Critics Emerge to Attack Sole Provider of Bottled Water in National Emergency

By The Atlanta Journal-Constitution

Feb. 4–If nothing else, Joseph Lipsey III is an optimist in the face of adversity.

The federal government has been investigating the contract awarded to his firm, Lipsey Mountain Spring Water Co. in Norcross, to be the sole provider of bottled water in a national emergency. The audit of the contract began after congressional inquiries into the failed Hurricane Katrina relief effort.

In the meantime, new critics of the company have emerged. Former employees and a major competitor say the privately held concern, which is estimated to collect $100 million in revenue from last year’s storms, is not fully prepared to respond effectively to disasters.

But Lipsey dismisses the critics and said he is unfazed by the audit of the company’s federal contract, which is up for renewal in April.

“They’ll find it was awarded to us because we were the best prepared then and we’re the best prepared now,” he said in a recent interview at the company’s offices.

Prepared isn’t quite the word Hans Calkins would use to describe the firm’s operations.

Calkins, who worked at Lipsey Water from late April through June of 2004, said in an interview that Lipsey has left a trail of ill will with bottlers across the country.

Those relationships are critical, he said, because Lipsey Water doesn’t have the capacity to provide all the water needed in an emergency and acts as a middleman for the government by getting commitments from bottlers in the United States and Canada to provide water and ice.

Initially, Calkins applied for a position to be one of the company’s drivers, who are required to look neat and wear bow ties.

Calkins said Lipsey told him he wasn’t suitable for a driving post.

“He said I was not good-looking enough to be on the road,” said Calkins, who now manages a sporting goods retail business.

Instead, Lipsey offered him a position to manage some of the delivery operations, maintain the trucks and inventories, and put together a database of bottlers willing to provide water in the event of a disaster for the Federal Emergency Management Agency’s contract.

Getting that database was difficult, Calkins said, because several companies he called refused to do business with Lipsey.

The reasons he was given, he said, ranged from quibbles over how much money Lipsey would pay to late payments in past dealings.

Greg J. Thomas, who was hired to be chief operating officer in February 2003 and left a year later, confirmed Calkins’ account. He said Calkins regularly vented his frustrations and discussed the difficulties he had in signing up bottlers. Calkins currently works for Thomas, who is now president of a customized apparel and specialty marketing company in Duluth.

Joseph Lipsey III confirmed that Calkins worked there but said his role was limited to the trucks and maintenance.

“He’s a disgruntled employee,” the 43-year-old Lipsey said. “His statement is completely absurd.”

Lipsey also dismissed Thomas’ account, saying he, like Calkins, was out to discredit Lipsey Water.

In the interview, Lipsey said he has the “best relationships” with bottlers across the country.

“We’ve done work that’s better than any other company could do,” he said with his wife, Shira, father, Joseph “Buddy” Lipsey Jr., and public relations handler at his side.

As proof, he pointed to a wall in his office with framed letters of thanks he has received from both the American and British governments for his company’s disaster work in the United States and the Caribbean.

The U.S. Army Corps of Engineers, the agency that oversees FEMA’s emergency ice and water contracts, says Lipsey Water delivered the water within a reasonable time, for the most part.

Lipsey said that there are a handful of bottlers and water companies he won’t do business with because those firms adopt avaricious practices following a disaster.

“Out of 200 bottling plants, there are less than six that we won’t buy from because during a disaster, they want to gouge,” Lipsey said.

Calkins contested that assessment, saying he was under pressure to find bottlers. During telephone conferences with Corps officials, the Lipseys were vague about their preparedness for a disaster, he said.

“They were quite nervous because they knew they didn’t have the inventory,” Calkins said. “They were, in a way, just trying to stall for time and appease.”

It was only after Hurricane Katrina struck the Gulf Coast that the obscure company with the very big responsibility came to the attention of Congress.

