"Chief Executives Council in Closed Door Session Instructs Legal Counsel to Offer a Settlement"

January 23, 2008

The Kaselehlie Press

Palikir, Pohnpei - On January 11, 2008 the FSM Government filed a lawsuit at the FSM Supreme Court against GMP Hawaii, Incorporated.

The suit also left room to add potential other defendants if the FSM finds, in the process of its litigation, other parties that should have been named by additionally naming twenty "Doe" individuals, twenty "Doe" Corporations, and twenty "Doe" Entities. Attorney Dana Smith who has been hired to represent the FSM said that he does not expect to find other culpable parties. The tactic is commonly used to allow for the possibility of naming other parties without having to re-file the entire law suit.

On January 8 a letter was sent via email and hand delivery to Andrea S. Hillyer, Esquire, GMP Hawaii's local counsel and to GMP via postage. The letter was to inform GMP that the FSM was terminating its contract "for cause".

The letter, written by Secretary of the Department of Transportation, Communications and Infrastructure Weiner Hadley lists several reasons for the termination of the contract.

Both the lawsuit and the termination letter say that GMP was responsible for soil testing and that they failed to perform the required geo-physical soil testing for the Lelu and Utwe Elementary Schools in Kosrae. In an interview Mr. Smith by way of example said that for instance, a building contractor who is building on a wetland such as a mangrove swamp may be instructed by the engineer to fill with 15 feet of compacted soil. The contractor may be instructed to then pour concrete footers 14 feet deep in that fill soil. If a soil test was not performed for the soil below the fill, the footers that support the building may be sitting on only one foot of fill soil above soft mud which would lead to possible structural failure. The letter indicates that is the case in Kosrae.

DTC&I says that the two schools will now cost approximately $500,000 more than planned. The termination letter also said that under the contract only the National Government may issue notices to proceed on construction projects. Mr. Hadley, in his letter pointed to a number of occasions when GMP began work based on notices to proceed that came from the State Governments.

According to the letter, GMP was not authorized under their contract to subcontract work without written consent of the Government. It says that they subcontracted work to Pacific Survey Company for surveys for Tafunsak Lelu, and Utwe Elementary Schools and for the Weno Wastewater Treatment and Collection projects without that permission.

Pacific Survey Company says that their survey for the Weno Wastewater Treatment and Collection projects was performed based on the Modified Azimuthal Equidistant Project of Clark's Ellipsoid of 1866 which is what Chuuk State law requires. The survey for the road which a company other than Pacific Survey performed was based on "North American horizontal datum of 1983 using the UTM Grid Zone 56." That survey, according to DTC&I officials will have to be redone.

The termination letter says that the design of the Weno Wastewater Treatment Plant design was done without regard to Chuuk Public Utilities Corporation's ability to operate it with regard to the technical and economic capacities of the Utility. It says that the equipment specifications for the project contain overly restrictive requirements for the bid process that violates Fiscal Procedures agreements between the FSM and the United States.

The termination letter continues by saying that the Yap Early Childhood Education Center construction estimate "greatly exceeds the grant amount, making the project unaffordable." This was even though GMP Hawaii, Inc. produced the planning documents upon which the grant was based. The letter says that the contract bars GMP from offering gratuities in the form of entertainment, gifts or otherwise to any officer or employee of the FSM Government, including officers and employees of the State Governments. Secretary Hadley said in the letter that "It has come to our attention that this provision of the Contract has been violated by GMP."

On June 6, 2007 the FSM Government wrote a letter advising GMP that the FSM is unable to certify the availability of funds for any additional PMU work under the contract and that contract had expired as to all PMU work effective June 19, 2007. The January letter of DTC&I terminating GMP's contract was made without waiving the Government's position of June.

In response to the FSM's termination letter Mr. Wahib A. Gurguis, GMP Senior Vice President wrote a reply letter dated January 10. In it he said that "GMP rejects your January 8, 2008 letter regarding "termination for cause" of the Contract for Consulting Services between the Federated States of Micronesia and GMP and plans to continue to perform its obligations pursuant to the contract."

He said that five of the reasons given "are only distortions of history involving issues - already raided, fully discussed amongst the stakeholders, and resolved - regarding work on projects that has already been approved for payment by DTC&I during the course of the design phase." He said that those issues could not now be converted into a breach of contract accusation.

Mr. Gurguis said that the subcontracting work was done with the permission of DTC&I and the Office of Insular Affairs. He said that the accusation that they had given gratuities to public officials had "no basis in fact and constitutes defamation." He added that the termination letter "demonstrates the relentless bad faith and lawless administration of the Compact funds and the contract the GMP has endured since the contract was executed." He further demanded the letter to be retracted within 48 hours or GMP would pursue their legal rights and hold Mr. Hadley personally liable and the Government liable for any damages, including damages for defamation.

Secretary Hadley wrote another letter to GMP reiterating that the FSM had cancelled the contract and GMP was to immediately vacate premises furnished by either the FSM Government or a contractor of the FSM Government. He said that if GMP did not comply the Government would bar GMP's employees from entry onto the premises of any job site and/ or to have them removed by force.

In a closed door meeting of the Chief Executives Council (CEC) on January 17, President Mori was directed by the Governors to offer GMP a settlement. As a result, Dana Smith was instructed to make a settlement offer to GMP. According to Mr. Smith he was directed to offer to drop the lawsuit if GMP also drops its law suit against Westerfield and Yatilman and if GMP agrees not to contest the letter of termination or the charges contained in it. He was also instructed by the Governors to offer GMP a future contract as part of the settlement. Smith said that he did make the offer but could not offer GMP a future contract as part of the settlement offer because that would violate the Fiscal Management Agreement. He said that he was able to offer GMP the opportunity to bid on contracts in the future. . He said that the offer was good for a limited time and expires at 11:00 a.m. on Monday, January 21, 2008.

The CEC issued a resolution on infrastructure that included moving control of the infrastructure project management unit to the President's office. Additionally each State will have a professional engineer to provide onsite answers. Governors seemed to be saying that the move will effectuate faster progress on the infrastructure projects.