ALJDEC decisions subject to certification as final

2010A-308476859-ROC · Registrar of Contractors · 2011-04-14

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: April 1, 2011, at 1:00 p.m. APPEARANCES: Complainant S K F Tile and Stone, L.L.C. appeared through Faithie Ekbundit, its Project Manager/Estimator; Respondent R K Sanders, Inc. appeared through Robert Kevin Sanders, Sr., its Qualifying Party and President. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedure In February 2003, the Arizona Registrar of Contractors (“the Registrar”) issued License No. ROC182840, Class L-48 for commercial ceramic, plastic, and metal tile to S K F Tile and Stone, L.L.C. (“Complainant”). In March 2008, the Registrar issued License No. ROC242682, Class B-1 for commercial general contracting to R K Sanders, Inc. (“Respondent”). On November 1, 2010, the Registrar received a complaint from Complainant against Respondent that alleged that the parties had a subcontract for Complainant to perform tile work on a project at Scottsdale Community College Performing Arts Center (“the project”) for a total price of $22,100.00. The complaint alleged further that after Complainant performed the subcontract, Respondent paid Complainant $16,906.50, but withheld the remaining $5,193.50 that was due. Both parties subsequently requested that the Registrar schedule a hearing. On November 16, 2010, the Registrar issued a Citation and Complaint against Respondent, charging a violation of A.R.S. § 32-1154(A)(11). Respondent timely answered the Citation and Complaint, denying any statutory violation. The Registrar referred the matter to the Office of Administrative Hearings, an independent agency, for an evidentiary hearing. A hearing was held on April 1, 2011. Complainant submitted four exhibits, including one exhibit that consisted of seven photographs, and presented the testimony of three witnesses: (1) Faithie Ekbundit, Complainant’s project manager; (2) Julian Scott McClenahan, Complainant’s project superintendent; and (3) Pradit Patrick Ekbundit, Complainant’s qualifying party and managing member. Respondent submitted 20 exhibits and presented the testimony of three witnesses: (1) Robert Kevin Sanders, Sr., Respondent’s qualifying party and president; (2) Dan Fox, Respondent’s employee who repaired Complainant’s allegedly poor workmanship; and (3) David Curtiss, Respondent’s assistant project manager. Hearing Evidence The project consisted of a substantial remodel of the Scottsdale Community College Performing Arts Center, including auditoriums and bathrooms for the public and bathrooms next to dressing rooms for the performers. Respondent was the general contractor on the project. On June 29, 2010, Respondent accepted Complainant’s proposal to install tile in the bathrooms, showers, and dressing rooms, for a total contract price of $22,100.00 and Complainant started work on the project. Faithie Ekbundit and Mr. McClenahan testified that when Complainant arrived to start the project, the drywall substrate at the ceiling of at least one of the bathrooms was not level, but Respondent refused to issue a change order to allow Complainant to refloat the ceiling and, instead, threatened to assess liquidated damages against Complainant if it did not begin the project immediately. Complainant did not obtain a written warranty disclaimer signed by Respondent. Mr. Sanders acknowledged that Respondent fired the drywall contractor from the project and used its own employees to complete drywall and stucco at the project. Mr. Sanders testified that Respondent did not require Complainant to lay tile on an improperly prepared surface. On July 20, 2010, Complainant submitted a change order to Respondent in the amount of $1,261.56 to add backing that was missing from the substrate. Later, Complainant submitted a second change order in the amount of $523.25 to install tile at the ceilings in the shower rooms. Both parties’ accountings included Complainant’s change orders.[1] Complainant substantially completed its work on the project in August 2010. On August 23, 2010, Respondent and the architect on the project issued the first punchlist, which included problems in the tile alignment due to imperfections in the ceiling. Complainant ordered and installed larger tiles at its own expense to make the alignment problems less noticeable. The photographs that Complainant submitted showed that the tiles next to the ceiling were still not aligned with the ceiling. Because Scottsdale Community College needed to open the building for classes, the owner and architect accepted the tile that Respondent had installed in the first floor bathrooms, including its repair of the misaligned tile. On October 5, 2010, Respondent paid Complainant 85% of its final invoice. On October 29, 2010, the owner of the project accepted Complainant’s remaining tile work and paid Respondent in full for the work, except for contractual 10% retention of $2,210.00. On November 1, 2010, November 8, 2010, and November 16, 2010, the owner provided punchlists to Respondent that included some items relating to the tile, including cleaning and detailing the grout and certain repairs. The parties disagreed on whether Respondent provided the punchlists to Complainant. In any event, Complainant did not perform all of the work on the punchlists. On October 5, 2010, Respondent issued two change orders to Complainant, decreasing the amount otherwise due by $1,374.00 for “management of repairs due to defective tile installation” and by $350.00 for “Clean-up after defective tile repairs.” Respondent did not submit evidence to establish these charges. In October 2010, through January 2011, Respondent hired Dan Fox to clean and detail the grout that Complainant had installed. Mr. Fox did not remove, replace, or otherwise repair the tile that Complainant had installed. Respondent paid Mr. Fox $30.00/hour for this work, for a total of $600.00. After Mr. Fox cleaned and detailed the tile, the owner of the project fully accepted the tile work. Mr. Sanders testified that the owner of the project had not yet processed Respondent’s request for release of the retention for Complainant’s tile work. Mr. Sanders argued at the hearing that Respondent is entitled to two additional offsets against the amount that otherwise would be owed to Complainant under the subcontract: (1) $5,200.00 for 