The Monticello City Council Saturday morning unanimously agreed to settle the Siemens litigation for $4.6 million, $2.1 million less than what the city paid the company for a water project.
For that $2.1 million, the city got complete replacement of all water meters with drive-by reading capability, an estimated value of $2.3 million; 99 uninstalled fire hydrants and 162 uninstalled valves, valued at more than $300,000; and engineering plans valued more than $400,000, according to Monticello attorney Cliff Gibson, who presented the settlement proposal to the city council.
In addition to the discounted price for the water meter system, fire hydrants and valves, and engineering plans, the city can, if it chooses, refinance at a lower rate the bonds issued to pay for the water project and save approximately $1.4 million over the life of the bonds (a value in current dollars of $631,950), Gibson said.
The city could not refinance the bonds and access those savings if it didn’t settle the lawsuit. “No bond house is going to refinance a bond issue with a city that is in the middle of a lawsuit over the very thing that’s involved – the water department,” Gibson said.
The case was scheduled to go to trial in December. However, Siemens contacted Gibson about two weeks ago requesting a meeting to try to resolve the issue.
Last week, Gibson and a team of Siemens’ lawyers met for the better part of a day and subsequently hammered out the settlement proposal that Gibson presented to the city council on Saturday.
“We reached what I felt like I could recommend to the city that would be in the city’s best interest,” Gibson said.
Gibson said he believes the settlement proposal is in the best interest of the city even if the city chooses not to refinance the bonds, but when the separate bond refinancing possibility is added to the mix it becomes almost a “no-brainer.”
Had the case gone to trial and the city proved that Siemens was acting in bad faith, the court could deny Siemens any recovery at all, but there is no guarantee that would happen.
“If we prove(d) that Siemens was acting in bad faith, the court would be authorized to deny them any recovery for what they did,” Gibson explained. “It could do that, but it’s not a jury trial, it’s a judge. I will mention that the natural instinct of most judges would be ‘My goodness, you got all that stuff why aren’t you willing to pay for it.'”
In the settlement agreement, both sides deny any wrongdoing and each pays its own legal expenses. The city’s legal expenses, including attorney fees, an expert witness, and other related expenses is more than $500,000.
In October 2013, the city of Monticello entered into a $10 million contract with Siemens Industry, Inc. to upgrade the city’s water system with new water meters and replace aging water lines.
The city subsequently paid Siemens $6.7 million, most of which was paid before Siemens started work on the project.
Meanwhile, the city began to have serious concerns about the project. Those concerns include the lack of a performance bond, Siemens’ failure to install the type of water meters contracted for by the city, the high failure rate of the meters Siemens subsequently installed, water billing problems, the fact that the plans for the water line replacement project had not yet been put in a final form acceptable to the city, and the fact that Siemens billed the city before any work was started or completed.
On October 7, 2014, almost a year to the day the city entered into the contract with Siemens, then mayor Joe Rogers broke a 4-4 tie vote to hire Gibson to represent the city in issues surrounding the water project.
The city council subsequently authorized Gibson to enter into mediation with Siemens to terminate its $10 million contract and recover the unearned portion of $6.7 million the city had already paid the company.
On April 28, 2015, a week after a mediation meeting in Little Rock, the city learned that Siemens had filed a federal court lawsuit against the city on the same day the mediation meeting was held.
“They were suing us behind our backs,” Gibson said in an April 2015 interview.
Gibson then filed a 22-page countersuit against Siemens asking for, among other things, that the contract between the city and Siemens be declared illegal and void for failure of project to be let for competitive bidding as required by Arkansas law.
The countersuit noted that there was an exception to the requirement for competitive bidding where the contractor did the things necessary to have a Qualified Efficiency contract under the Arkansas performance-based contracting law, but maintained that Siemens had not provided the financial assurances and other things required to have a bid-exempt performance contract.
In December, 2015, Gibson filed a motion on behalf of the city to dismiss the Siemens lawsuit and Siemens’ claims against the city, based on the contract being void for failure to comply with competitive bidding laws.
Judge Price Marshall dismissed Siemens’ lawsuit against the city and found that Siemens had not provided the financial assurances required to have a contract with the city that is exempt from Arkansas’ competitive bidding laws.
The judge left standing the City’s countersuit against Siemens for return of the money advanced to Siemens on the project and for fraud on the part of Siemens.