PROVIDENCE, R.I. (WPRI) – The City of Providence has filed a multimillion dollar lawsuit against its longtime actuary Buck Consultants, charging them with "miscalculating" the estimated savings from pension reform, according to court documents obtained by Target 12.
The lawsuit filed in U.S. District Court on Tuesday claims the mistakes made by Buck "caused the City to incur a $10 million loss as a result."
"When first confronted with the material errors, Buck admitted its mistakes and acknowledged responsibility for its carelessness," the lawsuit states. "Thereafter, in a feeble attempt to explain the error away, Buck offered that it actually had committed numerous other undisclosed calculation errors that accounted for the lost savings, some of which had persisted for up to two decades."
The five-count lawsuit alleges "breach of contract," "negligence" and "Violation of Rhode Island False Claims Act."
City officials tells Target 12 they are seeking $10.8 million in damages plus attorney fees. However, Buck Consultants could also be on the hook for $30 million if a jury found it was in violation of the False Claims Act.
Providence Mayor Angel Taveras released a statement calling Buck's mistake "inexcusable."
"I will not allow Providence residents to pay for their mistake," said Taveras. "Buck needs to make the City whole and we believe that after trial a jury will agree with the City."
Buck – a subsidiary of tech giant Xerox – was hired by the city in 2011 to give the city estimates on potential savings from changing its pension system.
The lawsuit says Taveras used Buck's recommendations in negotiations with the city's unions. The primary recommendations included freezing yearly cost-of-living adjustments (COLAs) in order to reduce the city's annual required contribution (ARC) to the retirement system.
City officials and the three major unions all signed on by the summer, following months of negotiations.
In the lawsuit, the city claims Buck calculated the potential savings based on the COLA freeze beginning in June 2012, when it actually took effect in January 2013.
"Fully aware of the tens of millions of dollars at stake and the City's complete reliance on its analyses during its negotiations with its retirees and unions, Buck nevertheless made fundamental and inexcusable errors in its calculations," the lawsuit says. "Perhaps most importantly, Buck failed to account for an entire year's COLA payments, making the numbers that Buck was using to calculate the City's ARC and its expected liabilities wholly incorrect."
The mistake will cost the city an estimated $700,000 annually, when amortized over 28 years it amounts "to a whopping $10 million loss," the lawsuit states.
In a descriptive section of the complaint, lawyers write that when confronted with the error by the city's director of administration, Michael D'Amico, Buck employee Philip Bonanno struggled to explain the error.
"Sweat poured down Bonanno's face, and he asked those present to turn down the heat in the room," the lawsuit states. "He struggled to speak and stated that he felt that he might ‘pass out.'"
The lawsuit also raises concerns about a similar deal being worked out in Cranston based on Buck's recommendations.
The city has had a long relationship with Buck Consultants. The lawsuit states Providence has used the company's financial guidance since 1920, continually placing "its trust and confidence in Buck and relied upon Buck to provide it with accurate calculations."
A spokesperson for Buck Consultants said they couldn't comment on the legal action taken by Providence because they had not yet been served with the lawsuit.
"For more than 90 years, Buck Consultants has valued its long standing relationship with the City of Providence," Spokesman Steven Laird wrote in a statement. "Our primary focus has always been to provide solutions to our clients' complex HR and business challenges."
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