ALJDEC decisions subject to certification as final

07F-G1124-ROC · Registrar of Contractors · 2007-12-03

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: September 17, 2007, with further hearing on November 6, 2007; the record closed on November 20, 2007 APPEARANCES: Jason Ebe, Esq. represented Complainants Paul and Stacee Barkley. Murray Zeigler, Esq. represented Respondent Bassett Construction and Development, L.L.C. ADMINISTRATIVE LAW JUDGE: Sondra J. Vanella _____________________________________________________________________ The question presented by this matter is whether Respondent Bassett Construction and Development, L.L.C. is subject to discipline for acts or omissions in violation of A.R.S. § 32-1154. Based upon the evidence of record, the Administrative Law Judge makes the following Findings of Fact, Conclusions of Law and Recommended Order. FINDINGS OF FACT 1. Bassett Construction and Development, L.L.C. (“Bassett”) is the holder of a Class B- license (No. 111997) issued by the Registrar of Contractors (“ROC”). Rob Boaen is Bassett’s qualifying party and sole member. 2. Complainants Paul and Stacee Barkley (the “Barkleys”) purchased property in the Copper Creek Estates subdivision in Peoria, Arizona. Copper Creek Estates is a gated community with 23 1-acre custom lots, and at one time, Bassett owned all of the lots. Tawny Boaen was the Barkleys’ realtor for the purchase transaction. Mrs. Boaen, who was married to Mr. Boaen at the time (the Boaens have since divorced), recommended Bassett to the Barkleys for the construction of their home. 3. On March 22, 2005, the Barkleys entered into a contract with Bassett for the construction of their home. See Exhibit C-2. The contract is a fixed price contract with a price of $812,755.00. Id. The contract specified the following regarding a completion date for the construction of the home: Article 2. TIME OF COMPLETION The work to be performed under this Contract shall be commenced on or before the time the permit is issued and the first crew is scheduled and shall be substantially completed on or before 190 days from the date the footer is poured to complete construction. Time is of the essence. Id.

4. The contract further specified items whereby the Barkleys were given an allowance amount to expend on certain items in their home, e.g., cabinets, appliances, doors, etc. Id. The Barkleys understood that if they exceeded their allowances, they would be responsible for those additional amounts. 5. On March 30, 2005, the parties executed an addendum to the contract adding pavers to the back patio and a post tension slab for a tennis court. See Exhibit C-3. This addendum increased the contract price to $841,807.00.[1] Id. 6. Mrs. Barkley testified that the foundation for the home was poured in late December 2005 or early January 2006. As such, the 190 day time frame for completion began to run at this point. Mrs. Barkley further testified that the Barkleys were very diligent in selecting the various items for construction, as they did not want to be the cause of any delays in construction. 7. Mrs. Barkley testified that there were periods of time with no construction related activity, and that she expressed her concerns to Mr. Boaen on several occasions as they were approaching the 190 day deadline, and then exceeded the deadline. Mrs. Barkley testified that the Barkleys requested that Bassett provide them with a revised construction schedule, and on September 3, 2006, sent Bassett a letter expressing their concerns regarding the construction delays, the lack of communication between Bassett and the Barkleys, the lack of supervision over the project by Bassett, and an increase in price for the doors and windows, all resulting in an increase in the Barkleys’ construction financing. See Exhibit C-6. In the letter, the Barkleys requested twelve specific items be performed by Bassett. Id. The Barkleys further requested a written response to their letter from Bassett, and stated that “. . . it is our hope that we can work together to arrive at an amicable solution to address all of these issues.” Id. 8. On October 23, 2006, Mr. Boaen responded to the Barkleys’ September 3, 2006 letter informing the Barkleys in pertinent part as follows: I have invested all I can on your behalf and are not able to continue to do so. Bassett will be able to finish the balance of your construction with the funds from the change orders and draws remaining . . . Please review these amounts and let me know when I will receive the funds for your current change orders.

