The Politics of Contracting: Bajagua's No-Bid Deal

8/14/2019 The Politics of Contracting: Bajagua's No-Bid Deal

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THE POLITICS OF CONTRACTING:Bajaguas No-Bid Deal

March 31, 2006

Project On Government O versight666 11 t h Street NW, Suite 500, Washington DC 20001(202) 347-1122, [email protected]


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ForwardPOGO would like to express its thanks to University of Texas-El Paso Professor W illiamWeaver, the San Diego Union-Tribune for its reporters extensive and excellent coverage ofBajagua and the International Boundary and W ater Comm ission, and to many others we cannotname. Without their efforts, POGO would have been unable to complete this report.


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Table of Contents

Executive SummaryIntroductionBackgroundDrawing on Congressional InfluenceRepresentative Bob FilnerRepresentative Duncan Hunter

The Rest of the San Diego Congressional DelegationLegislation Designed for a ContractorPutting the Cart Before the HorseDrawing on Other Ave nues of Influence2Ambassador James R. Jones and Eric P. Farnsworth12Brian Bilbray and Benedetto Advocacy and Communications14Francis David Schlesinger15Matthew R. Simmons5Vice President Dick Cheney6Conclusion18POGOs Recommendations19

List of AppendicesAppendix A: Public Law 106-457, Title VIII. "Tijuana River Valley Estuary and Beach SewageCleanup Act of 2000." November 7, 2 000.

Public Law 1 08-42 5 . "An amendment to the Tijuana River Valley Estuary and BeachSewage Cleanup Act of 2000." November 30, 2004.


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Treaty Minute 311. "Recommendations for Secondary Treatment in Mexico of theSewage Emanating from the Tijuana River Area in Baja California." U.S. andMexican sections of the IBWC . February 2 0, 2004.

Appendix B: Letter from Representatives Brian Bilbray and Bob Filner to USIBWCCommissioner John Bernal. December 4, 2000.

Appendix C:

Appendix D:

Appendix E:

Letter from Representative James L. Oberstar to Representative Bob Filner. January4, 2001.Letter from Representative Bob Filner to USIBWC Commissioner John Bernal.January 10, 2001 .Statement of Congressman Bob Filner before the Honorable Judge Barry TedMoskowitz. "State v. International Boundary and W ater Comm ission." February 12 ,2003.Representative Bob Filner's Tribute to Dave Schlesinger. Congressional Record.May 15, 2001.Statement of Adm inistration Policy. "H.R. 3378 - Tijuana River Valley Estuary andBeach Sewage Cleanup Act (Bilbray (R) CA and Filner (D) CA)." Office ofManagement and Budget, Executive Office of the President. September 12, 2000.House Report 106-842 Part 1. "Tijuana River Valley Estuary and Beach SewageCleanup Act of 2000." September 12, 2 000.Conference Comm ittee Report 106 -99 5 . "Estuaries and Clean Water Act of 2000."Pages 1-2, 44-48. October 24, 2000.Congressional Budget Office Cost Estimate. "H.R. 3378 Tijuana River ValleyEstuary and Beach Sewage C leanup Act of 2000." September 21 , 2000.Congressional Budget Office Cost Estimate. "H.R. 479 4 A bill to amend the TijuanaRiver Valley Estuary and Beach Sewage Cleanup Act of 2000 to extend theauthorization of appropriations, and for other purposes." September 9 , 2004 .Letter from Environmental Protection Agency Assistant Administrator J. CharlesFox to Representative Christopher S. Bond. April 1 4, 2000.Letter from M exican section of the IBW C Principal Engineer Luis Antonio RasconMendoza to USIBW C Principal Engineer Bernardino Olague. July 7, 2 005 .Letter from M exican section of the IBW C Principal Engineer Luis Antonio RasconMendoza to USIBWC Principal Engineer Bernardino Olague. July 28, 2005


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Appendix F: Letter from Managing Member of Bajagua Project, LLC, Jim Simmons, to VicePresident Richard B. Cheney. October 15 , 2002 .Bajagua Project Briefing for Catherine J. Martin, Deputy Assistant for PublicAffairs, Office of the Vice President. October 2002 .

Appendix G: Letter from USIBWC Commissioner Arturo Q. Duran to Council on EnvironmentalQuality Chairman James L. C onnaughton. September 2 0, 2004.Letter from USIBWC Commissioner Arturo Q. Duran to CaliforniaAssemblymembers Juan Vargas and Mark W yland. September 29 , 2004.

Append ix H: Email from State Department liaison Mary B randt to the USIBWC . "Bajaagua [sic]on the eastern front." July 29 , 2003.Email from State Department liaison Mary Brandt. "RE: bajagua." September 5,2003.Email from Anonymous to various government officials. "Fwd: bajagua." September5 , 2003.Email from USIBWC General Counsel Mario Lewis. "Conversation w/ MaryNeumayr." September 10, 2 003.Email from former USIBWC Acting Commissioner Robert Ortega to POGOInvestigator Nick Schwellenbach. "Re: Political Influence Behind $600 MillionNo-Bid Contract." December 28, 2 005 .Email correspondence between former USIBWC Acting Commissioner RobertOrtega and POGO Investigator Nick Schwellenbach. "Re: Question re: TheUSIBWC told Bajagua to get legislation passed in 19 9 9." February 22 , 2006.

Appendix I: Representative Duncan Hunter's "Statement to Water Resources and EnvironmentalSubcom mittee of the Transportation and Infrastructure Comm itteeRegarding the Implementation of Public Law 1 06-45 7." December 12 , 2001 .Former Representative Brian P. Bilbray's "Statement to Water Resources andEnvironmental Subcommittee of the Transportation and Infrastructure CommitteeRegarding the Implementation of Public Law 1 06-45 7." December 12 , 2001 .

