ALJDEC decisions subject to certification as final

2011A-5747-ROC · Registrar of Contractors · 2012-04-11

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: March 21, 2012

APPEARANCES: Complainants appeared on their own behalf; Respondent was represented by Joel E. Sannes, Esq., Lake & Cobb, PLC, accompanied by corporate Vice President Robert Edward Winkelbauer and Qualifying Party Edwin Winkelbauer.

WITNESSES: Mark Alyea, Registrar of Contractors Inspector Karen Swain Robert Winkelbauer

ADMINISTRATIVE LAW JUDGE: Eric A. Bryant _____________________________________________________________________

Complainants bring this action against Respondent alleging abandonment of the project, poor workmanship, failure to follow plans and specifications, and failure to comply with a Corrective Work Order with regard to an addition to their home and a remodel of a portion of the existing home done by Respondent. Respondent denies the allegations and raises an affirmative defense under the Arizona Prompt Pay Act. This tribunal entered the complaint file received from the Registrar of Contractors (Registrar) into the record. At the hearing, the parties presented evidence, including admitted Exhibits A through M, submitted by Complainants, and admitted Exhibits 1 through 21, submitted by Respondent. The parties also presented testimony from the witnesses listed above. Based upon the entire record, the Administrative Law Judge makes the following Findings of Fact, Conclusions of Law, and Recommended Order finding that Respondent did not abandon the project without legal excuse, did not materially deviate from the plans in a manner that prejudiced Complainants, and that Respondent must complete the job and correct any workmanship issues only if Complainants pay the amount due as found below. FINDINGS OF FACT 1. Respondent is the holder of License No. KB-2.153951-D, a dual residential and small commercial contractor’s license issued by the Registrar. The license authorizes Respondent to perform general residential and general small commercial construction. The Abandonment Claim 2. On March 1, 2011, Complainants hired Respondent to build an addition onto their house in accordance with architectural plans that Complainants had procured. The written agreement called for the project to be substantially completed “approximately 16 weeks from receipt of permit.”[1] The agreement was a fixed-price contract that called for progress payments to be made based on completion of six specified phases of the project. In addition, the agreement allowed for written change orders.[2] 3. Respondent obtained a permit on April 25, 2011.[3] This initially gave Respondent until late August 2011 to complete the work described in the contract. However, the scope of work of the project increased as the work proceeded. Complainants added replacement of the existing roof due to hail damage and remodeling of a bathroom to the scope of work. In addition, Complainants agreed to six change orders on the project, which included the replacement of a retaining wall and installation of new ductwork. These additions and changes necessarily extended the time for completion of the project. 4. The project began in late April 2011 and progressed through May, June, July and August. Complainant Karen Swain testified that Complainants made progress payments in May and June even though she felt that the phases she was paying were not complete and that Respondent was behind schedule.[4] 5. In early August 2011, work was progressing and the parties were working out cost details on the bathroom remodel.[5] In late August 2011, both parties became concerned about the other’s ability to complete the agreement. Respondent began asking Complainants, in correspondence about the project, about forthcoming payments.[6] Complainants did not respond to those inquiries. Most of the progress payments had been made. The remaining balance included portions of two payments for the last two phases (sheetrock/stucco and texture/trim/cabinets) and all of the retention payment that was due upon completion.[7] In addition, some of the change order work and additional work had not been paid for.[8] In September 2011, Complainants met with the roofing subcontractor and created a punch list for completion of the roof work.[9] 6. On October 3, 2011, Respondent gave Complainants a bill (hereinafter the “10/3/11 billing”) requesting payment for several items: full payment for the bathroom remodel that was complete, half payment for Change Order #5 (bedroom remodel), and full payment for Change Order #6 (garage work).[10] The next day, October 4, 2011, Complainants responded to the 10/3/11 billing with a list of sixteen items they felt were deficient throughout all of the work that Respondent had done.[11] Most of the items concerned the workmanship of work that had already been paid for in prior progress payments. Complainants told Respondent that they would pay the 10/3/11 billing once a Certificate of Occupancy (C/O)[12] was obtained.[13] 7. On October 5, 2011, Respondent emailed back to Complainants asking if payment of the entire 10/3/11 billing would be made once the C/O was issued. Respondent indicated that if so, it could call for final inspection for the C/O in a few days.[14] On October 6, 2011, Complainants sent a responding email, taking issue with part of the 10/3/11 billing, but indicating that the bathroom remodel was complete and that they owed Respondent $8,728.00 for it.[15] They also did not dispute owing the half payment for Change Order #5. They expressed confusion because no one had shown up to work on the project that day. 8. Later on October 6, 2011, Respondent sent an email back to Complainants noting that they agreed that Respondent was due half the payment for Change Order #5 and all the payment for the bathroom remodel.