Kilpatrick on Trial: Day 19

Published On: Oct 23 2012 09:58:32 AM EDT   Updated On: Oct 23 2012 01:18:15 PM EDT
DETROIT -

8:55AM The show has yet to start this morning. DWSD employee Daniel Edwards should be first to take the stand this morning to continue with his cross-examination by Victor Mercado defense lawyer John Minock. Next up should be Thomas Hardiman, a former Executive Vice President with Lakeshore Engineering, who will hopefully testify about Bobby Ferguson visiting him at his home and asking to get cut into a water contract deal. 

9:00AM Judge Edmunds enters courtroom. Taking up evidentiary issues on hearsay before jury comes in. 

9:00AM Jennifer Blackwell for government discussing a  Mr. and Mrs Phillips, and her recollection of certification being pulled many years ago.

9:02AM Judge asking if government needs Mrs. Phillips to impeach herself in testimony.

9:02AM According to Blackwell, Mr. Phillips is no longer alive.

9:03AM Jim Thomas says discussion that Mrs. Phillips, an upcoming possible witness, heard about in 2006 about DLZ would be total hearsay. She was not married at the time. Asking court not to allow her to testify.

9:04AM Judge agrees with the defense.

9:06AM John Minock continues cross of Daniel Edwards.

Who initiates change order? The field engineers in the project.

What necessitates a change order? For a variety of reasons. Amongst them, differing site conditions. Conditions that need to be looked at more closely and thus require greater compensation for doing so.

When contractors excavate they can find unexpected things? Yes.

Because the streets are so old? Yes.

Until you get to the pipes you are working on you have no idea what you're facing? That is true.

Until a contractor digs out a pipe and can examine it, there is really no certainty? True.

These contractors are multi million dollar businesses, Inland, Walbridge? Yes.

Run by shrewd people? I would think so.

Is one method to get a bid low-balling? For some individuals yes. Low-balling is when contractor deliberately under-bids contract. After they get contract, will try to get remuneration for different things they had not anticipated.

Then after low-balling, rely on change orders to get price back up? Yes.

And some contractors had a reputation for doing this? Some, yes.

Change order for CM 2014, to increase contract from $40 million to $55million and asks to extend for a year? Yes.

Whose signature on it? Anthony Adams. Victor Mercado's successor.

Now looking at a Lakeshore Engineering contract? Can't find it. Oh it's right here in front of me, hello.

To add 40,000 feet of linear mains on the change order. That's about 9 feet, quite a lot? Yes.

Yesterday you said it might look as if there was impropriety even if there wasn't any? Yes.

Read second to last sentence please. Witness reads it.

So this is the justification for it. So it would have been preferred to have a new contract? Well. We never know when bids come in if they will be higher or lower.

So change orders initiated by engineering? Yes field engineering.

So engineering thought it was better to extend project than rebid it? For whatever reason that is correct.

Rebidding process could have taken another 6 months? Yes that is possible.

Beside Mr. Adams signature we see Mr. Latimer's, someone from Budget Office? Yes.

So change orders have to be approved by multiple people? This particular one, yes.

Engineers have to sign on things before you issue checks? Correct.

On these change orders, multiple people had to sign off one this? Absolutely.

Looking at previous change order increasing contract amount by $15 million (this one looks like it was signed by Mercado). This again is for another 9 miles of pipe? Correct.

Witness reads "It is beneficial to have contract finished by contract manager". So basically it says that the construction manager finished last project well so beneficial to let them extend it.

Looking at second change order for $5 million (also signed by Mercado). Details additional work to be done that engineer says is needed, installation of service leads.

Minock says it is right to summarize that the service leads were to be installed in anticipation of a development? Correct.

Witness reads from document. Minock says they encountered something unexpected? Yes.

Looking at $6 million change order on CM-2014- to add just under 4 miles of additional water mains? Yes.

Witness reads about an another unexpected change found when excavating.

Now looking an order by special administrator on approval of change orders. Authorized clearly by Victor Mercado. about changes to contracts 650 and 651 held by Ferguson, but there were also change orders for five other contractors for even more than one change order under the umbrella contract? Right.