Appendix J: Campaign Contributions from Bajagua-connected Individuals.


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Executive SummaryThe outrage over government contracting practices that frequently reward a few well-connected,large companies with lucrative sole-source contracts may have reached a crescendo after theHurricane Katrina disaster. However, many government contractors had become experts incultivating and using political influence to bo ost their revenues long b efore the hurricane struck.The Project On Government Oversight (POGO) has investigated one case study of sole-sourcegovernmen t contracting to examine the various influences that can be tapped to skew the processin favor of a single company. T he story of the B ajagua Wastewater T reatment Plant is illustrative,not because it is unusual, but indeed because it represents business-as-usual in governmentcontracting.The coastal areas along the U.S. border between San D iego, California, and Tijuana, Mexico havebeen subjected to pollution from raw sewage for decades. The International Boundary and WaterCommission (Commission), which handles bi-national water agreements and border sanitationissues, arrived at an agreement to construct and maintain a water treatment plant in the UnitedStates, in part to ensure adherence to strict environmental standards and also because Mexico lackedfunding for the p lant.However, in 1996, a private company, the Bajagua Project LLC, proposed building and operatinga wastew ater treatment plant in Mexico. The U. S. section of the Commission and the EnvironmentalProtection Agency (EPA) rejected the proposal for several reasons.Representatives Brian Bilbray (R-CA) and B ob Filner (D-CA) introduced legislation that becamelaw, facilitating the construction and operation of a wastewater treatment plant in Mexico, althoughthe Mexican g overnment had not yet agreed to let the plant be built in their country.POGO has found that since 1 9 96 , when Bajagua proposed building the wastewater treatment plant,the principals of the company, their family members, and one of the companys attorneys have giventhousands of dollars in campaign contributions to Members of C ongress. These contributions haveprimarily gone to the local San Diego congressional delegation, which engineered the deal forBajagua, however, not all the recipients of Bajagua contributions were involved in the treatmentplant deal that POGO can determine.Another avenue the company utilized was the revolving door. The company hired formerpolicymakers and government officials to lobby for the legislation. These include a former U.S.Ambassador to Mexico, a State Department official who had also worked for the White House, aretired director of the San Diego Metropolitan Wastewater Department, and even formerRepresentative Brian Bilbray. A meeting between representatives of Bajagua and Vice PresidentDick Ch eney appe ars to have resulted in the lifting of federal opposition to the Bajagua project.In the end, possible alternative bidders for this project were unnecessarily prevented from competingfor the contract. Unless com petition is opened up at least for a short time, a sole source c ontract willbe signed worth hundre ds of millions of taxpayer dollars, yet the public can not be assure d the fundswill be going to the m ost qualified bidder.

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IntroductionGovernment contracting is big business: the government awarded nearly $35 0 billion in governmentcontracts in fiscal year 2 004. The m ore a contractor can tap into the politics of contracting, the morelikely it is to receive som e of that business. Contra ctors do so by hiring through the rev olving door, 1making cam paign contributions, and lobbying. Its done every day, by almost every com pany thatwants a contract from the governm ent. Its business as usual.But the business-as-usual politics of contracting tends to result in raw dea ls for citizens. The recentmachinations of MZM Inc. and Representative Randy Duke C unningham (R-C A) highlight howvulnerable the federal contracting system is to manipulation by political pressure from Congress andother governmental institutions. Some businesses have skewed the contracting system in their favorby allying themselves with Members of Congress who circumvent com petition. Some Mem bers ofCongress draft legislation to deliver contracts and taxpayer dollars to favored companies, andinappropriately use their status as representatives of the peop le to assist private interests seeking toprofit at the publics expense. One such case of political interference in governm ent contracting isthe sole-source contract awarded to Bajagua Project, LLC (B ajagua). 2Bajagua had come up with a proposal to build and operate a wastewater treatment plant in Mexico.There were numerous legal and diplomatic obstacles in the way of the proposal, however, andBajagua needed to overcom e those obstacles before it could proceed. So the compan y worked thestandard avenues of influence by making campaign contributions and hiring former governmentofficials to lobby on the compa nys behalf.In the end, working the system worked out for Bajagua. The company has got much of what itwanted: legislation and the political support to push its deal through. The companys allies inCongress helped to deliver to Bajagua a potentially lucrative sole-source contract for the project.Legislation was passed Title VIII of Public Law 106-457 instructing the little-known U.S.section of the International Boundary and Water Commission (USIBWC) 3 to enter into a contractwith a company to build and operate a plant in Mexico to treat wastewater. The legislationssponsors, Representative Bob Filner (D-CA) and then-Representative Brian B ilbray (R-CA) w holater went to work as a lobbyist for Bajagua designed the bill so that Bajagua would be the ownerof that plant. This was quite a coup for the compa ny, whose only project is the proposed wastewater

1 The mov e from governm ent service to lobbying or to working for a gov ernment contractor, and the movein the other direction, is known as the revolving door.2 The term B ajagua was originally the name for A gua Clara, LLCs, proposal to build a wastewatertreatment plant in Mexico. However, Bajagua eventually became its own Limited Liability Corporation. POGOrefers to the company a s Bajagua throughout the report.3 By international treaty the International Boundary and W ater Comm ission is a bi-national organizationwith a U.S. and Mexican section. The Mexican section of the Commission is known in Spanish as the ComisinInternacional de Lmites y Aguas (CILA). The U .S. section is a largely autonomous component of the StateDepartment and is headquartered in E1 Paso, Texas.