See Exhibit C-8. Attached to the letter was a Change Order in the amount of $149,793.00 for the Barkleys to pay. Basset did not provide any documentation regarding the amounts contained in the change order. 9. The Barkleys also received from Bassett a Construction Cost Breakdown that included a line item for profit in the amount of $95,000.00. See Exhibit C-10. This amount was over and above the agreed upon contract price. 10. By letter dated November 29, 2006, the Barkleys’ attorney advised Bassett that it had materially breached the parties’ contract, however, the Barkleys would allow Bassett to continue with the project if Bassett committed in writing within five days, to the following: Complete the construction for the agreed upon contract price, with a detailed schedule of values and narrative evidencing how Bassett intends to do this; and Complete the construction by a date certain, based upon a detailed schedule evidencing how Bassett intends to do this, and only if approved by the Barkleys.

See Exhibit C-11. 11. The letter further advised that if the Barkleys did not receive a satisfactory response from Bassett within the requisite time frame, the Barkleys would remove Bassett from the project, complete the construction by other means, take legal action against Bassett, and file a complaint with the ROC. Id. 12. By letter dated December 12, 2006, the Barkleys terminated Bassett. See Exhibit C-12. Mrs. Barkley testified that the termination occurred for a number of reasons including the fact that Bassett failed to respond to the November 29, 2006 letter, Bassett had exceeded the contracted for completion date, and because the Barkleys believed that Mr. Boaen’s letter meant that if they did not pay the additional monies, Bassett would not continue with the project. Mrs. Barkley further testified that Bassett included in the change order, an overage for cabinets in the amount of $17,800.00, however, Bassett had received the bank draw for the cabinets, but did not pay the cabinet subcontractor. Mrs. Barkley testified that the Barkleys paid the cabinet subcontractor in full, directly. Mrs. Barkley further credibly testified that no significant changes were made by the Barkleys to the plans and specifications for the house. 13. On January 11, 2007, the Barkleys, through counsel, filed a complaint against Bassett with the ROC alleging in pertinent part: 1) failure to timely complete construction; 2) failure to complete the project for the price agreed upon; 3) attempting to turn a fixed price contract into a cost plus contract; and 4) diverting funds paid by the Barkleys away from Bassett’s subcontractors. 14. After terminating Bassett, on or about January 8, 2007, the Barkleys hired Savino Tarantini to serve as a construction manager for the Barkleys. Mr. Tarantini is a general contractor, and also holds an electrical contractors license. Mr. Tarantini testified at hearing that at the point the Barkleys retained him, the construction of the house was too far along for him to take over the project as general contractor, as he did not want to take responsibility for another contractor’s work. Mr. Tarantini testified that he helped the Barkleys select subcontractors and guided them in having the construction completed in a proper and timely manner. 15. Mr. Tarantini testified that the total construction time for a house of this size (7,000 square feet) should be approximately 14 months. Mr. Tarantini testified that the house was in “good shape” (the Barkleys have not alleged any workmanship deficiencies against Bassett). However, Mr. Tarantini testified that a couple of the door openings were dry-walled in, some were not framed out properly, some niches were missing, some of the duct work for the HVAC system was run too long, and in order to increase the air flow the units were upgraded in size and efficiency, and the duct work was realigned, the flashing on the roof walk deck was not properly installed, the fireplaces were not flashed, the master shower bench seat was framed in wood and should have been framed in masonry to avoid deterioration, a few of the archways needed correction, and some doorways needed larger frames. Mr. Tarantini testified that it took approximately 20 subcontractors to complete the house. Mr. Tarantini further testified that he and the Barkleys attempted to find the original HVAC and roofing contractors in order to rectify some of those issues, however, they could not obtain this information. They were able to identify the foam roofing subcontractor, and that subcontractor made necessary repairs. 16. Mr. Barkley credibly testified that he requested from Bassett a list of all the subcontractors that worked on the house and their contact information, and that Bassett never provided the Barkleys with this list, so they could not contact the subcontractors that originally performed the work. Mr. Barkley also testified that Bassett never advised the Barkleys that it required additional time to complete the project. Mr. Barkley testified that when he inquired of Mr. Boaen as to the $95,000.00 charge for profit, Mr. Boaen responded that “he had to make money.” Mr. Barkley testified that Bassett received a $15,000.00 draw for doors and did not pay the door subcontractor, yet attempted to charge the Barkleys in the change order (Exhibit C-8), the amount of $29,706.00 as an overage for the doors. Mr. Barkley testified that the Barkleys expended an additional $230,862.85 to complete the construction of their home over and above the contract price, and that the Certificate of Occupancy was issued on May 30, 2007. 17. Mr. Boaen testified that at the time Bassett entered into the construction contract with the Barkleys, he did not understand that under the terms of a fixed price contract, Bassett was not to be reimbursed for overages unless those overages fell under the allowance provisions of the contract. (The Barkleys acknowledged at hearing that they were well aware that if they exceeded their allowance amounts, they were liable for those amounts.) 18. Mr. Boaen testified that the parties contracted in March 2005, and that the foundation was poured almost a year later, and as such, the cost of concrete increased, as well as the materials and labor for the framing. Mr. Boaen testified that it was “a bad time to be building because of the construction boom”. Mr. Boaen acknowledged that Bassett underbid the cost of the stucco and the doors, in addition to the fact that the cost of the materials increased. Mr. Boaen testified that he had difficulty obtaining subcontractors in a timely manner due to the construction boom. 19. Mr. Boaen further testified that changes were made to the plumbing to accommodate the Barkleys, and that the electrical panel was upgraded from 400 amps to 600 amps, and that there was not enough budgeted for these electrical upgrades. 20. Mr. Boaen testified that the property was vandalized at least three to four times whereby the wiring was stolen, and this caused at least a three month delay in that the home had to be re-wired each time. However, Bassett had not constructed a construction fence around the site. Mr. Boaen testified that this was because the vandals were entering from behind the house. 21. Mr. Boaen testified that his concrete subcontractor could not spot the corners and asked Bassett to hire a civil engineer in order to do so. Bassett hired a civil engineer at its expense, and Mr. Boaen testified that this caused a two week delay. Mr. Boaen testified that there was a delay in the delivery of the roof tile.

