Weekly wrap-up of Kilpatrick federal trial
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.
Last on cross-examination was Ferguson's defense lawyer Mike Rataj.
Under Rataj's cross, it was revealed that one of the contracts awarded to Ferguson, WS 651 under umbrella contract CM 2012, was initially determined to have saved DWSD money. Rataj also pointed out that the contracts weren't done by a low bid contract process and so there was no requirement to take the lowest bidders. In testimony yesterday, the court heard how a recommendation was made to award the contracts in question to the the three lowest bidders- Fergsuon Enterprises ranked 8th in a list of 10 bidders.
And finally, Rataj demonstrated that numerous change orders on contract pricing was not unusual. He introduced evidence showing that contractors Lanzo Construction and L D'Agostini, who had ranked in the top three of lowest bidders, issued 12 and 8 change orders respectively to increase their original contract prices by several million dollars.
The government introduced a series of incriminating text messages that strongly suggest a behind-the-scenes conspiracy to ensure that Detroit water contracts were steered contractor Bobby Ferguson's way.
EPA agent Carol Paszkiewicz was one of only two witnesses to take the stand. Agent Paszkiewicz is a federal witness who will testify in different chapters of the Kilpatrick trial. She is one of principal agents investigating allegations of extortion during the Kilpatrick administration in conjunction with Detroit Water and Sewerage Department (DWSD) contracts.
Under questioning by US Attorney Mark Chutkow, the EPA agent talked about a flurry of text messages sent between August 2003 and April 2004 regarding downtown water main contracts awarded under the umbrella contract CM 2012. DWSD awarded company DLZ the construction management contract over other sub-contractors for the project.
In the period the text messages in question were sent, an initial recommendation had been made by DLZ to DWSD to award the CM 2012 umbrella contracts to the three lowest bidders and reject all other contractors. The three lowest bidding contractors were Posen Construction, L D'Agostini & Sons and Lanzo Construction.
And this caused a whole lot of behind the scenes scrambling.
On February 18th 2004, Ferguson texted Kwame Kilpatrick: "Hate to bother you but you need to hear this. Pratap people stopped talking to my people and trying to give the job to one of the other contractors." "Pratap" refers to Pratap Rajadhyaksha, COO at the time of project managers DLZ. Kwame replies: "What?" To which Bobby responds: "Just what you said before we are not part of the decision making, we get fu#$ed no matter how the process started. You still in the office?"
On March 16th 2004, a day after DLZ sent DWSD its recommendation to grant the three lowest bidders the contracts, former water boss sent Kilpatrick a message saying "Mr Mayor I need to speak with you it is urgent." Later that very same day, the former mayor texted Ferguson telling him to come to his office to talk about "downtown projects."
Two days later, on March 18th 2004, Mercado approved the recommendation to take the lowest bidders.
That did not sit well with Ferguson and Kilpatrick. That very day, March 18th 2004, Ferguson texted Kilpatrick:"Your welcome boss. Just left Victor. Date has been changed to my benefit but we still have a problem on the big one. He thinks he is slick man with this white folks." Agent Paszkiewicz explained that the "big one" referred to contract CM 2012, "boss" was a nickname for Kilpatrick and the "slick man" designated was Mercado.
To which Kilparick replied: "His slick sh%$ is running out. I got his ass on something. I ain't happy."
Five days later, on March 23rd 2004, Ferguson texted Kilpatrick: "Victor just outsmarted us. He made me come to his office. Thought it was about job we have but it was about 3 lowest bidders. White folks."
And finally, in a three-way exchange between Ferguson, Kipatrick and aide Derrick Miller on March 30th 2004, Ferguson texted "Victor is ful of sh$%. He told me the ordinance didn't let him throw Posen out. That is a damn lie. We will talk tonight." Posen Construction was the lowest bidder on the CM 2012 contracts.
Ultimately Ferguson got his way and Ferguson Enterprises was awarded contracts WS 650 and WS 651 under CM 2012. The two contracts garnered Ferguson a total of $6.9 million
Earlier on the day, former DLZ Chief Operating Officer Pratap Rajadhyaksha testified that Mercado indicated to the witness early on that he wanted Ferguson to get some of the work on CM 2012. He also testified that Mercado did not make this recommendation for any other contractors.