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treatment plant.But the deal is flush with problems. Competition for the contract was waived; 4 the project, whichwill be built on Me xican soil, was approved by the U.S. Congress before Mexico had agreed to it;and a solution that would have significantly mitigated the sewage problem in the region was allowedto die. Other problems include the add itional time, effort, and bureaucracy nece ssary for the U. S.to fund a project in Mexico, as well as the questions of favoritism raised by drafting and passinglegislation specifically designed to give a contract to a com pany without co mpetitive bidding.The B ajagua proposal is not the only option, how ever. While Title VIII was designed to facilitatethe selection of that proposal, the law doesnt actually mand ate its selection. In fact, the law doesnot require that the treatment facility be built in Mexico; it does not require that sole-sourcecontracting be used; and it does not require that Bajagua be awarded the co ntract.Wh at has made Bajaguas proposal the selected alternative has been the political finagling: letterswritten from Members of Congress to USIBWC telling them that Bajaguas proposal should bechosen; meetings with the Vice President; extensive lobbying by influential former governmentemployees; and the refusal by Congress to fund an upgrade to the existing wastewater treatmentfacility, despite the av ailability of those funds.Had the USIBWC and CILA (the Mexican section of the International Boundary and WaterCommission) not been pressured to award the contract to Bajagua without competition, they wouldhave been able to examine alternatives for both sides of the border and then to solicit bids fromnumerous c ontractors. In fact, at least one c ontractor had indicated interest in bidding for the project,and others were well-qualified to compete for the work as well. Bajaguas proposal may or may nothave been considered best.If the deal is finalized, Am erican taxpaye rs will subsidize to the tune of an estimated $6 00 million 5to $1 billion 6 a private companys plan to profit from selling recycled M exican wastewater backto Mexico. However, the final contract has not been signed, nor have taxpayer dollars flowed toBajagua yet. There is still time to re-evaluate the deal before a contract is signed.

4 Public Law 1 06-4 5 7 does require that any subcontracting on the project be put up for competitive bidding.5 H.R. 47 9 4, A bill to amend the Tijuana River Valley Estuary and Beach Sewage Cleanup Act of 2000 toextend the authorization of appropriations, and for other purposes. 9 Septem ber 2004 . Congressional Budget Office.

Downloaded 16 February 2 006. .6 Rother, Caitlin. Border sewage pact done, but debate isnt. San Diego Union-Tribune. 26 February2006 . .

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BackgroundFor decades, sewage from T ijuana, Mexico, has created problems on the coasts of both San Diegoand Tijuana. As the population, development, and trade in this border region have exploded, thesewage problem has grown as well. Beach closures are common because of the threat posed bybacteria and toxins in the sewage. During the 19 80s, the United States suggested an internationalwater treatment plant (IWTP) and a dee p ocean outfall that would carry the treated sewage of theIWTP out to sea. 7The International Boundary and W ater Comm ission (Com mission), an organization with a sectionin both the U. S. and Mexico, 8 is tasked with im plementing bi-national water agreem ents, allocatingwater rights, dealing with w ater-related emergen cies such as droughts and floods, and working onborder sanitation problems. The Com mission conducts its international activities through Minutes,which typically are short documents having the force of law when the governments of bothcountries provide written notification of approval through their respective sections of the IB WC . 9

In 19 9 0, the Comm ission arrived at an international agreement regarding the treatment plant. Theagreement, known as M inute 283, provided for the construction, operation, and maintenance of aninternational wastewa ter treatment plant to treat Tijuanas wastew ater to both primary and secondarystandards. 1 0 The M inute limited the location of the plant to the U. S. because o f the more stringentenvironmental standards in the U. S., lack of Mexican funding, and a perception that Mexico wouldnot employ the correct technologies to solve the sewage problem . 11Because of funding constraints, the USIBWC and the Environmental Protection Agency (EPA)scheduled the plant, called the South Bay International Wastewater Treatment Plant (SB IWTP ), tobe built in two stages. The first stage was built as an advanced primary treatment plant to stop raw

7 Fischhendler, Itay. Escaping the Polluter Pays Trap: Financing W astewater Treatment on theTijuana-San Diego Border. Paper subm itted to the 45 th Congress of the European R egional Science Association,23-27 August 2 005. .

8 By international treaty, the International Boundary and W ater Com mission is a bi-national organizationwith a U.S. and Mexican section. The Mexican section of the Commission is known by its Spanish name Comisin Internacional de Lmites y Aguas (CILA ). The U.S. section is a largely autonomous compo nent of theState Department and is headquartered in E1 Paso, Texas.9 Minan, John H. Recent D evelopments in Wastewater Manag ement in the Coastal Regions at the UnitedStates-Mexico Border, 3 San Diego International Law Journal 51 , 2002 .10 Primary treatment is a physical process to remove organic and inorganic solids. Secondary treatment is ahigher standard of treatment and is a b iological process to remove fine, suspended, dispersed, and dissolved solids.11 Fischhendler, Itay. Escaping the Polluter Pays Trap: Financing W astewater Treatment on the T ijuana-San Diego Border. Pape r submitted to the 45 t h Congress of the European Regional Science Association, 23-2 7