22. Mr. Boaen testified that he had not submitted change orders to the Barkleys concerning these delays and price increases because he “tried to handle it verbally with the Barkleys.” 23. Mr. Boaen testified that with regard to the HVAC system, when the house was framed, the roof line was dropped, resulting in a loss of attic space for the duct work. Mr. Boaen testified that the Barkleys would not accept roof units, and as such, additional duct work was required, however, Mr. Boaen contended that this work could have been done for the same amount that was originally budgeted for HVAC. 24. Mr. Boaen acknowledged that the project was long overdue, and testified that he had informed the Barkleys that he was willing to waive the $95,000.00 profit. Mr. Boaen acknowledged that the $95,000.00 profit figure was not calculated into the contract price and was not part of the Barkleys’ construction loan. Mr. Boaen acknowledged that Bassett had not included the $6,200.00 cost of fire sprinklers into the contract price, notwithstanding that the sprinklers were called for in the plans. Mr. Boaen further acknowledged that it was not feasible to complete the construction with the funds remaining in the Barkleys’ construction loan. Mr. Boaen acknowledged that he had not ordered the doors for the project. Mr. Boaen also acknowledged that the Barkleys “were good about trying not to make too many changes”, and that any changes requested by the Barkleys were minor. Mr. Boaen acknowledged that he did not secure subcontractors for the project at the time he entered into the contract with the Barkleys, stating that is not the way in which Bassett conducts business. Mr. Boaen testified that he regularly utilizes the same subcontractors, and therefore, has a rough idea of what the charges would have been, notwithstanding that Bassett hires its subcontractors on a time and materials basis. Mr. Boaen acknowledged that it was a poor business decision to not lock in prices for subcontractors at the time of the contract. The Administrative Law Judge finds that Bassett assumed a risk regarding price increases by not contracting with its subcontractors at the time of the contract for fixed prices, given that Bassett’s contract with the Barkleys was a fixed price contract. 25. The Administrative Law Judge finds based on the weight of the credible evidence of record, that Bassett failed to complete the construction of the Barkleys’ house pursuant to the terms of the parties’ contract, namely within 190 days from the pouring of the foundation. The foundation was poured at the latest in January 2006, and the Barkleys terminated Bassett in December 2006, twelve months later. The Barkleys wasted no time in hiring a construction manager to complete the home, and the Certificate of Occupancy was issued in May 2007. 26. The Administrative Law Judge further finds based on the weight of the credible evidence of record that Bassett failed to complete the construction of the Barkleys’ home for the agreed upon contract price, notwithstanding that the parties’ contract was a fixed price contract. Mr. Boaen acknowledged at hearing that he did not understand the concept of a fixed price contract, a concept with which a general contractor should be more than familiar. Bassett improperly attempted to charge the Barkleys for cost increases that were solely attributable to Bassett and Bassett’s poor business decisions, such as its failure to timely obtain subcontracts with subcontractors in order to lock in prices for work that was to be performed under the terms of the parties’ contract. Further, Bassett attempted to pass on to the Barkleys increases in materials and labor costs that were attributable to the construction market at the time. Such risk inures to the general contractor with a fixed price contract. Further, Bassett underbid many items in the construction contract. Again, this type of error is solely attributable to Bassett and such expense should not have been passed on to the Barkleys. Bassett further attempted to later charge the Barkleys for items that Bassett had mistakenly not calculated into the original contract price, such as Bassett’s profit and fire sprinklers. Further, Bassett failed