8:55AM Courtroom is slowly but surely filling up again on this fine, cold morning. First of the defendants in this today was Bernard Kilpatrick, very statesman-like, in a black suit and white pocket square, who entered the courthouse building around 8:30am with his lawyer John Shea.
Next in is contractor Bobby Ferguson closely followed by former Detroit mayor Kwame Kilpatrick. They must have received the light suit memo this morning because both are sporting suits in shades of browny beige.
Yesterday we finished the testimony of businessman Avinash Rachmale and heard from Darryl Latimer with the Detroit Sewerage and Water Department. Latimer is now deputy director of the DWSD but was formerly with the construction and grants department. Kwame kilpatrick's lawyer Jim Thomas will be finishing with his cross-examination of Latimer when the court session begins this morning.
9:05AM Judge Nancy Edmunds enters the courtroom.
9:06AM Latimer back on the stand and Thomas cross-examining him.
Thomas hands the witness an executive order that he is checking out. Executive order dated October 14th, 2003- number 2003-4.
Witness says the document outlines the utilization and what percentages of Detroit-based businesses should be used, not just for the DWSD but the city of Detroit as a whole. Thomas driving home the point that city contracts were being directed to city-based businesses.
33% of scoring had to be ascribed to local economic development says Latimer.
The executive order also discusses purchasing ordinance. Signed by Kwame Kilpatrick.
Executive order under Archer was slightly different in terms of percentage. Goal was 30% of Detroit-based business.
Talking about $10 million contract, 1361, that had initially been awarded to Lakeshore that got cancelled and then awarded to Inland.
Thomas said that Inland was already involved on a sewer replacement project on an as-needed basis.
Thomas asks how many bidded on 1361. witness can't remember exact number. "It was several," says Latimer.
"It's a very detailed procedure. The brass ring at the end is to get a work order," says Thomas. Latimer agrees.
Thomas says that the expense of putting together the contract proposal at the beginning is something borne by the bidder and eaten if they lose. Correct says Latimer.
Thomas says the Board of Water Commissioners reserves the right to cancel contract at any time, right?
Thomas asks why they want to reserve right to reserve contracts. Latimer says when it's a project on as needed basis they want to have to right to cancel.
Latimer says that on an as needed basis they can't say yes or no immediately, it depends on when the emergency arises.
Thomas says then there is no telling when you are actually going to get that money? No says Latimer.
9:19AM You knew Victor Mercado before he came to DWSD? From what I read says Latimer.
When he came to DWSD you rose the ranks? Yes one level says Latimer.
How soon after he came? Maybe 4 months or so says Latimer.
He (Mercado) had a great deal of experience in private section? Correct says Latimer.
Including process to inject oxygen in water supply? Yes says Latimer.
And Detroit won awards? Yes.
3 years in a row won awards? Yes says Latimer.
And you could talk to him about things but he made his own decisions? Yes says Latimer.
Was he a smart manager? Yes says Latimer.
Who decides how much money you get from budget? The director and then it's approved by city council says Latimer.
So Lakeshore didn't get 1361, it got folded into an ongoing project with Inland Waters? Correct says Latimer.
There were reasons for folding in the contract? Yes says Latimer.
$10 million is allocated for the project? Correct.
You can't use it anywhere else if it's designated for that project? Correct.
Latimer says you can fund it out of capital but at the end of the years the auditors are going to correct you because it's not a capital expense.
Mercado was a resourceful guy right? Yes says Latimer.
And he'd go to Wall Street to get funding. For what kind of projects? Capital projects.
Transferring 1361 to 1368 there were cross-savings weren't there? There could have been says Latimer.
1325 became the new contract number when 1368 expanded to include the scope of 1361 for Inland Waters.
9:31AM Thomas and Latimer discussing the contract awarding process from inception through ultimate contract awarding.
Thomas says so that even if Lakeshore thought they had the contract there were several other conditions that had to be met before they started the work? Yes says Latimer.
Thomas says Judge Feikens and special administrators granted special powers to streamline this process? Yes says Latimer.
Obviously Thomas making the point that the awarding contract process not clear cut and there are any number of reasons that it can be pulled at the last minute.
Where you aware that Rachmale had met with Mercado on June 10th 2003? No says Latimer.
Thomas shows Latimer email from Rachmale to Mercado about the meeting to refresh Latimer's memory.
Thomas asks what happens to the $10 million dollars that had been allocated to 1361? It goes to the project.
So it goes to 1368? Correct says Latimer.
So you agree that by transferring 1361 to 1368 there was a cost-savings? Yes says Latimer.
