Kilpatrick on Trial: Day 18 testimony

Published On: Oct 22 2012 09:25:21 AM EDT
Updated On: Oct 22 2012 01:05:45 PM EDT
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DETROIT -

8:50AM  Victor Mercado is the only defendant not yet in this morning. Kwame Kilpatrick is seated at the table hands folded in a bronze jacket and peach tie. He tweeted over the weekend about spending time with his 3 boys: "Hanging out with my sons tonight. I'm so proud of these young men. They are AWESOME! Love you Jelani, Jalil & Jonas." 

From the looks of the picture corresponding to the tweet, must have been in Texas because they were all wearing shorts at night.

Bobby Ferguson is an an all black suit and tie and he is reading from the book of verses he and Kwame pass back and forth to each other. Bernard Kilpatrick is also in an all dark suit.

8:57AM Victor Mercado slipped in when I wasn't looking. His super power is being the invisible man.

9:01AM Detroit news reporting this morning that Kwame has been getting free flights to Texas and free stays at the Antheneum Hotel during the trial. The luxury hotel is co-owned by Jim Papas, a Greektown businessman who will likely be called as a witness in the trial.

9:03AM Judge Nancy Edmunds enters the courtroom. She tells the court that 2 jurors are not feeling so well this morning.

9:05AM Jennifer Blackwell for government calls Daniel Edwards. Works at the Detroit Water and Sewerage Dept. He is construction contracts manager. Has been there for almost 25 years. Customer base is between 3 and 4 million people. Pumping capacity for water is approximately 600 million gallons per day.

DWSD all has 25 other facilities, administration facility to water pumping facility. 

Overflow facility takes in sewer lines at time of extreme rainfall.

DWSD has permit to discharge a certain amount of affluent directly to rivers. Issued by the EPA. DWSD has not always been in compliance with this permit. DWSD has been under orders since 1977, Judge Feikens was responsible for them. DWSD has to comply in getting projects done in timely fashion or they pay penalties.

DWSD third largest in the US.

The head of DWSD is the head of the department. Director reports to mayor and the judge under the order. In mid 2000s, Mercado was head of DWSD. 2003-2008. 

DWSD has operators, engineers, inspectors, accountants, administrators, commercial divisions. Engineers administer construction contracts. Inspectors make certain construction contracts being constructed with quality. 

Constant repair on the facilities- a lot of them 40 to 70 years old. They do bids on the contracts. 

DWSD started out with 3,000 down to 2,100 now at 1,950. With consent decree, could circumvent certain normal procedures for awarding contracts. Could circumvent city council. There is a special administrator who can circumvent city council for awarding contracts. Typically the mayor- Kwame Kilpatrick was a special administrator. Witness reports to Miriam Dixon. In 2003, it was Gerald Latimer. 

9:16AM Interruption. A sick juror must have bolted from the courtroom. It's juror #2. 

Judge says it's really hot in the courtroom. Asks juror if she wants to lie down. "You're too young for hot flashes" says Edmunds. This must be another sick juror because the other one is not back yet. Judge calls for a break to check on sick juror.

9:24AM Mercado must be more uncomfortable than usual this morning with testimony from a Detroit Water and Sewerage employee who worked under him. 

9:36AM Mike Rataj, a defense lawyer for Bobby Ferguson asks the court reporter "What's the story Suzanne?" 

9:37AM Going back to the Detroit News report on Kwame's free flights to Texas and stays at the Atheneum during the trial. Seems Kwame has been getting "Buddy Passes" from friends at Delta Airlines that allow him to travel for free except for taxes on the flights. He was also staying at the Atheneum for free until October 2nd. When the Detroit News started sniffing around, he apparently moved to his mother's. 

9:40AM Screens are totally shut off. Not sure what is going on. Still waiting to see if sick juror, make that jurors, are up to sitting through testimony.

9:51AM Video is back. All the defendants are seated at the table with lawyers still waiting to see what happens.

9:58AM Judge Edmunds is back. Jurors are filing back in.

