Troubled Water, Part II: The Origins of Jackson's $91 Million Siemens Contract | Jackson Free Press | Jackson, MS

Troubled Water, Part II: The Origins of Jackson's $91 Million Siemens Contract

Citing problems with a similar project in McComb, Ward 5 Councilman Charles Tillman is one of two city council members to vote against the Siemens contract. The other was then-Ward 3 Councilwoman LaRita Cooper-Stokes.

Citing problems with a similar project in McComb, Ward 5 Councilman Charles Tillman is one of two city council members to vote against the Siemens contract. The other was then-Ward 3 Councilwoman LaRita Cooper-Stokes. Photo by Trip Burns.

Nearly two months have passed since City of Jackson Department of Public Works Director Kishia Powell brought the water-meter installation project, the centerpiece of the City's $91 million contract with Siemens, to a grinding halt over concerns about quality control. Since that time, no more meters have been installed, the water department's software upgrades haven't happened, subcontractors are getting anxious, the Jackson City Council wants answers, and the public is growing impatient.

In the meantime, outside consultants delivered a bleak report on the Siemens contract and the City's water and sewer operations, and the city council launched an investigation into the water-sewer department and asked for a full review of the Siemens contract.

Then, this past Thursday, Mayor Tony Yarber pronounced the city's infrastructure to be in a state of emergency.

Flanked by the stone-faced heads of various emergency-response departments including Powell, Jackson Police Chief Lee Vance and Fire Chief R.D. Simpson, Yarber never mentioned Siemens during his remarks to media.

"The city needs to look for creative ways to fund the restoration and repair of our infrastructure," Yarber said March 26 at a press conference.

In the near term, that will involve the city applying for emergency loans and grants from state and federal agencies to protect the city's water system. Yarber has made no public announcements about his next move on the Siemens project, which the company pitched to the city as an easy way to raise cash that it could reinvest back in water and sewer infrastructure.

Over the years, various administrations have proffered a procession of creative solutions to pay for street, water and sewer repairs. These included a so-called meter fee on water bills that city officials removed in the early '90s and the 1-percent sales tax, which city voters passed by referendum in January 2014 and was projected to raise $12 million to $15 million per year.

The Siemens contract is by far the most ambitious of these. In name, it is a performance contract that calls for replacing 64,998 water meters with new, ostensibly more high-tech accurate meters that require less hands-on maintenance. All together, the water meters and software overhaul cost taxpayers $65 million—approximately $1,000 for every meter—while the rest, $26 million, is earmarked for updating water and sewer treatment facilities and sewer lines.

The project has been beset with problems. Water customers complain of receiving unusually large water bills after getting new meters and bad customer service from the city water department when they call about it. Others point to the flimsy, plastic lid covers as symbolic of the dubiousness of the whole deal, which, city budget writers say, will affect just about every other part of the City's budget for the foreseeable future.

Hoping to get a window into how the Siemens contract was formulated, the Jackson Free Press submitted a public-records request for "any and all materials related to the Performance Contracting Agreement with Siemens Industry Inc. Building Technologies Division" with the Jackson City Clerk's office in late February.

As this story goes to press, the city has only partially complied with the request (and thus state law), and the various city departments and officials involved have come across a little like the Abbott and Costello routine, "Who's on First."

The clerk's office, which the city council oversees, says the public-works department, which falls under the mayor's purview, hasn't provided information domiciled there. Meanwhile, the Yarber administration says the clerk's office is wholly responsible for filling records requests.

On March 17, the JFP emailed City Clerk Kristi Moore, Powell, Stamps and Yarber (the email to Powell bounced back), requesting the rest of the materials or a written denial of the request as Mississippi state law requires in such cases.

"I am checking into your request to see what the delay is on providing you with the information you requested. I will follow up with you as soon as I get the specifics," Moore wrote the Jackson Free Press that day, but the office still has not fully complied with the request.

