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RPM Settles Roofing Case for $65M

Thursday, August 29, 2013

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A former employee’s complaint that Tremco Inc. was selling overpriced, defective roofing materials and services to government entities has ended in a $65 million settlement by that company and parent RPM International Inc.

RPM announced late Tuesday (Aug. 27) that it would pay "approximately $65.1 million" to settle claims that its Building Solutions Group (which includes Tremco) defrauded the General Services Administration and other government entities on roofing contracts as far back as 2002.

The settlement resolves a lawsuit filed in July 2010 by the Department of Justice on behalf of Gregory Rudolph, who was Tremco's Vice President of Product Systems when he resigned in April 2009 after more than 20 years with the company.

RPM Brands
RPM International

RPM International is the parent company of Carboline, Tremco and dozens of other coating, sealant and chemical brands. The company reported more than $4.1 billion in sales in 2013, two-thirds of it in the company's industrial businesses.

RPM had expected the settlement, announcing in April that it had taken accrual of $68.8 million in anticipation of the deal. In announcing its fourth-quarter and year-end results on July 22, RPM reduced that estimate by $3.7 million, suggesting the settlement total announced this week.

The company reported $4.1 billion in sales, but double-digit losses in income, in fiscal 2013.

Accuracy 'Not Always Provided'

Medina, OH-based holding company RPM International owns more than 35 operating companies that produce more than 100 brand-name coatings, sealants and specialty chemicals for the industrial and consumer markets.

The company's well-known brands and companies include Carboline, Stonhard, Rust-Oleum, DAP, Varathane, Bondo, Day-Glo, Dryvit and EUCO.

Frank C. Sullivan
RPM International

The suit says RPM executives, including CEO Frank C. Sullivan, were misled about the severity and cost of the roofing defects.

In a statement Tuesday, RPM said:

"The settlement with the DOJ involved the Building Solutions Group's recognition that accurate information about commercial pricing and discounting practices was not always provided on a timely basis to the GSA, and that federal agencies purchasing under the GSA [Multiple Award Schedule] contracts did not always receive the pricing required by the contracts."

GSA, which oversees thousands of federal properties, awards MAS government contracts to companies for commercial items when it determines that the prices offered are fair and reasonable. Contracting officers make that determination by comparing prices charged to commercial and government customers, notes

RPM chairman and CEO Frank C. Sullivan called the pricing discrepancies "mistakes" that the company had rectified with new procedures.

"Though our roofing division made mistakes in the administration of our GSA contracts, it has always delivered excellent roofing and weatherproofing solutions to its federal customers," Sullivan said in the statement.

Portsmouth Gaseous Diffusion Plant

Two Tremco roofs were installed at the Portsmouth Gaseous Diffusion Plant, a nuclear facility in Piketown, OH. RPM called the installations a mistake and said procedures had been revised.

"The installed product performance, which was a subject of the investigation, accounted for less than 0.3% of the settlement value. We are fully committed to conducting business with the highest levels of compliance, and have taken a number of proactive actions to strengthen our administrative procedures and compliance systems to prevent future errors from occurring."

Cutting Deals

The case dates to February 2010, when Rudolph reported to GSA's Office of the Inspector General that Tremco had been selling federal, state and local government entities "the same goods at higher prices than identical, low-priced goods" and was "selling them defective roofing products and installing defective roofs on Federal Government and State and Local Government buildings," the 105-page complaint alleges.

The suit says that Tremco (or subsidiary Weatherproofing Technologies Inc.) was giving commercial customers discounts of up to 40 percent—and sometimes more—off the prices in its "price book." It then gave the government a 13.3 percent discount off the price book.

The company told the government entities that their rate was a discount from the commercial price when, in fact, "prices and discounts were in a constant state of fluctuation from job to job" and sales reps were cutting far better deals for private customers, the suit says.

Pricing Requirements

As a government contractor, Tremco was obligated to provide the government with the best pricing from an established price book—the "best value," in other words, relative to commercial customers.

As part of that obligation, Tremco was required to notify government customers of any reductions in prices offered to commercial customers and to offer the same discounts to the government.

Instead, the suit said, Tremco gave its private customers deep discounts without telling the government, causing the government to pay "substantially more than it otherwise would have were it not for Tremco's intentionally false pricing misrepresentations," the suit says.

"Despite its obligations and representations that Government customers would receive the most favorable prices and terms, Tremco regularly provided its commercial customers with discounts greater than those offered to Government purchasers, without disclosing these price reductions to the Federal Government," the suit alleges.

