Michigan paid more than FEMA for Flint emergency supplies

LANSING, MICH. - The State of Michigan likely paid hundreds of thousands of dollars too much for emergency supplies related to the Flint drinking water crisis because it used no formal bidding process, relied almost exclusively on one out-of-state company with ties to a top aide to Gov. Rick Snyder, and didn't turn to Michigan companies already approved to do business with the state, a Detroit Free Press investigation has found.

The Free Press compared Flint purchasing records by the State of Michigan between October and January with purchasing by the Federal Emergency Management Agency between January and August.

FEMA, which in some cases paid more than 20% less than what the state was charged for the same item, bought from six different vendors,  posted on the Internet its call for vendors to supply water, filters and replacement cartridges, and in some cases bought directly from the manufacturer, cutting out the middleman.

The state, which did almost all of its purchasing in January, three months after Snyder acknowledged the lead contamination of Flint's drinking water, never advertised its purchasing plans and relied almost exclusively on one supplier — Georgia-based Home Depot — for all the items it needed.

Two Michigan-based companies who — like Home Depot — had existing contracts with the state, say they were either never asked for a price for bottled water prior to the January purchases, or were not given sufficient information to make an informed bid. Months later, given that opportunity, they offered the state bottled water at prices 19% to 24% lower than what Home Depot charged.

The potential savings are an issue as this week marked the one-year anniversary of the state acknowledging, at an Oct. 2, 2015, news conference, what was then already an 18-month-old public health crisis. Though the state has appropriated $234 million to buy emergency supplies, address health and infrastructure needs, and reduce high water bills for Flint residents, city demands for available cash remain high as the costly replacement of thousands of lead service lines proceeds painfully slowly and residents still are using filtered or bottled water.

The state, which spent about $9.1 million, was responsible for Flint purchasing until Jan. 16, when President Barack Obama declared a federal emergency and FEMA took over. The state recently resumed responsibility for Flint purchases after the federal emergency expired — but the state emergency declaration continued —  on Aug. 14.

"All purchasing decisions were being made with the intent to provide critical resources to Flint residents in need as quickly as possible," said Caleb Buhs, a spokesman for the Department of Technology, Management and Budget.

Buhs said a relatively small purchase of commodities was made in October 2015  "following the initial understanding of the lead contamination," to satisfy immediate needs. After Snyder's state emergency declaration, on Jan. 5, "a much larger need arose for both water and filters," he said. "In between those two events, there was not ongoing purchases nor was there a certainty of more products needed. Therefore, there was not an active bid solicitation taking place."

Richard Baird, a top aide Snyder, said in an October 2015 e-mail to Snyder that he had a "good friend" on the board of directors of Home Depot. Records released by the state show Baird contacted that board member, J. Frank Brown, on Sept. 30 — two days before state officials held a news conference to publicly acknowledge the lead contamination of Flint's drinking water — telling Brown: "We have a situation in Flint, Mich. that is beginning to get national attention and could be an opportunity for Home Depot."

Baird then asked Brown whether Home Depot would make a donation toward Flint relief. A spokeswoman for Baird, Anna Heaton, told the Free Press the chance to make that donation was the opportunity Baird referenced. The company then donated 18 pallets of water to Flint police and fire officials, which Baird reported to Snyder in an Oct. 3 e-mail.

Baird told the Free Press he had nothing to do with the emergency purchase order being awarded to Home Depot. Brown, through a spokeswoman, declined comment.

State buyer Steve Rigg said in January, when the state began making purchases in bulk, that Home Depot had "cornered the market" on the types of filters and replacement cartridges the state needed for Flint, and it wasn't practical for FEMA, which was about to take over Flint purchasing after Obama's emergency declaration, to try to buy directly from the manufacturer.

Nevertheless, that's exactly what FEMA did, resulting in significant savings for taxpayers. For example, after buying the nearly 47,000 Brita filter cartridges Home Depot had on hand, at a cost of $13.03 each, which was slightly more than the state paid, after rebates, FEMA turned to the manufacturer, Clorox, and bought nearly 117,000 more of the same filter cartridges for $9.62 each — 26% less than Home Depot charged the agency. Records show the state purchased at least 16,000 of the cartridges and would have saved close to $40,000 if it had paid the same price FEMA did.

"FEMA made its initial purchase from Home Depot, which was identified as a local supplier where the items were most quickly and reasonably available ... to ensure no gaps in supply," FEMA spokesman Mark Peterson said in an e-mail to the Free Press. "At the same time, FEMA sought to procure larger quantities than those available through local purchasing," and "after competition, the request for bids resulted in a supplier that could provide the quantities ... required to meet the needs of the mission."