The Early Days

Despite the foot-dragging of city officials in responding to the newspaper's open-records request, the documents the city has provided shed a little more lighton the origins of the Siemens contract—and raises several new questions.

The saga begins in May 2012, when the Jackson City Council agreed to let Siemens audit the city's water system and evaluate the need for a new electronic water-meter system. Voting in favor of the performance audit were council members Quentin Whitwell, Chokwe Lumumba, Frank Bluntson, Tony Yarber and Margaret Barrett-Simon. The dissenting votes came from LaRita Cooper-Stokes of Ward 3 and Charles Tillman of Ward 5.

The JFP called each person who sat on the city council in 2012 about their vote, but only two members, Tillman and Bluntson, responded as of press time.

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Former Ward 4 Councilman Frank Bluntson is one of three members of the city council who voted for the Siemens contract and eventually ran for mayor. Bluntson said that he thought the deal would help Jackson upgrade its water system, but he now regrets voting for the contract.

Five months later, in the last week of October 2012, the city council approved a contract with Siemens, and the Harvey Johnson Jr. administration immediately touted what it briefly called the Jackson Utility Management Program.

Johnson told the Jackson Free Press on March 9 that the city's legal department negotiated the contract. Pieter Teeuwissen, the city attorney during Johnson's administration, said he wasn't asked to help with negotiations until after the city council authorized the contract. He acknowledges another attorney from his office could have been involved although that would be highly unusual, he said.

Teeuwissen remembers vividly the meeting during which the council OK'd the contract: "This matter was passed at the second meeting of October in 2012. It was a night meeting. The deal was negotiated and done at that time and presented by public works to the council," he said.

"The council did not ask for any input from legal. They voted and approved it. Once the deal had been approved by the governing authorities, it was then handed to legal. We looked at the deal, and while the deal was legal, it didn't seem like a good business deal."

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Pieter Teeuwissen was the city attorney when the Siemens deal was approved. Teeuwissen was not involved with the initial contract negotiations. After the city council OK’d it, he and financial adviser Porter Bingham and attorney Steve Edds helped tweak the contract to get a better deal for the city. Photo courtesy Adam Lynch/File Photo

Teeuwissen, who now serves as attorney for the Hinds County Board of Supervisors, says after the contract was authorized he, along with Steve Edds, an attorney from Baker Donelson, and Porter Bingham, the principal in the financial-advising firm The Malachi Group, renegotiated the contract to get a more favorable deal for the City.

Documents the City provided to the JFP show the Siemens contract was amended twice. The seven-page Amendment No. 1, which aims to "better enable the (City of Jackson) to finance the price of the agreement" amends definitions in the contract, including "scope of work," "changes and delays," "acceptance," "work implementation period" and "payment of scope of work."

Amendment No. 2 makes changes to the scope of work, including removing a one-year supply of spare parts for ultraviolet reactor systems at the J.H. Fewell Water Treatment Plant and O.B. Curtis Water Treatment Plant, capping four water wells, inspecting and cleaning of six water storage tanks around the city, installing 10 security cameras at water-treatment plants and making a number of other technical changes.

Of the changing scope, Teeuwissen recalls: "While there may have been some projects that were eliminated because the State of Mississippi said certain aspects and certain projects couldn't come under this contract, other projects were created and inserted in their place.

Neither amendment attaches a price for the deleted work, although Amendment No. 2 states that Siemens would allocate $2.3 million (up from $1 million in the original contract) for three additional sewer-line projects on Wilshire Drive, Sunset Drive at Christian Brothers Apartments, and Maple Street.

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Former Jackson Mayor Harvey Johnson Jr. says the problems with the Siemens contract came with its implementation after he left office in 2013.

Johnson and two Siemens representatives signed the amendments on March 28, 2013. They were printed on stationery of Molly M. Foley, a New York City-based Siemens attorney who specializes in performance contracting.

"This agreement conforms to Mississippi Statute and was expressly approved by the state," Siemens spokeswoman Amanda Naiman responded via an emailed statement.

