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Pawtucket, RI approves Earth Tech contract for new water plant

Douglas Hadden
09/10/2003

PAWTUCKET -- In a vote that took four years and much controversy to reach, the Pawtucket Water Supply Board Tuesday night voted -- though less than unanimously -- to approve a 20-year contract with vendor Earth Tech to design, build and operate a new $47 million water treatment plant to replace its ailing facility built in 1938.

Robert Markowitch, the Earth Tech regional director who will oversee the project, said his company will execute all its signoffs today.

That will leave the ball in the court of the City Council, whose dispute with the Doyle administration over the choice of the vendor, beginning in January 2002, led to hundreds of thousands of dollars in extra expenditures in a project that was planned to break ground that April.

The council tonight is scheduled to vote on a resolution authorizing Mayor James E. Doyle to apply for $119 million in funding from the Triple-A rated R.I. Clean Water Finance Agency. The council Finance Committee last week voted to recommend the move.

The all-rolled-into-one funding plan includes "defeasing" (repaying and canceling) bonds issued by the Pawtucket Building Authority, refinancing city general obligation bonds issued for the water system, and financing improvements including the new plant, plus debt service.

If all now goes forward as planned, construction would start in January, said Pamela Marchand, PWSB chief engineer and general manager. The contract requires completion in 24 months.

The dissenter in the 5-1 approval vote was board member and City Councilor Thomas Hodge, who had favored rival vendor USFilter throughout the process. Hodge said changes in the guarantees provided by Earth Tech and its parent company, Tyco International, changes that Marchand and PWSB’s outside experts said were improvements, left him uneasy.

"That concerns me greatly, that those had to be revised," Hodge said. "I hope I’m wrong for everybody’s sake and I urge Earth Tech to prove me wrong. But I’m just not happy or comfortable (with the contract)."

But PWSB outside lawyer Sean Coffey, who negotiated the changes with Earth Tech, said they were important improvements.

Coffey said a $2 million letter of credit to help finance the start of the project will now be a $42 million performance bond from a Double-A rated company, which was not in the original proposal documents and after Tuesday’s vote will take effect as of today; changes were made to satisfy bond counsel and be in accord with an IRS ruling "that allows these types of bonds to be issued," with PWSB acting as the city’s agent; if Earth Tech’s credit rating falls below investment grade, "they’ll be fined for any failure to obtain a letter of credit" during that period; and if Earth Tech is sold, PWSB can terminate the contract with a roughly $300,000 payout.

well short of the (prior) $2 million payment for termination for convenience," Coffey said.

Also, with the overall $100 million performance guarantee by Earth Tech is a $50 million backup guarantee by Tyco. Should Tyco’s credit rating fall below investment grade, it "must immediately post a $5 million letter of credit," Coffey said.

The performance bonds, PWSB consultant Paul Eisenhardt noted in a conference call from the West Coast, are "over and above" the Tyco guarantee.

And if something goes wrong, Coffey told the board, "you have a full field of alternatives to pursue" in litigation against Tyco and Earth Tech up to the $100 million guarantee.

Markowitch of Earth Tech said an ongoing maintenance and capital equipment replacement fund (factored in as part of their service fee), such as for replacing filters or for a new roof years down the line, should keep the plant in optimum condition until the city inherits it at the end of the contract. So at year 20, "you’ll still have the same basic facility as on day one," and any unused monies in that fund would revert to the city.

Eisenhardt said the maintenance schedule has already been laid out based on "when such things typically occur," to prevent the plant from being run into the ground. Ongoing maintenance will be "the vendor’s responsibility," subject to ongoing PWSB inspections, he said.

The council resolution is needed to allow Clean Water, which like Earth Tech will have officials at tonight’s meeting to answer questions, to hire bond counsel to start that process, which includes getting a bond rating for the issue.

The city will now have 120 days to sign its side of the contract terms and put them into permanent effect.

Anthony Simeone, Clean Water executive director, told a council committee last week that the bond process could be done within 90 days. Marchand said Tuesday that Earth Tech has said it would immediately "get started in the permit process, at their own risk," even as the bond process goes forward.

"Our hope is to have it started by Jan. 1, a new project for a new year," Marchand said.
ŠThe Pawtucket Times 2003