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sewage flows, which was completed in 1997. The second stage of secondary treatment has neverbeen implemen ted, despite the requirement by Minute 2 83 and U.S. and California law. 12In 19 9 6, B ajagua submitted a proposal for a privately-owned and operated secondary treatment plantin Mexico and began recruiting the support of Members of Congress and lobbyists to push itsproposal forward within the government. In 19 9 9 , the proposal was turned down by USIBW C andEPA b ecause it was considered infeasible: it called for the plant to be b uilt in M exico, contrary tothe international agreem ents requirem ent that the plant be built in the U. S.; it would take longer tobuild a Mexican facility, as proposed by Bajagua, than to build a U.S.-based one, as called for byMinute 2 83; it was only conceptual and not detailed enough; and it did not have the support of theMexican government. 13In 2000, Representatives Brian Bilbray (R-CA) and B ob Filner (D-CA) introduced H.R. 3378 , theTijuana River Valley Estuary and Beach Sewage C leanup Act of 2000 . It was attached to a largeromnibus bill, which passed into law as Public Law 106-457 later that year. The law instructs theUSIBWC to enter into a fee-for-services contract with a company to build and operate a plant inMexico to treat wastewater, in addition or in place of the planned upgrade to the wastewatertreatment facility.Public Law 106-457 provided for the construction of a treatment plant inside Mexico before theMexican g overnm ent agreed to hav ing the facility built on its soil. As a result, the Com mission hadto negotiate a new Minute to allow the plant to be built in Mexico. In February 2004, over threeyears after Public Law 106 -45 7 w as passed, Minute 311 was signed by both the U. S. and Mexicansections of the Comm ission. Despite that agreement, Mexico sent several letters in 2005 objectingto the unilateral decisions mad e by the U .S. to award a contract for the construction and o perationof a facility in M exico (Appendix E). A non-binding development agreement between the USIBW Cand Bajagua was signed on February 15 , 2006. That agreement sets March 31, 2 006, as the deadlinefor signing the fee-for-services contract.Drawing on Congressional InfluenceSince 1 9 9 6, w hen Bajagua started the push for its proposal, the companys principals, their familymembers, and one of Bajaguas lawyers have showered Members of Congress, particularly thepoliticians in the San D iego district where Bajagua is located, with thousands of dollars in cam paigncontributions. (It is important to note that not all of those receiving contributions assisted Ba jaguain any way that PO GO co uld determine.) Since Bajagua began to promote its plan, the mem bers of

12The Federal Water Pollution Control Act of 19 72 (Clean Water Act) (33 USC 1 311 (b)(1)(B)) mandateseffluent limitations based upon secondary treatment. The California Porter-Cologne W ater Quality Act (Cal.Water Code 13020-13389).13 Final Supplemental Environmental Impact Statement for the International Boundary and W aterComm ission South Bay International Wastewater Treatment Plant Long Term Treatm ent Options. InternationalBoundary and Water Commission and the Environmental Protection Agency. March 1 99 9. pp 3-83-9.

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the San Diego delegation in the House have been Representatives Filner; Bilbray; Cunningham;Darrell Issa (R-CA); Duncan H unter (R-CA); and Susan Davis (D-CA ), who won RepresentativeBilbrays seat. All but Representative Cunningham have received campaign contributions fromBajagua. The com panys James D. Simm ons, Irwin Heller, Enrique Landa an d his family have allcontributed money to politicians who have helped Bajagua. With the exception of one, none of themhad made any campaign contributions prior to 19 9 6.

Representative Bob Filner (D-CA)Representative Filner has received at least $61,050 from Bajaguas principals and their familymembers. (Appendix J) The companys principals began making contributions to Filner in 1996,when Bajagua was formed. He began supporting the Bajagua project in 1997. The contributionsincreased around the time Rep resentatives Filner and Bilbray introduced their legislation (Bajagualegislation) in 1999. Representative Filner received the maximum allowed contributions fromBajagua investor Irwin Heller and Bajagua managing mem ber James Simmons, totaling $2000, theday before the Bajagua legislation was introduced in the House of Representatives. This wasHellers first contribution to Representative Filner. Contributions to him from Bajagua haveremained high, with the Congressman often receiving the maximum contribution from each Bajaguaprincipal per election cycle.In addition, according to a July 2003 State Department email, Representative Filner brought Bajagualobbyist Ambassador James Jones to the State Department to support the Bajagua project.Amb assador Jones accompanied Con gressman Filner to a meeting with former Principal DeputyAssistant Secretary Lino Gutierrez to push this project very early on. (Append ix H)

Representative Duncan Hunter (R-CA)Representative Hunter received at least $9 000 ($1 5 00 of which went to his PAC) beginning in 2002 .In February 2002 , he received $1 000 from Bajagua managing partner James Simmons, two monthsafter Representative Hunter grilled USIBWC Commissioner Carlos Ramirez at a hearing on theimplementation of the Bajagua legislation. This was the first contribution by a Bajagua principalto Representative Hunter. That year, Bajagua called Representative Hunter our champion in aletter to Vice President Cheney. In March 2003 , Bajagua managing partners Simmons and EnriqueLanda each gave Representative Hunter a $1500 contribution. Representative Hunter met withCouncil on Environmental Quality (CEQ) Chairman James Connaughton and the White House onthe Bajagua issue in September 2 003, according to emails from government em ployees. (AppendixH) In July 2 004, Representative Hunter introduced an am endment to the B ajagua legislation to m akeit more favorable to Bajagua. In August 2004, Simmons contributed $1500 to RepresentativeHunters political action comm ittee, the Peace Throug h Strength PAC .

