ALJDEC decisions subject to certification as final

2011A-3654-ROC · Registrar of Contractors · 2011-12-08

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: The evidentiary hearing was conducted on October 28, 2011. The record was kept open until November 14, 2011, to permit the parties to file written closing briefs. APPEARANCES: U K Electric, L.L.C. was represented by its attorney, James F. Wees, Esq. Haugebak Construction Company was represented by its attorney, Edward Rubacha, Esq. ADMINISTRATIVE LAW JUDGE: Brian Brendan Tully _____________________________________________________________________ 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. U K Electric, L.L.C. (“Complainant”) is the holder of License No. 226914, a Class K-11 contracting license issued by the Registrar of Contractors (“Registrar”). 2. Haugebak Construction Company (“Respondent”) is the holder of License No. 102221, a Class B-1 contracting license issued by the Registrar. 3. On June 24, 2011, Complainant filed a written Complaint with the Registrar alleging nonpayment by Respondent for electrical work performed by Complainant on a Pro’s Ranch Market #6 remodeling project (“Project”) in Glendale, Arizona. Complainant’s Complaint alleged that Respondent owed Complainant the sum of $360,175.35 for electrical work performed on the Project. The Registrar designated the Complaint as Case No. 2011-3654. 4. The Registrar issued a Citation and Complaint in Case No. 2011-3654 charging Respondent with violating the provisions of A.R.S. § 32- 1154(A) (11). 5. The Registrar forwarded Case No. 2011-3654 to the Office of Administrative Hearings, an independent agency, for an evidentiary hearing. 6. On or about December 23, 2009, Respondent entered into a written agreement with Prodigio Mercado, L.L.C. (“Owner”) for the Project (“Agreement”). Complainant was not a party to that Agreement. 7. The Agreement specified a commencement date of January 18, 2010, and substantial completion no later than 152 days from commencement. 8. Owner’s representative on the Project was Ronald Pepper. 9. Respondent submitted a Subcontract dated January 7, 2010, for electrical scope of work on the Project to Complainant, who accepted the Subcontract on January 12, 2010. The total contract price for the electrical scope of work was $551,283.00. That amount was based upon the original plans for the Project. 10. Complainant and Respondent had a working relationship prior to the Project. 11. Although there is evidence that Complainant’s bid for the electrical scope of work was approximately $200,000.00 less than the next two bidders, there is no credible evidence that Complainant underbid the Project. Respondent accepted Complainant’s bid. 12. The evidence of record established that the parties had an agreement that extra work would be performed at an additional labor charge of $40.00 per hour. 13. A change was negotiated and a second contract was entered into by the parties, eliminating certain alarm system work. The contract price was lowered to $534,503.00 based upon a projection by Complainant of 9,836 man-hours for the new scope of electrical work. 14. On May 10, 2010, Complainant and Respondent executed another Subcontract dated May 10, 2010, that further amended the original Subcontract’s scope of work. The new contract price was $157,500.03 for the following scope of work: “Contract buyout for 5/11 Ranch closing continuing contract amt.” 15. After the May 10, 2010 Subcontract, the Owner dramatically changed the scope of work for the Project. For example, a “switchgear” or “service entrance” for the main electrical equipment was relocated, as well as changes made to the interior of the store. 16. New plans were provided months after the May 10, 2010 Subcontract, known as Delta 7 and Delta 8. Complainant was required to revise its scope of electrical work and perform its work according to the new plans. 17. The parties did not execute a new contract or change order for the new plans. Respondent directed Complainant to perform the new scope of work and stated that arrangements for payment would be made later. 18. As of the substantial completion date set forth in the Agreement, Complainant had expended approximately 6,225 man-hours, leaving approximately 3,600 man-hours of work Complainant projected for the Project after June 30, 2010. 19. On August 2, 2010, there was a major Project meeting conducted concerning the revised plans. 20. By letter dated August 2, 2010, Respondent’s project manager, Joe Manning, notified Complainant that it had 72 hours to bring Complainant’s scope of electrical work up to schedule. However, the only agreed-upon schedule expired on June 17, 2010. 