to pay subcontractors with funds received for such purposes, such as the cabinet and door subcontractors, and further attempted to charge the Barkleys additional monies for work for which the Barkleys had paid to subcontractors directly, e.g. the cabinet and door subcontractors. CONCLUSIONS OF LAW In this proceeding, the Barkleys bear the burden to prove, by a preponderance of the evidence, that Bassett is subject to discipline for violations of A.R.S. § 32-1154(A)(1), (A)(3), (A)(7), (A)(9), and/or (A)(13) as charged by the ROC in its May 4, 2007 Citation and Complaint. See Arizona Administrative Code (“A.A.C.”) R2-19-119. A preponderance of the evidence is “such proof as convinces the trier of fact that the contention is more probably true than not.” Morris K. Udall, Arizona Law of Evidence § 5 (1960). The Administrative Law Judge concludes that the Barkleys have met their burden of proof as to four of the five ROC charges. Under A.R.S. § 32-1154(A)(1), a contractor is subject to discipline for “abandonment of a contract or refusal to perform after submitting a bid on work without legal excuse for the abandonment or refusal.” The weight of the credible evidence of record established that Bassett refused to continue to perform pursuant to the terms of the parties’ contract, unless the Barkleys paid to Bassett $149,793.00, the amount of the change order submitted to the Barkleys in October 2006, attached to the letter written by Mr. Boaen. The Administrative Law Judge concludes that Bassett did not have legal excuse to refuse to perform as the evidence of record demonstrated that Bassett could not complete the construction of the Barkleys’ home for the contract price due to Bassett’s poor business decisions, lack of planning, and underbidding. Therefore, the Administrative Law Judge concludes that Bassett violated A.R.S. § 32- 1154(A)(1). Under A.R.S. § 32-1154(A)(3), a contractor is subject to discipline for “violation of any rule adopted by the registrar.” In this case, the ROC charged Bassett with a violation of A.A.C. R4-9-108, which, among other things, requires contractors to perform work in a professional and workmanlike manner and in accordance with applicable building codes and professional industry standards. In their filed complaint and during the course of the hearing, the Barkleys did not claim any workmanship deficiencies. As such, the Administrative Law Judge does not conclude that Bassett violated A.R.S. § 32-1154(A)(3). Under A.R.S. § 32-1154(A)(9), a contractor is subject to discipline for “failure in a material respect . . . to complete a construction project or operation for the price stated in the contract, or in any modification of the contract.” The Administrative Law Judge concludes, based upon the credible, probative, and substantial evidence of record, including Bassett’s own acknowledgements, that Bassett failed to complete the construction of the Barkleys’ home for the agreed upon contract price. Therefore, the Administrative Law Judge concludes that Bassett violated A.R.S. § 32-1154(A)(9). Under A.R.S. § 32-1154(A)(13), specifically, A.R.S. § 32-1124(B), a contractor is required to include their contracting license numbers, preceded by the letters “ROC,” on all documents utilized while engaged in construction-related activities. This requirement would be applicable to business cards, sales literature, contract documents, invoices, and other forms utilized by a contractor. The Barkleys did not address this alleged violation. However, a copy of the parties’ contract was submitted into evidence (Exhibit C-2). That document does not contain the letters “ROC” preceding Bassett’s license number. Other documents, such as Bassett’s letterhead and change order forms were also submitted into evidence (Exhibits C-3, C-5, C-8, and C-9). Those documents do not contain Bassett’s license number. In view of the foregoing, the Administrative Law Judge concludes that Bassett is in violation of A.R.S. § 32-1154(A)(13). Under A.R.S. § 32-1154(A)(7), a contractor is subject to discipline for “the doing of a wrongful or fraudulent act . . . as a contractor resulting in another person being substantially injured.” The Administrative Law Judge