Agua SUD sues Performance Services Inc., seeks more than $1 million in damages

This article appeared in the March 25 issue of the Progress Times.

The Agua Special Utility District filed a lawsuit against Performance Services Inc. last week, claiming the company defrauded the utility district and requesting more than $1 million in damages.

Performance Services Inc. convinced Agua SUD to install new water meters and replace old light bulbs with LEDs. The company promised the $11.6 million “energy savings performance contract” would pay for itself through higher water bills and lower energy costs.

“As it turns out, PSI’s promises and guarantee were nothing but illusions,” according to the lawsuit, which Agua SUD filed on March 18. “And PSI knew it when it made them.”

The project saddled Agua SUD with millions in debt.

“Beginning in late 2020 and 2021, Agua SUD began feeling a cash flow pinch resulting from the semi-annual lease payments and software fees,” according to the lawsuit. “In terms of real cash flow, the ‘savings’ were not adding up.”

After conducting an investigation, Agua SUD determined Performance Services Inc. had defrauded the utility district.

The investigation showed Performance Services Inc. manipulated data to make the project appear worthwhile, according to the lawsuit, and revealed the company had a cozy relationship with a third-party engineer hired to conduct an independent review.

Jim Adams, the general manager for Performance Services Inc. in Texas, said the company is reviewing the allegations.

“As we have always maintained, PSI strongly believes in the Performance Contracting process and fully stands behind all our projects,” Adams said in a statement. “We look forward to defending this project in Court and refuting these allegations.”

The lawsuit is yet another headache for Performance Services Inc., an Indiana-based company that pitched energy savings projects to Agua SUD, the La Joya Independent School District and the city of Mission.

An investigation conducted by the FBI and the U.S. Attorney’s Office for the Southern District of Texas revealed the contracts were part of a massive bribery scheme that involved more than a dozen public officials in western Hidalgo County.

After reviewing documents filed by federal prosecutors, local governments attempted to distance themselves from Performance Services Inc.

The La Joya ISD school board terminated an agreement with Performance Services Inc. The Mission City Council voted to “mutually terminate” a contract with the company. And the Agua SUD board filed a lawsuit.

Performance Services Inc., meanwhile, removed information about the Agua SUD, La Joya ISD and Mission projects from the company’s website. It also removed information about Jonathan Blackwell, the salesman who handled them.

“Performance Services, Inc (PSI) has no knowledge of any potential misbehavior by Jonathan Blackwell nor any other employee except for the information provided in the recent Federal Indictment,” according to a statement Adams released in January. “PSI promotes and lives by our Guiding Principles and Fundamentals and our culture is based on these beliefs. In 23 years of operations, there have been no accusations that PSI nor any of our employees have ever acted in an illegal manner on any of our past 604 projects. PSI has not nor will we tolerate any illegal behavior by our employees, partners, or subcontractors.”

Along with Performance Services Inc., the utility district sued Mariano Garcia of McAllen-based M. Garcia Engineering.

Agua SUD hired M. Garcia Engineering to monitor the Performance Services Inc. project and keep the utility board informed about potential issues. The engineering firm received 3% of the project cost as compensation.

The lawsuit refers to M. Garcia Engineering as MGE and calls the Performance Services Inc. contract a ESPC, an acronym for energy savings performance contract.

According to the lawsuit, Garcia didn’t properly represent Agua SUD.

“Rather, based upon information now within the public domain, Agua SUD has learned that MGE and Garcia were participants in a public corruption scheme whereby the 3% engineering fee charged by MGE (“MGE Fee”) was intended to be, and in fact was, distributed to various individuals as kickback for the PSI ESPC,” according to the lawsuit, which referenced the criminal case against former La Joya school board Trustee Armin Garza.

During a hearing in January, when Garza pleaded guilty to a conspiracy charge, the court unsealed a document that revealed Performance Services Inc. contracts in western Hidalgo County were part of a kickback scheme.

The document, which is called a criminal information, refers to Performance Services Inc. as “Company D” and M. Garcia Engineering as “Company A.” It also refers to “Person A,” who managed Company A.

“It was further part of the conspiracy that Company A was hired in connection with energy savings contracts awarded to Company D,” according to the criminal information. “Person A was instructed by co-conspirators to issue kickback and bribe payments in exchange for the hiring of Company A.”

Garcia didn’t respond to a request for comment about the lawsuit.

During a brief interview in January, though, Garcia said he read the criminal information but didn’t know whether or not M. Garcia Engineering was Company A.

“I’m not sure,” Garcia said. “I know that there was a mention of a ‘Company A’ and my wife’s been reading up on it.”

Garcia said the allegations contained in the criminal information surprised him.

“And I’ll just leave it at that,” Garcia said.