Inland had been doing this work before so they were probably aware of the needs of the area? Yes says Latimer.
So Victor Mercado is saving the city money by transferring the project to Inland? Latimer agrees.
Now we are going back to sister contracts 2014 and 2015 that were mentioned yesterday in terms of the change mid-process in terms of bid evaluation scoring.
Thomas says you had an opinion the way that the RFPs went out that you probably shouldn't have done that? Latimer agrees.
Do you have an opinion as to the quality of work of EBI (one of the bidding contractors on 2014)? Yes says Latimer. One of their executives who was very good left and after that the quality of the company's work suffered and there was a lawsuit against them.
Is that the kind of business that you want doing the work? No says Latimer.
They paid taxes and had certification? Yes says Latimer.
And there bid was significantly lower? Yes.
Would you says why they would do that? Latimer says that sometimes when they really want the work they bid very low and then if they get the job hope to make it up through work orders.
Then there was Vision Consultants. What was the difference with them? I believe they had the lowest price says Latimer.
In 2006 were you aware that DLZ was not Detroit-headquartered? Yes in my estimation they were Ohio-headquartered.
So Mercado asked your advice? No he didn't ask my advice says Latimer.
"He asked me for other options relative to the scoring cost," says Latimer.
9:46AM What is the purpose of average cost method? Latimer says to try to determine the effort level needed to do a job and then the lowest cost.
So Thomas says eliminate the advantage EBI tried to get by lowballing the bid?
You indicated that EBI be thrown out of the process? Yes.
With the average cost method it appeared to be more fair to everyone else? Correct says Latimer.
And EBI drops from number 2 to number 5? Yes says Latimer.
And Superior is still #1. What is wrong with Superior still being 1? I don't understand the question.
Well Superior was working with DLZ and DLZ was headquartered in Ohio. So true or false they were headquartered in Detroit? Not my job to determine that says Latimer.
It was not true DLZ was headquartered in Detroit? In my estimation says Latimer.
And they got decertified? Yes says Latimer.
So third column takes superior Engineering out? Out of the top 2, yes says Latimer.
DPM didn't get the contract thought they were #1? No says Latimer.
2014 contract went to Lakeshore Engineering. 2015 went to DPM. Latimer explains as he did yesterday that Mercado didn't want to give both contracts to one company.
Thomas says process was changed when EBI came with lowball bid on 2014 and 2015. Decided to use average cost method?
No one mentioned that EBI was going to be targeted but they were going to be put on a more equal footing? Correct says Latimer.
I have nothing further says Thomas.
Up next Mike Rataj for Bobby Ferguson!
9:55AM Rataj cross-examining Latimer. It's so on.
You are currently deputy director of DWSD? Correct says Latimer.
You testified you became deputy director in February 2010? Yes.
And prior to that you worked in contracts and grants? Yes.
Around 2003 soon after Kwame Kilpatrick became mayor? Yes.
And before that you were government analyst? Head, yes says Latimer.
You know Dan Edwards? Yes says Latimer.
What was he before contracts and grants? He was head governmental analyst like me.
So when you were promoted to manager of contracts and grants where was Edwards on the food chain? He was one below me says Latimer.
Between 2002 and 2008 in the Kilpatrick administration, there were 40 to 60 contracts awarded? Yes says Latimer.
Mr. Edwards told us that some of the engineers were too close to contracts. Would you agree? Yes says Latimer.
Would you agree prior to Kilpatrick certain engineers would try to steer contracts to their favorites? Yes.
Mercado was a tough boss, no nonsense? Yes.
He had a different perspective than the other directors. He was an engineer? I didn't know that says Latimer.
But prior to him most of the directors were politicians? Some says Latimer.
Once Kilpatrick became mayor there was a push to give 30% of business to Detroit based business, minority enterprises and small business? Yes.
You agreed with the policy behind the executive order? Yes.
You know Mr Ferguson? Yes.
He had a Detroit-based company, employees, more than 51% of which resided in the city of Detroit? Yes says Latimer.
Ferguson would sometimes call you to clarify a contract? Yes.
That's not unusual? that's common says Latimer.
And most of Ferguson's calls were about payments? Yes says Latimer.
You testified to the grand jury that Ferguson has a strong personality? Yes.
But he never threatened you? No.
And you never got complaints from other DWSD employees about threats from Ferguson? No says Latimer.
Rataj showing Latimer roster of DWSD directors including Charlie Williams who had 2 different stints, both during Coleman Young administration. Did you know that Williams had a relationship with Inland with Soave?