9:59AM Edwards back on the stand. Discussing how DWSD contracts are awarded. Lowest bid construction process. Advertise contract through various publications, after they get bids, they equalize them and after that they notify the bids who the lowest responsive bidder. 

This goes on and on- pure bureaucracy. 

DWSD also asks for contractors' qualifications, get their insurance info. After that, contracts submitted back in 4 to 5 days. Then they have Bid Evaluation meeting, Contracts and Grants and engineers will evaluate the contractors. Then they go to Board of Water Commissioners to get contract approval. Then send contracts over to city of Detroit various departments. 

More bureaucracy. 

"Fair to say it's a very involved process, " says Blackwell. 

"It's call Lowest Bid Process or RFP, "Request for Proposals," says witness. 

A scope of work for DWSD could be contractor could be replacing water main and replacing it- example of scope of work. 

General value of contacts between 2002 and 2008 was 2.7 billion. Between 40 and 60 contracts. 

Being a Detroit-based business would get a percentage to apply towards ranking. It was a discount to the total bid amount. For example with $1 million bid, to get equalization credits, would reduce amount by 5% of $1million. 

Detroit Based Business (DBB) or Detroit Headquartered Business (DHB). Detroit Based Business is in the city of Detroit and is a functioning business. Detroit Headquarter business is a business that is headquartered in Detroit. A business can be both DBB or DHB- DBB equalization credit is 2% and DHB is 3%. 

There were no equalization credits for women or minority-owned businesses. 

RFP- is the differential between lowest bid contracts. systems were you score proposals from 0 to 10, 0 being bad and 10 being the best. "You have to look at the piles of crap and see which is the least pile of crap in order for someone to get a 10," says the witness. 

The bidders did not know of the weighting process in the 2002-2008 period. 

Ability to perform work, organization, staffing and local and economic development are all weighted factors in the RFP process.

Contracting teams get credit for local and economic development participation. This guy paused and actually said "brain fart"....

Contractors need to submitted certifications given by Detroit Human Rights department. 35% is the wiight that is given to local and economic development. It climbed from 10 to 35%. The 35% is a percent established to give that criteria the contractor points related to how much participation they have with Detroit-based businesses. The more participation you have the better your score.

10:19AM Witness is still talking about percentages for weighting in awarding of contracts, Truly painful.

DWSD did not want to increase the local and development percentage too much because it might slant too much towards giving the job to someone not qualified enough.

After all the proposals are scored, they get a memo to the Director of the Department with the team with the highest ranking. Receive approval and then negotiate with the contractor. Then start the award process.

A special administrative order would be used to circumvent Board of Water Commissioners and city council or just city council. Would go directly to mayor's office for signature. Director between 2003 and 2008 was Victor Mercado.

Money comes from rate payers and bonds.

Contract CM 2012- Construction Management for replacement of water mains in downtown Detroit. Selecting a company to manage oversight construction. DWSD has some input along the line. On this contract they didn't go through bidding process, were told to give DLZ the contract.

June 26th 2003- contract document from Victor Mercado to Kwame. A special administrative order 2003. Construction Management was awarded to DLZ- a company DWSD had previously done business with.

Contract between City of Detroit Board of Water Commissioners and DLZ. Signed by Victor Mercado for DWSD and Prataj Ratadyaska (unsure on spelling) for DLZ. This was an umbrella contract. DLZ made recommendations about contractors who should do the water main work. There were 8 contracts under this umbrella contract.

January 8th 2004- document discusses 4 different contracts. Initial recommendation is for 1st 3 lowest bidders to get the contracts "The work for WS-650 Washington Blvd" to be offered to Ferguson.

Previous to this, Ferguson Enterprises had replaced water mains, excavation for the Archer administration.

Memo from Mercado on January 12th 2004. Lists Water system Contracts. Ferguson Enterprises recommended for WS 650 and 651.

$3,805,000 is the total cost of the 5 contracts.

Letter from DLZ on March 15th 2004 to Awni Qaqish. Letter discusses recommendation for contractors under CM 2012 contracts. Ranks 10 bidders from lowest to highest. Ferguson Enterprises ranked #9 and Hayes Excavating #8. They had higher total prices than other bidders except for one.

