The Detroit City Council today approved a $1.6 million no-bid contract at the urging of emergency manager Kevyn Orr as part of a deal with the state allowing the city to remain self-insured while in bankruptcy.
Under the three-year contract beginning in October, York Risk Services Group of New Jersey will investigate and administer insurance claims against the city related to automobile and general liabilities, such as car crashes involving city vehicles. The city’s law department currently does the work.
Detroit’s purchasing rules require such contracts to be competitively bid. But the state’s emergency manager law allows Orr to circumvent the requirement with the state treasurer’s permission. Orr already received permission to approve York’s contract, Detroit finance director John Naglick said.
The council approved the contract by a 5-1 vote. Council President Brenda Jones voted against it. Members Gabe Leland, Mary Sheffield and Andre Spivey were absent from today’s session, which was called in the middle of the council’s August recess.
“My job is still to follow what we have and that is to put out RFPs and do competitive bidding,” Jones said. “And I know Mr. Orr can do as he pleases. But I’m supposed to do as I’m supposed to do.”
As a self-insured city, Detroit pays about $60 million a year in taxpayer money to settle automobile, workers’ compensation and general liability claims, corporation counsel Butch Hollowell said.
York Risk Services will be able to devote more resources to investigating auto and general liability claims and reduce the city’s costs by as much as 40%, Hollowell said.
“It gives us a powerful tool in fighting back against these lawsuits to reduce judgments against the city,” Hollowell said.
In response to the council’s questions about not bidding out the work, Hollowell and Naglick said the city became familiar with the companies available to handle Detroit’s caseload when reviewing bids to outsource administration of the city’s workers’ compensation claims. Last month, the council approved a $2.4 million contract with CMI, a York Risk Services affiliate, to handle the workers’ compensation claims.
Hollowell said the state of Michigan required the city to outsource the administration of liability claims to retain its status as a self-insured city. Detroit had to remain self-insured because it couldn’t find coverage elsewhere, he said.
In other business today, the council approved several previously disclosed settlements with creditors reached in the city’s ongoing bankruptcy case, including deals with limited tax general obligation bondholders, unlimited tax bondholders and water department bondholders and companies that insure the bonds. The settlements are part of Orr’s plan for Detroit to shed billions in debt. Federal bankruptcy Judge Steven Rhodes still must approve the plan.