Then there was Kathleen Leavey and Gary Fujita says Rataj.
Rataj says he is going to take Latimer through contracts.
First up is 1387. Winning bidder on this one was Lakeshore. Lakeshore was never technically awarded that contract.
Looking at memo from Gary Fujita to Awni Qaqish on July 25th 2002. Fujita seems to be questioning need for 1387. Is that right asks Rataj? Correct says Latimer.
But you were aware that people within DWSD were questioning propriety of 1387? Correct says Latimer.
Another memo from Jaquelyn Jordan to Victor Mercado in November 2002. Jordan was contracts and grants manager prior to Latimer.
What's going on in the memo? Basically it's asking for the people named to be the evaluation team to evaluate and negotiate with company selected for project says Latimer.
This was an RFP? Correct says Latimer.
Now this committee is going to evaluate RFPs? Correct says Latimer.
So as of this point in November 2002 Lakeshore Engineering had not be granted the contract? Correct.
Now looking at a letter from a head engineer John McGrell saying in his estimation there is not much need for contract 1387. Says that currently his group volume is over $1 billion at a rate of $9 million per month.
Now looking at memo from Darryl Latimer on February 10th 2003 to Victor Mercado through Gary Fujita. Latimer says that McGrell the engineer had been selected as an evaluator but he didn't have the time so the letter was to get him removed.
So by February 10th 2003 Lakeshore engineering still not awarded 1387? Correct says Latimer.
And do you know the amount of 1387? I believe it was $5 million.
But it was an as needed project? Yes.
So it's incorrect to say they lost $5 million because it's possible that as an as needed contract they might never received a penny. Isn't that true? Yes.
Looking at note from Miriam Dixon on March 10th 2003 to Mercado about contract 1387.
Latimer says that this is a cover sheet for negotiation approval. Based on the total scores from evaluator, the highest scoring firm is recommended to director.
As of March 10th 2003, Lakeshore still not awarded 1387? Correct.
"While the evaluation looks ok, this still appears to be outsourcing contract, I don't know if engineering has the resources or skill sets to do the work" note on document from Gary Fujita.
Another document a day later, March 11th 2003, from Ed Ramey who was a principal analyst in DWSD, to Latimer. Ramey questioned some of the scoring by evaluators and thought it wasn't fair. He thought some of the contractors were purposely being low-balled to eliminate them from contention.
"Another indication of intentional low-balling is reflected in the high score given to Lakeshore Engineering in the category "Work completed timely and at Cost."
"Throughout the meeting KVR (head field engineering) and RCS (another engineer) imposed their opinion...."
Those engineers were of Indian descendant? Yes.
And one of them knew Rachmale of Lakeshore? Yes.
And it appeared they were attempting to steer to contract to Lakeshore? Yes.
Looking at scoring, Lakeshore got 10 across the board. So that's what Mr. Ramey was concerned with? Yes.
So as of March 11th 2003 Lakeshore still had not been awarded 1387? Correct.
10:29AM Judge says let's take a 20 minute break. Defense is totally breaking down Lakeshore executives Tom Hardiman and Avinash Rachmale's testimony that contended that Bobby Ferguson got their water contracts 1361 ($10 million) and 1387 ($5 million) cancelled. Clearly there were internal concerns at DWSD with the awarding of the contracts to Lakeshore.
You can tell Bobby is pleased- just gave Rataj a huge bear hug and both men are beaming.
This round definitely goes to the defense. Government is going to be scrambling on re-direct.
10:52AM Break is almost over. Defense lawyers, defendants and prosecutors all tend to congregate at the first floor shop on the break. Today was no different and the mood amongst the defense team was definitely pumped. They knew they had scored some points with the jury on the last round.
10:55AM Mike Rataj continuing his cross-examination of Darryl Latimer.
Looking at April 11th 2003 from Miriam Dixon to Mercado on 1387.
So by this point 1387 still not awarded to Lakeshore? correct.
Note from Gary Fujita on memo: " Victor- I thought there was a "hold" on this."
Another letter on April 17th 2003 from Gary Fujita. a follow-up to last document. Questioning still need for contract.
Handwritten note on letter from Mercado: "Darryl please see me. I thought we already had similar contracts."
Would you agree that 1387 was similar to 1368? No says 1368 actually did construction of sewer lines. 1387 oversaw construction.
1387 was an as needed contract? Correct says Latimer.
So bottom-line, internally DWSD is trying to figure out if you need 1387? Latimer agrees.
Letter dated May 6th 2003, letter from Mercado to Latimer that says again that he thought they already had similar contracts.