Ferguson Enterprises was 45.7% above the lowest bidder.

A memo from DLZ to witness about a meeting with Ferguson Enterprises and Hayes Excavating in 2004. In general document discusses meetings with Ferguson enterprises and Hayes Excavating. Indicated that Ferguson had not signed a document yet.

Awni Qaqish with DWSD memo to Victor Mercado discussing contract CM 2012 on March 18th 2004. The recommendation is that out of the 10 bids received is to award contracts to the lowest 3 bidders and reject the other bidders. Mercado accepted this recommendation. The lowest bidders were Posen Construction, L. D'Agostini and Lanzo.

Letter of intent to award contract WS-651 March 24th 2004- letter of intent authorizing contractor to start work. Sent from Victor Mercado to Bobby Ferguson.

Response letter to city council on August 10th 2004- document is from Mercado to city council. Subject line" "Contracts and overtime".

List from July 2003 to July 2004- table of emergency contracts. Hayes Excavating for first 2, the next 2 were for Ferguson Enterprises- amount $821,475 for 650 and $720,195 for 651.

There were change orders for contracts WS 650 and 651- October 15th 2004- Document from DLZ to Victor Mercado. They were requesting a change order to Ferguson Enterprises on contract 650 for $1,264,600. The current price was $821,475. The change was for additional work to be performed. Not unusual to have a change order on contracts.

Another memo to Mercado from DLZ on October 15th 2004- this is change order for 651- change order was for $463,475.00. 2nd change order was for more than $300,00. Current price listed $1,183,670.

Document to city council on approval of change orders from DWSD- Document is signed by Mayor Kwame Kilpatrick. Authorization for change orders not to exceed $6,058,133.56.

Evelyn calls for sidebar. Judge calls for break.

Ironically, Mercado was just seen purchasing water at the shop on the 1st floor.

11:11AM Judge Edmunds tells everyone to be seated. Tells jurors they'll have more chances to look at exhibits.

11:14AM Blackwell promises to slow down going through all the documents. The three lowest bidders again: Posen Construction, L D'Agostini and sons, Lanzo Construction. Glock Wrecking Company and Willi McCormick and Associates are #4 and #5 lowest bidders.

WS-642 Contract went to Hayes Excavating as did WS 649. WS 650 and 651 went to Ferguson Enterprises. Glo wrecking company did not get a contract and are a minority owned business. There were other companies that did not get a contract from initial bidding list.

Document on analysis of payments to Ferguson Enterprises on WS-650. Prepared by WSWD accounting department. The contract summary: original CPO (Contract Purchase Order) amount $821,475. Current CPO amount includes $3,115,007.10, massive change from original amount.

On WS-651- document shows all the payments made to Ferguson enterprises on WS 651. Shows the original CPO amount $720,195. Current amount $1,729,240.

Witness says awarding to lowest bidders is usually done to save DWSD money.

Contract CM 2014- had sibling contract 2015. Split into 2 contracts. Advertised for bid in 2005 or 2006. RFP was used to score the contract bids with the weights. About 8 to 10 companies submitted bids. Detroit contracting Inc, Lakeshore Engineering, Inland Waters, Superior Engineering amongst those who submitted bids.

Letter from Detroit Project Management Team dated March 23rd 2006- submitting proposal to Mr. Latimer, direct supervisor of witness. Joint group between Detroit Contracting and Excel Construction service, owned by Mr. Wodehouse and Ferguson.

A page on local Economic Development- lists team members. First 2 are prime contractors, the rest are sub-contractors. Ferguson Enterprises listed as sub-contractor- Detroit Headquartered Business and Detroit-Based Business. Ferguson Enterprises gets 33.21% of total contract amount. Ferguson Enterprises had largest DBB and DHB percentage of contract.

Witness's document on scoring of CM 2014- in the chart, across the top, was the names of some of the proposers: EBI Superior Engineering, Lakeshore, and Detroit Program Management. There were 4 evaluators for each company/proposer. The far left hand column is RFP criteria: ability to do work, staff experience, work plan, local and economic development (35% weighting) and cost.