21. The electric utility, Salt River Project (“SRP”), had not approved the electrical installation as of September 2010, and Complainant was required to address SRP’s approval regarding equipment supplied directly by Owner. 22. Although the original completion date was June 17, 2010, Complainant could not, and did not, complete the electrical scope of work until December 2010. The delay was attributable to Owner’s changes that Respondent directed Complainant to perform. 23. The evidence of record established that Respondent directed Complainant to proceed with extra work beyond the original scope of the Project. 24. Respondent has not alleged that Complainant did not complete the electrical scope of work in a workmanlike manner. 25. Complainant submitted change orders to Respondent for the additional scope of work performed. The change orders were in the format that Complainant had regularly used on previous jobs with Respondent, who generally accepted such format for payment to Complainant. However, Mr. Perry rejected those change orders and required substantial backup documentation. Complainant then resubmitted the change order applications with detailed documentation as requested. 26. Ultimately, Mr. Pepper informed Complainant that Owner would not pay anything to Complainant other than the May 10, 2010 Subcontract, despite the following factors: 1) the May 10, 2010 Subcontract scope of work was based upon the original and subsequent changes up to that date; 2) the May 10, 2010 Subcontract did not include in the contract price the scope of work for the Delta 7 and Delta 8 plans; 3) Respondent was contractually obligated to pay Complainant, not Owner; and 4) Owner, through Mr. Pepper, made frequent demands for extra labor for work after the original completion date of June 17, 2010. 27. The evidence of record established that Complainant is entitled to payment from Respondent in excess of $750.00 for work performed by Complainant at Respondent’s direction from July 1, 2010, until completion of its work in December 2010. Complainant contends that it is owed the outstanding balance of $335,848.41 for additional labor and expenses incurred after July 1, 2010, and after its completion of the scope of work under the May 10, 2010 Subcontract. Respondent contends that Complainant has been overpaid but at hearing presented testimonial evidence from Butch Beck, who is one of Complainant’s competitors, who stated that Complainant was owed $30,000.00. The exact amount owed to Complainant from Respondent should be determined in a civil court of competent jurisdiction rather than this disciplinary proceeding before the Registrar. 28. A review of the Registrar’s official electronic licensing records reveals only the instant Complaint listed against Respondent’s contracting license. However, the evidence of record established that Respondent’s conduct in this matter warrants serious disciplinary action by the Registrar. CONCLUSIONS OF LAW 1. The Registrar has jurisdiction over Respondent and the subject matter in this case. 2. Pursuant to A.A.C. R2-19-119(B), Complainant has the burden of proof in this matter. The standard of proof is by a preponderance of the evidence. A.A.C. R2-19-119(A). 3. Respondent violated the provisions of A.R.S. § 32-1154(A) (11), as charged in the Citation and Complaint issued by the Registrar. The evidence of record established that Respondent owes Complainant an outstanding debt significantly in excess of $750.00. Respondent’s conduct in this matter warrants serious disciplinary action for committing the above-described statutory violation. RECOMMENDED ORDER Respondent’s License No. 102221 shall be suspended for 30 days followed immediately by a period of disciplinary probation for 365 days commencing on the effective date of the Order entered in Case No. 2011- 3654. In addition to the above-provided disciplinary penalties, any restoration of Respondent’s rights to resume contracting, whether or not probationary, shall be subject to a condition that Respondent first post an additional surety bond, cash deposit, or alternative deposit for a period of 24 months, including future renewal periods, in the amount of $10,000.00, such bond or deposit to be in addition to the required surety bond or cash deposit for Respondent’s Class B-1 contracting license. Cash or alternative additional deposits, if utilized, shall be returned only after the expiration of an additional two-year period following the above- provided 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 8, 2011.

/s/ Brian Brendan Tully Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors -----------------------

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