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EPA and USIB WC provided the information necessary to help Representatives Filner and Bilbraycraft their legislation. 16In 2000, Representatives Filner and Bilbrays legislation became law. The law provides a frameworkallowing USIBW C to enter into a fee-for-services contract with a company to build and ope rate awastew ater treatme nt plant to be located in Mexico if the current facility in the U. S. (the South BayInternational Wastewater Treatment Plant), which only provides advanced primary wastewatertreatment, is not upgraded to provide secondary treatment. 1 7 The advanced primary treatedwastewater would be p iped back into Mexico for secondary treatmen t at the Mexican facility, andany reclaimed water not sold back to Mexico would then be piped back to the United States and intothe Pacific Ocean through an ocean outfall. When Public Law 106-457 passed in 2000, a newinternational agreement had to be reached. (Append ix A) That agreement, M inute 311 , created theoption to construct a facility in Mexico with U.S. funding. Unlike Minute 28 3, Minute 31 1 w as aninternational treaty built around one companys specific proposal, which limits the degree to whichother compa nies could qualify for the contract.It was clear from the beginning that the intent behind the legislation was for Bajagua to get acontract to treat wastewater. Representatives Bilbray and Filner have stated on numerous occasions(Appendix B) that their legislation was meant to deliver Bajagua a sole-source contract. Forinstance, in December 2000, Representatives Bilbray and Filner wrote to USIBWC stating, Theintent of the Act is to provide authorization to proceed with the M exican facility (Bajagua) as soonas possible. (Appendix B; parentheses in original) Representative Filner also made his intent clearwhen speaking about Bajagua and the legislation to the San Diego Union-Tribune in 2004. Youcant write them [Bajagua] in, said Filner. But its designed to m ake sure theyre eligible. 18Legislative help also came from Representative Hunter. When Representatives Filner and Bilbrayslegislation (which had by then been attached to a larger omnibus bill) arrived in conferencecommittee in 2000, the comm ittee made a number of changes that were not to Bajaguas benefit: theoriginal bill did not set a cap on the amount of money that the government could spend on theprivate facility, so the committee set a cap of $156 million over five years (2001-2005) on thecontract; it struck the languag e exem pting the facility from the C ontract Disputes Act; it changedthe life of the contract from 30 years to 20; it required the facilitys owner to hold a 20 percentequity in the facilitys capital structure during the du ration of the 2 0 year contract (ac cording to the

16 Final Supplemental Environmental Impact Statement for the International Boundary and W aterComm ission South Bay International Wastewater Treatment Plant Long Term Treatm ent Options. InternationalBoundary and Water Commission and the Environmental Protection Agency. March 1 99 9. pp 3-93-1 0.17 Primary treatment is a physical process to remove o rganic and inorganic solids. Secondary treatment isa higher standard of treatment than primary and is a biological process to remove fine, suspended, dispersed anddissolved solids. In violation of the U.S. Clean Water Act (33 USC 1 31 1 (b)(1)(B )) and the CaliforniaPorter-Cologne Water Quality Act (Cal. Water Code 13020-13389), the SBIWTP only provided advanced primarytreatment because the EPA and U SIBWC did not have the appropriations to achieve secondary treatment.1 8 Branscomb, L eslie Wolf. Sewer project to get remedial help. San Diego Union-Tribune. 13 October

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conference report, this was done to ensure greater accountability with respect to the costs ofdeveloping, financing, constructing, and op erating and m aintaining the facility); and it required allsubcontracting to be competitively bid. (Appendix C) Many of those changes were reversed in 2004when Rep resentative Hunter am ended the legislation. His amendment remov ed the spending cap of$1 5 6 million and the requirement that Bajagua hold a 2 0 percent equity in the facility throughoutthe term of the contract. 1 9 Representative Hunters bill also authorized the USIBWC to pay forinsurance as part of payment for services to Bajagua in the event the U.S. government did notcontinue making app ropriations to pay Ba jagua for its services. (Append ix A)

Putting the Cart Before the HorseOne of the biggest problems with the Bajagua legislation was that the U.S. approved funding for aprivate project in Mexico before the Mexican government had agreed with the plan. After theBajagua legislation was introduced in the House, the White Houses Office of Management andBudget (OMB) addressed the legislation in a Statement of Administration Policy in September2000. The Statement accurately predicted the problems that would result from the passage of theBajagua bill, such as how the previously-approved plan to clean Mexican sewage would becomprom ised and the legal complications in Mexico:

The Administration supports the intent of H.R. 3378, which attempts to address thelong-term sewage treatment need s of the U.S.-Mexico border region. The Administration,however, opposes H.R. 3378, because its approach raises serious foreign policy and legalconcerns and w ill hinder our ongo ing efforts to address the regions wastewater treatmentneeds.The approach taken by H .R. 3378 will hamper the Adm inistrations efforts to implement itsexisting U. S. legal obligations with Mexico, which Mexico has repeatedly urged the UnitedStates to fulfill. Instead of authorizing the fun ding needed to fulfill these obligations, the billattempts to legislate the terms of a ne w agree ment. In addition, the bill provides for a 30-yearcontract that may be unenforceable in Mexico. (Appendix C)

OMBs stance echoed that of the EPA and USIBWC in their 1998-1999 Draft and FinalSupplemental Environmental Impact Statements and Record of Decision, which considered anddismissed the Bajagua proposal.Several letters from the Mexican section of the C omm ission illustrate the concerns of the M exicangovernment with the Bajagua project, including that the United States made a unilateral decision to

