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Summary of Gibson’s Letter to Siemens

October 23rd, 2014 by

imageOn October 22, 2014, Cliff Gibson, the attorney hired by the City Council to represent the City of Monticello in their contract concerns with Siemens Industry, Inc. (Siemens), issued a letter to Siemens, outlining the City’s concerns.

The letter is addressed to Mr. Tony Ardillo. The following is a summary of that letter.

The City of Monticello entered into a contract with Siemens Industry, Inc., for the sum of $10 million dollars, to replace, repair, and refurbish parts of the City’s water meters, valves and water lines.

This project is considered a Performance-Based Efficiency Project, which means that the Contractor (Siemens) has promised the City it should be able to see noticeable and specific financial and resource savings, following the completion of this project.

The City of Monticello has 4 basic areas of concern:

1.) Siemens has not provided a Contractor Performance and Payment Bond, which would guarantee their financial ability to buy parts and equipment, pay employees, etc., to complete the project.

2.) Siemens has not provided any sort of Escrow account or other form of insurance guaranteeing they can pay any shortfalls to the City if the completed project does not save the City the money Siemens has guaranteed it will save.

3.) Siemens has not provided the City of Monticello with the paperwork on parts and equipment they did not manufacture. This paperwork includes operating, maintenance and service instructions, and manufacturers’ warranties. The contract stipulates that if the City of Monticello does not follow all the manufacturers’ recommendations, that Siemens will not be liable for any malfunctions or performance problems, nor will they be obligated to guarantee the efficiency savings they promised.

4.) Siemens was supposed to use the equipment outlined in the contract, unless a written request to use different equipment was submitted and approved by the City of Monticello. Siemens installed a significantly different type and brand of water meter than what was specified in the contract, without submitting any sort of request to do so. In other words, the City bought one brand and type of water meter, but without their prior knowledge or consent, Siemens installed a very different type and brand of meter.

Issue #1, Arkansas law requires that the Contractor (Siemens), is required to provide Contractor Performance and Payment Bonds. This is basically just an insurance policy stating that they have the money to perform the work as set forth in the contract.

Mr. Gibson is calling for Siemens to provide, within 10 days of the date of this letter, Contractor Performance and Payment Bonds to the City, in the amount of $10,112,651.21, to insure the entire project, from start to finish.

Issue #2: This is a performance-based efficiency project. Siemens has guaranteed that the City of Monticello will save a specific amount of money, over time, as a result of having this work done. Arkansas law requires that the contractor provide proper financial assurance that it can and will pay any shortages in promised efficiency savings from the project, once it is completed and fully operational.

This should be done by providing a letter of credit from a federally insured banking institution, which would guarantee that Siemens is good for that amount of money;

or Siemens should place the required amount of money in an escrow account; or

a multiple-year bond, insuring the amount of efficiency svings should be taken out by Siemens; or

Siemens needs to provide an investment-grade credit rating from a credit-rating agency, guaranteeing they have adequate credit to pay for any loss of savings on the project; or

any combination of the above.

Mr. Gibson is requesting that Siemens provide these financial guarantees within 10 days of the date of this letter.

Issue #3: Mr. Gibson is requiring that Siemens provide all paperwork, manufacturer’s recommendations, maintenance and operating instructions, and warranties on the approximately 4,000 water meters it has installed in the City, as well as valves, pipes and other equipment which came from manufacturers other than Siemens. Siemens does not take responsibility for equipment from other manufacturers; they require that the City “properly service and maintain all equipment in accordance with the manufacturers’ recommendations.” If the City does not service and maintain the equipment in accordance with manufacturers’ recommendations, Siemens is not liable for any problems related to the work, nor are they required to guarantee the efficiency savings they promised in the contract.

Without the manufacturers’ instructions, the City can’t know what proper maintance and service is, and they are left without recourse if this equipment should malfunction. Therefore, the City must have the manufacturers’ instructions and warranties.

Issue #4: The City also requests a statement for the reasons Siemens (has already) installed a different type/brand of water meter than the one specified in the contract. The contract states that if there is to be any change in equipment installed, the change request should be submitted in writing, and approved by both Siemens and the City of Monticello.

Siemens (has already) installed over 4,000 water meters that are a significantly different type and brand than the one specified in the contract, without submitting any change of eqiupemnt request to the City. Siemens needs to submit to the City, in writing, the reason for changing the water meters without prior approval from the City.

If Siemens does not furnish the requested items required by Mr. Gibson, they will be considered in breach of contract.

4 Responses to “Summary of Gibson’s Letter to Siemens”

  1. Joe Harrod says:

    Mr. Gibson should be applauded for his thoroughness and expertise. He should have been hired before this contract was ever awarded. This is what happens when the wrong people are involved though.

  2. Alan W says:

    With all this taking place, my question is where has the city council been on all this. why did it take a past mayor to locate and find such things. If this is taking place after the late mayors time in office, what else can be found? ‘when will people of Monticello wake up and boot out the old, and I mean OLD city council members. Their run is done and there time should be gone.!

  3. Dennis says:

    Its hard for me to believe a company as big as Siemens would install something as different as these water meters are from the ones in the contract without talking to someone from the city first. Did any of the council members have any discussions with Siemens officials about this before hand?

  4. Marty E. says:

    I applaud you Mr. Gibson for taking a stand for the people and this city! I also think our current Mayor Joe Rogers and “Part” of the city council made the right decision to bring you on board with this water project to enforce the contract already in place.

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