Water Industry News
New Orleans questions $5.7 million
spent on consultants
By Martha Carr
When the idea of privatizing New Orleans' water and sewer systems was
proposed in 1999, the cost to study the concept didn't seem all that
For $100,000, consultants said, they
could determine whether private management would help make the Sewerage
& Water Board more efficient and save ratepayers money.
That was five years and several budget
Now, as Mayor Ray Nagin prepares to call
an end to the board's controversial privatization drive, records show
the price tag for exploring the concept has ballooned to more than $5.7
million, with about $4 million in public dollars landing in the pockets
of many of those same politically connected consultants.
So what did taxpayers get for their
money? That depends on whom you ask.
Privatization supporters say ratepayers
have realized millions in savings, simply because of efficiencies
achieved by water board employees fearful of losing their jobs to a
private management firm.
"I see no loss at all," said
City Councilman Eddie Sapir, who serves on the water board and
spearheaded the privatization drive. "Bottom line, we've recouped
those dollars in savings and created more efficiencies. That was the
goal to explore it."
Critics, however, say millions were
wasted, partly because of behind-the-scenes politicking that caused the
process to drag on years beyond what it has taken other communities to
settle the issue. They also say the work produced by the board's
consultants was confusing and lacked key documents, such as a technical
analysis of the first round of bids and a report showing what it cost
the water board to run the system -- a crucial figure, without which it
was impossible to accurately project savings.
"It was an extraordinary amount of
money spent for the end product," said Janet Howard, president of
the Bureau of Governmental Research. "The process was sloppy, it
was long and drawn out, and both are factors that contribute to
Nagin's assessment falls somewhere in the
middle. The mayor said he thinks taxpayer money likely was wasted on a
process that was slow and mired in politics. Still, Nagin said, the
agency now has independent analysis of its water and sewer systems from
two private companies and a group of employees who bid on the job, and
it can use that information when it comes to further restructuring in
Nagin revived the privatization drive in
January 2003, several months after opponents on the board staged a
surprise vote to reject all bids. Last month, the mayor said he will
call an end to the process in the next few months and will hire a new
executive director to re-engineer the agency as needed.
"I think that there probably was a
lot of wasted time, energy and money," Nagin said. "But I
think as a result of this, the board now understands a lot more about
what is potentially going to transform this operation. Keep in mind we
have detailed books from several different companies that came in and
studied our operations."
Looking to save money
When Sapir initiated the effort in 1999,
he presented privatization as a way to stave off rate increases by
holding down costs at the troubled water board.
At the time, the agency had signed a deal
with the U.S. Environmental Protection Agency to spend more than $200
million repairing leaky underground sewer pipes that were polluting Lake
Pontchartrain. Board members knew that the cost of the 14-year job --
the price tag has since grown to $650 million -- would mean substantial
rate increases. So they began investigating private management as a way
to save money.
Then-Mayor Marc Morial became the
effort's key proponent and went on to shepherd the 20-year, $1 billion
contract through its first incarnation.
Observers found plenty to criticize.
Millions in taxpayer dollars went to lawyers and engineers who drafted
the bid proposals, while two major companies interested in the job --
United Water and USFilter -- put politically connected consultants on
Critics also said the bid documents were
poorly constructed, and they accused the board's consultants of being
controlled by political factions favoring privatization.
The effort ended abruptly in October 2002
with a 6-5 vote to reject bids submitted by the employees, United Water
and USFilter, now known as Veolia Water North America Operating
Despite the controversy, Nagin chose to
revive the beleaguered drive, promising to put the process on the fast
track and solicit new bids by February 2003. More than a year later, the
water board has yet to issue a second bid document. That's because there
aren't enough private companies showing interest in the job to ensure
the water board would get a competitive price, Nagin said.
Consultants reap rewards
Throughout the process, it appeared the
biggest beneficiary of any deal would be whichever private company won
the estimated $1 billion job. That company also would be required to
reimburse taxpayers for any money spent to explore the idea.
But now, with most companies scared off
by laws that require a public vote before a privatization contract can
be approved, consultants appear to be the big winners, and taxpayers are
left to pick up the tab.
Topping the list of big money makers is
the team of consultants hired by the water board, first led by the
Washington, D.C., law firm of Verner, Liipfert, Bernhard, McPherson
& Hand, then later by some of the same lawyers who left to join the
D.C. firm of Sullivan & Worcester.
Verner Liipfert was hired in 1999 on
Sapir's recommendation without going through a competitive selection
process. In 2001, several lawyers from the firm left to join Sullivan
& Worcester and took the water board contract and a $1.8 million
annual City Council contract with them.
Once they were selected, the lead
consultants hired the national accounting firm Deloitte & Touche,
the Metairie engineering firm Camp, Dresser & McKee, and Essential
Environmental Engineering of New Orleans to work on the team.