19 Congressional Research Service Summary of HR 4784. 30 N ovember 2004. Downloaded 27 Mar 2006 ..9


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award a co ntract for a facility to be built in Mex ico; that aspects of the proposal that may not bepossible in practice [were] announced publicly; and that a plan for contracting and administrationthat the United States Section has not formally presented within the Com mission [was] announcedpublicly. (Append ix E)Representatives Filner and Bilbray stated in a Decem ber 2000 letter to USIBW C that, The Mexicanfacility is not a public project in Mexico. Therefore, public contracting law in Mexico is notrelevant. (Appendix B) However, according to letters from the Mexican government to theUSIBW C, Mexico does not see it that way. In a letter to the Principal Engineer of the USIBWC , thePrincipal Engineer of CILA wrote, In the matter of a project in M exico, the responsible Mexicanauthorities should have a decisive role in the approva l of the different phases of the project, ... eventhe contracting and administration aspects of the project.(Appendix E) Though the Bajagua planhas been described as win-win solution by its promoters, 2 0 the issue of sovereignty should not bedismissed. If the Mexican Congress passed a bill funding a private project in America by a Mexicancompan y before the U.S. governme nt agreed, there might be some problem s, too.But the biggest problem is the issue of ownership and the lack of com petition. Public Law 106 -45 7exempted USIBWC from complying with the Federal Acquisition Regulation (FAR) for thesecondary wastewater treatment plant, allowing the agency to award a sole-source contract for theownership and operation of the plant. The exemption wasnt necessary, however, because there werea number of other companies qualified to build and operate wastewater treatment facilities andinterested in submitting bids. If, for instance, it turns out that building the treatment facility inMexico is a better option than upgrading the current facility in the U.S., several other companiesalready own, operate, manage, and maintain wastewater plants in Mexico .21According to the SanDiego Metro Com mission Meeting Minutes for February 23, 2001 , there was at least one companyother than Bajagua interested in bidding for the project. Had bidding been op en, it is possible thisor other companies wou ld have put forward a better deal than Bajagua.However, nothing in the law requires USIBW C to use the exemption from competition regulations,to grant Bajagua a contract on a sole-source basis, or even to aw ard the contract to B ajagua at all.Instead, it allows the governm ent to first solve the problem by upgrading the South Ba y InternationalWastewater Treatment Plant (SBIWTP) to provide secondary treatment. Public Law 106-457 saysthat the USIBWC is authorized and directed to provide for the secondary treatment of a total of notmore than 50 mgd [million gallons per day] in Mexico ... of effluent from the IWTP if suchtreatme nt is not provided for at a facility in the United States. (Appendix A ) If, however, there wa sa failure to provide a treatment upgrade at the IW TP, the Bajagua legislation m andates the privateMexican facility the Bajagua option.

2 0 Filner, Bob. Congressional Record, September 12 , 2000. p H74 75 .21Schmidt, Gerold. Legal and Institutional Changes towards W ater Privatization in Mex ico. Papersubmitted to The Human Right to Water on the Central American Political and Social Agenda work shop, June 2005 ,Managua, Nicaragua.http://www.menschen-recht-wasser.de/downloads/Legal_and_institutional_changes_towards_water_privatization_in_Mexico.pdf>.

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Until the Bajagua legislation passed, the plan was to build a treatment method called completelymixed aerated (CMA) ponds. The ponds would be located adjacent to the current SBIWTP andwould provide the secondary treatment to wastew ater required by California and U. S. environmentallaw. Some com munity members around the planned site objected on the basis that the ponds wouldhave a bad odor, though this assertion was disputed by the USIBWC and EPA. Furthermore,Representatives Bilbray and Filner both felt that the Bajagua solution was preferable because itcould treat more wastewater with secondary treatment than the planned upgrade at the SBIWTPwould.To free up the estimated $5 4 million needed to build the CM A ponds, a cap on appropriations forthe SBIW TP project had to be lifted. According to a letter from the EPA , funds were available butnot specifically authorized for upgrading the facility. Congress simply had to lift the cap throughlegislation:

Currently, funds previously appropriated for Mexican b order infrastructure projects remainavailable, and could be used for the upgrading [of] the IWTP if Congress removes thespending cap. In light of the availability of Mexican border funds, no additionalappropriation is necessary to comp lete this upgrade. (Appendix D )

How ever, in correspondence to USIBW C after their legislation passed, Representatives Filner andBilbray directed the agency to abandon plans to upgrade the SBIWTP, despite the fact that theirlegislation allowed for the upgrade:

It is not the intent of Congress that the United States enlarge the advanced primary treatmentcapacity at the International Wastewater Treatment Plant (IWTP) to handle volumes beyondthe current 25 mgd. And additional capacity beyond the 25 mgd of advanced primarytreatment now being treated at the IWT P is to be treated through all treatment levels at theMexican facility. Accordingly, the IBW C should not anticipate the need to request fundingto design, construct, operate or maintain additional treatment works beyond the currentlyoperating 2 5 mgd advanced primary treatment plant within the context of Title VIII to S. 835[which became T itle VIII of Public Law 1 06-4 5 7] . Further, the Act should not be interpretedto imply that funding for expansion of advanced primary is authorized or appropriated.(Appendix B)

The USIBWCs 2005 Record of Decision states that funding for upgrading the SBIWTP wasabandoned by Congress because of Public Law 1 06-45 7:Congress declined requests by USIBWC and EPA to authorize the necessary funding forimplementation of [the CMA ponds], instead passing the Title VIII of Public Law 1 06-4 5 7,the Tijuana River Valley Estuary and Beach Cleanup Ac t of 2000, authorizing secondary

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treatment for the SBIWTPs effluent in Mexico pursuant to a public-private partnershiparrangement.22

Drawing on Other Avenues of InfluenceAfter the legislation became law, Bajagua still had to overcome the obstacles discussed above beforethe company could get the contract. The company also had to overcome E PA, DO J, and USIBWCobjections to the companys plan. To help this process along, Bajagua u tilized the revolving door:The com pany hired former policymakers, who had influence in the various spheres relating to thedeal, to lobby on its behalf. Bajagua hired an Ambassador to Mexico; a State Department officerwho had also been a policy director in the White House Office of the Special Envoy for theAmericas; a chief policy aide for the San Diego County Supervisor 2 3 ; a director of the San D iegoMetropolitan Wastewater Department; the legislative director of a Representative who laterintroduced legislation helping Bajagua; and a former Representative who had introduced the originallegislation helping B ajagua.