So at this point still not awarded to Lakeshore? Correct.
Internal DWSD memo from May 12th 2003 listing engineers. From Mercado to Latimer. States that 1387 will be cancelled or will be performed in house. So as of May 12th 2003, contract is shutdown asks Rataj? Correct.
So as of this date May 12th 2003 Lakeshore never got this contract 1387? Latimer agrees.
Letter from Victor Mercado to Rachmale dated May 16th 2003. Latimer says that the letter explains that the contract has been cancelled and they are not moving forward to Lakeshore Engineering.
More letters, on the same date, letting other companies including Applied Science, Boone Management, Camp Dresser and McKee, GM Engineers and Associates, Madison International, The Traverse Group, Tucker Young, Jackson and Tull and White Construction. All received the same letter Lakeshore did about contract cancellation. So bottom-line Lakeshore was never awarded that contract? Yes.
There were questions within DWSD whether 1387 was necessary? correct.
He was within his rights to cancel that? Correct.
Your current boss has cancelled contracts as well? Correct.
That is not unusual is it? No.
Mercado's mission was to provide the best water at the cheapest price? Yes says Latimer.
11:10AM Now looking at documents for contract 1361. Document from January 16th 2001. From Thomas DeRiamaker, general superintendent of engineering to Jacquelyn Jordan at DWSD. this is about services already provided under 1325. the budget for emergency service repair. Saying the contract needs to be extended.
So gearing up for a new contract? Correct.
And Inland Waters was o n 1325? Correct.
So this is really the start of the process? Yes says Latimer.
Now looking at DWSD letter to Angelo D'Alessandro at Lanzo Construction. Dated November 30 2001. From Kathleen Leavey, Interim Director of DWSD at this point. Letter lets Lanzo know that they were not highest ranked proposer on contract 1368.
Moving on to new exhibit, letter from Latimer who was head governmental analyst at this point, prior to Kilpatrick taking office. Written to a Mr. Dennis Ozust, an executive with Inland Waters. Lets him know about a negotiation meeting on December 5th for 1362 and 1368.
1362 was rolled into 1368? Correct.
The bidders were Lanzo and Inland? Yes.
Only those 2? Yes.
So Inland won both those $25 million contracts? Yes.
Latimer says they were going to inspect and reline sewers.
This is prior to Kilpatrick being mayor and Mercado being DWSD director? Yes.
Now looking at sign in sheet for first negotiation meeting on December 5th 2001. A couple of DWSD staff including Latimers, Inland Waters executives as well as individuals from Insituform, subcontractor for Inland. Insituform had a patented way to reline pipes. No one from mayor's office attended meeting? Correct.
Now looking at letter of Ozust from Inland Waters to Latimer on December 17th 2001. The letter recaps what was discussed at the December 5th negotiation meeting.
At this point Inland still not awarded contracts? No.
At this point Inland should have provided a $50 million bond to secure the job but they didn't want to do that. They wanted to do 2 $25 million bonds says Rataj.
11:36AM Letter dated December 27th 2001 from Bharat Doshi to Darryl Latimer. 1362 and 1368 have been rolled into one contract 1368. Amongst reasons for this was that it cut administrative costs in half.
You don't know when Inland started on 1368 sitting here today? Latimer agrees he cannot.
Another internal document from January 25th 2002 between finance department employees. They are questioning why 1368 is 2 times original estimate. Seem unaware that the 2 $25 million contracts have been rolled into 1 $50 million contract.
As of January 25th 2002 Inland still not awarded contract? Correct.
Letter from February 4th 2002 when Kilpatrick has taken mayoral office but Mercado not director of DWSD yet. Sent from Mr. Ozust of Inland Waters to Latimer. Ozust is returning requested documents bonds, insurance, certificates, work plan, organizational chart and costing.
Latimer says a performance bond is required by state law. Put in place to protect the party awarding contract.
So Inland should have provided $50 million bond? Yes.
But they wanted to provide 2 $25 million bonds but not simultaneously? Yes.
Kathleen Leavey still DWSD director at this point? I believe so says Latimer.
What's a payment bond? Latimer says it protects the subcontractors to ensure they get paid by contractor.
Another memorandum from Inland Waters on February 11th 2002. Providing city tax payment information for Inland to DWSD.
Rataj says this is all to prove how many steps are necessary to go through before a contract is awarded.
On February 14th 2002, Ozust of Inland Waters signs 3 of 4 pages on contract 1368. Rataj says this still doesn't mean they have been awarded the contract? Correct says Latimer.