Though the three months between acknowledging the problem and buying the needed supplies could have been used to request competitive bids, "there was not a need to establish a new contract," said Buhs. "We already had a fair contract in place and we were working diligently to meet the residents' needs. Home Depot has a significant logistics operation that they could leverage in a short amount of time and we were able to take advantage of it."

Ultimately, the state spent about $9.1 million with Home Depot, with about $8.7 million of that spent in January. The January spending included $5.4 million for water filter systems, $2.9 million for replacement cartridges, and $417,000 for bottled water, state officials said.

FEMA spent close to $10.8 million, including $1.1 million on water filters and pitchers, close to $3.4 million for replacement cartridges, and close to $6.3 million for bottled water.

The state, on average, paid at least $21.50 per filter and $11.72 per replacement cartridge, according to records obtained under the Freedom of Information Act and interviews with state officials.

When FEMA took over purchasing in January, it bought the 30,000 water filters Home Depot had on hand for $643,100, or an average of $21.44 each, about the same as what the state paid. FEMA never bought additional tap-mounted filters from other suppliers, because no more were needed.

But to purchase 23-cup water pitcher filters, FEMA went to the manufacturer, Zero Water, and bought 10,000 of the items for $247,500, or $24.75 each, FEMA records show. In January, the state had purchased 5,616 of the same Zero Water pitchers from Home Depot for $224,472, or $39.97 each, state records show. The FEMA price was 38% lower than what the state paid. If the state had purchased its pitchers at the same price charged to FEMA, it would have saved about $85,000.

For filter replacement cartridges, again by using other suppliers, FEMA paid an overall average of $9.23 per replacement cartridge, or 21% less than the state paid, according to purchasing data released by federal and state officials.

The state paid at least 26.4 cents per liter for bottled water. FEMA paid an average of 23.4 cents per liter, or 11.4% less than the state paid, records show.

For bottled water, FEMA sought prices from two pre-approved water vendors each time it made a purchase, Peterson said.

The state prices include transportation to Flint; the FEMA prices include transportation to Selfridge Air National Guard Base in Macomb County. FEMA said it could not isolate or estimate either a total or per-unit cost of transporting the goods the 64 miles from Selfridge to Flint, because a variety of methods was used. FEMA did face additional costs related to storage and transportation logistics — some of which will be passed on to the state when it picks up its 25% share of certain federal emergency costs — but those are not procurement costs related to how much FEMA paid vendors to obtain the commodities and have them delivered, Peterson said.

All the state prices include rebates of up to 3%, which it will receive from Home Depot in 2017, under the terms of a 2012 state contract.

Buhs said it was because of that existing contract that Michigan relied on Home Depot in January and didn't see a need to call for formal bids, instead tacking a $30-million, no-bid purchase order onto Home Depot's existing contract.

But the state also had an existing contract with Michigan-based Gordon Food Service. It wasn't asked to offer a price for bottled water until August, when the federal emergency in Flint was ending and the state was about to resume purchasing bottled water. Gordon Food Service then offered to sell the state bottled water for 21 cents a liter — 19% less than the state paid Home Depot, an out-of-state supplier.

Gordon was not asked to submit a price for the earlier purchase because the state "had worked out a deal with Home Depot to purchase water and filters through a single vendor," Buhs said. "After it was established that Home Depot could deliver both products in the time frame necessary and at an acceptable price, we executed the purchase."

The state hasn't resumed purchasing water filters and replacement cartridges since it assumed purchasing responsibilities from FEMA, because it doesn't need more right now, Buhs said.

In August, even Gordon's 21-cent-per-liter price wasn't good enough to win the purchase order. Another Michigan-based company, Absopure, offered to sell the state bottled water for 20 cents per liter, and the state recently purchased close to $3.2 million worth of bottled water from Absopure at that price.

Buhs said Absopure  was asked by telephone for a bottled water price in October, prior to the January purchases, and at that time wanted 33 cents per liter, which was more than Home Depot was charging.

But Frank Zolenski, marketing director for Plymouth-based Absopure, said he believes there was miscommunication between the state and Absopure, since 33 cents per liter, or $4 per case of 24 half-liter bottles, is the contracted state price for receiving a single pallet, containing 84 cases of bottled water. The much lower price of 20 cents per liter that Absopure is now offering the state reflects the much larger volumes of purchases, and it's possible that if Absopure understood the state wanted large volumes of water in January, it could have offered a price close to what it is charging now, Zolenski said.

