JACKSON—Responding to a years-long water-billing albatross around Jackson's neck, Mayor Chokwe A. Lumumba announced today that the City of Jackson has filed a lawsuit against Siemens Industry Inc. and associated divisions in the U.S. and Germany, along with multiple local subcontractors, seeking to recover money lost due to what the mayor characterized as “misconduct” in the execution of its beleaguered $90-million contract over water and sewer repairs and billing.
“Siemens and those working with the company failed to deal honestly with the City of Jackson, manipulated the City’s policies for creating business and job opportunities for its citizens, and burdened the City with one of the most expensive municipal water meter and billing systems in the country,” the mayor said at the press conference, while declining to take questions.
Siemens told the Jackson Free Press in an email late today that it did its part under the contract: "Siemens’ work on the project has been validated by an independent, third-party review performed by West Monroe Partners, who was hired by the city of Jackson and performed its work under the city’s direction. Siemens has gone above and beyond its contractual obligations to help address the city's well-known challenges, which are complex. While Siemens has not yet reviewed the complaint, it is disappointed the city has taken this action and will respond through the appropriate legal channels."
The long-considered lawsuit, filed in Hinds County Circuit Court, also names former Siemens local agent Chris McNeil who was the liaison with the City of Jackson, U.S. Consolidated Inc., U.S. Consolidated Group, M.A.C. & Associates LLC, Ivision IT Consultants LLC and Garrett Enterprises Consolidated Inc.
In 2013, Mayor Harvey Johnson Jr. signed the Siemens contract for $90 million to install new water meters and a new billing system for water and sewage services, along with physical upgrades to water and sewer lines and to the city’s sewage treatment plants. In the years since, Jackson residents have been plagued by errors in water and sewer billing, causing shortages in the city’s revenue from these services.
Lumumba said today that the water-system failure has cost the City more than $20 million each year since it was signed. This has burdened the City’s obligation to pay the $7-million annual bond payments to finance the contract, he said.
“This administration is committed to eliminating corruption and incompetence in public contracting,” the mayor said. “We believe that the citizens of Jackson are innocent and deserve compensation for the wrongs done.”
‘Massive Fraud’ by Siemens, Subcontractors, Lawsuit Alleges
The lawsuit accuses Siemens of committing “massive fraud” by inducing the City of Jackson to contract with it and its subcontractors to enjoy “increased revenue and savings” of $120 million from water-meter upgrades that would supposedly pay for the $90 million costs of the contract.
“Siemens committed fraud with respect to who was performing the work on the project, what the system would do, and what savings the system would generate, among other things,” the lawsuit alleges. “Far from delivering on its promise of $120 million in guaranteed savings, Siemens caused more then $225 million in losses to the City.”
The corporation, the City contends, promised that the new system would bring new revenue and decrease the number of employees needed to manage it and that Jackson was agreeing to an energy performance contract. Instead, the lawsuit says Siemens “created a deal structure with illusory savings and no real performance assurances at all. The promised “savings” are “phony, assumed amounts,” the City says.
The City thus took on all of the risk of the project while Siemens was paid $90 million but failed to deliver actual savings and revenue, the suit charges.
What the contract delivered has been woefully inadequate, the City says, with more than half the 60,000 new water meters installed incorrectly with chronic delays and problems with measurement and billing for water usage. The billing system was set up inaccurately, resulting in many “stranded” accounts in the system not bringing in revenue, as well as “grossly inaccurate bills” if any bills at all.
Ultimately, the City charged that Siemens both “failed to provide a water meter system that works” and defrauded the City through the corporation’s use of the wrong local minority contractors who were not up to the job.
In 2015, Monticello, Ark., sued Siemens for $6.7 million due to similar issues with its water system. The City had a $10-million contract with Siemens, and paid $6.7 million before the project began. Eventually, Siemens settled the case, and Monticello received $4.6 million back.
Similarly, McComb brought in Siemens for a $4.5 million contract to replace meters and install 6,900 automated water meters in 2010. After the project’s completion, the city had problems with the software trying to read the meters. The city settled the suit in 2012, a year before the city of Jackson entered a contract with Siemens.
