The Siemens Settlement, Explained | Jackson Free Press | Jackson, MS

The Siemens Settlement, Explained

On Feb. 19, 2020, Mayor Chokwe A. Lumumba announced a $89.8-million settlement with Siemens Inc. Photo courtesy City of Jackson

On Feb. 19, 2020, Mayor Chokwe A. Lumumba announced a $89.8-million settlement with Siemens Inc. Photo courtesy City of Jackson

The years-long saga of a troubled contract with Siemens Inc. and subcontractors for new water meters for Jackson seemed to come to an end on Feb. 19 when Mayor Chokwe A. Lumumba announced that the City of Jackson had reached a $89.8-million settlement with the multinational corporation. The mayor's statement came eight months after the City had filed a lawsuit against Siemens and several local subcontractors for more than $450 million in damages stemming from botched work on Jackson's water-sewer infrastructure and billing system.

"I committed to you that I would sue Siemens for the harm they caused our city and the community-at-large. Promise made, promise kept," the mayor said during the press conference from City Hall. He then revealed that Siemens had agreed to pay back the full amount of the January 2013 Siemens contract that outgoing Mayor Harvey Johnson Jr. had signed on Dec. 28, 2012.

The Jackson City Council had voted on Jan. 18, 2018, to pursue litigation against Siemens to recover the full amount of the contract. Ward 3 Councilman Kenneth Stokes, who had proposed the motion, voted to pass it, along with Councilmen Aaron Banks of Ward 6 and De'Keither Stamps of Ward 4. Councilmen Ashby Foote of Ward 1 and Charles Tillman of Ward 5 voted against it, while Ward 2 Councilman Melvin Priester Jr. and Ward 7 Councilwoman Virgi Lindsay were absent.

Lumumba's remarks on Feb. 19 included serious allegations far beyond poor work performance. "Siemens and its subcontractors manipulated the minority contracting rules to inflate the cost of the system from approximately $45 million to (nearly) $90 million. This was done through reselling meters in order to inflate their cost so that middlemen could line their pockets," Lumumba alleged.

The corporation gave a different account later, however. "Siemens disagrees strongly with the Mayor's characterization of the company and contract. Among other shortcomings, this one-sided view failed to acknowledge broader water and sewer system issues," a Siemens spokeswoman wrote in an emailed statement.

"Because the settlement is not yet finalized, Siemens cannot comment further," the spokeswoman repeated on March 2.

Siemens representatives declined this newspaper's repeated interview requests. Roy Campbell, a Jackson-based lawyer representing Siemens, also declined to speak with the Jackson Free Press.

'Bait-and-Switch'?

In 2013, the City of Jackson entered into the $90-million performance contract with Siemens to upgrade Jackson's sewer lines and water-treatment plants and to install a new automated water-sewer billing system. Court records show that, in the months leading up to the contract, Siemens had promised $120 million in "guaranteed savings" for the city. The corporation stated that the new water-sewer repairs and billing system alone would generate enough savings to pay for the $90-million project.

"In its pitch to the City, Siemens repeatedly invoked the guaranteed structure of an energy performance contract," the City's June 2019 lawsuit against Siemens reads. "When it came time to execute an agreement, Siemens effectuated a 'bait-and-switch' that fell short of a true performance contract."

Instead of generating revenue or savings for the City, the work Siemens contracted to complete resulted in problems that have thrown Jackson's water-sewer system into crisis and the City further into debt, the lawsuit charged.

Not long after Siemens and its subcontractors installed the new billing system, residents reported not receiving any bills, sometimes for months or years. Those who did receive water bills reported inaccurate—and unusually high—amounts, which they often did not pay.

On Feb. 27, Public Works Director Bob Miller confirmed to the Jackson Free Press via email that the City "has 34,804 active water and sewer customer accounts with outstanding balances over $100 that in arrears more than 30 days." (sic) Those balances add up to a total of $43,541,780.35, he wrote.