concludes, from the evidence presented, that Bassett committed several wrongful acts resulting in substantial financial injury to the Barkleys. Those acts included: 1) failing to timely complete the construction of the Barkleys’ home; 2) failing to complete the construction of the home for the agreed upon contract price; and 3) refusing to perform after submitting a bid on work without legal excuse for the refusal, as the increased costs were attributable to Bassett. Based on the above, the Administrative Law Judge concludes that Bassett violated A.R.S. § 32-1154(A)(7). Based on the foregoing, it is appropriate for the ROC to impose discipline against Bassett’s license. The ROC’s May 4, 2007 Citation and Complaint advised Bassett that in the event of a finding of a violation against it, Bassett’s prior disciplinary record of final ROC orders could be considered in mitigation or aggravation. Accordingly, subsequent to the conclusion of the instant hearing, the Administrative Law Judge took notice of prior final disciplinary orders against Bassett in the ROC’s official records. Those records revealed that Bassett has not been the subject of any ROC disciplinary orders within the past two years. The Administrative Law Judge considered this disciplinary record when determining appropriate recommended discipline for this matter. Upon consideration of all of the facts and circumstances presented by this case, the Administrative Law Judge concludes that the ROC should suspend Bassett’s Class B- license.[2] RECOMMENDED ORDER Based on the foregoing, the Administrative Law Judge makes the following Recommended Order: Commencing on the effective date of the Order entered in this matter, Bassett’s Class B- license (No. 111997) shall be suspended for a period of fourteen (14) days. It is further recommended, in addition to the foregoing license suspension, that Bassett’s Class B- license be placed on disciplinary probation for a period of one (1) year. This additional disciplinary penalty shall commence on the effective date of the Order entered in this matter. It is further recommended, as an express condition for the next two (2) renewals of Bassett‘s license, notwithstanding the existence or absence of any uniform assessment by the ROC then in effect, that Bassett shall be required to pay an additional $500.00 into the Contractors’ Recovery Fund, as authorized by A.R.S. §32-1132(B). Failure to pay such additional deposit into the fund shall result in the rejection of any renewal application and a suspension of Bassett’s license until payment is made and the renewal issued. It is further recommended, in addition to the above provided penalties, if any, that any continuation or restoration of Bassett’s contracting rights, whether or not probationary, shall be subject to a condition that Bassett first post an additional surety bond, cash deposit or alternative deposit for a period of twenty-four (24) months, including future renewal periods, in the amount of $5,000.00, such bond or deposit to be for the sole benefit of persons injured as defined in A.R.S. § 32- 1131 (3) and to be in addition to the required surety bond, cash deposit or recovery fund participation set forth in A.R.S. § 32-1152(D). Cash or alternative additional deposits, if utilized, shall be returned only after the expiration of an additional two year period following the above- provided twenty-four (24) month period and only if no claims are then pending. In the event of certification of the Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order will be 40 days from the date of that certification. Done this day, December 3, 2007.

______________________________________ Sondra J. Vanella Administrative Law Judge

Original transmitted by mail this ____ day of December, 2007, to:

Fidelis V. Garcia, Director Registrar of Contractors Legal Department 800 West Washington, 6th Floor Phoenix, AZ 85007

By ___________________________

----------------------- [1] This work was never performed by Bassett. [2] Nothing herein, however, should be read as precluding the Barkleys from seeking additional relief in a different forum should they choose to do so.

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