Now looking at memo from DLZ to DWSD explaining justification for change order. "The original price submitted by Ferguson Enterprises was" more than $1 million. Resulted in a savings of close to $400,000.

Could DLZ come out a contractor and say your competitors are offering to do it for less per square foot, are you willing to do it for less? That could happen.

Engineering department is explaining why they want to make a change to initial contract. Involves 3,000 feet of water main on Cass Ave? Yes.

Witness reads that it would also involve replacement of hydrants. Change is based on lump some price.

Contract 2012 was important to do as emergency contract with Super Bowl and All Star games coming up? correct.

That's why it was done by special administrator rather than RFP? Right.

It saves time? Yes it saves time.

Lists subcontracts by location- WS 650 on Washington Blvd and WS 651 Broadway Ave (Ferguson contracts) WS 642 on Woodward Ave and Ws 649 on Grand River Ave.

Witness says all contractors bid on same items. Then they were selected for specific contracts.

John Minock makes sure he looks at the jurors dead-on when asking his questions.

Minock says on some areas it would involve more work like digging up trolley tracks? Yes that was the case on Broadway.

Witness says the best contractors who could do the best work fastest were ones given change orders.

9:43AM Witness talks about test/pilot project with DLZ. after that project, they had 2 contractors working with them.

So basically the pilot was a dry run for what became CM 2012? That is correct.

Going back to 2014 and 2015 on how bids were scored. Originally lowest bid was $12 million and higest bid was $18 million- 50% difference, that's high right? Yes.

So your boss said to you we can't trust bids on the fringes? Right.

"Since there is such a large disparity of proposals in this case" reads the witness. Goes on to read that it might be low-balling that would require large amount of change orders.

Did you draft this for Latimer? Yes.

9:49AM Minock references a lawsuit in 1977.

Look at document that appoints first special administrator, Coleman A. Young. Document says special administrator full power over the water department without having to go to city council. Administered by Judge John Feikens.

Archer and Kilpatrick each in turn appointed special administrators? Yes.

Another order continuing special administrator powers for Archer? Yes.

This special administratorship was issued because waste was being discharged into the waters so the EPA helped set this up.

This order restates history of special administratorship and the powers. The order says the special administrator has full power to control water system and anything related to it? Yes.

Then look at motion to replace special administrator- Judge Feikens finds that things have improved so much at water department that special administartor no longer needed. January 5th 2006.

Minock says that during Mercado's tenure they didn't violate the waste water discharge permit? True.

The dissolution of special administratorship was during struggle of possible take over of Water Department? Yes.

Governor Engler wanted to take it over? Yes.

So for many years there were behind the scenes negotiations to change the structure? Yes.

Minock says that the mayor was empowered to award contracts without Water Board or City Council? Yes.

Mayor could have delayed decisions on contracts or cancel for any reason? Yes.

But the mayors kept things intact and kept Water Board involved even when they didn't have to? Yes.

Mercado took office in June 2002? Yes.

After nationwide search? Correct.

And the search firm said that a qualified candidate had to be paid $200,000 to $240,000? At least.

Mercado made changes over period of time? Correct.

Mercado's background as water engineer? Yes.

Before them there were lawyers and politicians? Yes.

After Mercado, Anthony Adams had been deputy mayor? Correct.

Before Mercado came, the engineering department had say in how department was run? Yes.

Some of those engineers had favorites? Yes.

Some of those relationships were too close? Yes.

And sometimes contractors knew who was getting contracts before RFPS came out? Correct.

There were lots of rumors, misimpressions and mistaken beliefs? Absolutely.

Before Mercado came evaluators would meet and discuss things like a jury would? Yes.

Before Mercado, department had favorites? Yes.

Certain types of contracts renewable? Yes.

After a while certain contractors developed attitude that certain contracts belonged to them.

Blackwell objects. Judge sustains.

Mercado significantly decreased authority of engineering department? Yes.

And some people resented that? Yes.

He made changes to the way the evaluation process operated? Yes.

