State Funding Agencies Freeze Payments to MWH in New Orleans

Despite a contentious rebuttal from the Nagin administration to the city Inspector General’s “scathing” report on construction giant MWH America’s business practices in New Orleans, the state agency administrating the SRF loan and the state agency doling out FEMA reimbursements to local governments have halted MWH-related payments and begun tightening future loan disbursement rules and billing requirements.

Despite a contentious rebuttal from the Nagin administration to the city Inspector General’s “scathing” report on construction giant MWH America’s business practices in New Orleans, the state agency administrating the SRF loan and the state agency doling out FEMA reimbursements to local governments have halted MWH-related payments and begun tightening future loan disbursement rules and billing requirements.

This won’t help San Luis Obispo County Public Works in its all-out effort to select favored MWH to construct the Los Osos Wastewater Project, and could potentially reignite last year’s formal complaint to the County against MWH for similar charges previously rejected in their entirety by a defiant County Counsel.

New Orleans Mayor Nagin’s administration calls the Inspector General’s (IG’s) report on the city’s business relationship with MWH “flawed and incomplete,” but according to the Times-Picayune, some parts of the city’s rebuttal “don’t exactly align with the city’s position.” Public confidence in city government and MWH’s pace of progress in rebuilding New Orleans from Hurricane Katrina is at a low point.

Despite the Nagin administration’s and MWH’s responses to the IG’s report, state administrators of the revolving loan fund suspended payments to MWH last month, according to the Times-Picayune, quoting a spokesman for the State Division of Administration, “in direct response to claims contained in a draft report by the city’s inspector general.”

State revolving fund administrators stopped reimbursements to MWH claiming that city officials used the state loan fund to pay MWH “without regard to whether expenditures will be reimbursed,” jeopardizing the flow of funds from the state loan and FEMA to the massive rebuilding effort.

New Orleans City Council members have also raised concerns, according to the Times-Picayune, “about whether payments to MWH and other project managers could deplete the loan fund, leaving City Hall without enough cash to maintain rebuilding progress.”

The state funding agency has, said the paper, “begun tightening regulations on how the fund can be used.”

The Times-Picayune also reported that the Governor’s Office of Homeland Security and Emergency Preparedness (GOHSEP), the state agency that processes FEMA reimbursements to local governments for hurricane-related recovery projects, halted payments for the city’s MWH-related costs in January. As a result of the IG’s report, city officials – and MWH — will be required in the future to provide more detailed invoices and logs of project costs to be covered with state loan funds.

MWH is the only firm doing reconstruction work in New Orleans to have loan-fund payouts suspended by state officials, but, according to a GOHSEP spokesperson, “strengthening of their procedures and documentation, obviously that would apply to everybody.” Nevertheless, GOHSEP “has begun a special review of New Orleans’ project management costs beyond its normal procedures,” according to a Times-Picayune source.

The IG’s report was also critical of the city for “using a controversial recovery management contract with MWH Americas to dole out no-bid deals to other firms.”

“In at least two instances,” the IG’s report stated, “the city procured services from other firms by instructing MWH to enter into subcontracts with the firms and act as a pass-through for billing purposes. This practice circumvents the requirement for competitive procurement of services through an advertised request for proposals.”

The 2007 deal with MWH resulted from the city’s search for a single person who would be paid $150,000 a year to oversee large capital projects, according to the IG. However, after four months of private negotiations with MWH, which was selected from among seven bidders, the firm landed “a major contract estimated at the time to be worth up to $48 million,” the report said.

In Louisiana, professional services contracts do not have to go to the lowest bidder, and in New Orleans the mayor has sole authority to issue contracts. “The city does not address the massive increase in the contract ceiling compared with the initial solicitation,” wrote the Times-Picayune last week. MWH addressed that point in simple terms in a memo stating that the city’s request for proposals did not limit the contract to $150,000, (and had) “no cost estimate whatsoever.” MWH said it will publicly address the IG’s findings within the allowed 30 business days.

The Nagin administration’s adversarial rebuttal to the IG’s report will do little to ease the high level of concern in Los Osos over MWH’s checkered history there and its inside track as top contender for both the construction of the collection system and treatment facility for the project. The County has never publicly explained how MWH came to be ranked #1 on its short list of builders competing for the two largest, multi-million-dollar contracts for the project — even before all options had been considered.

A formal complaint against MWH and Public Works Director Paavo Ogren, filed by former LOCSD president Lisa Schicker in March and April 2009, was summarily dismissed by County Counsel Warren Jensen who found the complaint – hundreds of pages — without any merit whatsoever.

However, when the Times-Picayune released the IG’s draft report last month, citing MWH for excessive billing among other concerns, Schicker’s year-old complaint gained new relevance in Los Osos.