Am bassador James R. Jones and Eric P. FarnsworthJames R. Jones was Ambassador to Mexico from 1 9 9 3 to 19 9 7. W hile in that position, AmbassadorJones assisted U.S. businesses with com mercial ventures in Mex ico. Jones is now co-Chairmanof Manatt Jones Global Strategies, LLC, and a partner at Ma natt, Phelps & Phillips, LLP.Ambassador Jones 2 4 and Manatt, Phelps & Phillips, LLP, were hired as a lobbyists in 1999 byPoseidon Research Corporation,2 5 a partner with Agua Clara, LLC (Bajaguas predecessor company)in its wastewater treatment plant venture. 2 6 Ambassador Jones was hired by Poseidon to work withthe governme nts of Mexico and the U nited States to situate a secondary water treatment plant forthe

22Record of D ecision for the Final Supplemental Environmental Impact Statement for InternationalBoundary and W ater Commission Clean Water Act Com pliance at the South Bay International WastewaterTreatment Plant. International Boundary and Water Commission. 30 September 2005. Downloaded 27 March 2006..23The San D iego County Supervisor was Brian Bilbray, who later became a U .S. Representative for theSan D iego area. While a R epresentative, Bilbray co-sponsored legislation that would deliver a sole-source contractfor a wastewater treatment plant to Bajagua.24 Jack Buechner, also of Manatt, Phelps & Phillips, was also listed as a lobbyist for Bajagua in 19 99 .25Lobbying Report. Senate Office of Public Records. 17 A ugust 19 99 . Downloaded 24 M arch 2006.http://sopr.senate.gov/cgi-win/opr_gifviewer.exe?/19 99 /01 /000/26 5/00026 5 17 2|226Section 1 Executive Summ ary Bajagua Wastewater Treatment and Water Reclamation Project.Cached webpage. http://tinyurl.com/f96ax

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Given this assertion, it appears that Ambassador Jones and Farnsworth may have been in violation ofthe Lobbying Disclosure Act of 19 9 5 (2 U .S.C. 1 605 ) by lobbying the U.S. Government withoutdisclosure of their activities.Brian Bilbray and Benedetto Advocacy and Communications

Craig Benedetto worked as chief policy aide overseeing all county operations for RepresentativeBilbray when he was San Diego County Supervisor. Benedetto has also been Vice President forPublic Policy at the Greater San Diego Cham ber of Com merce, and has held other positions in SanDiegos political arena. 33Benedetto is president of Benedetto Communications, Inc., a public relations, marketing, andgovernment relations firm he opened in 1 9 9 9 . He has handled Bajaguas press since at least 2000 34(Bajaguas w ebsite directs press inquiries to Craig Benedetto and his firm 3 5 ) and has been a lobbyistfor the company in the local San Diego area since 20 01 . 36

Former Representative Brian Bilbray (R-CA) was one of the original sponsors of the Bajagualegislation. After losing his congressional seat in 2000, Bilbray was hired in 2001 by his formeremployee C raig Benedetto to lobby the White House and State Departm ent for Bajagua. The onlytime Benede ttos firm has lobbied the federal government w as when B ilbray lobbied for Bajagua.In 2001, Bilbray was called to testify before Congress about the Bajagua legislation, but did notidentity himself as a lobbyist for Bajagua. Bilbray told the San Diego Union-Tribune, I wasntthere because I was being paid [as a lobbyist], I was there because I had spent 20 years fighting theissue [of untreated sewage]. 37

33Craig Benedetto Appointed to San Diego Regional EDC Bo ard of Directors. BenedettoCommunications, Inc. Downloaded 16 February 2006. .34 President Clinton Signs S. 835 Includes Title VIII Authorizing Project Negotiationfor Secondary Sewage T reatment Ponds in Mexico to Stem the Tide of Sew age. Bajagua Project, LLC pressrelease. Downloaded 8 March 2006. .35Team. Bajagua Project LLC website. Downloaded 16 February 2006..36 Lobbying. San Diego City Clerks Office. Downloaded 16 February 2006..37 Rother, Caitlin. Border sewage pact done, but debate isnt. San Diego Union-Tribune. 26 February2006 . .

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Francis David SchlesingerDavid Schlesinger was the Director of the San Diego Metropolitan Wa stewater Department from19 9 0 to 2001 . While with the Department, he supported Bajagua and helped the company work outtechnical aspects of the project. (Appendix B)On M ay 1 5 , 2001 , Representative Filner paid tribute to Schlesinger in the House of Representativesas Schlesinger was retiring from the Department. Bo th Representatives Filner and Schlesinger hadworked together on a n umber of San D iego-related projects. Representative Filner stated:

Daves talents were also critical to last years Congressional approval of the Bajagua projectto treat Mexican sewage. Dave helped to develop the innovative public-private partnershipthat promises to solve a 50-year-old problem plaguing San Diego. We always relied onDaves sense of the possible both politically and technically to get over the manyobstacles we faced over several years. (Appendix B)

After his retirement from the Department in 2001, Schlesinger went to work for Bajagua as itsDirector of Operations. He is responsible for coordinating all aspects of planning, design,environmental review, project acquisition, and overseeing work by our engineering, legal,legislative, and pu blic outreach co nsultants. 3 8 Schlesinger has lobbied the City of San Diego forBajagua since as early as 2001, the year of his retirement from the San Diego MetropolitanWastewater Department.