11:36AM After witness received proposals, sent them to evaluation team for scoring. Data from that input into this sheet. 1st column is total score and ranking: 1. Superior Engineering, 2. EBI, 3. Detroit Program Management, 4. Lawbridge Joint Venture, 5. Lakeshore, 6. Inland.

Summary scoring sheet for CM 2015- Vision Consultant, EBI, Lakeshore, inland, Detroit Program Management Joint Venture some of companies mentioned. Total score and ranking: EBI #2, Superor #1, Lakeshore #5, Inland #6, Detroit Program and Management ranked #3. Once scored, those were given to supervisor Latimer. Superior was ranked #1.

Proposals have to get certificates from Detroit Human Rights department saying whether they were Detroit based or headquartered.

DLZ had an issue with headquartered certificate- it was pulled after their proposal was submitted.

Memo from Daryl Latimer at DWSD to Gerard Phillips at Detroit Human Rights- requesting them to look into DLZ headquarter certification in 2006. Unusual because they are asking them to investigate something that has already been submitted.

Email from witness from May 17th 2006 to the Human Rights department- related to investigation of the DLZ headquarters. Asking what the status was because they needed to complete evaluation as quickly as possible to go forward.

Got a response from the Human Rights department, dated May 18th 2006, from Gerard Phillips to Daryl Latimer. Stating the the Detroit headquarter business (DHB) certificate given to them in early 2006 is effectively revoked as of February 2nd 2006 pending further review. In the interim period, DLZ does not have a status at the time. Victor Mercado is copied on the memorandum.

The timing is significant because proposals due in March 2006, part of the proposal is having a certificate. So there was no DHB for DLZ. Again, unusual because this happened after proposals made and DLZ was definitely at the time a Detroit-headquartered business.

Witness says he was told to draft the letter by supervisor Daryl Latimer of WSWD.

11:50AM DLZ was directly associated with number 1 ranked superior Engineering. The revoked certificate forced them out of the #1 ranking spot. The removal of the 35% weighting cost them the spot. Witness asked to use an average cost method to evaluate proposals. Compare the cost of all proposers to an average across the board. People closest to the average get the highest points and the ones on the fringe get the lowest points. Supervisor asked witness to do this in the middle of the proposal evaluation. Prior to using average cost method, witness had used comparing lowest cost of proposers and everyone's ranking fell under that.

Average cost method analysis- scoring sheets for 2014 using average cost method. Amongst the firms Visions Consultants, superior, EBI, Lakeshore, Inland and Detroit Program Management Joint Venture.

Using that method changed the whole ranking of proposers: Vision #7, EBI #5, Superior #3, Jenkins Walbridge #4, Inland Water #6, Detroit Management Team #1 (previously ranked #3), Lakeshore engineering #2 (#5 previously).

Witness says the average cost method did not make a lot of sense and if they had left it alone, "it would have been a better process".

CM 2015- scoring summary sheet for average cost method- sibling contract to 2014. Same firms. New rankings: Vision #7, EBI #5, Superior engineering #2 (down from #1), Jenkins #4, Lakeshore #3, Inland #6, Detroit Management #1. This has not taken the certification as of yet.

12:00PM A& H subcontractor to Lakeshore Engineering also had a certification issue. May 19th 2006 from witness to supervisor Daryl Latimer, Contracts and Grants Manager. With respect to contract 2015. Notation saying that "Previous to Reviewing Lakeshore's LED to A&H contractors". Establishing a point in time where witness had gone through analysis and up to receiving A & H contractors. A & H had indicated they were a Detroit headquartered business but had no certificate in their proposal. Human Rights department had no record of them so they got a zero.

Human Rights eventually showed that A & H was a Detroit-headquartered business.

Memo from Latimer to Mercado on May 19th 2006. In the memo, they were recommending that Detroit Management Team get contract from 2015. These results were from tally sheets- Detroit Program Management was joint venture of Detroit Consulting and Excel. Superior Engineering was ranked #2.

"Reward proposers closest to the average and penalize those who are either too high or too low." This was the rationale of the average cost summary of the proposers.