'Fancy Names and Labels'

The complaint says that Tremco sold federal, state and local governments "expensive brand-name, top-of-the-line roofing systems and products," rather than "lower-cost alternatives, which lack only the fancy names and labels."

In fact, the suit contends:

"Many Tremco products sold under different names and different prices are in fact identical in composition, manufacturing process and location, durability, and all other respects.

"These product pairs differ only in Tremco name, label, and price. Tremco's internal documents showing product composition demonstrate that the chemical compositions of the so-called 'premium' or 'superior' products are identical to those of the less expensive 'generic' equivalents."

Tremco also "inflated prices" to government buyers by using its subsidiary WTI as the general contractor on many government jobs, the suit says.

US v Tremco & RPM
U.S. v Tremco Inc. and RPM International Inc.

A whistleblower suit filed by a former Tremco VP says company sold products labeled "superior" that were generic equivalents of less-expensive brands.

Sales through WTI included an additional charge of 25 percent over the services and supplies. While those customers received a Tremco job superintendent and inspector, these were unnecessary because the work was performed by Tremco-certified contractors, the suit said.


Tremco was also accused of unnecessarily "over-specifying" roofing requirements in order to lock out competitors. The suit also says that Tremco operated its own in-house fire-testing facility in Cleveland until 2007 and "falsely claimed that its roofs had high ratings for fire protection qualities."

In 2007, the suit says, Tremco lost its UL Laboratories certification to do its own fire testing when UL was unable to duplicate Tremco's in-house results in independent testing.

'Ways Around' the Government

Randolph, who brought the allegations to light, observed the pricing activities over several years. His department was responsible for Tremco's price book.

"Tremco knew that the Government was not being provided with the same discounts provided to private purchasers," Randolph's suit says.

During the mid-2000s, Tremco Roofing Division President Deryl Kratzer "expressed concern" to Randolph "over the fact" that private customers were getting far better prices than government customers. When Randolph noted that the companies' sales reps had the authority to offer the deep discounts to commercial customers, Kratzer "responded that there were always 'ways around' the Federal Government's preferred pricing requirements," the suit says.

It adds: "On at least three occasions, Mr. Kratzer expressed concern to [Randolph] that if 'the government' ever audited Tremco's discounting practices, Tremco 'would get killed.'"

'Did Not Want to Know'

In 2005, the suit says, Tremco hired a compliance officer, Angela DiTommaso, who said in operations meetings that she "did not want to know about" how the company was providing better pricing to private customers than government buyers.

"On several occasions during operations meetings, Mr. Kratzer commented that it was Ms. DiTommaso's job to keep him 'out of jail,'" the suit said.

Roofing Defects

The suit also alleges that Tremco "knowingly installed ... thousands of defective roofs" on "post offices, defense installations, schools, hospitals and municipal buildings" nationwide—including dozens of sites individually identified in the suit.

Many of those facilities received Burmastic roofing systems installed over insulation board—systems that "Tremco knew" as early as 2005 "had the potential to fail and that many of these roofs had failed or were failing," the suit says.

The complaint says thermal expansion and contraction caused the composite system to split over time, allowing water to enter the roof and building.

Allison Elementary School

Allison Elementary School, in Pomona, CA, was among dozens of sites identified as having bought overpriced and/or defective roofs. The 2008 contract was for $581,000.

"In internal documents, Tremco estimated that the failure rates could be as high as 80% in some regions," the suit alleges.

The suit says Randolph proposed to Kratzer in 2008 that Tremco "proactively address" the roof defect, but that Kratzer opposed the idea "because he did not want to have to disclose to customers and shareholders the extent of the defects in these roofs."

Randolph also met with an RPM accounting officer about the problem, the suit claims.

High-Level Meeting

According to the complaint, a February 2009 Tremco-RPM meeting was called to discuss the defect issue. Kratzer, Sullivan, Randolph and others attended.

The suit says Kratzer "presented misleading information downplaying the extent of the Tremco cold roof defects" at that meeting and presented a document that "grossly understated" repair costs at $30 million.

The actual repair costs, the suit says, "probably" topped $100 million.


Using its Weatherproofing Technologies Inc. (WTI) subsidiary as a general contractor on government contracts allowed Tremco to add a 25 percent markup on services and materials, the suit said.

Shortly after that meeting, Randolph put his concerns in a memo to Kratzer. Two months later, he resigned.

As the whistleblower in this case, Randolph will receive 17.9 percent of the settlement.


Tagged categories: Building Envelope; Building materials; Business management; Carboline; Facility Managers; Health Care/Hospitals; Laws and litigation; Nuclear Power Plants; Roofing contractors; Roofing materials; RPM; Schools; Tremco

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