ALJDEC decisions subject to certification as final

2010A-308477077-ROC · Registrar of Contractors · 2011-07-05

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: June 21, 2011, at 8:00 a.m. APPEARANCES: Complainant Architectural Millwork Design, Inc. appeared through Jim Goergen, its chief executive officer; Respondent R K Sanders, Inc. appeared through David Curtiss, its project manager. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedure In May 1995, the Arizona Registrar of Contractors (“the Registrar”) issued License No. ROC107540, Class L-60 for commercial finish carpentry to Architectural Millwork Design, Inc. (“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 12, 2010, the Registrar received a complaint from Complainant against Respondent that alleged that the parties had a subcontract for Complainant to manufacture and install millwork and solid surface countertops on a project at Scottsdale Community College Performing Arts Center at 9000 East Chaparral Road in Scottsdale, Arizona (“the project”) for a total contract price of $48,459.00. The complaint alleged further that Respondent paid Complainant $15,180.64, but withheld the remaining $33,278.36 that was due. Complainant attached to its complaint copies of Specification 06 40 23 for Interior Architectural Woodwork, its proposal, and the parties’ executed contract. On February 15, 2011, the Registrar issued a Citation and Complaint against Respondent, charging violations of A.R.S. § 32-1154(A)(11) and (13), namely A.R.S. § 32-1124(B). Respondent filed a timely written answer to the Citation and Complaint, denying any statutory violation. Respondent’s written answer alleged two affirmative contractual defenses: (1) The parties’ contract did not include the terms of Complainant’s proposal; and (2) Complainant delayed progress or performance of its contract, entitling Respondent to indemnification from Complainant. The Registrar referred the matter to the Office of Administrative Hearings, an independent agency, for an evidentiary hearing. A hearing was held on June 21, 2011. Complainant submitted two exhibits, including one exhibit that consisted of numerous photographs, and presented the testimony of two witnesses: (1) Rod Laughlin, Complainant’s qualifying party and project superintendent; and (2) Jim Goergen, Complainant’s chief executive officer. Respondent submitted four exhibits and presented the testimony of two witnesses: (1) Robert Kevin Sanders, Sr., Respondent’s qualifying party and president; and (2) David Curtiss, Respondent’s project manager. Hearing Evidence The project consisted of a substantial remodel of the Scottsdale Community College Performing Arts Center, including a lobby. Respondent was the general contractor on the project. The owner of the project was Maricopa County Community College District (“MCCCD”). On or about February 9, 2010, Complainant submitted a proposal to Respondent for millwork and fiberglass on the project, setting forth the amount of $41,969.00 for millwork and quartz. The proposal also included “Add alternatives” for three fiberglass panels in the lobby for the additional amount of $6,813.00. Respondent prepared the contract, based on its form. On or about May 7, 2010, Complainant signed Respondent’s form contract, requiring Complainant to supply material and labor to accomplish the work described in the specifications section 604023[1] for “Interior Architectural Woodwork & All Fiberglass panels with hardware complete in place” for a contract price of $48,782.00, the total of the amounts set forth on Complainant’s proposal. Respondent’s form contract did not include its license number preceded by the acronym “ROC.” Neither party submitted at hearing the specifications to which their contract referred. Specification 06 40 23 for Interior Architectural Woodwork did not describe any fiberglass. Respondent’s form contract incorporated by reference certain documents, “in descending order of precedence,” including the Subcontract, the Articles of Construction, and the Project Specifications. The enumerated documents did not include Complainant’s proposal. Article 9 of Respondent’s form Articles of Construction provided in relevant part as follows: If [Complainant] should delay or threaten to delay the progress or performance of its Contract, or cause any actual or potential damage or liability to [Respondent], [Complainant] may be deemed in breach of this Contract, and shall indemnify and hold [Respondent] harmless from all liability and costs. [Complainant] shall bear the costs of all damages done to others and shall be responsible to same of any damages caused by or resulting from acts and omissions of [Complainant]. . . .