Mercado also enforced policies that had largely been ignored? Yes.

Fired people for drug or alcohol abuse? Yes.

He trimmed staff? Yes.

He made people tow the line? Correct.

Mercado followed recommendations for reorganization? Yes.

Mercado kept IMG on? Yes.

Did you deal with them? Yes. For years.

While Mercado was director? Yes.

So you have outside organization helping Judge Feikens with oversight? Yes.

Largely instigated by Mercado? Yes.

10:12AM After Mercado arrived people had to work harder? Yes.

Was Mercado a good boss to work with? Absolutely. He was a good boss to work for. I never had a problem with Victor.

Minock finishes his very lengthy, detailed cross-examination. Judge Edmunds says this is a good place to stop and break for 20 minutes.

Expect that one of Bobby Ferguson's will take up cross after the break. Praying it's not nearly as long.

10:23AM Seems that the sick jurors are feeling better today. The young brunette juror who had hot flashes yesterday was busy this morning was seen eating Hershey kisses. 

John Minock did a good albeit somewhat plodding job painting Mercado as a very capable and efficient administrator who cleaned up a disorganized DWSD. Just really hoping that the rest of defense team has heard enough from this witness. Ready for Daniel Edwards to step down from the stand.

10:35AM Back at the defendants table. Dark suits prevail again. Kwame Kilpatrick is in black suit and Bobby Ferguson is wearing charcoal with a black tie. Bernard Kilpatrick is in a beige suit with gold tie and matching pocket handkerchief. Ferguson defense lawyer Susan Van Dusen pops in a bright white sweater.

Judge enters courtroom and says that next Tuesday court will start at 9:45AM.

10:38AM Jim Thomas, Kwame's lawyer, cross-examines Edwards.

Thomas says you started with DWSD when? In 1987.

In 1987 was Judge Feikens involved? Yes.

This is one of the judges with the longest tenure in the country? Yes.

Did you interact with Judge Feikens? On a number of occasions yes.

Did you find him capable? Yes.

Witness talks about time when Oakland County executives wanted to take over DWSD because of perceived mismanagement.

Judge Feikens discussed special administrator under Kilpatrick's tenure? Yes.

Witness describes long term compliance- water department works under an EPA permit. there are certain stipulations on permit for discharges into the Rouge River.

"In 2 key actions, Mayor Kilpatrick ordered" hiring of Mercado and bringing on IMG- this led Judge Feikens to conclude in his order than clean water was on its way back to Detroit.

Judge commented on projects proceeding on schedule? Yes. He said they were being completed on schedule.

What does Judge say about Mercado? Witness reads that when problems have arisen, Mercado has been prompt in addressing them to the judge. Reports have also been filed in a timely fashion.

This is in 2006- Mercado has cut operating budget by 10% without affecting compliance. DWSD sewerage rates amongst the lowest in the country. Bond rates have been remained good.

So all of that during a large and ambitious project for Super Bowl and All Star game? Correct.

You remember at some point Kilpatrick was no longer needed as special administrator? Correct.

It was because at that time Detroit was well on its way to clean water? Correct.

Contracts 650 and 651. Were you aware that Kilpatrick had asked to work promptly to extend contracts? Yes.

Were you aware that Feikens did what Mr. Kilpatrick requested even when he was no longer the administrator? Yes.

10:52AM As relates to WS 650 and 651, the judge did approve the amendments to the contracts? Yes.

Edwards reads from document which states that delays people from doing competent work. Court also reflects on discontinuance of special administratorship.

Judge didn't fire Kilpatrick? Correct.

Judge discontinued special administrator under his own authority? Yes.

Because it looked like the goals of the DWSD were being met? Yes.

10:56AM Mike Rataj for Bobby Ferguson.

Yesterday you spelled out duties that came with your position? Yes.

Rataj says focus on sub-contractor for basis of my questions. Sub-contractors when they want to get paid they need to do certain things? Yes.

They have to gather invoices, labor and equipment costs? Yes.

And then they take documents to field engineers? Correct.