Matthew R. SimmonsMatthew R. Simmons worked for Representative Hunter for ten years, 3 9 ending up asRepresentative Hunters legislative director, as well as the staff person in charge of working onwater issues. 40Simmons left Representative Hunters office in late 2 000 or early 2 001 to work as a lobbyist for theFerguson Group. 4 1 From 2001 through 2005, he lobbied the House of Representatives and the Senate

3 8 BIOGRAPHY Francis D. Schlesinger. Bajagua Project, LLC. Downloaded 8 March 2006..39Matthew R . Simmons Joins Consultants Collaborative. Consultants Collaborative. Downloaded 1 6February 2006. .40California Congressional Delegation Staff Roster, January 2000. Downloaded 16 February 2006..41 Lobbying Report. Senate Office of Public Disclosure. 30 October 2002. Downloaded 16 February2006. .

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on behalf of Bajagua on the IBWC Proposed Bi-National Wastewater Treatment Facility. 42According to his year-end lobbying reports, Simmons Facilitated Congressional oversight regardingthe implementation of Public Law 1 06-45 7. 43In 20 05 , Simmons w ent to work for the Consultants Collaborative, Inc. (CCI) as its Vice Presidentof G overnmental Relations. 4 4 CC I is both an engineering consultant and a lobbying shop, and it tookover the Bajagua lobbying contract at the same time. CCIs founder and President James D.Simmon s (no relation to Matthew Simm ons) is one of the two managing m embers of Bajagua.Shortly after Simmons began lobbying for Bajagua, Representatives Hunter became Bajaguaschampion. In December 2 001, he grilled USIBWC Comm issioner Carlos Ramirez at a hearing onthe implementation of the Bajagua legislation, and stated that he strongly support[s] theimplementation of PL 1 06 -45 7 , Title VIII and the construction of the Bajagua project. (AppendixI) In 2004, Representative Hunter amended Public Law 106-457 to make it more favorable toBajagua. (Appendix A) CCI lists Representative Hunter as a reference on its website. 45

Vice President Dick CheneyThe company even had connections to a higher power: In addition to hiring well-connectedlobbyists, Bajagua also tapped into the power of the White House. Bajagua was able to turn to VicePresident Dick Cheney for help when the company w anted to seal the deal. According to current andformer governm ent officials, the Vice President facilitated interagency discussions which broke astalemate and resulted in a decision in favor of Bajagua s proposal.Docum ents and emails obtained by freelance journalist and University of Texas-El Paso P rofessorWilliam Weaver show that Bajagua solicited, and received, the help of Vice President Cheney topressure the USIBWC to award Bajagua a sole-source contract.

42Lobbying Report. Senate Office of Public Disclosure. 10 August 2001. Downloaded 16 February2006. .43Lobbying Report. Senate Office of Public Disclosure. 11 February 2002. Downloaded 16 February2006. .44Lobbying Report. Senate Office of Public Records. 14 O ctober 2005. D ownloaded 1 6 February 2 006.; Matthew R. Simmons JoinsConsultants Collaborative. Consultants Collaborative. Downloaded 1 6 February 2006 ..45References. Consultants Collaborative. Downloaded 16 February 2006..

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ConclusionAmericans believe in the imp ortant role competition plays in maximizing return for the do llar andin reducing favoritism. But the Bajagua d eal illustrates that contracting is not insulated enough frompolitical pressure and lobbying: in this case, Congress clearly swept aside the no tion of compe titionand not p laying favorites.There is no reason for the U.S. government to avoid competition for ownership and operation ofwastewater treatment plants, whether they a re located in the U.S. or in other countries. However,Bajagua had effectively stacked its political deck and was able to put the squeeze on when it neededto. This resulted in getting legislation designed to deliver a sole-source contract to the companydrafted and passed. Going even further, some Members of Congress and current and formergovernment employees went to bat for the company after the legislation passed, pressuring orlobbying several government agen cies to move faster and actually award the contract to Bajagua.As a result of all the political finagling, the SBIWT P never gained a se condary treatm ent capability.And because the Bajagua treatment project has been mired in diplomatic, bureaucratic and financialtrouble, the San Diego-Tijuana region continues to have unacceptable levels of pollution in theSouth Bay.

agency or agencies administering the assessment and can influence the final SEIS. According to C EQ regulations, ifan agency(s) has a preferred alternative(s) before the draft SEIS is released, the preferred alternative(s) should beidentified.

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POGOs Recommendations1. In full consultation with the Mexican government, the USIBW C should postpone awardinga sole source contract to Bajagua and draft and release a request for proposals (RFP) andopen up the process to a reasonably time-limited competition. Because the environmental

assessment process has already been conducted twice, the RFP should mandate thatproposals match the alternatives for secondary treatment analyz ed during the last round ofenvironmental assessment. Also, to ensure that proposals for secondary treatment on theU. S. side of the border are considered, authorization for funding should be granted to U. S.-located alternatives. Ironically, at the present time only a project on the M exican side of theborder can receive U. S. funding.

2. The ban on lobbying by form er Mem bers of Congress and their staffers should be extendedbeyond the current one-year limit.3. Lobbying disclosures should go beyond identifying the general governmental body lobbied

(e.g. the White House, the State Department, the House of Representatives): they shouldinclude the name of the official or elected representative lobbied and the meeting dates.Furthermore, lobbyists should be required to identify themselves as lobbyists if they testifybefore Congress.4. Legislatively earmarking federal appropriations for sole-source or non-competitive contractsshould be prohibited.5. To avoid appearances of impropriety, members of Congress should not accept campaigncontributions from co ntractors that they promote.6. Mem bers of Congress and congressional staffers should not go to work for com panies thatthey regulate or oversee while they worked for the governm ent.

(click here to view the Append ix listing and docum ents:http://www.pogo.org/p/contracts/Baj agua/co-060301-APPENDIX.html)

The Politics of Contracting: Bajagua's No-Bid Deal

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Transcript of The Politics of Contracting: Bajagua's No-Bid Deal