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Gibson’s Letter to Siemens Over Breach of Water Contract, Not Bonding Project, & Other Issues

October 23rd, 2014 by
Cliff Gibson

Cliff Gibson at City Council Meeting

October 22, 2014

Dear Mr. Ardillo:

Our firm has been retained by the City of Monticello (City) relative to problems being experienced with the referenced Contract and the performance of Siemens Industry, Inc. (Siemens) thereunder. We write you now in behalf of the City.

Siemens’ Failure to Provide Legally Required Contractor Performance and Payment Bonds.

The City’s review of its files on the subject $10 Million water meter and line project reflects that Siemens has not provided the legally required Contractor Performance and Payment Bonds to the City. These Bonds are required to be provided by Siemens to assure its faithful performance of the installation and construction covered by the Contract.

Ark. Code Ann. § 14-164-402(15)(I) provides with respect to a Performance-based Efficiency Project such as this that the “qualified efficiency engineer shall provide in favor of the issuer [of the revenue bonds] a payment and performance bond insuring the qualified efficiency engineering company’s faithful performance of the installation and construction required under the qualified efficiency contract.” See also Ark. Code Ann. § 22-9-203(c)(2)(B).

Demand is hereby made that Siemens immediately provide the legally required Contractor Performance and Payment Bonds to the City, and that same provide coverage from the inception of the project covered by the Contract through its conclusion.

It would also be pointed out that Siemens’ failure to provide the legally required Contractor

Performance and Payment Bonds constitutes a breach of the Contract terms. Paragraph 12.9 of the Contract states that “[i]n the event that Applicable Law . . . requires that SIEMENS procure a performance bond and/or a payment bond, SIEMENS shall provide a performance and payment bond in the amount of $10,112,651.21.”

Demand is hereby made that Siemens immediately come into compliance with the terms of the Contract by immediately providing Contractor Performance and Payment Bonds to the City.

Further, under the terms of the Contract the City hereby requires Siemens to immediately provide to the City proper Contractor Performance and Payment Bonds in the amount of $10,112,651.21.

Copies of the Contractor Performance and Payment Bonds should be sent to our firm for review at the same time the originals of those Bonds are provided by Siemens to the City. Request is also hereby made to Siemens that these bonds be provided to the City no later than 10 days from the date of this letter. If Siemens has a problem complying with that time-line, it should immediately advise the City in writing of the reason(s) why it cannot meet same.

Siemens’ Failure to Provide Letter of Credit, Cash in Escrow, Multiyear Surety Bond and/or Third-Party Credit Rating Agency Verified Investment Grade Corporation Guarantee of Promised Efficiency Savings.

Arkansas law pertaining to Performance-based Efficiency Projects requires the contractor to provide proper financial assurance that it will pay any shortages in promised efficiency savings from the improvements being installed and constructed. Ark. Code Ann. § 14-164-402(15)(D) provides:

“The qualified efficiency engineering company shall guarantee to the issuer the aggregate amount of efficiency savings to be derived by the issuer from the performance-based efficiency project by providing in favor of the issuer:

(i) A letter of credit issued by a federally insured banking institution;

(ii) An amount of cash equal to the aggregate projected efficiency savings to be placed in escrow with an independent escrow agent;

(iii) A multiyear surety bond insuring the aggregate amount of efficiency savings guaranteed by the qualified efficiency engineering company that must remain in force throughout the term of any revenue bonds issued under this subchapter to finance any costs and expenses associated with the performance-based efficiency project;

(iv) If the qualified efficiency engineering company has an investment-grade credit rating as established in writing addressed to the issuer by an independent third-party credit rating agency, a corporate guarantee of the qualified efficiency engineering company; or

(v) Any combination of subdivisions (15)(D)(i)-(iv) of this section.”

Demand is hereby made that Siemens immediately provide to the City a Letter of Credit, Cash in Escrow, a multiyear surety bond and/or the written and signed guarantee of an investment grade verified corporation that will back-up the contractual promise of Siemens to pay the City any shortages in the Siemens’ promised efficiency savings to be realized by the City.

Copies of the subject financial assurances should be sent to our firm for review at the same time the originals of those written financial assurances are provided by Siemens to the City. Request is also hereby made to Siemens that these financial assurances be provided to the City no later than 10 days from the date of this letter. If Siemens has a problem complying with that time-line, it should immediately advise the City in writing of the reason(s) why it cannot meet same.

Siemens’ Failure to Provide Manufacturer Warranties on New Waters Meters, Etc.

It is our information that over 4,000 water meters have been installed by Siemens in the City, as well as related valves, piping and other equipment, all of which have been manufactured by companies other than Siemens.

References are made in the Contract to Siemens disclaiming responsibility for any defective water meters, valves, piping, and other equipment installed by Siemens in connection with this project but manufactured by other companies. This leaves the City with only the remedies afforded by the manufacturer’s warranties relative to a defective water meter, valve, etc., and without any recourse against Siemens.

For example, Exhibit “C” to the Contract, at pages 12-13, states:

“The manufacturer warranties are passed through to the CLIENT. See Attachment 4 for water meter warranty. SIEMENS is not warranting the physical products, only manufactures (sp) apply. Manufactures (sp) warranties will be in effect per the guidelines set forth by the manufacture (sp).”
(Emphasis Supplied). The problems here are (1) no manufacturer warranties have been provided to the City relative to water meters, and (2) the Attachment 4 to the Contract cited in the above quote from the Contract does not contain any manufacturer warranties on the water meters, but only includes warranty information on fire hydrants and some valves.

