D'Agostini & Sons, Inc. was that the bids exceeded the engineer's estimate by some 38%. However, the Drainage Board also rejected a second resolution that would have deducted more than $19 million from Contract 3, which would have brought the project into line with their budget. 

Board Members also voiced concerns over the lawsuit filed on July 18, 2011 by the Macomb Interceptor Drain Drainage District against some 40 contractors, including Inland Waters and L. D'Agostini & Sons. In addition, Board Members noted that under Contract 3, Inland Waters apparently identified D'Agostini as one of its  subcontractors; D'Agostini's second bid had included Inland Waters as a proposed subcontractor. 

Update (7/26): Crain's Detroit Business has additional coverage (here) of the OMI Board Meeting and the Board's decision to reject both bids. 

For more about DWSD Update, click here.

Oakland Macomb Interceptor Drain (OMID) Contract 3 - Inland Waters Submits Low Bid

On July 19, 2011, the Oakland Macomb Interceptor Drain (OMID) Drainage District received and opened bids for Contract 3.  Two bidders submitted bids:  

• Inland Waters Pollution Control . . . . .$34,773,040
• L. D'Agostini & Sons . . . . . . . . . . . . . . . . $36,127,338

The details of this project were in an earlier post (here).

Comment: There is great irony in the fact that both of these bidders were named in the federal lawsuit filed by Macomb County on July 18, 2011. That lawsuit arises out of repair work performed by Inland Waters and L. D'Agostini & Sons on the very same interceptor in 2004. 

Update (7/25): The OMI Drain Board is meeting on July 26, 2011 and is scheduled to vote on a resolution to award Contract 3 to Inland Waters Pollution Control.

Macomb County Takes Aim At DWSD Contractors Involved in 15 Mile Sewer Repair Project

While the Detroit City Council was still considering a legal services contract with Miller Canfield, to investigate contractors linked to disgraced former Mayor Kwame Kilpatrick, former Director Victor Mercado and contractor Bobby Ferguson (here), Macomb County was busy preparing its own lawsuit to recover millions of dollars in  allegedly inflated sewer repair bills dating to 2004.   

  

Earlier today, the Macomb Interceptor Drain Drainage District fired the first volley when it filed a six-count civil lawsuit in U.S. District Court against 40 contractors involved in the repair of the 15 Mile sewer interceptor in Sterling Heights. 

The lawsuit alleges that the Co-Defendants, led by Kwame Kilpatrick, Victor Mercado, Bobby Ferguson and Inland Waters Pollution Control, participated in a scheme to inflate repair costs associated with the 15 Mile sanitary sewer interceptor that collapsed on August 22, 2004. The sewer was repaired by DWSD under an emergency contract.

Macomb County alleges that Inland Waters originally proposed a repair budget of $31.7 million to DWSD, but that final costs ballooned to $54.4 million due to inflated invoices submitted by Inland Waters and its subcontractors, including $350,000 paid to Ferguson Enterprises for which no work was allegedly performed. 

Macomb County seeks to recover $23 to $26 million from the 40 Co-Defendants under counts for civil racketeering (RICO), anti-trust violations, both the Sherman Anti-Trust Act and Clayton Anti-Trust Acts, and fraud. 

Macomb County first signaled its interest in pursuing these claims in January, 2011 (here). 

For a copy of Macomb County's lawsuit, click here. 

For more about DWSD Update, click here.

New Details Emerge on DWSD Efforts to Recover Kick-Backs and Illegal Profits

New details have emerged about DWSD's nvestigation into contractors linked to the corruption probe and federal indictments of disgraced former Mayor Kwame Kilpatrick, former Director Victor Mercado and contractor Bobby Ferguson (Ferguson Enterprises, Inc. and Xcel Construction Services).  

As we reported last month (here), the Board of Water Commissioners on May 25, 2011 approved a $250,000 contract  to retain the Miller Canfield law firm to investigate both contracts and contractors identified in the 38-count federal indictment handed down last December.  

When this agreement went to City Council for approval earlier this week, head of the City of Detroit Law Department, Krystal Crittendon reportedly told Council Members that Miller Canfield would be paid $250,000 to research possible claims, but that any lawsuits to recover kick-backs or illegal profits would be handled on a contingency fee basis.

For more about DWSD Update, click here.

Update (9/28): Acting Director Chris Brown indicated at today's Water Board Meeting, in response to a question from Chairperson Mary Blackmon, that Miller Canfield will be submitting their report to the Board by the October 26, 2011 Board Meeting.  

Legal Services Agreement Signals New Chapter in DWSD Corruption Probe

Despite more than 8 years of investigation by the FBI and U.S. Attorney's Office, which culminated last December in a 38-count indictment involve bid rigging, kick-backs and general corruption in the DWSD contracting process, a new investigation is about to kick off. This one will focus on the contractors identified in the federal indictment. 

At the May 25, 2011 Detroit Water Board Meeting, Commissioners were asked to approve a new legal services contract with Miller Canfield for the purpose of investigating both contracts and contractors identified in the federal indictment against disgraced former Mayor Kwame Kilpatrick and former DWSD Director Victor Mercado. The Board recessed to discuss the matter in (private) executive session.  The resolution to begin the new investigation reads as follows:

Upon recommendation of Robert C. Walter, Assistant Corporation Counsel, the Board of Water Commissioners  authorizes the Deputy Director  to execute a legal services contract with Miller Canfield Paddock & Stone in an amount not to exceed  $250,000.00 for an investigation regarding DWSD Contracts and Contractors identified in the federal indictment in Case No. CR-10-2040, and also authorizes the Deputy Director to take such other action as may be necessary to accomplish the intent of this vote. [Note: The federal case is actually Case No. 10-cr-20403.]

Comment: While its unclear which contracts or contractors this new investigation will focus on, Article 7.10 of DWSD's standard general conditions grants the Department broad audit rights and access to project documents for up to 3 years after final payment. Given the potential number of contracts at issue, it seems likely that the investigators will exhaust the initial amount authorized for this probe before completing it. In fact, I expect the final contract amount will be 4 or 5 times higher.   

Update (7/7): City Council approved the legal services agreement with Miller Canfield on July 6, 2011. In doing so, new details have emerged concerning the direction of Miller Canfield's probe.  While its likely that DWSD will pursue claims against Ferguson Enterprises and Xcel Construction Services, the key will be locating assets or tracing funds that may already moved several times. 

For more information about DWSD Update, click here.