Monday's testimony offered a look at how contracts were rigged by playing with numbers at the Detroit Water and Sewerage Department (DWSD).
And Victor Mercado, the former Water Department head who has largely blended into the background in the early weeks of the Kilpatrick trial, was dragged out of the shadows and into the spotlight as a key player in the contract rigging.
The only witness on the stand was Daniel Edwards, an employee of the Contracts and Grants division of DWSD. Edwards testified that, between 2002 and 2008, there were 40 to 60 construction contracts awarded by the DWSD to the tune of $2.7 billion.
In painful detail, Edwards described the bureaucratic process of receiving and reviewing proposed bids, and then approving and awarding a contract. Typically, contracts are evaluated as either a lowest bid, whereby the lowest proposed bid is the one accepted, or by Request for Proposal (RFP) a weighted scoring system that takes into account criteria including local and economic development. When submitting proposals, contractors are required to include certification given by the Detroit Human Rights Department to establish how much participation they have with Detroit-based businesses. And for that, the businesses are ascribed 35% towards the weighting of their score.
Edwards also told the court about special administrative orders that could be used to circumvent the Board of Water Commissioners and City Council. The orders allowed contracts to go directly to the Mayor's office for signature.
In the period between 2003 and 2008, Victor Mercado was head of the DWSD and Kwame Kilpatrick was Detroit's mayor.
Jurors heard how in 2003 a special administrative order was used to grant DLZ a contract to manage oversight construction for the replacement of water mains in downtown Detroit. CM 2012 was an umbrella contract that allowed DLZ to sub-contract to other companies. Ten contractors submitted bids and an in an internal DWSD memorandum to Mercado, dated March 18th 2004, a recommendation was made to award contracts to the three lowest bidders: Posen Construction, L. D'Agostini & Sons and Lanzo Construction. Mercado accepted the recommendation.
This is not how it played out, however. Bobby Ferguson's company Ferguson Enterprises, ranked 9th in the list of 10 with a proposal that was 45.7% greater than the lowest bid, somehow managed to land contracts WS 650 and WS 651. The WS 650 contract was originally for $821,475 but a change order increased that to $3,115,007.10. Contract WS 651 was also increased- from $720,195 to $1,729,240.
The witness acknowledged this was unusual as contracts were typically awarded to lowest bidders to save DWSD money.
Then there were sibling contracts CM 2014 and 2015 in 2006. Bids were submitted by about 8 to 10 companies. Amongst these was Detroit Program Management, a joint venture between Detroit Contracting Inc and Ferguson's Xcel Construction Services, and Lakeshore Engineering, another company with ties to Ferguson. Lakeshore executives had learned a costly mistake in refusing Ferguson. Two months after Lakeshore turned down Ferguson's request to cut him into a deal with the DWSD, Mercado cancelled the $10 million contract and gave it to another firm. Lakeshore brought on Ferguson soon after.
After the bids were evaluated in the typical weighted fashion, Superior Engineering Associates were ranked #1. But then Edward's supervisor, Darryl Latimer, contacted the Detroit Human Rights department and asked them to take a look at the certification for DLZ which was directly related to Superior Engineering. DLZ's certification was revoked and the removal of the 35% weighting cost Superior engineering the top spot. Edwards said again this was highly unusual because the evaluation process was already well underway.
The witness was then asked by Latimer to use an average cost method to evaluate the proposals. This method compared all proposed costs to an average across the board. This had never been done before and has never been done since.
As a result, Detroit Project Management shot to the #1 ranking on both contracts and Lakeshore Engineering moved into the number 2 spot. CM 2015 for $16,325,335 was awarded to Detroit Program Management. Lakeshore Engineering was awarded CM 2014 for an initial amount of $13,486,655. Four change orders later that initial amount ballooned to $55,615,183.96.
Edwards conceded that so many change orders was also not typical. "It gives impression of impropriety even if no impropriety was going on."
The long testimony was briefly interrupted when one of two sick jurors bolted from the courtroom. When a second young woman complained of feeling hot, Judge Nancy Edmunds told her "You're too young for hot flashes."
Detroit Water & Sewerage Department (DWSD) employee Daniel Edwards took the stand again in the Kilpatrick federal trial. Edwards, who manages construction grants for the DWSD, never got past cross-examination by defense lawyers as he testified in excruciating detail about the intricacies of water contracts.
On Monday, Edwards testified that contractor Bobby Ferguson's Ferguson Enterprises Inc (FEI) and contractors Xcel Construction and Lakeshore Engineering, which also have ties to Ferguson, were awarded multi-million dollar contracts authorized by former water boss Victor Mercado.
Mercado's lawyer John Minock gave a solid albeit lengthy performance in his cross-examination of the witness. Engaging jurors by looking them dead-on as he posed questions, Minock got Edwards to acknowledge that often there is no way of knowing exactly how much a job will cost until excavation has begun and contractors can see what they are facing. Minock was attempting to address the issue of why many change orders might be imposed to increase an original bid price. Yesterday, the government introduced evidence showing a series of change orders which were executed to take one of Ferguson's contracts from an original price of around $13 million to more than $55 million.
Minock also brought up how some contractors low-balled bids to get contracts and then relied on change orders to get the price back up. And in terms of the special administratorship which was used to circumvent City Council to award FEI contracts, Minock pointed out how it was done as an emergency measure to have the work completed in time for the anticipated Super Bowl and All Star Game activities in Detroit.
But foremost, Minock made sure to let the jurors know that Mercado was good at his job. He stressed Mercado's background as a water engineer where previous Detroit water heads had been lawyers and politicians and that it had been the recommendation of executive search firm Heidrick & Struggles that Mercado be paid at least $240,000. Minock got the witness to agree that under Mercado's tenure the engineering department saw it's power over water contracts decreased, policies were strictly enforced, staff was trimmed and the water department was reorganized in accordance with outside recommendations.
Was Mercado a good boss Minock asked the witness.
"Absolutely. He was a good boss to work for. I never had a problem with Victor," replied Edwards.
Jim Thomas, Kwame Kilpatrick's defense lawyer, brought up the fact that the special administratorship, set up by the EPA to counter discharges into Detroit rivers, was dissolved during the Kilpatrick administration because Judge John Feikens determined that clean water was on its way back to the city. Thomas also reiterated that Kwame was right in bringing on Mercado because he was a good water boss. In 2006, Mercado managed to cut DWSD's operating budget by 10%, bond rates remained stable and the sewerage rates were amongst the lowest in the country.