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The Board of Water Commissioners for the City of Detroit Water Sewerage Department approves Amendment 1 to DWSD Contract # 60003835 (CS-1962) with Mackinaw Administrators, LLC, to add funding in the amount of $500,000, for a total contract amount not to exceed $3,500,000 and authorizes the Director to take such other action as may be necessary to accomplish the intent of this vote.
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Agenda of June 21, 2023
Item No. 2023-142
Contract No.: 6003835
Contractor: Mackinaw Administrators LLC
Address: 5440 Corporate Drive, Suite 260, Troy, MI 48098
Contract Amount: $3,500,000
Contract Term: 9/1/21 - 8/30/24 (3 years)
TO: The Honorable
Board of Water Commissioners
City of Detroit, Michigan
FROM: Gary Brown, Director
Water and Sewerage Department
RE: Amendment to Contract for Claims Administration of June 25 and 26 and July 16, 2021 Rain Events - Mackinaw Administrators, LLC
MOTION
Upon recommendation of General Counsel, Debra N. Pospiech, Esq. the Board of Water Commissioners for the City of Detroit Water and Sewerage Department approves Amendment 1 to DWSD Contract # 60003835 (CS-1962) with Mackinaw Administrators, LLC, to add funding in the amount of $500,000, for a total contract amount not to exceed $3,500,000 and authorizes the Director to take such other action as may be necessary to accomplish the intent of this vote.
BACKGROUND AND JUSTIFICATION
The historic rainfalls of June 25 and 26th 2021 were the proximate cause of a substantial amount of flooding and sewage backups in the City of Detroit and surrounding suburbs. On July 16th another rain event occurred that caused flooding and backups in a smaller section of the City. Under the Governmental Liability for Negligence Act (Act 170 of 1964), a governmental agency is immune from tort liability for the overflow or backup of a sewage disposal system unless:
1. The sewage disposal system had a defect.
2. The governmental agency knew, or in the exercise of reasonable diligence should have known, about the defect.
3. The governmental agency, having the legal authority to do so, failed to take reasonable steps in a reasonable amount of time to repair, correct, or remedy the defect.
4. The defect was a substantial proximate cause of the event and the property damage or physical injury (50% or more of the cause).
Claimants must submit their claim as prescribed in the Act and then DWSD evaluates whether the claimant met the above four-part test. If so, DWSD may offer an amount it believes is fair and reasonable for verifiable damages. The total of claims received to date is 29,642 for the two rain events. Claims are from Detroit citizens, business entities, churches, etc.; citizens and entities in surrounding suburbs; and property insurance companies making subrogation claims.
On August 18, 2021, the Board of Water Commissioners approved a three-year, $3 million contract with Mackinaw Administrators to inventory all claims into a database and to deny or negotiate settlement of each claim based on DWSD General Counsel’s direction. Given DWSD’s favorable experience with Mackinaw Administrators, LLC in processing claims for the 2016 rain events, we submitted the contract to the Board under the Exception to Competitive Bidding process.
Pursuant to the contract, Mackinaw Administrators has taken the following actions:
Record Only: Record Only data consists of claimants to date and will also record plaintiffs from all class action cases who did not submit a claim. This data category will be fully populated during the course of the class action cases. Cost is $55 per record. The 29,642 claims recorded to date x $55 = $1,630,310.
Denied Claims: DWSD instructed Mackinaw Administrators to deny 27,003 claims to date. Mackinaw generated a form letter to those claimants and handles all calls regarding denials. Cost is an additional $55 per claim. 27,003 x $55 = $1,485,165.
General Liability Complex Claims: Where DWSD determines claims at specific addresses may be candidates for settlement, claims forms and supporting documents will be sorted, entered, and uploaded to Mackinaw’s database for full processing. Cost is $355 per claim. Mackinaw will evaluate damages claimed, recommend a settlement value, set off insurance and FEMA benefits, and also set off delinquent amounts owed to DWSD. The Director will exercise his settlement authority for claims up to $50,000.
Mackinaw provides all customer call center services and provides weekly reports.
There are approximately 2,600 remaining claims to be denied or candidates for settlement. We have exceeded the contract funds and require additional funding to process the remaining claims. Conservatively, we require an additional $500,000 on the contract. The court dismissed all class action cases related to the June 25/26, 2021 storms, but there will be appeals. The court partially dismissed cases related to the July 16, 2021 storm.
BUDGET IMPACT
The potential budget impact was estimated at $3M to $5M, depending on the volume of claims and the volume that ultimately transition to the “General Liability Complex” categories. Given Mackinaw Administrators’ ability to process claims and denials so efficiently, the $3M initial contract amount was expended in year 2. This $500,000 amendment was submitted through Requisition # 507763 and approved by Budget on June 5, 2023. The amended funds will be expended in year 3.
SUMMARY
A. Contract No.: 6003835 (Project# CS-1962)
B. Contractor: Mackinaw Administrators LLC
C. Contract Term: 9/1/21 - 9/30/24 (3 years)
D. Initial Contract Amount: $3,500,000.00
E. Proposed Amendment #1 Amount: $500,000.00
F. Proposed New Total Contract Amount: $3,500,000.00
G. Fiscal Year (FY) Breakdown:
FY 21 - 22: $1,000,000
FY 22 - 23: $2,000,000
FY 23 - 24: $500,000
H. Funding Source 100% sewer
I. GL String:
5821-20243-497711-616100-460999-15802-0000-000000
This proposed amendment was presented to the Finance Committee on June 7, 2023. Per the DWSD Procurement Policy, no further approvals are required.