Do subcontractors submitted to prime contractor or field engineers? To the prime contractor who gives it to field engineers.

It's a very involved process, go through blueprints with a fine tooth comb? Yes.

Field engineers may go back to prime or sub and say they don't like what they see? Correct.

So then sub-contractor has to fix it? Yes.

This is situation that routinely happens in the field? Yes.

There are layers before request for payments become realized? Yes.

Witness says project manager will receive all the information. And they then establish an engineers' estimate. They put the data into a form and attach submitting documents to that. Give it to their supervisor who reviews it. Then sent to the next supervisor who does the same. Then it goes to engineering. after they sign off on it, it goes to DWSD to be signed off.

So would you agree there is a series of checks and balances? Yes.

So subcontractors not paid unless job is done? Yes.

Witness says engineers' document is reviewed to make sure it's in compliance and everything is in line with contract document. then submitted back to witness or other staff member who draw down money to pay the contractor. Then witness signs off estimate. Then it goes to accounting to cut the check.

This is the longest witness by far. Has been on the stand for 5 hours. And he is loving it. Unfortunately, the rest of us are not.

The check is sent to prime contractors who should then pay the sub. It doesn't always happen in a timely fashion.

The payment verification also applies to payment on change orders? Yes.The same process is in place.

You are familiar with Ferguson Enterprises Inc? Yes.

And you know Bobby? Yes.

You would agree that FEI is a real company? Yes.

Had a history in Detroit prior to Kilpatrick tenure? Yes.

Witness talks about design contract. Contractor responsible for designing through construction and completion.

Rataj brings up contract under Archer administration. Paid through various checks and balances? Yes.

Same with payment of contracts in subsequent administration? Yes.

Rataj asks him to focus on consulting contracting. Witness says a CS or Consulting Services contract is supposed to be for consulting services like designing a project. It could also be for any other type of financial contracts that required assistance. 

Rataj now asks about construction contracts. Witness says they are what they seem like. Construction work for department. He lists various examples. "It's the hard labor doing the work."

Are construction contracts and consulting contracts billed the same way? Well they are advertised the same. But the process is different.

I'm not sure what Rataj's strategy is. If it's to lull the courtroom to sleep, it's definitely working.

Are consulting contracts bid out as lump sum bids? Can be.

Witness says a lump sum bid is where DWSD ask proposers for a price on the entire project. All DWSD wants to see is a bottom line without breakdown.

Witness describes a unit price contract.

It's a very detailed bid? Yes.

And sub-contractors always submit unit price bids to prime contractors? Yes.

Kwame just passes a note to Bernard via defense lawyers. Would love to know what that note says.

Rataj says there is an equalization process for construction contracts? Yes. I believe I explained that yesterday.

Someone please get this guy off the stand. Please, please, please.

Looking at purchasing ordinance. City of Detroit purchasing ordinance defines how the city of Detroit is to go out and procur various items. Construction, consulting contracts. It also provides definitions. It also established various percentages of equalization to be applied.

Rataj hands witness a document and asks him to tell jury what it is. It is Executive Order #4 by Archer. It delineates that the city of Detroit is to give preferential treatment, 30% of contracts, to Detroit-based businesses. at least 30%, if not more.

The equalization process does it apply to consulting process? The equalization process between 2002 and 2008 would not apply to consulting project. Or even construction management project with RFP.

You know what a minority business enterprise is? Yes.

MBE is Minority business Enterprise. You went to same cast of characters pretty much in course of your career? Yes.

11:33AM Witness says you can be Detroit-based business without being Detroit headquartered.

Kwame and Bobby are laughing at something. For the life of me, I can't imagine what is funny in this courtroom right now.

You get certificate from Human Rights department to say you're Detroit-based? Yes.

Witness says at time of bid, prime does not have to list sub-contractors. Just check off if you're Detroit-based, headquartered and resident. If 51% of your employees are residents, it increases points for ultimate score.

General contractors in order to increase their points they will use sub-contractors? Yes.

Witness says it's advantageous for prime contractors to use sub-contractors who meet all the Detroit-based criteria.