Mr. Laughlin testified that Complainant’s proposal for the fiberglass panels contemplated the use of in-stock colors that were readily available because no specifications described the fiberglass. In May 2010, Complainant submitted control samples for the millwork to Respondent, and was able to start the millwork portion of the project. During Complainant’s performance of the millwork portion of the project, the parties agreed on 12 change orders relating to the millwork that added a total of $6,140.00 to the contract price.[2] Complainant completed the millwork. Respondent did not complain about the quality of the millwork or allege that Complainant refused to perform punchlist or warranty work on the millwork. In July 2010, the architect provided Complainant with paint swatches of the color that he desired for the fiberglass. Within 48 hours, Complainant fabricated a fiberglass sample and submitted it to the architect. The architect also added several additional fiberglass panels to the project that were not on Complainant’s proposal. Because the fiberglass that the architect proposed was a custom color and because the architect required additional fiberglass panels for the project, Complainant submitted a change order to Respondent for the additional amount of $4,000.00. On August 11, 2010, the architect informed Respondent that he rejected Complainant’s change order. Respondent did not inform Complainant that the architect had rejected Complainant’s change order, and Complainant never received an approved sample of the fiberglass. On August 12, 2010, Respondent entered into a subcontract with Lentech Composites (“Lentech”) for it to supply the fiberglass on the project, for the contract price of $10,364.00. On August 13, 2010, Respondent issued a 24-hour notice to Complainant to complete its subcontract by fabricating and installing the fiberglass panels. Complainant submitted photographs taken of the project in August and September, which showed that the project was incomplete and not ready for the installation of the fiberglass panels. The stairway in the lobby, where a fiberglass panel was to be installed, was not constructed until October 2010. On August 19, 2010, Respondent entered into a subcontract with Styles Brothers Custom Millwork, Inc., License No. ROC159529, Class K-60 (“Styles Brothers”), to install the fiberglass panels, for the contract price of $3,500.00. Mr. Sanders testified that with change orders, Respondent paid Lentech and Styles Brothers $22,990.55 for fiberglass on the project, and argued that Respondent was entitled to a credit in this amount from Complainant. Respondent’s contract with the owner required the project to be substantially complete by August 31, 2010. The project was not substantially complete until January 2011. Mr. Sanders testified that Respondent had potential exposure for over $200,000.00 in liquidated damages for the delay, but had settled with MCCCD for only $40,000.00 in liquidated damages. According to the Registrar’s record, Respondent’s license was current and in good standing on the day of the hearing. CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[3] Complainant bears the burden of proof and must establish Respondent’s statutory violations by a preponderance of the evidence.[4] Respondent bears the burden to establish affirmative defenses by the same evidentiary standard.[5] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[6] 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. Respondent argued at the hearing that the parties’ contract did not incorporate Complainant’s proposal and allocated the risks of higher fiberglass prices and additional fiberglass panels to Complainant. Respondent did not reference any language in the contract that allocated those risks to Complainant. Because neither the contract, Specification 06 23 for Interior Architectural Woodwork, nor any other document submitted mentioned fiberglass panels, the contract was ambiguous with respect to the scope of work for fiberglass. Ambiguities in a contract are construed against the drafter, in this case, Respondent.[7] Complainant’s proposal is the only document that either of the parties submitted that contained any description of the fiberglass panels. The parties’ contract incorporated the dollar amount of Complainant’s proposal. Therefore, the contract cannot be construed to require Complainant to fabricate as many fiberglass panels in whatever color Respondent and the architect required for the contract price. The contract must be construed as setting forth the agreed value of the millwork that Complainant completed as the amount in the proposal, plus change orders. Respondent did not establish that Complainant abandoned its performance of the contract or delayed completion of the project. Rather, Complainant established that Respondent failed to cooperate with Complainant to obtain the fiberglass specifications that it needed from the architect. Complainant also established that Respondent issued the 24-hour notice as a pretext to terminate Complainant’s subcontract and to avoid paying the monies that were owed to Complainant for the millwork that it had already completed. Therefore, Complainant established that Respondent violated A.R.S. § 32- 1154(A)(11)[8] by failing to pay Complainant $32,928.36.[9] Complainant also established that Respondent violated A.R.S. § 32- 1154(A)(13), namely A.R.S. § 32-1124(B),[10] by failing to include its license number, preceded by the acronym “ROC” on its form contract. 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 $32,928.36 to Complainant Architectural Millwork Design, Inc. and Respondent has modified the documents that it uses in its contracting business to comply with the requirements of A.R.S. § 32-1124(B). It is further recommended that the Registrar not suspend Respondent’s license but, instead, close Case No. 2010-[number redacted] if prior to the effective date of the Registrar’s final order, the Registrar receives satisfactory proof in writing from Respondent of the both of the following: 1) Respondent has paid Complainant $32,928.36 by certified or cashier’s check; and 2) Respondent has modified its form contract and all the other documents used in its contracting business to show its license number preceded by the acronym “ROC.” 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, July 5, 2011. /s/ Diane Mihalsky Administrative Law Judge Transmitted electronically to: William A. Mundell, Director Registrar of Contractors ----------------------- [1] Respondent’s contract appears to have transposed the first two numbers of Specification 06 40 23 for Interior Architectural Woodwork for the project. [2] See Attachment to Respondent’s Exhibit 1. [3] See 32-1101 et seq. [4] 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). [5] See A.A.C. R2-19-119(B)(2). [6] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [7] See, e.g., United California Bank v. Prudential Insurance Co.,140 Ariz. 238, 260, 681 P.2d 390, 412 (App. 1983). [8] 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.” [9] The payment owed was calculated as follows: $41,969.00 (cost of millwork in proposal) + $6,140.00 (approved change orders relating to millwork) - $15,180.64 (payment) = $32,928.36 . [10] A.R.S. § 32-1154(A)(13) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[f]ailure in any material respect to comply with this chapter.” A.R.S. § 32-1124(B) requires that licensed contractors include their license number “preceded by the acronym ‘ROC’” on “all written bids submitted by the licensee and . . . on all advertising, loan forms, lending institution forms, letterheads and other documents used by the licensee in the conduct of business regulated by this chapter.”

-----------------------

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