Phoenix Mayor Phil Gordon's Involvement with Veolia Transportation Contract Questioned by Federal Transit Administration

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A New Times story about Phoenix Mayor Phil Gordon advising a transit company that employs his girlfriend on how to muscle nearly $30 million from Phoenix has prompted an inquiry from the feds.

The Federal Transit Administration, an agency that provides money for and oversees federally funded transportation programs, called Phoenix officials and asked them for an explanation about the conflict of interests raised by the September story, "Phil Gordon's Girlfriend Problem."

The New Times article revealed that Veolia Transportation, the transit company awarded a new $385 million Phoenix city-bus contract, not only has Gordon's girlfriend, Elissa Mullany, on its payroll, but Mullany helped Veolia put together its winning bid for the multi-million contract.

The article also reported that Gordon met with his good friend Billy Shields, a paid lobbyist for Veolia, and advised him to tell his client to just walk away from its Phoenix contract when city officials wouldn't agree to Veolia's demands for more money. When Veolia reneged on the contract it was awarded, Phoenix officials flew to Chicago where they agreed to pay Veolia nearly $30 million.

Leslie Rogers, the regional administrator for the FTA, in San Francisco punted New Times call to the agency's public relations office in Washington, D.C. We're still waiting to hear from that office to find out what - if anything -- came out of the FTA's inquiry.

In a five-page letter to the FTA, Phoenix Public Transit Director Debbie Cotton explained that the contract tied to the nearly $30 million settlement was not federally funded. She also wrote that Gordon didn't vote on the new contract awarded to Veolia and that elected officials had nothing to do with negotiating the $30 million settlement. (Read Cotton's memo to the City Manager about the FTA inquiry and her response to the FTA.) 

Gordon did lobby for Veolia, and made it publicly known during a City Council meeting that he was pushing for Veolia to get the contract. But when rumors were proven true that he was romantically involved with Mullany, his political fundraiser and a Veolia consultant, he declared a conflict of interest.

And Gordon may not have been at the Chicago meeting, but his advice to Veolia certainly prompted it.

Cotton's letter doesn't make any mention of Mullany's involvement as a consultant for Veolia. Nor does it address Gordon's meeting with Shields, or how Gordon weighed in during closed-door City Council meetings regarding the Veolia settlement -- even after Gordon declared a conflict of interest during public meetings.

Cotton, in her letter, also says city officials and staff made a distinction between the old city-bus contract (which expired on June 30) and the new contract by treating them as "separate transactions and negotiations." She told the FTA that "no changes were made to the New Contract," which is covered by federal funds.

But how can that be true when the settlement agreement Cavazos and other city officials hammered out in Chicago with Veolia execs clearly spells out the link between the two contracts and specifically calls for Change Orders to the new contract?

For instance, as part of the settlement, Phoenix agreed to eliminate a $50,000-per-day fine that Veolia would have had to pay the city if bus workers went on strike. (How kind of Phoenix to do that for Veolia while the transit company is in the midst of contentious union negotiations.)

And the moratorium on fines in the event of a strike would be "reflected in a Change Order to the New Contract," according to a copy of the settlement agreement the city provided New Times.

Sounds like a change to us.

Another change that came out of settling the old contract was Phoenix's agreeing to waive four months worth of liquidated damages, or fines, outlined in the new contract that Veolia would have otherwise had to pay for things like late, broken down or unkempt buses.

Cotton told the FTA that the fines in the new contract were waived in May because the city was changing the type of contract that it had with Veolia - going from a management contract to a fixed-cost contract.

(Under a management contract the city covers all transit expenses and pays a management fee to a transit company to run the city bus service. With a fixed-rate contract, the transit companies that want the city contract provide a per-mile cost to operate city bus services and the lowest bidder wins.)

Cotton seems to suggest that the city, at the last minute, decided to change the type of contract and that Veolia needed time to adjust. But Veolia -- and all the other transit companies vying for the Phoenix city-bus contract -- knew that the contract had changed when the city first started soliciting bids in June 2009.

Cotton was out of town and unavailable for comment. We hope to have more details later as city officials return from their holiday vacations.

It worth noting that this isn't the first time Phoenix contract dealings with Veolia have been scrutinized by the FTA.

Former New Times' columnist Sarah Fenske (now managing editor of our sister paper in St. Louis) wrote about how Phoenix agreed to increase Veolia's management fees by a collective $7 million on its two contracts -- without shopping around. (Read "Taken for a (Bus) Ride," August 2007, and the Arizona Republic's story about Phoenix's getting prevented from using $2.4 million in federal funds for bus maintenance as a result of that improperly awarded contract to Veolia.)

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