The unpaid bills have depleted the City's enterprise fund and forced it to dip into the general fund to continue making repairs on Jackson's deteriorating water-sewer system. The City had to take out loans to make vital water-sewer repairs, such as the $7-million emergency loan that the Jackson City Council approved in October 2019.

Mueller Systems manufactured the water meters that Siemens and its subcontractors—specifically M.A.C. & Associates—installed in Jackson. Court documents show that Siemens "did not disclose that it had never installed a Mueller water meter system for use in conjunction with an Oracle Customer Care & Billing System."

The City argued in the lawsuit that Siemens "essentially used the City of Jackson as a $90 million test case for an unproven system, failing to disclose to the City that Siemens had never successfully paired the two systems before. Siemens also failed to disclose that installing a new automated water meter system at the same time as a new electronic billing system is unprecedented and is contrary to industry standards."

By press time, the City was unable to confirm how many of the water-billing failures were due to faulty installation of the meters and how many they believe were caused by the faulty manufacture of the meters themselves.

Select Subcontractors Sued

The City's lawsuit named the following Mississippi-based subcontractors: U.S. Consolidated Group LLC, headed by Tommy Wallace; M.A.C. & Associates LLC, which lists Marcus L. Wallace as its agent; Ivision IT Consultants LLC, headed by James Covington; and Garrett Enterprises Consolidated LLC, which Leland Socrates Garrett owns.

The mayor's Feb. 19 remarks addressed criticisms from targeted minority subcontractors. "One of the Siemens subcontractors remarked, 'It's a sad day in our City when we have a fake African American mayor who clearly does not understand the history and the struggles of black businesses in our city.' Let me be clear, this lawsuit was never about suing black businesses, it was about suing bad businesses."

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Ivision IT Consultants LLC, owned by James Covington, is one of four local subcontractors that the City of Jackson named in its lawsuit. Photo courtesy James Covington

Lawyers representing the subcontractors named in the City's lawsuit argue that the mayor's allegations of fraud and wrongdoing against their clients are unfounded, and that the City should have sued all subcontractors involved in the contract rather than singling out four of them.

During a court appearance at the Hinds County Courthouse on Feb. 25, attorney Terris Harris, who represents Ivision IT Consultants, argued before special-appointed Judge Oliver Diaz that subcontractors Hemphill Construction Co. and Expert Professional Solutions should have also been named in the suit. Court documents show that Ivision was tasked with "implementing the new CC&B billing system," for which it was compensated $11 million.

Attorney Dorsey Carson represents Garrett Enterprises Consolidated, which the City's lawsuit states "was paid $4.6 million to perform construction management and quality control services." He emphasizes that the City's allegations that his client acted fraudulently were unsubstantiated.

"We don't know why we were brought in. The complaint doesn't say why we were brought in other than a vague conspiracy claim," Carson told reporters after court. (Carson is also an attorney for the Jackson Free Press in unrelated matters.)

"This has been really hard on the subcontractors that are basically being blamed based on (a) defective meter system that they're not responsible for," Carson said.

The Jackson Free Press obtained documents showing that the City paid Expert Professional Services, also called XPS, $500,000 for work it performed as part of the Siemens deal. Lumumba supporter and current city contractor Akil Bakari owns XPS, registered with the State under his other name, Willie Webster.

Brilliant Minds Public Relations, headed by Geilia Taylor, was another subcontractor that the City paid at least $444,012.00, as was Total Business Development, owned by Lucius Wright, which saw a $520,950.00 pay-out.

In a March 3 phone call, Taylor told the Jackson Free Press that her company performed "community engagement and outreach" under the Siemens deal. "We created educational materials about the project and we posted those in various areas around the City as needed and as directed. We also coordinated community meetings where we had representatives from the City and Siemens to come in and speak to the community... about what was going on with the project," Taylor said. She added that she was "engaged" in the project "from the notice to proceed up until the contract was closed out."

