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. 

$4.6 Billion in DWSD Water, Sewer Revenue Bonds Downgraded

On December 20, 2010, Moody's Investor Service lowered its rating on $4.6 billion of water and sewer bonds issued by the Detroit Water and Sewerage Department.

Moody's lowered to A1 from Aa3 the credit rating on $1.43 billion of outstanding sewer bonds secured by a senior lien pledge of net revenue, and lowered to A2 from A1 on $1 billion of revenue debt secured by a second lien. At the same time, Moody’s lowered to A1 from Aa3 the rating on $1.54 billion of senior lien water bonds and to A2 from A1 on $660 million of second lien water bonds.

All of Detroit's water and sewer revenue bonds are now graded in the "Upper Medium Grade" category, down from "High Grade." Moody's also revised its outlook for Detroit's water and sewer bonds to negative.

Moody's cited the risk from interest-rate swaps and "lean financial flexibility" that could crimp Detroit's ability to service this debt. Moody’s said debt service coverage on the bonds has diminished amid the economic slump that has hit the Detroit area and because of large payments it may face to cancel interest- rate swaps.

DWSD Design and Construction Contracts, List of Q3 (2010) Projects

DWSD has updated its list of Proposed Construction and Consultant Contracts for Q3 2010 here. Three of the projects listed are carry-overs from 2009; DWSD has included 10 construction projects, 7 of which are in the $5 million range.

The construction projects planned include:

• Consolidated Process Control System Upgrades for Treated Water System (PC-773A) (D/B)
• Consolidated Process Control System Upgrades for Treated Water System (PC-773B) (D/B)
• Springwells Water Treatment Plant 1958 Filter Rehabilitation and Auxiliary Facilities Improvement Project (SP-563) 
• Springwells Water Treatment Plant Discharge Header Pipe System Replacement (SP-567) (Repeat)
• Southwest Water Treatment Plant Rehabilitation of the Venturi Meters and Vaults (SW-551)
• Water System Improvements; Various Streets Throughout the City of Detroit (WS-648A) (Repeat)
• Parallel 42-Inch Water Main in 24 Mile Road, from Foss Road to Fairchild Road (WS-674) (Repeat)
• Water System Improvements; Various Streets Throughout the City (WS-680)
• Water Works Park Yard Piping Replacement (WW-536) 
• Specialized Process and Facilities Equipment Purchase Installation at Water Works Park (WW-537)

DWSD Design and Construction Contracts, List of Q2 (2009) Projects

DWSD has updated its list of Proposed Construction and Consultant Contracts for Q2 2009 here. Five of the projects listed are carryovers from DWSD's Q1 2009 List; DWSD has included six new projects, all of which are in the $5 million range.

The construction projects planned include:

• Electric Avenue Reservoir Construction and Booster Pump Station Rehabilitation (DWS-873) (R);
  
• Chemical Treatment System Modifications at the Northeast, Springwells, Lake Huron and Southwest Water Treatment Plants (DWS-867) (R);
• East Side City of Detroit Sewer Repairs Contract for Inspection of In-Place Rehabilitation of Existing Circular and Non-Circular Sewers (DWS-876) (D/B) (New);
• West Side City of Detroit Sewer Repairs Contract for Inspection of In-Place Rehabilitation of Existing Circular and Non-Circular Sewers (DWS-877) (D/B) (New);
• Lake Huron Water Treatment Plant Clearwell No. 1 Baffle Walls (LH-396) (New);
• Replacement of Existing INFI 90 Bailey Controls at Fenkell/Puritan and Hubbell/ Southfield CSO Basins (PC-761) (New);
• Complex I and II Incinerator Improvements (D/B) (PC-774) (New);
  
• Springwell Water Treatment Plant Discharge Header Pipe System Replacement (D/B) (SP-567) (R);
  
• Southwest Water Treatment Plant Sludge Treatment and Waste Washwater Treatment Facilities (SW-548) (R);
  
• Water System Improvements; Various Streets Throughout the City of Detroit (WS-648A) (New); and
  
• Parallel 42-Inch Water Main in 24 Mile Road, from Foss Road to Fairchild Road (WS-674) (R).

Detroit City Council Rejects DWSD Contract, Ferguson Bid

For the second time in less than a month, Detroit's City Council has rejected a contract bid submitted by Ferguson Enterprises and approved by the Detroit Water and Sewerage Department.

The Detroit Free Press reports (here) -- On March 24, 2009, City Council voted 4-3 to reject a $2.2 million contract bid submitted by Ferguson Enterprises. Earlier this month, City Council voted to reject a $284,000 contract bid by the same company. That the FBI served a search warrant on Ferguson Enterprises and an affiliated company, Xcel Construction, on January 15, 2009 may have influenced the Council's vote. Bobby Ferguson is also widely reported to have had close ties with former Mayor Kwame Kilpatrick.

DWSD, Detroit Seek to Remarket Debt

The Bond Buyer reports (here) "Detroit today [March 17, 2009] will begin to remarket $120 million of variable-rate, A-rated water revenue debt into a fixed-rate structure - the first time the city has entered the market since all three rating agencies downgraded its general obligation debt into junk-bond territory. "


The City will begin remarketing another $300 million of varible-rate sewer debt into fixed-rate debt within two weeks.


The article notes that most of the bonds are bank bonds, and that Detroit enters the market under a certain amount of "liquidity pressure." Detroit must remarket these bonds before April 1, 2009 or face the start of an accelerated five-year amortization.

Mayor Pledges Overhaul of City, DWSD Contracting Practices

During his State of the City address last night, Detroit Mayor Ken Cockrel, Jr. announced a new initiative aimed at reforming the City’s contracting practices. As reported by the Detroit Free Press (here) –

“In Cockrel’s first State of the City speech -- given two weeks before the mayoral primary election in which he is a candidate -- he said he will assign Deputy Mayor Saul Green and others to research a method of ensuring that vendors win contracts on their merits.”

“They should not get contracts because of who they know or who they're related to, and they should not be rewarded for political donations or favors,” Cockrel said, generating applause.. “As long as I'm mayor, pay-to-play is history in the City of Detroit.”

Mayor Cockrel indicated that contracting reforms would begin with the Detroit Water and Sewerage Department.

[Note: I’ll provide more information on this subject when it becomes available.]

Upcoming (2009) Design and Construction Projects Identified by DWSD

DWSD has published its list of Proposed Construction and Consultant Contracts for Q1 2009 here. This list includes 15 projects that DWSD expects to advertise for bids between January and March, 2009. Most of the proposed contracts (9/15) are expected to be in excess of $5 million.

The construction projects planned include:

• Electric Avenue Reservoir Construction and Booster Pump Station Rehabilitation (DWS-873);
  
• Chemical Treatment System Modifications at the Northeast, Springwells, Lake Huron and Southwest Water Treatment Plants (DWS-867);
  
• Springwell Water Treatment Plant Discharge Header Pipe System Replacement (D/B) (SP-567);
  
• Southwest Water Treatment Plant Sludge Treatment and Waste Washwater Treatment Facilities (SW-548); and
• Parallel 42-Inch Water Main in 24 Mile Road, from Foss Road to Fairchild Road (WS-674).