As hundreds of Katrina’s Gulf Coast victims waited in long lines for food and water, critics questioned why supplies were not getting through in the first several days and, later, why excess water and ice loads were rerouted around the country for storage as far away as Maine. Some truckers hired to deliver water and ice to Florida filed suit, claiming they have not been fully paid.

Lipsey said his company shipped the water where directed by the government. As for the truckers’ lawsuit, Lipsey says the blame lies with a subcontractor who employed them.

Though they didn’t mention Lipsey by name, water bottling companies and the industry’s main trade group, the International Bottled Water Association, complained to Congress about the disarray in the emergency water supply system.

A direct challenge came from Greenwich, Conn.-based Nestle Waters North America, the nation’s biggest bottled water producer, whose brands include Perrier, Poland Spring and Deer Park.

“By operating as a ‘middleman,’ either buying from us or from a retailer that we sell to, the contractor adds to the government’s cost to acquire water,” Nestle said in a written complaint to Congress. The company provided millions of bottles of FEMA water that Lipsey bought, either directly or through retailers such as Wal-Mart and Sam’s Club during the recent hurricane emergencies.

Nestle also questioned the capacity of the Norcross firm to deal with disasters nationwide. “From our experience both before and during Hurricane Katrina, the contractor does not have the organization or the infrastructure to place the high volume of urgent orders that are normally received during an emergency,” the company wrote.

Nestle Waters spokesman Brian Flaherty said in an interview that “probably no one company” has the capacity to supply emergency water nationwide. “We’re the largest [bottled water] company in the United States, and we would not have had the capability to do this alone,” he said.

Rep. Chris Shays (R-Conn.), who chairs the House Government Reform Committee’s subcommittee on national security, raised questions about the contracting process and forwarded his concerns to the Defense Department, the Corps’ parent agency. That sparked a probe by the Defense Department inspector general.

An internal memo from the inspector general’s office described a two-pronged objective to “assess and review the selection and contracting process and the contractor’s capability to function as the sole source for emergency water supplies in the event of a domestic emergency.”

A spokesman for the inspector general’s office said Wednesday that the audit report would not be ready for at least two months.

Federal government records show the Corps intentionally sought a small business to be the sole source provider for FEMA water. Only companies, such as Lipsey, that met the federal criteria for “small business” were qualified to bid for the contract, which Lipsey first won in April 2003.

The contract comes up for renewal this spring. The original deal was for five years, but the Corps has the option to renew it each April, a Corps spokesman said. No other company is eligible to bid on the contract this year unless the Corps opts to discontinue business with Lipsey.

The strain on the family-run enterprise was evident. On several occasions throughout the interview, as Joseph Lipsey III answered questions regarding the company’s operations and criticisms levied by competitors, his father and wife told him to “shut up” or gestured for him to stop stalking.

Lipsey Water has moved to resolve its disputes with outsiders.

Harold Bibby, the Florida trucking broker whose company, 4 Points Logistics, is the co-defendant in the lawsuit brought by truckers against Lipsey, complained in November that Lipsey was late in making nearly $2 million of the $6 million he was owed. Bibby said he was unable to pay the small trucking companies that had hauled the ice and had been forced to close down most of his business and lay off nearly all of his employees.

More recently, Bibby said Lipsey has paid all outstanding bills, and Bibby said he would work for Lipsey in future emergencies, with one proviso. “I was sorry I did business without striking a contract. There were no rules.”

Still unresolved is the lawsuit between the truckers on one side and Lipsey on the other over who should get certain bonus payments. At stake: $1,600 per day when trucks were detained during an emergency and $403 per day rental for each refrigerated trailer. The truckers, who filed the suit in federal District Court in Florida, claim those payments should go to them.

The Lipseys contend the complaints about their readiness come from competitors like Nestle that are angry they lost a federal contract to a smaller operation.

“The government wouldn’t employ us if we didn’t respond well,” Buddy Lipsey said. “In good conscience, we would be obliged to resign if we didn’t respond well.”

By Peralte C. Paul in Atlanta and Julia Malone in Washington

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NSRGY, NESN,

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