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Quincy receives $4 million in settlement with Honeywell

Posted by Jessica Bartlett  January 15, 2013 11:37 AM

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The city of Quincy will receive a $4 million settlement from Honeywell International Inc. and be released from a $22 million maintenance contract almost six years after entering into what officials have called a faulty energy contract with the national corporation.

“Dealing with an existing contract the city had signed, it did not make things easy to resolve some of these issues, but by sticking to our guns, the great work by the inspector general and attorney general, we have a positive result for the taxpayers of our city,” Mayor Thomas Koch said at a press conference Tuesday morning.

In a statement, Tom Hamilton, general manager of Honeywell’s Building Solutions unit, said the company "agreed to settle with the attorney general to avoid spending more time and legal expenses on the matter.”

According to Honeywell, the dispute with the attorney general mainly revolved around the specifics of the energy contract with the city, which included water meter upgrades in addition to heating utility changes.

“We believe that the Massachusetts statute does not prohibit the use of water meters in an energy program, although we had a disagreement with the attorney general’s office on this point, resulting in this settlement,” Hamilton said.

“We feel strongly that the energy efficiency improvements and new water meters are delivering energy and operational savings to the city, as well as a significant boost in revenue. The guaranteed savings would have been met if the city had proceeded with the maintenance portion of the contract," Hamilton said.

The dispute stems from a $32 million-energy saving contract the city signed in 2007 under Mayor William Phelan.

Honeywell was to provide new energy equipment to dozens of city buildings. The city was to make payments until 2026, with interest totaling approximately $15 million. The contract included a 20-year, $22 million maintenance contract.

Over time, the upgrades were supposed to pay for themselves by cutting the city’s energy and water consumption.

The city made $9.1 million in initial payments for the equipment, and has since been paying $2.5 million annually for the expense.

Though the $4 million in the settlement doesn't cover those costs, Koch recognized that the city had this equipment and could begin to provide maintenance on their own terms.

The equipment is in city buildings, "which will allow us to save an awful lot of money,” Koch said.

The Honeywell debate has been a priority of Koch, who has argued that the contract’s cost was inflated. The arguments even helped Koch defeat incumbent Phelan in the 2007 election.

Though the expensive contract helped Koch gain favor with taxpayers, the headache was only beginning for his administration.

Soon after the city received the retrofitted equipment, newly installed boilers started breaking, and maintenance problems started piling up.

At Koch’s request, an inspector general investigation was launched. Simultaneously, Koch refused to pay Honeywell for the signed maintenance contract.

A year later, the investigation was given to the Attorney General’s office, which started negotiating a possible settlement with Honeywell on the city’s behalf.

Though a lengthy process, city officials said going through state channels helped save taxpayers thousands in attorney fees.

“"The decision was made at the onset to use state resources so we won’t eat up the money we would gain in litigation costs,” said Tom Kiley, an attorney who was consulted on the case. “It’s the utilization of the process to avoid costs themselves that takes a lot of time.”

Settlement did come last minute, however, meaning that the city was preparing to go to litigation over the matter. As a result, officials say the city still will have under $10,000 in attorney fees.

City officials estimated that Honeywell’s legal fees most likely were in the seven figures.

Preparing for litigation is what helped both sides reach a settlement, Koch said, as Honeywell executives could see that the city was serious about finding a resolution.

“To send a clear message to Honeywell that the city was dead serious about going to litigation, we brought in the best [attorneys] around…and I think that was a clear message which forced a bit more seriousness on the settlement side,” Koch said.

According to William Delahunt, who assisted the mayor’s team on a pro-bono basis during the process, the settlement supports the accuracy of the mayor’s stance on Honeywell.

“It demonstrates that the mayor’s concerns were on target, were accurate, and that the Attorney General shared in those concerns,” Delahunt, a former US representative, said at Tuesday's press conference.

“I want to congratulate the mayor for persevering and being persistent about this and putting a good team together to work with the Attorney General and Inspector General’s office. This has been going on a long time, but it’s over and it’s done.”

Koch said that it felt good to finalize a “divorce” between the two parties, and that the city could now look forward with energy savings in public buildings.

“There will be money set aside out of this agreement that we will use to deal with those [utility] issues, but [we will] continue to make improvements to our buildings, continue to make them energy efficient, continue to drive our operating costs down as we move forward,” Koch said.

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