Columbia Could Get Bigger Payout under Marketing Deal, Records Show

August 31, 2015

Investigative Reports

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MoneyThe city of Columbia could receive at least $750,000 in commissions from a Connecticut-based company that the city is officially endorsing to offer repair-service plans to home water and sewer customers, documents show.

The commission rate that HomeServe USA Corp. will pay the city – 7 percent of net payments “actually received” from customers during the initial five-year contract period – is higher than the rate (2.5 percent) offered by New Jersey-based American Water Resources, which the city didn’t select, according to the companies’ proposals. The city provided the records last week to The Nerve under the S.C. Freedom of Information Act.

A third vendor that the city passed on – Pennsylvania-based Utility Service Partners (USP) Inc. – offered the city a monthly payment rate of 50 cents per customer contract, which, based on the same number of customers projected by HomeServe – 20,000 – likely would have generated less revenue for the city over the five-year period compared to HomeServe’s estimated payments, an analysis by The Nerve found. USP also offered the city “brand licensing” and “bonus license” payments.

In its proposal, HomeServe, a national company, which, according to its website, has more than 2 million customers, noted that its revenue-sharing plan with Columbia “significantly exceeds the City’s minimum royalty requirement.”

The Nerve initially reported about the marketing agreement with HomeServe earlier this month, though city officials at the time didn’t answer various questions about the deal, including the identities of the other competing vendors and their proposals.

Asked for the first story whether if the amount of annual fees offered by HomeServe was a factor in the city’s selection of the company, Shannon Lizewski, the contracts administrator for the city’s Utilities and Engineering Department, replied, “Not necessarily.” Lizewski at the time said there were “many factors considered” in selecting HomeServe, including the company’s experience and past performance, and its “program management concept.”

City documents provided last week to The Nerve show that the “Cost benefit to the City” made up 15 percent of the criteria the city used in awarding the marketing contract. A formal request for proposals (RFPs) was issued in January 2014; the marketing agreement with HomeServe was signed on Jan. 27 of this year by City Manager Teresa Wilson and Thomas Rusin, chief executive officer of HomeServe USA, and approved the same day by City Council, according to city records and a city spokesman.

In a June 2014 inter-office memorandum that was included in the records obtained last week, Lizewski said one of three proposals received was “found to be conditional and in direct conflict with the RFP requirements,” adding that the vendor in question, which she didn’t identify, later “requested that their proposal be withdrawn completely.”

The Nerve on Friday sent follow-up questions to city spokesman Jared Glover but did not receive a response by publication of this story.

The city’s promotion of coverage plans offered by HomeServe, which is being done through mailings and the city’s Customer Care Center, comes as City Council recently approved water and sewer rate hikes for in- and outside-city customers. The Nerve previously has reported that the city for years has transferred millions annually from its water and sewer funds for other uses.

In a written response after The Nerve’s initial story, Glover said the city this year has received $10,687 in commission payments from HomeServe, plus another $55,000 one-time setup fee payment. In addition, under the terms of the marketing agreement, HomeServe will pay $10,000 to the city during each 12-month period.

“All money the City receives from HomeServe will go toward the Utility’s Residential Assistance Program,” Glover said. Lizewski earlier said that program is aimed at helping water and sewer customers who experience hardships in paying their bills.

In comparison, HomeServe, which also has a marketing contract with the Charleston Water System, paid the water system a total of $233,475, including a one-time, $120,000 setup fee, from September 2013 through June of this year, Jenny Craft, a spokeswoman for the system, earlier told The Nerve. The water system receives 12 percent commission on monthly revenue, she said.

In its proposal to Columbia, HomeServe offered the city two payment options:

  • A 7-percent commission rate, which the company projected would generate $750,000 in fees to the city over the term of the agreement based on an estimated 20,000 customers; plus commission on existing HomeServe policies in Columbia, a $55,000 setup fee, and $10,000 annual payments for “goodwill repairs”; or
  • A 15-percent commission rate, which the firm projected would have generated $2.3 million for the city over the life of the agreement based on at least 34,000 customers; plus commission on existing policies in the city, a setup fee of $150,000, and $20,000 annually in “goodwill repairs.” In exchange, the company would have been allowed “broader use of the City’s endorsement (logo), and verification of customers’ names and addresses.”

Homeowners can choose from among several repair-service plans with HomeServe, according to its website and company literature, including:

  • $4.99 per month to cover repairs to the water line leading from the exterior of the house to the water meter;
  • $8.99 monthly to cover repairs to the exterior sewer line on the property; and
  • $9.99 per month to cover plumbing repairs inside the house.

Columbia city officials say many water and sewer customers don’t realize they are responsible for repairs to exterior water and sewer lines on their property that are not covered by the city.

In its written proposal, Utility Service Partners pointed out the city “may decline a royalty payment, which will result in a lower monthly/annual price for residents.”

“As a partner, the city of Columbia will reap significant benefits,” USP wrote, noting the company has “seen a tremendous response from residents who have indicated their view of the city has improved as a result of the partnership.”

“When cities provide services that not only help residents save money, but protect their homes and property, they feel confident in their city leaders,” the company said.

Reach Brundrett at (803) 254-4411 or rick@thenerve.org. Follow him on Twitter @thenerve_rick. Follow The Nerve on Facebook and Twitter @thenervesc.