Wright said in a phone call later that morning that his company provided "training for installation of meters." He added: "That's as much as I can share with you because that's public information now."

The Jackson Free Press was unable to reach Bakari to confirm the work his company performed under the Siemens deal, but in a Feb. 27 phone call, Councilman Priester suggested that XPS worked on the billing software. "I want to say that they were working with Ivision and Origin on the software side," Priester said.

Bakari, who served on the transition team of both Mayor Lumumba and the mayor's late father, recently made headlines after the Jackson City Council voted unanimously to censure Jackson Chief Administrative Officer Robert Blaine. Blaine had signed off on $100,000 in payments to XPS for work that was supposed to have cost $48,000. The mayor has characterized the error as an honest mistake.

In a memo accompanying Garrett Enterprises Consolidated's motion to dismiss the City of Jackson's complaint, filed last November, Carson raised questions about the relationships between unnamed subcontractors and the mayor.

"The only common thread amongst these particular minority subcontractors, as contrasted to the subcontractors not sued, appears to be that these particular defendants did not fund or otherwise support the current mayor or his father in their campaigns for mayor, but rather supported one or more opposing candidates," Carson stated in the legal memo.

The Jackson Free Press is now going through 500 pages of Lumumba's campaign contribution records to factcheck Carson's assertion, but most records are in hard-to-read, long-hand writing. Thus, this assertion is not verified to date.

In a phone interview on Feb. 27, Mayor Lumumba said that the City's legal team decided whom to sue. He added that the team's investigation yielded additional revelations, such as the role of Mueller Systems in the crisis. After discovering that Mueller Systems' stockholders had filed a lawsuit against the company for loss of revenue stemming from the same faulty meters that were installed in Jackson, the City's legal team amended its complaint to include Mueller Systems.

"The subs will now say that it wasn't their fault because the meters didn't work," the mayor said, pointing out that the subcontractors would not have known about Mueller Systems' role had the City not amended its original complaint.

"Yes, that is one component of it. ... Another component is that there were no quality controls on it. Another component is that the contract in and of itself was ballooned in order for a pass-through," Lumumba added.

The mayor was referring to the lawsuit's allegations that U.S. Consolidated, which was supposed to supply water meters, bought meters from Mueller Systems and then resold them to Siemens at a "marked-up price for installation by yet another subcontractor (M.A.C. & Associates)."

The City's legal team pursued litigation against parties based on strength of evidence, the mayor reiterated. Lumumba explained that the City decided to not pursue Siemens International Corp., for example, because it did not have a direct connection to the botched work in Jackson—whereas Siemens North America did.

"There are people we did sue that I have relationships with. There are people we did sue that not only have I had relationships with them, I've had relationships with their family," the mayor said, emphasizing that the City of Jackson pursued litigation not based on personal relationships but on "bad business."

The legal team prioritized those that profited most from the flawed deal. "You then also follow the money, too, where you've got Ivision (James Covington) getting ($11) million ... and you've got the firm XPS (Akil Bakari) that got $500,000. Obviously, you're more interested in what Ivision did," Lumumba said.

By press time, the City had not responded to the Jackson Free Press' request for a list of all subcontractors that performed work and received payment as part of the Siemens deal. In 2016, the Jackson City Council passed an ordinance requiring subcontractor transparency.

$30 Million for Attorneys

It is unclear how the City will spend the money recovered through the Siemens settlement. The mayor said his administration would seek residents' input through community discussions.

City spokeswoman Candice Cole confirmed to the Jackson Free Press on March 3 that the City will host its first community meeting on the allocation of settlement funds on March 31, with six more meetings scheduled through the end of April. The City will notify the public of the meetings through its social-media channels, website and elsewhere, Cole said.