City: Local Minority Businesses Agreed to ‘Pass-Through Scheme’
Today’s lawsuit specifically names a number of local minority-owned subcontractors whom Siemens paid to deliver various components of the water-billing overhauling and accuses Siemens of “misrepresent(ing) its commitment to hire qualified, minority-owned subcontractors under an Equal Opportunity (EBO) plan,” as the lawsuit states. Siemens assured the City that it would use qualified minority-owned subcontractors for 58%—more than $52 million—of the contact’s cost.
Editorial: City Must Increase Subcontracting Transparency
In November 2015, the Jackson Free Press called for an overhaul of Jackson's contracting laws, including more transparency about identity of subcontractors receiving taxpayer money.
“However,” the suit states, “Siemens never intended to hire qualified EBO subcontractors to actually perform the work. Instead, Siemens conspired with its co-defendants and used a pass-through scheme in which it hired sham subcontractors and middlemen to inflate its EBO numbers and deceive the City’s residents.”
The City is accusing Siemens of selecting those subcontractors based on “their political connections and influence rather than their qualifications,” thus depriving “qualified and competent” businesses the chance to do the work.
Back in 2015, it was hard to even get the names of those subcontractors. The Jackson Free Press repeatedly challenged the City to release names of the subcontractors being paid for components of Siemens and other contracts even as it had traditionally not revealed the names of “subs,” as they’re commonly called. At that time, the Jackson Free Press named several of the contractors specified in today's lawsuit in one of several editorials about subcontractor transparency, which helped lead to action by the Jackson City Council to tighten rules on subcontractor transparency over the wishes of the then-city attorney.
The complaint filed today named a number of local owners (or former owners) and agents of local companies that the City is suing over the millions paid to them for what it is calling poor work: former lobbyist and politician Tom Wallace of U.S. Consolidated Inc.; Tommy Wallace of U.S. Consolidated Group LLC; Marcus L. Wallace of M.A.C. & Associates; James Covington of Ivision IT Consultants LLC; Leland Socrates Garrett of Garrett Enterprises Consolidated Inc.
The lawsuit details “pass-through schemes” that use local minority contractors as “water meter middlemen” who got paid but who did little or no work. For instance, the City maintains, Siemens paid Marcus Wallace’s company, M.A.C. Associates, $19 million as a minority subcontractor responsible for water plant and sewer-line repairs and for installing new water meters. However, it says, Hemphill Construction Inc., which is a white-owned company, performed most of the repairs through either a separate subcontract with Siemens or a second-tier subcontract with M.A.C. Associates, who the City says was not qualified to do the work.
In another alleged scheme, the City said that James Covington’s Ivision IT Consultants LLC, a minority-owned business, received $11 million to implement the new billing system, but another company ended up doing most of the work.
Siemens and the Subcontractors: A Jackson Story
The JFP's years-long coverage of the Siemens water-billing and repair contract and the minority contractors it paid along the way.
Garrett Enterprises Consolidated Inc. was paid $4.6 million for construction management and quality control services. “However, it is unclear what services, if any, Garrett actually performed and how those services provided any commercially useful function for the project and benefit to the citizens of Jackson,” the lawsuit contends. “Like other sham subcontractors, Garrett received millions of dollars to serve as a pass-through entity under Siemen’s fraudulent EBO plan.”
The mayor said today that the city has hired local and out-of-state counsel to pursue its claims and the mayor says he has confidence in their attorneys. The City is seeking $225 million in actual and consequential damages. That includes $150 million for taxpayer costs of funding the Siemens project, $75 million for lost revenue and damage to the City’s creditworthiness and reputation; and several million dollars to repair and manage the broken water system. It also seeks punitive damages to defendants’ alleged fraud, malice and gross negligence.
“We look forward to our day in court,” Lumumba said.
This lawsuit represents only one side of a legal dispute. The Jackson Free Press will seek comment from others named in the lawsuit during Wednesday business hours.
Email city reporting intern Aliyah Veal at [email protected] and follow her on Twitter at @aliyahjfp. Read more about the Siemens and subcontractor history at jacksonfreepress.com/water.