"After the contract was formalized and during project execution, extensive conversations between the city and Siemens resulted in an updated contract value. Both the city and Siemens conducted this in accordance with state law where Mississippi imposes stringent statutory constraints on these types of contracts."

Crunching the Numbers

Under the terms of the energy-audit agreement, if Siemens uncovered potential savings, the city would hire an energy-service company to build a more efficient system. If the city went with Siemens, the cost of the audit would be included in the cost of the performance contract.

Unlike ordinary performance contracts, where an energy services company builds a system and pays all the upfront costs before taking its cut from savings on the backend, the Siemens-Jackson deal required the City of Jackson to raise the money, then immediately start a 30-month payment schedule.

Qingbin Cui, an assistant professor of civil and environmental engineering at the University of Maryland at College Park, said it's not uncommon to have a pay-as-you-go performance agreement, especially when there's a complicated financing agreement to go along with it.

However, Cui adds, "the payment must be based on performance."

"For example," he continued, "annual payment is calculated in accordance with energy (or) utility savings specified in the contract. Or a milestone payment is made after the construction is complete when the savings cannot afford the entire investment."

To date, Jackson has paid out just over $70 million, nearly 80 percent of the contract's total value. The city started paying interest on the bonds in late 2013 and will start paying on the principal later this year, according to Trivia Jones, the city director of administration.

The Siemens energy audit uncovered that, on average, water meters in the city of Jackson were only 88 percent accurate, records show. A city employee with knowledge of the contract, speaking to the Jackson Free Press on the condition of anonymity, said Siemens used a 10-percent sample to calculate the accuracy of the existing meters.

"A good statistician would laugh at that," the city employee said. In the final contract, Siemens guaranteed their meters, manufactured by Mueller Water Systems, to be 98 percent accurate, resulting in a 10 percent bump from meter reads.

It's not clear how the City and Siemens arrived at its revenue forecasts, which seemed to discount that people would likely conserve water when their bills went up. In addition, the city charges $3.21 per 100 cubic feet of water, with no partial charges, meaning that the user who uses 199 cubic feet of water pays no more than the user who uses 101 cubic feet, even with the more accurate meters. (Documents pertaining to the energy audit as well as financial analyses are among the Siemens-related documents the City of Jackson has failed to provide to the Jackson Free Press.)

The independent report that North Carolina-based Raftelis Financial Consultants completed for the City show that, in addition to the $26 million for the consent decree and $40 million for water meters, the contract included $1.1 million for development, $11.7 million for mobilization and $11.3 million for billing software.

The employee who spoke to the Jackson Free Press said after the contract was signed, Siemens immediately started looking for ways to cut costs, including the decision to use cheaper plastic instead of metal water meter lids.

"As soon as they got the contract, (Siemens said,) 'We want to use a different top.' There was serious discussion about the top," the city employee said.

In June 2014, the City issued a request for proposals to sell the old meters and lids as scrap—the minimum price was 95 cents per pound, documents from the City show—but the city never went through with a sale, and the metal lids remain in storage.

Bailing Out

Growing impatience among the city council has some making noise about getting out from under the Siemens contract, although they have made no formal moves in that direction. The experience of McComb, Miss. and another southern city, Monticello, Ark., could provide a roadmap should they decide to act.

In early 2015, the Monticello City Council unanimously voted to go into mediation to terminate that city's contract with Siemens, as well as to recoup $7 million the city has already shelled out.

"(S)ince this project has become so muddled over the course of this last year, the only way that we can move forward with this project is to move forward with mediation," Monticello Mayor Zack Tucker told the council there Jan. 15, according to news website Southeast Arkansas Today. The newspaper also reported that Siemens responded to Monticello with a letter in November 2014, saying that "at no point has Siemens failed to perform, or to tender performance of, any of its contractual obligations.