Rajadhyaksha told the court that Ferguson's company requested an unusally high amount of change orders and was the most difficult of all the contractors to work with on the downtown project, requiring a full 50% of DLZ's time to manage them. After DLZ reported their problems with Ferguson Enterprises to Mercado, the witness received a call from a furious Ferguson. When Rajadhyaksha told him he had a responsibility to keep Mercado informed, Ferguson yelled "Don't worry about the director. You need to worry about me."
The witness said he ended the conversation by hanging up on Ferguson and they never spoke again.
Defense lawyers did their best to diffuse potentially incriminating texts introduced by the government on Wednesday by saying they were simply being misinterpreted.
Mike Rataj, a lawyer for Bobby Ferguson's defense team, came out swinging at the government witness, EPA agent Carol Paszkiewicz.
Rataj started off by asking Paszkiewicz if she understood the concept of witness sequestration whereby witnesses who will be testifying in a trial are precluded from listening to the testimony of other witnesses.
Paszkiewiczis one of a handful of federal agents who are testifying in the Kilpatrick trial and have been able to listen to other witnesses due to an exemption to sequestration. Rataj's obvious implication for the jury was that the EPA agent was tailoring her direct testimony to fall in line with previous witnesses.
Then it came time to address Wednesday's incredibly inventive texts, most of which were between Ferguson and Kwame Kilpatrick.
The exchange that Rataj chose to focus on was one from February 18th 2004 between Ferguson and the former Detroit mayor. Prosecution had used it yesterday, along with several other texts, to arftfully illustrate behind the scenes scrambling to rig water contracts for Ferguson.
Ferguson to Kilpatrick: "Hate to bother you, but you need to hear this. Pratap people stopped negotiation with my people and is trying to give water main job to one of the other contractors." "Pratap people" referred to DLZ, the prime contractors for water contracts under umbrella contract CM 2012.
Kilpatrick to Ferguson: "WHAT?"
Ferguson to Kilpatrick: "Is just what you said before when we are not a part of the decision making, we get fu$#ed no matter how the process started. You still in the office."
Stating that his client was a proud black man who used "street language", Rataj then asked the witness if "my people" couldn't be Willie McCormick, the only other African-American contractor who had not been awarded a contract under CM 2012 at that point.
The increasingly exasperated witness conceded that "it's not a fact but it is a possibility".
To which Rataj retorted "So it's a fact that it's a possibility!"
Rataj went on to ask her if the "we" mentioned later in the exchange couldn't mean black people or even the black race as a whole. "I don't know," answered a visibly irritated Paszkiewicz.
US Attorney Mark Chutkow shot down that whole theory when he pointed out that Ferguson didn't say "our people" to Kilpatrick, another African-American man, but rather "my people."
Jim Thomas, lawyer for the former mayor, also jumped on the whole word interpretation bandwagon. In another text exchange from Ferbruary 18th 2004, this time a 3-way that included former Kilpatrick aide Derrick Miller, Ferguson had texted Miller "I him with the boss."
The witness replied affirmatively when asked by Thomas is she took this to mean that Ferguson was with Kilpatrick. Thomas then used a Cyrano de Bergerac analogy to tell the EPA agent that she had incorrectly filled in the blanks on what was being said. Not only that, said Thomas, but it was impossible they were together as the text was sent at 1:28PM and Kilpatrick had a meeting at Gompers Elementary school between 1:30 and 2:30PM that day.
Earlier on the day, Victor Mercado's lawyer Martin Crandall had used his cross-examination of the witness to illustrate that his client was a thoroughly professional individual whose work garnered glowing reviews and who was not in the inner mayoral circle, Kilpatrick's "Kitchen Cabinet."
Chutkow used his redirect of the witness shatter any impressions the jury might have had of Ferguson as an empowerer of fellow minority business owners.
The US attorney asked Paszkiewicz if in her investigation of Ferguson she had uncovered evidence of him actually hurting minority businesses. Yes she replied.
And amongst the minority business owners the government contends suffered because of preferential treatment given to Ferguson is one Tom Hardiman of A & H Contractors.
"Ten million. Five million." That was the refrain that jurors heard over and over today from Tom Hardiman, President of A & H Contractors, who testified that he lost two lucrative contracts totaling $15 million when he failed to give Bobby Ferguson his requested cut on the deal. It was a costly mistake that Hardiman would not make again.
Hardiman testified that in 2003 Ferguson came to his house to discuss a bid proposal his then company Lakeshore Engineering Services had made for a $10 million Detroit Water and Sewerage Department (DWSD) contract to rehabilitate sewers and outfalls. Ferguson told Hardiman that he should be cut in for 25% of contract 1361 for being "a black guy." When Hardiman told Ferguson they already had their team in place for the contract, Ferguson replied "It still has to go across the mayor's desk."