Demand is hereby made to Siemens to immediately provide to the City the full and complete manufacturer warranties on all physical products being installed by Siemens in the City, including specifically, but without limitation, all manufacturer warranties on the new water meters and related valves and other equipment.

It is critical that the City have the manufacturer warranties on the new water meters, valves and related equipment as that is the only protection the Siemens form Contract provides to the City against loss from defective meters, valves and related equipment installed by Siemens.

Copies of the subject manufacturer warranties should be sent to our firm for review at the same time the originals of those warranties are provided by Siemens to the City. Request is also hereby made to Siemens that these manufacturer warranties be provided to the City no later than 10 days from the date of this letter. If Siemens has a problem complying with that time-line, it should immediately advise the City in writing of the reason(s) why it cannot meet same.

Siemens’ Failure to Provide Manufacturer Recommendations/Instructions on New Water Meters, Etc.

Under the terms of the Contract, the efficiency savings Siemens says the City will achieve from installation of the new water meters, valves, piping and related equipment are subject to the requirement that the City service and maintain the water meters, valves, piping and related equipment in accordance with manufacturer recommendations and instructions.

For example, paragraph 4.11 of the Contract states:

“SIEMENS will have no liability or obligation to continue PASP Services or any Guaranteed Savings under the Performance Guarantee in the even the CLIENT fails to:
(c)Service and maintain all Equipment in accordance with the manufacturers’ recommendations . . ..”

The problem here is that Siemens has not provided the manufacturer recommendations and instructions to the City relative to the several thousand water meters, valves and related equipment that have already been installed and that are already in service. Without those manufacturer recommendations and instructions in hand, the City is in no position to discharge its obligations under the Contract to properly service and maintain the water meters, valves and related equipment, and if the City doesn’t do that it will lose its Contract right to receive the efficiency savings promised by Siemens and which are needed to pay the $10 Million cost of the project.

Demand is hereby made to Siemens to immediately provide to the City the full and complete manufacturer recommendations and instructions on the water meters, valves, piping and related equipment.

Copies of the subject manufacturer recommendations and instructions should be sent to our firm for review at the same time the originals of those documents are provided by Siemens to the City. Request is also hereby made to Siemens that these manufacturer recommendations and instructions be provided to the City no later than 10 days from the date of this letter. If Siemens has a problem complying with that time-line, it should immediately advise the City in writing of the reason(s) why it cannot meet same.

City’s Request for Statement of Reasons for Siemens Changing Type/Brand of Water Meters Required by Contract Specifications.

Without a Change Order being executed by the City, Siemens changed the type/brand of the new water meters Siemens supplied and installed in the City.

Paragraph 7.2 of the Contract provides:

“Either party may request additions, deletions, modifications or changes to the Work. Any such requests shall only become effective upon execution of a written agreement by authorized representatives of the Parties.”

(Emphasis Supplied). As you know, the City has not signed any Change Order that would permit Siemens to change the type/brand of water meters specified by the Contract, but it did.

Siemens is requested to provide a statement of all of its reasons for changing the type/brand of the water meters to be installed under the Contract. That statement should be provided to the City no later than 10 days from the date of this letter.

It would be noted that the City recently wrote Siemens requesting information about Siemens’ change of the type/brand of water meters from that specified by the Contract, and that Siemens has yet to provide a response. Siemens has an obligation to deal in good faith with the City respecting the matters covered by the Contract and, at a minimum, that would include giving an explanation of its reasons for changing the water meters that were supposed to be installed under the Contract.

Conclusion.

This is a very serious matter involving over $10 Million of City funds, and your prompt attention to the matters raised by the above is demanded.

Copies of all future correspondence from Siemens to the City should be provided to our firm concurrent with the sending of same by Siemens to the City.

C.C. “Cliff” Gibson, III, Esq.

cc:Mayor Joe Rogers
Members of Monticello City Council
City Attorney Whit Barton

7 Responses to “Gibson’s Letter to Siemens Over Breach of Water Contract, Not Bonding Project, & Other Issues”

  1. only me says:

    Why didn’t the city attorney do this? More tax dollars wasted.

  2. Questions says:

    My big question is, how did the City Council and the late Mayor not check all this out BEFORE they signed the contract? How did all these smart people enter into this contract without having such basic things as a Performance Bond nailed down????? They’re all indignant now about Siemens not doing what they are supposed to do…..it appears that the Council members did not do what THEY were supposed to do BEFORE signing this 10 MILLION DOLLAR contract.

    AND did anyone mention that they have ALREADY PAID Siemens over $7 MILLION DOLLARS, even though Siemens has only delivered about $2 MILLION DOLLARS worth of goods and services.

  3. Grandpa says:

    four of our council members didn’t think it necessary to hire Mr. Gibson.. glad we don’t have a lap-dog mayor. way to go Mayor Rogers.

  4. Ward 2 Taxpayer says:

    Where was the city attorney? Where was the city engineer?

  5. Joe Harrod says:

    It is pretty evident that the person(s) who were responsible for awarding the contract did not read it, much less understand it. And then no follow-up to even see if the terms were being met. I mean……. WOW!!!

  6. what a mess says:

    I’m just thankful that Joe Rogers kept pushing over this issue against several on the city council. This is going to be one big mess before this is all settled.

  7. GRANMAW says:

    SAD no telling what else went on for the past years.THANKS Mayor for careing about US and our money.

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