"Siemens has been, and remains, ready, willing and able to complete its work. The city has directed Siemens to cease work on the water line scope of work, which may affect the parties' respective rights and duties," Steven R. Shamash, an attorney for Siemens, wrote to that city.

McComb also sued Siemens in 2011, alleging failure to meet the benchmarks of a $4.5 million contract for 6,900 new water meters. That city signed its contract in 2009 under then-Mayor Zach Patterson, who also pushed for construction of a $34.4 million wastewater treatment facility.

In court documents, McComb argued that the company "failed or refused" to hit deadlines associated with a water-meter upgrade project similar to (if considerably smaller than) Jackson's.

"Siemens," the complaint reads, "agreed and guaranteed that (McComb's) increase in billable water, through more accurate measure, will be equal to or exceed the total project costs," or Siemens would pay the city the difference.

The complaint further alleged that Siemens' "misrepresentations" caused financial harm to the city.

In the company's response, Siemens denies McComb's allegations, saying that the city "failed to mitigate its alleged damages." Siemens also counter-sued for breach of contract, arguing in part: "Despite (Siemens') earnest cooperation and efforts to achieve final completion of the contract, McComb wrongfully terminated (Siemens') scope of work under the contract, and has refused to allow (Siemens) personnel to enter the site where work was to be performed under the contract."

Siemens also says the company has implemented more than 1,000 guaranteed performance-based projects, resulting in $2 billion in energy and operational savings over the past 10 years.

McComb and Siemens settled their dispute in November 2012, with McComb agreeing to pay the company $2.5 million of the original $4.5 million contract price tag.

Whitney Rawlings, who succeeded Patterson as mayor, said he doesn't have details about the initial negotiations.

Rawlings told the Jackson Free Press that his city originally bought a system similar to Jackson's where meters could be read remotely, which would theoretically free up the money paid to meter readers.

In the end, that proved impractical, he said. "We were able to scale back the project and didn't go with automatic meter reading," Rawlings said. "We're happy, and things have worked well."

'My God'

Johnson stresses that the problems with the Siemens project came during implementation, after he left office, and not with the crafting of the deal. Despite what he calls an inference that he's to blame for the problems with the contract and water meter-project, he says his administration carefully weighed the contract before signing it—a delay that drew ire from some council members.

In fact, Bluntson cited what he calls Johnson's indecisiveness as one of the reasons he opposed the sitting mayor in the 2013 mayor's race. "Harvey Johnson would never do anything 'til he got ready to do it," Bluntson said. He was one of three council members who voted for the Siemens deal who also ran for mayor in the 2014 special election. The other two were Ward 7 Councilwoman Margaret Barrett-Simon and then-Ward 6 Councilman Yarber.

One city council member voted against the Siemens contract was Ward 3 Councilwoman LaRita Cooper-Stokes, whose husband, Kenneth Stokes, preceded her in that same seat on the council and has now succeeded her after she won election as a county judge last year. Kenny Stokes has been among the most vocal critics of the Siemens contract since returning to the council.

The other was Ward 5 Councilman Charles Tillman, a Brookhaven native who was concerned about the similar Siemens project in nearby McComb.

Tillman told the Jackson Free Press that, while Jackson mulled the deal, he received a call from an acquaintance back home who was concerned with what was going on in McComb.

"I raised questions. I didn't get the answers to believe they were trustworthy and (were) going to do the right thing," Tillman says of his reservations and why he voted against the contract.

Looking back, Bluntson says he wishes he would have voted the same way as Tillman—against the Siemens contract.

"You know, Jackson needs so much, and I thought this was going to be a way to help us move us in a direction to get the water systems going better," Bluntson said of his support of the contract at the time.

He estimates Siemens representatives appeared before the city council about 10 times but always allayed most members' worries, including concerns over events unfolding in Pike County.

"In my mind, if a place as small as McComb's got problems—my God," Bluntson said.

Read Part I of the Troubled Water series at jfp.ms/water and comment on the story. Email R.L. Nave at [email protected]

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