On Oct. 11, 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. A year and $7 million later, the city has hired an attorney to determine whether the transaction complies with applicable law and, if so, is the company fulfilling its obligations under the contract.

On Oct. 11, 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. A year and $7 million later, the city has hired an attorney to determine whether the transaction complies with applicable law and, if so, is the company fulfilling its obligations under the contract.


Some 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 have not yet been put in a final form acceptable to the city, and the fact that the city paid the company $7 million before any work was started or completed.


Those concerns are justified, according to Monticello attorney Cliff Gibson, the attorney who will be advising the city on legal matters involving the project.


At a Monticello City Council meeting on Oct. 14, Gibson told the council he sees some things that cause him "deep concern."


The project involved a bond issue permitted under a law allowing a performance guarantee contract which does not require a vote of the people.


"Where you’ve got a project where you’re going to save money … in the future, you can use those savings to pay back the bonds," Gibson said. "The performance guarantee part of it is: if it does not meet the projections — you don’t save that money — then, the company is required by law to step in and pay you that money back."


Citing a 2008 Arkansas attorney general opinion, Gibson said under such a contract, a company guarantees the covering of a deficiency in projected savings by either a letter of credit from a bank, cash in an escrow account, a multi-year surety bond, or a corporate guarantee if the company has investment-grade credit rating. Siemens Industry Inc. is a Delaware corporation, not the big German conglomerate.


"To my knowledge, there has been no financial information brought forward on this company to show that it is a viable company," Gibson said, adding that Siemens’ collection of $7 million of the city’s money, up front, causes him grave concern about the company’s financial viability.


Gibson said the city is entitled to the truth and he’s going to get to the bottom of it.


"If there’s somebody doing something wrong, I’m going to point it out," Gibson said. "I’m going to shine a light on it so you can see it. If they’re all doing right, they ain’t got anything to worry about."


Gibson, in an Oct. 13, 2014, letter to the Monticello City Council and Mayor Joe Rogers, said the mayor is correct to be concerned about Siemens’ performance not being secured by a proper performance bond.


"We requested that the file on the contract be searched for a performance bond, and when that didn’t turn up a performance bond, the city requested its bond underwriter on the water project, Stephens Inc., to check its files," Gibson wrote. "The response was that they were unaware of any requirement for a performance bond on this $10 million water project."


Gibson said Rogers is also correct to be concerned about Siemens changing the type of water meter it installed without first obtaining formal approval from the city and the 40 percent failure rate of the meters the company subsequently installed.


"Siemens did not seek a change order approving this change of contract specifications on the meters, nor was one granted by the city," Gibson wrote. "That coupled with the multitude of problems being experienced by the city with the performance of the different brand of meters installed raises serious questions about what the city should do about this breach of contract by Siemens."


Rogers’ concern about the city’s difficulties in issuing water bills is also justified, according to Gibson.


"We understand that the city has had to make over 1,000 corrections to water bills before they could be mailed out," Gibson wrote. "This has resulted in delayed issuance of water bills to the point that water bills are being received by citizens only a few days before they are due."


Siemens’ recent payment request of more than $480,000 is also a justified concern, according to Gibson.


"First, this Siemens payment request is not recommended for payment by its own engineer who presumably is supposed to make payment recommendations to the city," Gibson said. "Second, this Siemens payment request is for the type of water meters that should have been installed under the terms of the contract, but weren’t. Third, this Siemens payment request has been made in the face of the fact that Siemens has already received some $7 million in city funds, the vast majority of which has not been earned by performance by Siemens under the contract."


Gibson agreed to represent the city on the condition that it hire a consulting engineer.


Echoing the mayor’s concern about the city not having its own consulting engineer for the project, Gibson said that is a major problem in trying to deal with Siemens on the project.


"As things sit now, the contract negotiated and signed by previous administration has put the City in the position of having to rely on an engineer selected and employed by Siemens," Gibson said. "The conflict of interest of this engineer should be apparent to anyone. It is our opinion that the city must have its own engineer in order for it to get an unbiased assessment of Siemens’ performance under the contract and to obtain a proper interpretation and application of the contract terms and provisions."


That is especially true for the yet-to-be-started water line replacement part of the project, according to Gibson.


Gibson said he understands that the plans for that project have not yet been put in final form acceptable to the city.


"One would have thought that those plans would have been in place and approved by the city and made a part of the contract before it was signed, but it wasn’t," he said.


A consulting engineer whose undivided loyalty is to the city would be of critical importance to any lawyer attempting to advise and represent the city on the project, Gibson said.


"That engineer," he said, "would bring expertise to determinations of what technical terms of the contract mean, and with respect to determining the quality of, and defects in the performance of Siemens under the contract. One thing is clear — neither the mayor nor members of the city council have the expertise needed to know if Siemens’ performance meets contract specifications."


