Feds Probe No-Bid Contracts at Detroit Center

Detroit — Exclusive, no-bid contracts for electrical and cleaning services at the publicly owned convention center here have prompted a federal investigation into whether a service provider received favorable terms in exchange for contributions to city officials.

The investigation, first reported by the Detroit News, is being conducted by the U.S. Justice Department. FBI officials have been questioning former and current convention center employees about the center's dealings with Metro Services Organization, of suburban West Bloomfield, which has held the contracts at Cobo Center for about three years.

The no-bid contracts probably cost exhibitors higher fees, contends Rod Alberts, executive director of the North American International Auto Show, the center's biggest annual customer with 700,000 net square feet of exhibit space.

Using other electrical contractors would save exhibitors up to 30 percent off Metro Services' fees, Alberts claimed. While union hourly wages remain constant no matter the contractor, Alberts explained that contractors can vary their fees for non-union services, such as equipment rental.

"We believe that if you're going to be competitive in any business, you have to bid out contracts," said Alberts, adding, "It's not difficult to do the right thing. Bid it out. It's as simple as that."

Exhibitors at the auto show annually pay about $12 million for electrical services and $4 million to $5 million for cleaning services, according to Alberts.

GES Exposition Services held the electrical-services contract from 1994 to March 2003, when the company sold the contract to Metro Services because it couldn't make enough money, according to the Detroit News. GES had been required to share with the city 15 percent of revenue derived from the contract.

For the 2003 auto show, Metro Services initially raised hourly rates 21 percent over the GES rate, to $88, but backed down when show organizers complained, the newspaper reported.

Then, Metro Services apparently received city approval in December 2003 to reduce its electrical revenue payment to the city, from the original 15 percent paid by GES down to just 3 percent, or some $1.3 million less in 2004 than the amount GES paid in 2003, according to the paper.

The percentage reduction was approved by the center's previous executive director, Lou Pavledes, in the margin of a letter from a company controlled by the owner of Metro Services, Karl Kado, according to the Detroit News. That notation appears to be the city's only written acknowledgment that the contract had been changed.

At the same time that Kado received approval to pay a smaller share of electrical-services revenue, the center was losing money, an estimated $13 million this year.

As for the cleaning contract, Metro Services bought the exclusive contract from another janitorial services company in June 2002, according to the Detroit News, and has since raised rates with city approval. For example, the company will charge $26 per hour to polish cars on exhibit at the auto show this January, 37 percent more than the previous contractor charged in 2001, according to the News.

The Detroit City Council reportedly extended the cleaning contract in 2003 and 2004 without soliciting bids.

Since 2000, Kado and his wife, Julie, have donated $53,850 to political campaigns, including those of Detroit Mayor Kwame Kilpatrick and seven of the eight city council members, the newspaper reported.

In addition to his exclusive contracts at Cobo for electrical and cleaning services, Kado also owns a piece of the center's catering contract, according to the Detroit News.

The newspaper reported that Aramark Corp. offered Kado and his wife 4.5 percent of its revenue if the city extended Aramark's contract. Metro Services' stake in the contract is worth about $360,000 annually, according to the paper, which reported that Aramark declined to state what Kado does in exchange for his cut.

Telephone calls to Metro Services' office asking for comment remained unreturned at press time. Cobo executive director Glenn Blanton also did not return phone messages from MeetingNews, but he told the Detroit News that the city intends to open the electrical and cleaning contracts to competitive bidding next year.

Blanton said he doubted the two-year-old agreement to reduce the city's share of electrical-services revenue is valid, and that the city should collect the full 15 percent commission as stipulated in the original contract with GES.