Witness says when talking about RFP, equalization is non-existent. In 2002 to 2008, anything that is RFP that is scored, you're talking local economic development not equalization.

Local economic development is where criteria is established as 35% of the weight. Equalization is where the bids come in, they do a bid tab and then after the bid tab, they look at what the prime contractor is certified as, based headquartered or resident. Those are applied to bid amount to reduce the amount of contractor in question so that when they compare the bids, the bids of Detroit based and headquartered business will be given preferential treatment because they have been reduced by credit amount.

So lowest bidder doesn't always get the contract? That is true.

You're familiar with minority front? Yes. Minority front is a business which is being used for the purposes of stating that the contractor is using a minority company when in essence they are not.

The general contractors use minority fronts to increase score? Yes they could have at times.

And that's been a problem with DWSD through the years? Yes it has been.

The prime contractor using a minority front, they may bill for materials? Correct.

The minority front is reimbursed later by the prime? Yes.

You would agree that prior to Kilpatrick administration this was major problem? It happened.

When Kilpatrick came in, they wanted real minority businesses working?

Blackwell objects. Judge sustains.

re you familiar with Phillip Patel (not sure on last name) he worked with DWSD? Yes.

And then at Lakeshore at night?

Blackwell objects. Judge sustains.

Can't work at DWSD with proper bonds and insurance? Yes.

Describe the kinds of insurance contractor would need. Witness says general liability, auto liability, umbrella liability, builder's risk insurance.

Different bonds? Performance bonds that guarantees performance for DWSD. If job not done, then DWSD can force them to do the job. Payment bonds in place for protection of DWSD and for the sub-contractors.

Prime contractor has to have all bonds and insurances you spoke of? They should, yes.

On umbrella contract CM 2012, there were a number of smaller contracts. DLZ was prime contractor and there was an issue with their bond? Yes. They didn't have one.

I had such high hopes that Rataj would be in pit bull mode. Not the case, at least not with this witness.

Rataj shows witness document that has scratched out notation. Who did that? I did said witness.

The document is a reporting log sheet- Edwards recording to his file what conversation has transpired and what he needs to do. On July 16th 2003. the contract is to be for $19.8 million, DLZ's cut to act as construction manager for this project. They manage the umbrella contract,

Witness reads "I spoke to Jay Mehta and he said that DLZ" would not have to get performance bonds but would get them from sub-contractors. Edwards stated his objection that in the past they had always gotten them upfront from the prime.

Edwards says after discussion with Mercado, the original concept was to give them a design build project where they would design and construct the project.

12:00PM Rataj says so you had a problem with DLZ is that they didn't have a bond? Yes that's correct.

As a result of not having a bond, DLZ couldn't do design build contract and had to go to another format.

Judge calls for a break. This is an interminable litany of DWSD contract definitions. Seems unlikely that we'll get to another witness today. Can't believe we have spent 2 days discussing the minutiae of water contracts.

12:12PM Judge calls for sidebar before jurors shuffle back in.

12:15PM Judge tells jury, everyone understands this is a confusing area and that's it's not always crystal clear how it works together. Lawyers will try to keep it simple. If you're confused, raise your hands.

Defense lawyers John Shea, Susan Van Dusen and Bernard all raise their hands.

12:18PM Witness answering jury questions.

Judge tells the court that Edwards is one of 2 pay witnesses who will be back for other chapters of trial. So he can clarify things more later.

And another sidebar.

12:21PM Rataj asks witness about document. It's an email from Robert Walter in city law department to Victor Mercado. It talks about DLZ's bonding issue.

"It boggles my mind that DLZ would take advantage of DWSD in this way AGAIN...They burned us once." Reads the email. From July 2003.

DLZ didn't pay sub-contractors twice in the 80s so DWSD got burned by them.

Rataj says it was an RFP contract on CM 2012? Yes.

So 3 lowest bidders didn't necessarily get contract? Correct.

It was an emergency contract? Correct.

Had to get the streets ready as soon as possible because had events coming up? Correct.