After consulting with business partner Avinash Rachmale, Hardiman came back to Ferguson and offered him 10 to 12% instead of 25%. To which Ferguson is said to have responded "Ok. We'll see."
Hardiman said he began to worry about the $10 million contract and an additional $5 million water contract they had bid on when things failed to procede in typical fashion. Hardiman said he made repeated inquiries as the what was going on with the contracts and was told only that they were "just sitting on Victor Mercado's desk."
The witness even approached Kwame Kilpatrick's mother, Carolyn Cheeks Kilpatrick, whom he had met in the mid-1980s when she was a state representative. Hardiman recalled her telling him "My son said 'I love you. I handle city business and you handle the government business. Let me handle city business.'"
Hardiman went so far as to enlist the services of Bernard Kilpatrick's Maestro Associates to check into the status of the two contracts. Despite paying Maestro Associates $2,500 in consulting services, Bernard never did tell Hardiman what had happened to them.
Lakeshore Engineering ultimately learned that they had lost both contracts. The $10 million contract ended up with Inland Waters. Bobby Ferguson was on their team.
After that, Hardiman felt he had no option but to turn to Ferguson.
"All other avenues had failed so I had nothing to lose by going to Bobby," said the witness.
In December 2004, Lakeshore teamed with Ferguson and Lanzo Lining to submit a bid proposal for a $20 million DWSD water contract. They agreed that if they got the contract, they would split the profits 3 ways.
The team was awarded the contract, WS 849, on March 24th, 2005 and was advised by DWSD that they could begin work immediately. Angelo D'Alessandro, Lanzo head, and Ferguson were at odds on how to breakdown the work. Both wanted to take the same line items. D'Alessandro approached Ferguson with a figure of $400,000 to $500,000 just to let Lanzo have the work. Ferguson refused saying he could make more money. Ferguson was ultimately offered more than $1 million to walk away from the job.
In September 2005, Hardiman approached Ferguson about two change orders they wanted. One was for an additional $6 to $8 million on contract 849 and the other was for an asbestos contract for $1.5 million. Hardiman explained that he knew that Ferguson had the necessary city relationships and wanted to ensure his company wasn't blind-sided like with the two cancelled contracts.
Ferguson agreed to help with the change orders but charged 5% on the contract orders for levying his contacts. His total take on the change orders was $450,000 including $25,000 cash that a panicked Hardiman rushed to Ferguson's offices.
"I did not want to upset Bobby Ferguson," explained Hardiman.
Some time later, Lakeshore Engineering and various partners won DWSD water contract 2014. Ferguson approached Hardiman at his offices and told him that he needed to include his company Xcel Construction on the project. When the witness asked why, Ferguson simply said "because they need to help you out." Despite balking at Ferguson's initial request for $400,000 for doing nothing, Hardiman said he caved because he was still haunted by the lost contracts.
Hardiman recounted how Ferguson's associate Calvin Hall would come to his offices, sit in on meetings and request payment. "You're a parasite," Hardiman said he would tell a mild-mannered Hall.
In the period between January 1st 2007 and November 10th 2011, Hardiman's A & H Contractors paid Xcel contruction more than $620,000.
When a change order came up on contract 2014 to do more work on 7 streets in an east side development that should have gone to A & H Contractors, the witness testified that Ferguson nudged his way into the deal walking away with 4 streets and leaving A & H with the remaining 3. And for that, Ferguson Enterprises was paid $1,437,304.73.
Finally, Hardiman talked about Ferguson's shenanigans on water contract 865. Lakeshore Engineering along with D'Alessandro Contracting and others submitted a bid proposal for the contract for sewer repairs on the east side of Detroit. They had asked Ferguson to join but he was already with Inland's team. When Lakeshore was awarded the grant, however, Ferguson wanted in.
Hardiman testified to receiving a call while he was out-of-town by an upset D'Alessandro who told him that Ferguson was on his site and demanding that he leave. Hardiman asked Ferguson to let D'Alessandro complete the work but Ferguson staunchly refused. Hardiman ended up asking D'Alessandro to stop to let Ferguson take over.
US attorney Mark Chutkow asked the witness what Ferguson said he'd do if he didn't get D'Alessandro off the job site.
"I will shut these effin jobs down."
And Hardiman knew from experience that was a promise Ferguson was in a position to make good on.
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.