"We were very busy in January donating water to Flint," and Absopure has to date donated at least 7,500 cases, or close to 90 pallets of water, to the Flint relief effort, he said.

Had the state been able to make its January purchases of bottled water from Absopure at the same price it is paying the company now, it would have saved about $97,000.

At Gordon Food Service, based in Wyoming, Mich., since the company "was not asked to submit an initial bid, I cannot speculate" on what price it might have offered for the state's January water purchases, spokeswoman Deb Abraham said.

In his Sept. 30 e-mail to Brown, the Home Depot board member, Baird said he "was thinking that Home Depot might want to join the effort with a donation, supply chain discounting assistance, or some combination of activity that could help Flint residents."

Brown forwarded Baird's e-mail to the retailer's CEO, Craig Menear, who grew up in Flint, saying: "My friend Rich is chief of staff for Gov. Snyder. If we are interested in trying to help with this problem, please let me know and I will make the connection."

Menear and other officials arranged for Home Depot to donate 18 pallets of water to Flint relief and assist the Red Cross with the logistics of an $80,000 purchase of water filters, according to e-mails and interviews.

Baird reported the company's actions to Snyder in an Oct. 3 e-mail. "Frank is a good friend who serves on Home Depot's board," Baird told Snyder. "He has been a big fan of what we are doing in Michigan and I am very appreciative of his and HD's quick and generous assistance."

Baird, who heads "Mission Flint" for Snyder, told the Free Press he played no role in the state's decision to add an emergency purchase order to the existing Home Depot contract.

And by the time Baird e-mailed Snyder, state purchasing officials had already identified Home Depot and one other vendor, Illinois-based Grainger, as potential suppliers of needed items who the state could purchase from on an expedited basis because each already held a state contract. DTMB buyers contacted both companies Sept. 30, the same day Baird sent his e-mail to Brown, records show.

"Rich took initiative to ask for donations from a company he had a relationship with because there was an immediate need, just as there was outreach to Meijer ... for their help when there were initial complaints of water quality," Snyder spokeswoman Anna Heaton said in an e-mail to the Free Press.

"The governor and Rich do not get involved in the purchasing review process," she said. "All DTMB procurement policies and procedures are followed by the state employees who make these decisions."

Invoices the state released under FOIA show that before the 3% rebate, Michigan taxpayers typically paid Home Depot full retail prices, or slightly higher, despite massive purchases.

For example, from Jan. 11 through 14, the state purchased 127,680 cases of bottled water, each containing 24 half-liter bottles, at a cost of $417,513.60, records show. The per-case price of $3.27 exactly matches the retail price listed on the Home Depot website in June.

On Jan. 19, the state paid Home Depot $112,235.76 for 2,808 water dispenser and filtration systems, paying a unit price of $39.97. In June, the same 23-cup dispenser was listed on the Home Depot website for a slightly lower retail price — $39.44 each.

And on Jan. 12 the state purchased 2,500 PUR horizontal-mount faucet filters for $74,925, paying Home Depot a unit price of $29.97, according to the invoice released by the state.

In June on the Home Depot website, that $29.97 price was crossed out and shoppers were offered the filters for $24.97, meaning the state could have saved $15,000 if it had been able to negotiate the same price available to online shoppers in June.

Stephen Holmes, a spokesman for Home Depot, said prices fluctuate by time of year and location and some of the prices the state paid were discounted prices available to customers at that time.

Holmes defended the prices the company charged. Home Depot didn't charge the state for transportation and labor costs related to expedited shipping, plus working to educate customers about issues such as how to install the water filters, Holmes said. He estimated the state's savings, in rebates and transportation costs alone, at about half a million dollars.

"It was a massive project," and "the bottom line is, our team from Flint and Atlanta were thrilled to be helping the state to make this happen," Holmes said.

As for whether Home Depot "cornered the market," Holmes said the state reached out to its suppliers and tried to get all the product it could to meet the state's needs.

Flint's drinking water became contaminated with lead in April 2014, while the city was under the control of a state-appointed emergency manager, after the city switched from Detroit-supplied water to the Flint River, as a cost-cutting move.

The Michigan Department of Environmental Quality failed to require the addition of needed corrosion-control chemicals as part of the treatment process, and the water ate into pipes, joints and fixtures, sending unsafe levels of lead into Flint homes and businesses. The city returned to the Detroit water system — now the Great Lakes Water Authority — in October, but a potential hazard remains because of damage done to the water distribution system.

Detroit Free Press


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