Witness looking at email from DLZ to himself. Awni Qaqish and a few others copied. December 24th 2003. Talks about RFP process to select contractors. Solicitation open to all proposers with strong preference for Detroit-based businesses.

So Rataj says it suggests that as many as 7 contractors possibly more will be working under umbrella contract? Correct.

Government lawyer Michael Bullotta so captivated by testimony that he is leaving the courtroom.

Document talks about pilot project CS-1347 that DLZ did related to water systems replacements. That was under consultant contract, Ferguson Enterprises and Hayes Excavating worked with them on this pilot project.

WS 642, 649, 650 and 650 contracts were held by DWSD because DLZ didn't have a bond.

Memo from Victor Mercado to Audrey Jackson in Purchasing on January 12th 2004. Contracts 642, 649, 650 and 651 were directly negotiated by DLZ with FEI and Hates Excavating.

"The combined estimated cost of the five contracts is $3,805,000. WS 642 and 649 assigned to Hayes Excavating. WS 650 and 651 to Ferguson enterprises." Goes on to say both firms have demonstrated ability to work and are minority bsuinesses. Contract WS 652 was up in the air at this point.

Rataj says at this point FEI had provided insurance and bonds required by law? Correct.

Did not have fully executed contracts because DLZ had not produced a bond? Correct.

Document form Awni Qaqish to Mercado. It's not low bid contract so doesn't matter who lowest bidders are? Correct.

So this was just for one contract- for Washington Blvd? Yes.

Ferguson Enterprises ranked 8 on this list and Hayes Excavating ranked #9.

June 1st 2005. Letter from DLZ to Mercado regarding CM 2012, contract WS 656 approval of change order #12. Contractor is Lanzo Construction. Talking about replacing 350 linear feet of water main at $514 per linear feet.

Lanzo Construction had quoted more than $274 per linear feet on Washington Blvd bid.

Rataj says it has no importance that Posen, L D'Agostini and Lanzo were 3 lowest bidders? Correct.

What happened with Lanzo construction asks Rataj? There was an error on one of their unit prices.

Rataj shows witness document from August 2004. Breakdown of all contracts assigned by DLZ under umbrella contract CM 2012. letter from Mercado to City council on emergency contracts.

Eagle Excavation and they weren't even in the Washington Blvd bid process? that's correct because they were already on site for a compuware project.

So it was a cost saving method? Correct.

Rataj brings up one of the change orders for WS 651. Says that negotiations resulted in savings of $281,475.

1st change order on contract for more than $400,000 on 651 . Then another change order for $356,000.

"I'm almost done. Mercifully I would imagine," says Rataj. You have no idea Mr. Rataj.

Contract WS 656 for Lanzo construction. Change order #12- so they went through a bunch of change orders says Rataj? Yes.

This is 12th change order for Lanzo. Amount on order is for $183,000 went all the way up to $6.5 million. Started out at close to $1.3 million. Not unusual to have this many change orders? That's correct.

L D'agostini originally contract price of 1.3 million at change order #8, new total is $5.4 million. So again not unusual? Yes.

DLZ was able to make more than $19 million dollars without putting up any bond.

Witness corrects. So DLZ made $7 million without risk and all the subs assumed risk? Yes.

Rataj finally wraps up. Judge dismisses jurors.

1:05PM Incredibly convoluted testimony. In essence, Rataj tried to demonstrate that this wasn't a low bid contract process and there was no requirement to take lowest bidders. Also that DLZ, the construction management company for the umbrella contracts, had issues with not having appropriate performance bonds.

The last point Rataj made, in reference to yesterday's series of change orders on Ferguson contracts, was that it was not unusual for contractors to issue them. Case in point Lanzo Construction which had 12 change orders and L.D'Agostini with 8 under umbrella contract CM 2012.

Court resumes tomorrow at 9AM.

About the author:

Alexandra Harland is a Princeton undergrad and has a masters degree in International affairs with Columbia. A Montreal native, she worked with the Daily Telegraph newspaper for a few years before transitioning to TV, when she worked at ABC News with Peter Jennings. Alexandra has also worked in newsrooms in both Detroit and Boston.