40 hours of Mr. Sanders’ time at a rate of $130.00 per hour that he allegedly spent due to Complainant’s poor workmanship; and (2) $440.00 for 20 hours of Assistant Superintendent David Curtiss’ time at a rate of $22.00 per hour that Mr. Curtiss allegedly spent due to Complainant’s poor workmanship. Respondent did not establish when this additional time was spent or how the alleged additional time was distinguishable from the time that Respondent spent on the project as the general contractor supervising all the trades, including Complainant. Respondent submitted a report dated March 30, 2011, from Ralph Williamson, the Director of the Ceramic Tile Institute of America, Inc., detailing numerous instances of Complainant’s poor workmanship on the project. Mr. Sanders testified that the project included over 100 requests for information that the architect’s plans did not show and 38 proposal requests. The architect issued 3 addendums that were two-thirds as thick as the 3” thickness of the initial project specifications. Respondent was responsible for supervising 58 subcontractors on the project. Mr. Sanders argued that Respondent has a right to have the tile work completed in a professional and workmanlike manner. In addition, the owner had not paid Respondent for over $300,000.00 in change orders that did not relate to Complainant’s tile work. Mr. Sanders argued that under the circumstances, Respondent should not be required to pay Complainant anything more. According to the Registrar’s record, Respondent’s license is current and in good standing. CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[2] Complainant bears the burden of proof and must establish Respondent’s statutory violations by a preponderance of the evidence.[3] Respondent bears the burden to establish affirmative defenses by the same evidentiary standard.[4] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[5] A preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”[6] A.R.S. § 32-1154(A)(11) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[f]ailure by a licensee . . . to pay monies in excess of seven hundred fifty dollars when due for materials or services rendered in connection with the licensee’s operations as a contractor when the licensee has the capacity to pay or, if the licensee lacks the capacity to pay, when the licensee has received sufficient monies as payment for the particular construction work project or operation for which the services or materials were rendered or purchased.” A general contractor’s inability to pay and nonpayment by the owner on a project are affirmative defenses that the general contractor bears the burden to prove in a subcontractor’s complaint for nonpayment under A.R.S. § 32-1154(A)(11). A contractor who accepts a defective surface by constructing its work on the surface generally must warranty that its work will comply with industry workmanship standards, absent an unequivocal written warranty disclaimer signed by the owner or general contractor. Similarly, withholding payment may be the only way a general contractor can force a subcontractor to repair its work to conform to workmanship standards. Respondent acknowledged that the owner of the project fully accepted Complainant’s work, even though it was defective, and had paid the bulk of the cost of the tile and had committed to release the final retention. Once the owner of a project has accepted and paid the general contractor for a subcontractor’s work, no matter how deficient, the general contractor no longer is justified under A.R.S. § 32-1154(A)(11) in withholding payment. A general contractor is not entitled to deduct from the monies otherwise owed to a subcontractor any compensation for additional time that the general contractor may have spent managing a difficult project, just as a subcontractor is not entitled to claim additional compensation from a general contractor for completing a problem-free project. Instead, one of the inherent risks in the business of general contracting is that the general contractor’s profits may be reduced by increased management costs due to unanticipated problems on a project. A general contractor is entitled to deduct the monies it paid to others to correct a subcontractor’s work so that the owner will accept it. In this case, Respondent established that it paid $600.00 to Mr. Fox to correct Complainant’s work so that the owner of the project would unconditionally accept it. Respondent has not established any other affirmative defense for its failure to pay Complainant for its work or established any other deductions from the amount owed. Therefore, Complainant has established that Respondent violated A.R.S. § 32-1154(A)(11) by failing to pay Complainant $6,378.34[7] for its work under the parties’ subcontract at the Scottsdale Community College Performing Arts Center project. RECOMMENDED ORDER Based on the foregoing, it is recommended that on the effective date of the Registrar’s final order in this matter, Respondent R K Sanders, Inc.’s License No. ROC242682, Class B-1 be suspended until Respondent has paid $6,378.34 to Complainant S K F Tile and Stone, L.L.C. It is further recommended that if prior to the effective date of the Registrar’s final order, the Registrar receives satisfactory proof in writing from Respondent that it has paid Complainant $6,378.34 by certified or cashier’s check, the Registrar not suspend Respondent’s license but, instead, close Case No. 2010-[number redacted]. 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, April 14, 2011.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] The record does not explain why Complainant’s initial complaint to the Registrar against Respondent did not include the change orders in the amount allegedly owed, but only alleged the unpaid amount under the original subcontract. [2] See 32-1101 et seq. [3] See A.R.S. § 41-1092.07(G)(2); A.A.C. R2-19-119(A) and (B)(1); see also Vazanno v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). [4] See A.A.C. R2-19-119(B)(2). [5] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [6] Black’s Law Dictionary at page 1220 (8th ed. 1999). [7] $22,100.00 (original contract amount) - $16,906.50 (Respondent’s payments) + $1,261.59 (change order) + $523.25 (change order) - $600.00 (cost of Mr. Fox’s repairs) = $6,378.34

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