ALJDEC

01F-2432-ROC · Registrar of Contractors · 2001-09-12

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: August 27, 2001. APPEARANCES: Linda Brown, Complainant’s representative; Kevin Wright, Respondent’s representative; Daniel Kelly, Complainant’s witness; Paul Miller, Complainant’s witness; and Dan Murchison, Respondent’s witness. ADMINISTRATIVE LAW JUDGE: Dorinda M. Lang. _____________________________________________________________________ Firerock Country Club, LLC, (“Firerock”) did not establish that Valley Wide Underground, Inc., (“Valley Wide”) violated any statutes governing contractors’ licenses when Valley Wide failed to pay two subcontractors on the project. Valley Wide did not receive sufficient payment on the project even though it bid in good faith and tried to get a change order. It also paid on the remaining charges whenever company funds became available. Firerock partly caused its own injuries by unreasonably withholding final payment on the project and has not established that it is entitled to restitution. Therefore, it is recommended that this complaint be dismissed as invalid. FINDINGS OF FACT 1. Complainant, Firerock Country Club, LLC, contracted with Respondent, Valley Wide Underground, Inc., for sewer improvements to a homeowner’s association under Firerock’s supervision. Firerock insisted that all bidders bid for the job as a “hard dig” at 80 feet per day. It then refused to state in the contract that it was bid at 80 feet per day. Valley Wide was awarded the contract and began work. While the job was underway, Valley Wide reached a very hard rock area that slowed progress considerably and increased its costs in labor and broken machinery. Although it asked for a change order, none was completed, and Valley Wide did not stop working to address the matter. When it submitted a bill for the additional work, Firerock refused to pay it. Firerock also withheld the last contract payment of over $13,000, insisting that Valley Wide provide lien waivers before Firerock paid in full. 2. When Firerock withheld its last payment, Valley Wide could not provide the lien waivers or negotiate effectively with its subcontractors because it depended on payment from Firerock to pay them (and would have been short anyway due to the enormous losses from cost overruns). As a result, Red Mountain Machinery, Olson Pre-Cast, and United Rentals filed or threatened liens against Firerock’s property, potentially affecting other homeowner’s associations within its purview. Firerock paid the final payment of over $13,000 to Red Mountain Machinery to settle its lien, but that amount included additional costs that would not have been incurred had Firerock paid it on time. 3. On March 29, 2001, Firerock filed a complaint with the Registrar of Contractors against Valley Wide alleging that Valley Wide’s failure to pay its subcontractors was a violation of contractors’ licensing laws that had caused Firerock to have TWO (not three) subcontractors file or threaten to file liens. Documentation attached to the complaint and subsequent contact with Valley Wide mentioned only the lien filed by Red Mountain Machinery and Olson Pre-Cast’s Notice of Non-Payment letter. It was not until the hearing that Firerock raised the issue of a lien being filed by United Rentals. Valley Wide objected to inclusion of evidence on the United Rentals claims on the grounds that it was never given notice of this lien or that another subcontractor’s bills were at issue. Valley Wide averred that the invoice from United Rentals may be a mistake since they have about ten contracts with each other, and Valley Wide has paid on them steadily. (So the lien may be an accounting error whereby United Rentals credited some payments to the wrong contracts.) Valley Wide’s objection was sustained and further hearing on the issue of United Rentals’ lien was prohibited. Firerock was informed that it may file another complaint with the Registrar of Contractors if it wishes to pursue that issue further. 4. Firerock was unable to offer evidence about the current amount due to Olson Pre-Cast, but the Notice of Non-Payment alleges that $15,970 is due. Firerock requested that Valley Wide’s license be revoked and that Firerock be awarded $20,000 in restitution. 5. Valley Wide’s qualifying party and representative testified that he could have paid the final payments to the subcontractors if he had been paid on time and received payment for the change order. He acknowledged that he did not stop work and insist on a change order when the workers hit the hard rock. Firerock’s witnesses overseeing the project were concerned about finishing on time and saw for themselves that the machinery was broken and that additional costs were being incurred, so Valley Wide’s representative trusted that the change order, which he did request, would be approved. His foreman testified that Valley Wide did not want to breach the contract by finishing late and felt they were in a bind to continue despite the fact that Firerock’s overseer would never give them a straight answer about the change order. He also stated that the change order was for about $11,000 but would have been more fair had it been twice that. The company lost more than that in broken machinery and costs, he said. 6. Valley Wide’s qualifying party and representative testified that the company did not have sufficient funds from the project to pay the subcontractors at any time. Though he has made some payments from other funds when he can (including $8,000 to $10,000 to Olson Pre-Cast), the company has not had sufficient funds at any time to pay them off in full. He stated that the company suffered a very large loss on this contract because of the extra costs and the lack of a change order to enforce payment. He also stated that he might have saved a lot of money by negotiating with the subcontractors if he’d have been paid promptly by Firerock. 7. Valley Wide’s record with the Registrar of Contractors was irrelevant and shall not be deemed admitted as evidence. CONCLUSIONS OF LAW 1. This matter is within the jurisdiction of the Registrar of Contractors pursuant to A.R.S. §§32-1104(A)(4), 32-1154(B) and 32-1156. 2. The Citation and Complaint issued by the Registrar of Contractors in this matter alleged potential violations of A.R.S. §32-1154(A)(7) and (11). 3. The Arizona Revised Statutes at §32-1154(A)(7) provides for suspension or revocation of a contractor’s license for the “doing of a wrongful or fraudulent act by the licensee as a contractor resulting in another person being substantially injured”. 4. The Arizona Revised Statutes at §32-1154(A)(11) provides grounds for suspension or revocation of a contractor’s license for failure “to pay monies in excess of seven hundred fifty dollars when due for materials or services rendered in connection with his operations as a contractor when he has the capacity to pay or, if he lacks the capacity to pay, when he has received sufficient monies as payment for the particular construction work project or operation for which the services or material were rendered or purchased.” 5. The Registrar of Contractors may consider the prior record of a contractor in any disciplinary proceeding, provided the records are introduced into evidence. A.A.C. R4-9-117. On standing motion by the Registrar of Contractors, the computer records of the Registrar of Contractors may properly be considered as evidence in the event the Administrative Law Judge finds a violation of any of the statutory provisions cited in the Citation and Complaint. 6. In this case, the Respondent did not have the capacity to pay the money due to its subcontractors and did not have sufficient money to pay them from the money received on the project. When the Respondent has had the money, it has made payments on the outstanding balances owed. Therefore, Respondent did not violate A.R.S. § 32-1154(A)(11). Further, Respondent did not violate A.R.S. § 32-1154(A)(7). Complainant has not established that it is wrongful or fraudulent for Respondent to lose money on a contract. The Respondent bid the contract, requested a change order and attempted collection of payment, all in good faith. It was Complainant’s own lack of cooperation and unreasonableness in withholding the final payment that caused much of its damages. Complainant has not established that it is entitled to restitution in this case. RECOMMENDED DECISION Based on the foregoing considerations, I recommend that this complaint be dismissed as invalid.

Done this day, September 12, 2001.

OFFICE OF ADMINISTRATIVE HEARINGS

______________________________________ Dorinda M. Lang Administrative Law Judge

Original transmitted by mail this ____ day of ____________, 2001, to:

Registrar of Contractors Michael P. Goldwater ATTN: Joyce Armijo 800 West Washington, 6th Floor Phoenix, AZ 85007

By ___________________________ -----------------------

Office of Administrative Hearings 1400 West Washington, Suite 101 Phoenix, Arizona 85007 (602) 542-9826