Said Schicker in a recent email, “In Los Osos, as a board member investigating suspicious early payments from the federal SRF loan to MWH — this is the same program involved in payment to MWH in New Orleans — I discovered that MWH collected money before submitting proper invoices to the SRF and State. This was included in the materials that I submitted to County in 2009, asking for an investigation, and almost identical to the New Orleans finding by the IG.”

Schicker, denigrated by the County Board of Supervisors (BOS) when she brought up similar charges last year, has been encouraged by the revelations in New Orleans, which, for the first time, are shedding light on MWH’s suspicious business practices from coast to coast. In turn this could lend some fresh credence – and new life — to Schicker’s discredited claims.

“I plan to encourage our BOS to address this serious matter as soon as possible,” Schicker said, “as it directly relates to the improper contract procurement process that occurred last year with this same firm.”

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Taxpayers Watch Settles Suit Against LOCSD

Taxpayers Watch has settled its 2006 lawsuit with the Los Osos Community Services District, removing a key obstacle to resolving the District’s financial woes, presently knotted in bankruptcy. For a rundown of the winners and losers click here.

Taxpayers Watch (TW) has settled its 2006 lawsuit with the Los Osos Community Services District (LOCSD), removing a key obstacle to resolving the District’s financial woes, presently knotted in bankruptcy.

In addition to Taxpayers Watch and the LOCSD, parties in the suit include TW officers Gordon Hensley and Joyce Albright, the State Water Resources Control Board (SWRCB), American Alternative Insurance Company (AAIC) and law firm Burke Williams & Sorenson LLP (BWS). The agreement still has to be approved by the bankruptcy court.

The settlement requires former LOCSD attorneys Burke, Williams & Sorenson to drop payment claims and outstanding invoices against the District in bankruptcy court totaling $812,151.52, and for dismissal of any and all claims by TW against individual LOCSD board members and the District in TW’s Measure B suit and in bankruptcy. Taxpayers Watch has also agreed not to file any further complaints against the acquitted board members to the California Fair Political Practices Commission (FPPC).

The agreement calls for no admission of guilt or liability for any claim or cause of action by any party as a result of the Taxpayer Watch suit, and assigns “no validity or invalidity” to any claims filed by any of the parties. Taxpayers Watch filed its initial suit against the LOCSD in October 2005 and filed FPPC complaints against BWS and the individual board members in July 2009.

Julie Tacker, one of the former LOCSD members targeted by TW, believes “none of these (TW) players would have gotten a thing had the matter gone to trial.  It was the will of the five Directors being sued as individuals, as well at the currently seated LOCSD Board of Directors and more importantly the insurance company ordered by the court to defend us, to stop the bleeding… To that end, it’s (the suit) over. The debt incurred was the LOCSD’s and it was paid by the LOCSD or discharged to bankruptcy.”

Wrote Taxpayers Watch spokesperson Richard LeGros in part of an email to The Razor, “The TW settlement is of huge benefit of all Los Osos taxpayers, and helps the LOCSD in balancing its books while reducing the LOCSD debt in the US bankruptcy Court… This is a great day for Los Osos as justice has been served.”

Burke, Williams & Sorenson will also pay TW attorney fees totaling $95,000, according the agreement released to local media by LeGros, one of the three recalled LOCSD board members, and provided to him by current LOCSD attorney Jon Seitz.

As a result of the settlement, all parties agree to dismiss any claims and counterclaims, and Taxpayers Watch agrees to waive any damage claims against individual board members Chuck Cesena, Lisa Schicker, Julie Tacker, Steve Senet and John Fouche.

According to the settlement, within 10 days of bankruptcy approval, AAIC will pay $348,150 to the SWRCB and $50,000 to TW attorneys, while BWS will pay $95,000 to TW attorneys. Within five days of monies exchanging hands, all suits and cross-suits will be dismissed.

The agreement copy provided by LeGros had not yet been signed by TW’s attorneys.

Taxpayers Watch, comprised of 2005 recalled former District board members and their supporters, filed suit as an organization, although Hensley and Albright also filed separately.

The agreement is not without its political ironies, since the LOCSD has signed the agreement and current board majority members Marshall Ochylski, Maria Kelly and Joe Sparks were all supported for election by Taxpayers Watch.

Taxpayers Watch had accused BWS of advising LOCSD members – some also former members of the Los Osos Technical Task Force (LOTTF) and Concerned Citizens of Los Osos (CCLO) political groups – to settle suits that TW claimed benefitted BWS and LOCSD board members by, in essence, agreeing to settle with themselves for financial gain. Those TW claims against individual board members were dismissed with prejudice in the settlement, which focuses primarily on BWS and the District.

Added Tacker, “The most important message to those in the public who might want to serve as a public official is that one can serve on a board, act as a board and not be sued individually by a vindictive recalled board majority to take our homes, as they desired. The entire matter has been another example of (five) years of wasted District resources and human energy.”

— Ed Ochs