But if the current arrangement stands, attorneys for the City will receive 33% of the settlement, or roughly $30 million, thus leaving the City approximately $60 million. Court records show that Jackson-based attorney Winston J. Thompson III, together with the firm Lightfoot, Franklin & White, which has offices in Alabama and Texas, had filed the original lawsuit on behalf of the City of Jackson.

Thompson previously served as an assistant district attorney under then-District Attorney Robert Shuler Smith and also sued the families of white teenagers from Rankin County who killed James Anderson, a black man, in Jackson in 2011 on behalf of his family. Jackson attorney Barry Howard is also representing the City, the mayor confirmed. Howard, who was one of the mayor's father's largest campaign contributors, head of his transition team and shared office space with both Lumumbas before they became mayors, is the brother of City Attorney Tim Howard, who is not involved in the Siemens lawsuit.

The Jackson Free Press asked Mayor Lumumba why the City chose to work with an out-of-state firm—which is majority white—on the lawsuit.

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.

"Quite simply, what the City looked for was a law firm that would win the case for us, a law firm that was going to put in the necessary work," the mayor responded. "One of the considerations in that was thinking about the political connections that some people have and how it might unduly influence their work. ... Knowing how highly politically charged this was, we needed an objective voice."

"Not every law firm has the capital on hand to pursue a case of this magnitude," he added, noting that Lightfoot, Franklin & White had taken a sizable risk by vowing to put $1 million of work into the case, regardless of its outcome.

The Jackson Free Press also asked the mayor about his relationship to attorney Thompson. "My relationship with Mr. Thompson is one where I have mutual respect for our work. That's all," the mayor, who was a practicing lawyer before he ran for office, answered.

Thompson was also one of Lumumba's largest campaign contributors. In 2017, he gave at least $20,000 to Lumumba's mayoral campaign, one of his largest donors.

In a phone interview last month, Councilman Priester praised Mayor Lumumba for putting together what he called "the absolute perfect team to try this case."

"I was very impressed," Priester said, highlighting the legal team's speed as well as the sophisticated techniques it used to try what he called "a very complex case."

Priester added that the 33% contingency fee is very common. "While it's a very large amount of money that these attorneys are being paid, I do think it is justified based on the caliber of attorneys we retained, the speed at which they were able to get a resolution, and the techniques they used to bring this case to a resolution," he said.

Mississippi imposes a cap on contingency-fee contracts with outside counsel. That statute applies to state, state-wide elected officials and "an arm or agency of the state." Although municipalities may be considered "an arm or agency of the state" in some legal contexts, former Rep. Mark Baker of Brandon, who drafted the statute, confirmed to the Jackson Free Press that he did not design it to apply to city lawsuits.

Lumumba pointed out that Franklin, Little & White typically charges 40%, but that he negotiated their contingency attorney's fees down to 33% of the settlement.

Some people, like Ward 6 Councilman Banks, have questioned the settlement's speed. "I think there was a rush to get this done. ... Does this settlement make this City whole?" Banks asked, noting that the City's losses exceeded $60 million.

"You settle cases because someone proves to you that you have a significant chance of losing," Lumumba responded.

Settling the case was also in the City of Jackson's best interest because "there are all kinds of legal maneuvers that would allow Siemens to kick the can down the road so long that it could be 10 years before we witness one dollar." Then, the City would continue bleeding out approximately $20 million a year, he added.

The City and Siemens are now in the process of "exchanging releases," a legal process to ensure that neither party will pursue further legal action against the other. That is a standard protocol and prerequisite for any settlement, Lumumba said, pushing back on reports by Siemens and others that the settlement is not final.

"Without question, how silly would it be of me to announce that we have an agreement if we didn't actually have one? You can use the colloquial phrase, 'Don't believe me, just watch,'" Lumumba said.

Follow City Reporter Seyma Bayram on Twitter @SeymaBayram0. Send city tips to [email protected]. Read more on the Siemens contract at jfp.ms/siemens.

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