To proceed without a consulting engineer, Gibson said, would be "penny wise and pound foolish."


With one dissenting vote Tuesday night, the City Council agreed to hire an engineer.


Following nearly an hour of discussion, the council voted 6-1 to enter into a contract with Gibson and to hire an engineer to advise the city in the multi-million water project. Alderwoman Claudia Hartness cast the lone dissenting vote and Alderman Tim Chase was out of the state and unable to attend the meeting.


Much of the discussion involved the engineer.


"In a project this big, if we’re going to consider that, we need to send out a request for qualifications," said Alderman Joe Meeks. "If we’re going to hire an engineer to oversee an engineer that’s doing the project, we need to make sure that the engineer overseeing the engineer is more qualified than the original engineer."


"You should have done than in the very beginning," Rogers said.


"They are qualified," Meeks said. "Y’all are not happy with them at this point."


City Attorney Whit Barton said he has no problem with the city hiring a consulting engineer, particularly for the water meter issue.


"One of the rationales for hiring Siemens and doing the project in the way we elected to do it was to have their expertise and their involvement to see that things go right … that’s one of the services that we’re paying for," Barton said. "At this point, there is a considerable question as to whether we’re getting that service provided to us."


While the council did not vote to hire a specific engineer, Hartness took issue with ETC, the engineering firm that Rogers suggested.


"The splash pad was supervised by ETC, and that was inferior work … ," Hartness said. "If we’re going to spend the money to hire an engineer, I want somebody who is proficient. I don’t think ETC is."


Alderwoman Beverly Hudson said the city is not yet at the point of deciding which engineer to hire.


"Oh, yes we are," Hartness said. "If we are going to hire Mr. Gibson, he is not coming unless we hire an engineer."


Andrea Chambers, the city clerk and city water department manager, said the city has used ETC on a number of projects and they did "a very good job."


"If you’re not happy with that one, and the council is not happy with that, we could always hire a different one," Hudson told Hartness.


Responding to a question from Alderman Cedric Leonard, Gibson told the council the job of the consulting engineer would be to see that the city is getting what it paid for.


"The problem with this engineer that is employed by and working for Siemens is that he has divided loyalties," Gibson said. "It’s called a conflict of interest in our business."


Gibson said he hasn’t seen the Siemens engineer’s signature on anything, even though he is supposed to be examining the work and telling the city whether payments to Siemans have been earned.


"It’s extremely important, given $10 million of taxpayer money at stake, that this city know that it’s getting what it’s paying for," Gibson said.


Leonard also questioned whether it is too late for legal action since the city signed the contract with Siemens.


"Your argument is, ‘if the cow is out of the barn, why are you closing the door now,’" Gibson said, confirming his understanding of Leonard’s concern. "Here’s the reason, it’s real simple: if they’ve hoo-dooed you, then they’ve gotta pay in a court of law in the United States. That’s the way this country works. And, there is a right of this city to stand up in a courtroom, just like anybody else, and have justice if they’ve done you wrong — even if the cow is already out of the barn — because it’s not all about the contract, it’s also about performance. It’s also about the legality of a contract that does not have the provisions that the Arkansas attorney general says it must have."


"That we signed," Leonard said.


"But you didn’t mean anything wrong by it, did you?" Gibson asked. "You didn’t know any better, did you?"


"No," Leonard said.


"I didn’t think you did," Gibson said. "You wouldn’t have signed it, otherwise. So, the thing is, just exposing the truth. If the truth leads to something that requires legal action, the options will be laid out before you and you will make those decisions at that time. No lawsuit is going to be filed without you knowing about it and without your approval. My hope is … this council will coalesce and work for the best of Monticello, set aside differences, and go for the truth. It works every time."


Hartness said she too wants the truth but believes the mayor is not cooperating with Siemens.


"I’m not voting to hire you tonight," Hartness told Gibson, "but if you are hired, I would like for you to get to the truth."


Hartness suggested that Gibson talk to Tony Ardillo, Siemens account executive, about whether the mayor has cooperated with Siemens.


Gibson said he intends to talk to Ardillo, and as he noted in his letter, plans to speak to Zack Tucker. Tucker was an assistant to the late Mayor Allen Maxwell when the deal was made with Siemens.


Prior to the vote to enter into the contract with Gibson, Meeks asked for Gibson’s word that he would attempt to avoid litigation as much as he can.


"I think that’s in the best interest of the city … ," Gibson said. "My philosophy is, if you can resolve matters without litigation, and all the things that go with that … , then you should. However, some people play hardball, and you need to be ready to play ball with them. That’s what I’m talking about doing, getting us ready to play ball."