11:55 AM Another document from March 3rd 2002 before Mercado is director. It's a cover sheet for an invoice. Inland Waters is billing DWSD $291,250 for the period between January 30th and February 28th 2002.
Does it look to you that Inland had already started work on the project? Possibly says Latimer.
Judge calls for 5 minute break.
12:09AM Rataj continues this lengthy cross examine. Still wondering where we are going with the 1368 contract with Inland.
Internal DWSD memo from April 1st 2002 saying that Inland can't be paid the submitted invoice because they haven't formally been awarded the contract yet.
Rataj holding formal 1368 contract which he hands to Latimer to review.
Showing that the contract was signed and approved by city council on June 26th 2002. So that's the official date Inland Waters was awarded contract 1368 asks Rataj? Correct says Latimer.
And the mayor's got nothing to do with this process does he? Yeah he's got nothing to do with this process says Latimer.
Looking at DWSD memo from Latimer on July 16th 2002 to confirm meeting on July 19th to get started on 1368.
Now looking at sign up sheet for that start work meeting on July 19th 2002. Some individuals from DWSD contracts and Grants as well Ozust from Inland who we will hear from later on this case.
Now looking at official letter from DWSD to Inland Waters telling them they have been awarded the contract on June 26th 2002 and the start date is July 19th 2002 and the completion date is 3 years later on July 19th 2005. Letter is dated July 16th 2002 and is signed by Victor Mercado.
Internal memo from Mercado to Latimer dated July 15th 2003. It states that contract 1361 will be cancelled.
Lakeshore Engineering never awarded 1361? Correct says Latimer.
And never awarded contract 1387? Correct.
Because they never went through the lengthy process like with 1368? correct.
Mercado was trying to save the city money by rolling 1361 into 1368? Correct.
Letter from July 28th 2003 to Avinash Rachmale from Mercado stating that 1361 had been cancelled.
Letter from Mercado to the Board of Water Commissioners about Agenda of August 25ht 2003. Authorizes increase of $10 million to 1368.
Will you agree that this amendment #1 of $10 million was the rolling in of 1361? Yes.
Would you agree that the rolling in of 1361 was a cost saving measure? Correct.
And the cancellation of 1387 was a cost saving measure? Correct.
So 1368 started out as a $50 million contract and then with rolling in became $60 million contract? Correct.
Looking at breakdown of contracts 1325 and 1368. 1325 was originally valued at $12 million and ended up as $27 million. 1368 was initially $50 million dollars and after 5 amendments ended up at $138 million. 1368 was completed 2 years later than originally anticipated. So Inland Waters total revenues ended up at $138 million.
12:30PM Defense lawyer Gerald Evelyn and Ferguson confer as Rataj shows prosecution a document.
Looking at subcontractor approval request for Willie McCormick and Associates. McCormick has been mentioned before in this trial as one of the other minority contractors.
Form is seeking to add McCormick as a subcontractor on 1368 asks Rataj? Not necessarily add says Latimer. Could have been already on the contract but the form needs to be filled out before any work is started.
Another subcontractor approval request for Superior on 1368 on April 24th 2003.
And last but certainly not least, same subcontractor approval request from Inland Waters for Ferguson Enterprises.
Looking at cover letter from September 23rd 2004 regarding Special Administrator's Order. this is the one that allows the special administrator, in this case then mayor Kilpatrick, the right to award a contract without going through city council.
This had to do with dealing with a terrible sinkhole in 2004 says Rataj. "Houses were ready to fall to the center of the earth!," says Rataj. Latimer affirms it was so.
The order allows Mercado to award contract 1368 to Inland Waters for the stabilization of the Romeo-Arm of Oakland-Macomb Interceptor sinkhole. Signed by Kwame Kilpatrick.
Rataj says this was on an emergency basis and it took over a year to fix that sinkhole? Correct.
"It took at least a full year to fix that mess, " says Rataj. Correct.
12:45PM Looking at amendment #3 to contract 1368 for $22 million.
So amendment #2 was on an emergency basis and amendment #3 went through city council but both were for the sinkhole? Correct says Latimer.
Another amendment, this is #4 for $12 million to Inland Waters, dated April 19th 2006. Done through city council. Still for the sinkhole.
12:49PM Rataj says this is a good place for me to stop though I do still have more. Judge dismisses jury.
Michael Bullotta for the government says they have a pint to take up. Judge Edmunds says we'll do it tomorrow morning at 8:45AM. Edmunds also reminds the court to remember that naturalization ceremonies take place Thursdays thus long lines to enter the courthouse. So get here early!
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.