Together, the consulting companies earned
almost $4 million in five years.
Verner Liipfert also hired attorney
William Broadhurst, one-time law partner of former Gov. Edwin Edwards
and one of Sapir's closest associates. Even though Broadhurst, who was
doing business as Americus Consulting, stayed on the payroll briefly and
earned only about $16,000, the appointment stirred controversy.
Conflict also arose when it became public
that Kim Henry, sister-in-law of Troy Henry, then president of United
Water New Orleans, was working on the consulting team.
Henry eventually dropped out, but he
rejoined the group after Nagin restarted the process.
Employee group's team
Next to the board's consultants, the
biggest beneficiary of S&WB money was a team of consultants hired by
the employee group that bid for the project. Those consultants, in
contrast to the board's advisers, were chosen competitively, after
proposals were sought from several companies, said John Wilson, who
headed the Managed Competition Employee Committee.
The winning bidders also were screened
for political connections to water board members, he said. S&WB
employees feared that if they hired a company with political allegiance
to privatization proponents, it would undermine their attempt to win the
private management contract, Wilson said.
"We were very cautious to allow any
political officials to influence us as to who to hire," he said.
"Frankly, we were afraid of any of those firms having an ulterior
The MCEC's consultants included
management advisory firm HDR, public relations firm Multi Image Resource
Group, and law firms Harges & Fuller, Many & Lococo, and William
J. Oberhelman Jr.
HDR is based in Omaha, Neb., and the
remaining firms are based in New Orleans.
Together, they were paid more than $1.6
Public vote cited as burden
Despite criticism from the BGR and others
that the process was mired in political dealings, Sapir said he never
got "that deep" into it and that he has always followed the
will of the majority of water board members.
"Eddie couldn't do anything alone,
and this is something the board voted on to do," he said.
What really killed the prospect of
private management, Sapir said, was not a faulty process, but a city
ordinance that voters amended to require a public vote before any large
privatization contract could be approved. That stipulation was later
codified in state law. At least one company, United Water, said it lost
interest in bidding a second time because of the public vote
"If anything ran companies out of
here, it was the fact that they would have to face a future referendum
and spend millions on a PR campaign," Sapir said.
The referendum was the brainchild of
former City Councilman Jim Singleton, who served on the water board and
ran for mayor in 2002. Singleton said he pushed for a public vote
because he felt that the process was corrupted from the start.
"I think the first premise was the
fact that there were some people lurking around looking for how much
money could be made, and how much money certain consultants could
make," Singleton said. "It got worse from that point. The
whole idea was about people making money as opposed to how you could fix
the problems at Sewerage & Water Board."
Former water board member Ron Guidry also
said he became increasingly concerned about the process, even though he
initially supported the idea of private management. Guidry instigated
the surprise 6-5 vote to end the privatization drive the first time
"This thing turned bad almost
immediately," said Guidry, an insurance agent who was replaced by
Nagin shortly after the vote. "If you look at what the board
initially agreed to spend to look at (privatization), it was only a
couple hundred thousand. It was nowhere near the $5 million. The process
of doing this became an industry in and of itself. And a lot of people
were having some very expensive lunches at the expense of
Missteps on documents
Howard of the BGR said her group was most
concerned with the quality of the documents -- or lack of them --
produced by the board's consultants. First and foremost, she said, the
consultants should have provided the board with an analysis of how much
it cost to run the agency under public control so residents could
determine whether any savings could be achieved by private companies
vying for the job.
That wasn't done until after the bids
were rejected and Nagin restarted the process. Even then, the BGR took
issue with the consultants' methodology.
Consultants also failed to provide the
board with a technical evaluation of the bids showing which company
provided the superior proposal, Howard said. And a special evaluation
committee of community members created to analyze the bids failed to
rate or rank the proposals, leaving the public without a clear picture
of which group offered the best deal, she said.
"Despite the $4 million expenditure,
the city never obtained a technical analysis of the bids," Howard
said. "The only professional analysis of the bids was done by BGR."
Even with those problems, water board
member Sidney Evans said he was prepared to hire a private company if
the coup had not been staged a few minutes before he arrived at that
fateful meeting in October 2002. Looking back, he recognizes the flaws
in the process but said the board still learned a great deal.
"It was the arduous political
process that the consultants were forced to deal with that really ran
the costs up. These were hourly paid lawyers and accountants," he
said. "But to look at a $1 billion job and to spend $4 million
doesn't seem to be unreasonable. The employee group knows a hell of a
lot more about water and sewer than before the process, and I think the
board itself had made a lot of progress in the way it operates."
"Did we get good value for the
dollars we spent? Probably not," he said. "But we did get
something out of the process that we can use going forward."
Martha Carr may be reached at firstname.lastname@example.org
or (504) 826-3306.