The highest ranking proposer had a higher cost than the one who had been previously selected. Superior engineering their cost was close to $14 million versus Detroit Management's close to $16 million.

12:11PM Memo from Daryl Latimer to Victor Mercado on May 25th 2006. On CM 2014- Note written that says "Revised per new A & H LED cert," This changed ranking: Detroit Program Management #1 and Superior #3.

When you have a proposer who wins 2 sister contracts, DWSD can award one to the first one and on the second one got to the next highest ranking proposer. CM 2015 was awarded first.

Memo June 28th 2006, related to contract CM 2015. Amount is $16,325,335.00 recommended amount for the contract. Recommending Detroit Management to get contract to the Board of Water Commissioners. It was approved June 28th 2006.

Letter to Board of Water Commissioners from Mercado on June 28th 2006 about CM 2014. $13,486,655 is recommended amount. Recommended to enter into contract with Lakeshore engineering. It was also approved by the board. Lakeshore had originally been ranked #5.

CM 2014 change order #1: $6,162,500. Million change to the original $13 million for Lakeshore. New total $19,649,000. May 17th 2007.

Change order #2 $4, 9 million

Change order #3 $15.4 million

New contract total: $39,970,260.08

Change order #4: $15.6 million. Total contract amount $55,615,183.96 Original was $13,486,655.

 Witness says this number of change orders is unusual. "Gives impression of impropriety even if no impropriety was going on." says witness.

12:25PM Judge Calls for a break.

12:33PM Judge back in before everyone is back at the defendants' table.

12:34PM John Minock for Victor Mercado cross-examines. Congratulates the witness on his stamina.

Asks witness to tell of educational background. BA in Business Administration from the University of Michigan. Had been in his current position for 10 to 12 years. Interviewed by federal agents half a dozen times. There were times that the witness did not know answer to questions, so the investigators would show the witness documents including text messages that had nothing to do with him.

Minock says did they ask you to draw conclusions? No.

But did you draw conclusions? Could be.

The city of Detroit's building of water system enabled the growth of suburbs? That's right says witness.

The budget is roughly 1.2 billion on an annual basis? Yes.

Probably $800 million towards replacing ageing infrastructure? Yes.

Sometimes excavating they'll even find 18th century water main? Yes.

When contractors make a bid, it's an estimate they really don't know what's there until they get there? Yes.

But the department not equipped to handle major construction projects? Correct.

That's why you contract out? Yes.

From 2002 to 2008 you said there were about 40 to 60 contracts for $2.7 billion? Yes.

Witness says he doesn't know how many contracts are running on any given year- about $4 billion.

Contracts and Grants a separate department? As we speak yes.

Your director reports to deputy director of department who reports to director? Yes.

So the department is huge and there is a significant division of labor? Yes.

So truly what you do is administration? Yes.

In 2002, Jaclyn Jordan was your supervisor and then it was Gerard Latimer? Yes.

There are different kinds of contracts that the department has to administer? Yes.

For what would you hire consultants? Design work, legal and financial services.

Talking about the different designations. Witness says CS is consultant services; WS is Water Systems, construction contracts for water systems to build facility. CM is prefix for Construction Management.

Minock wants distinction between RFP and lowest bid contracts. Lowest bids are just that, lowest bids says witness. RFP contracts are weighted and scored.

Witness says construction work can be done under RFP or lowest bid contracts.

Witness says weighting system would never been shown in documents previously. Now they do.

Audrey Jackson from City Purchasing got involved in discussions about how scores should be implemented? Yes. They had their policies and procedures.

As a result of those conversations did WSWD change its scoring? Yes.

Does the law department get involved in contracts? Yes. They approve them. Make sure all necessary attachments are there and the performance and payment bonds.

In RFP contracts, final approval made by whom? During this time period, RFP contracts awarded to city council.

Water Department approves contract before going to city council says witness.

Judge Edmunds says this is a good place to break for the day. "Enjoy third debate tonight and see you in the morning."

"Hope you feel better," she tells the sick juror.

John Minock heads back to the table where he talks to a visibly agitated Victor Mercado. Guess he isn't the invisible man after all.

Court reconvenes tomorrow at 9AM.

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