[16] Respondent also noted that Complainants had not responded to the question of whether Respondent would be paid once a C/O was obtained. Several days passed with no written correspondence. 9. On October 10, 2011, Complainants sent an email to Respondent noting that no work had been done and that they were dissatisfied with the progress of the project.[17] Complainants expressed belief that the project should have been completed by that time and that the lack of completion was Respondent’s fault. Complainants did not specifically address payment of the 10/3/11 billing, but indicated that they would allow Respondent access to perform work. In response, Respondent emailed Complainants with an explanation that the change order and extra work had extended the timelines for completion. Respondent also noted that Complainants had not provided the assurance of payment upon obtaining the C/O that Respondent had requested. Complainants’ short reply on October 11, 2011, stated that Complainants “have never deviated from the terms of the contract.”[18] It also indicated that Complainants expected Respondent to continue working on the project. It did not mention payment of the 10/3/11 billing. 10. Complainants filed their complaint with the Registrar on October 11, 2011.[19] 11. On October 12, 2011, Respondent sent Complainants an email asking if Complainants intended to pay the 10/3/11 billing.[20] Complainants responded by continuing to state that they were following the contract and wondering whether Respondent had the ability to finish the project. No assurances as to payment were made. 12. On October 14, 2011, counsel for Respondent sent a letter to Complainants giving them notice that Respondent would suspend or terminate its performance based on non-payment under Arizona’s Prompt Pay Act found at Arizona Revised Statutes (A.R.S.) §§ 32-1129 through 32-1129.06.[21] The letter noted that Complainants had been obligated to pay Respondent the undisputed amount of $10,428.00 by October 13, 2011, but had not done so.[22] Therefore, Respondent intended to suspend performance unless payment was made within seven days of the date of the letter. If Complainants made the payment, the letter notes, Respondent would not suspend performance. 13. Complainants did not make payment. 14. Under the Prompt Pay Act, a contractor who legally suspends performance is not required to perform further work until payment is made.[23] Therefore, if Respondent’s position is correct, Respondent was not required to perform further work after October 21, 2011, until Complainants paid the undisputed amount. If Complainants paid that amount, Respondent would then be required to continue performance and address the matters listed in a Corrective Work Order (“CWO”) that was issued in this case on November 18, 2011, by Inspector Mark Alyea. Some of the items in that CWO were addressed at hearing. Workmanship Issues 15. At hearing, Complainants noted that Items 2, 11, 15, 16, 20, and in the CWO have been corrected by others.[24] None of the other items for corrective action had been addressed because Respondent had suspended work. Many of them are “punch list” type items that are typically fixed at completion of the project. 16. Respondent took issue with several of the corrective action items in the CWO. Item 4 notes that soffits were constructed with a different type of wood than called for in the plans. However, Inspector Alyea admitted that there was no functional difference in the materials used, only a difference in cost: a less expensive material was used than was called for in the plans. He testified that this could be resolved by simply giving Complainants a credit for the difference in cost. The evidence does not show that Item 4 is a material deviation from the plans that harmed Complainants, as long as a credit for the cost difference is given. 17. Items 5 and 25 of the CWO note that fascia returns on the west and east sides at the front entry are at different heights, the west side is higher than the east side. Inspector Alyea testified that it did not meet workmanship standards because it did not “look good.” He explained that it was caused because the addition had a conventional roof system and the main home had a truss system. He did not allege that the roof on the addition was not built according to plan, but that the plans created an issue that Respondent should have addressed in the field. Because Respondent did not do so, Inspector Alyea found that the result “did not look good.” He admitted that his opinion was based on aesthetics and that there was no objective standard. His opinion was that the fascia did not meet workmanship standards because it was not aesthetically pleasing. 18. No other evidence was submitted about the fascia returns. The record does not reflect a measurement of the height difference, nor is there a photograph of the area. Therefore, the Administrative Law Judge cannot determine whether the Inspector’s judgment is reasonable. Because Items 5 and 25 are based on the Inspector’s subjective judgment as to what the applicable aesthetic standard is, and because there is no other supporting evidence to support that judgment even if that standard is enforceable, these items cannot be enforced. The evidence does not support a finding that the fascia needs correction. 19. CWO item 21 orders correction of ceiling insulation for failure to follow the plans. However, Respondent noted, and the evidence shows,[25] that the plans call for the type of insulation that Respondent installed. Therefore, Item 21 is not supported by the plans. 20. Finally, Respondent challenged the Inspector’s order in CWO Item 23, concerning a change made in the window on the south side of the addition. The evidence shows that the plans called for installation of a three-panel window, but a two-panel window was installed to accommodate changes made on the interior side of that wall that left no room for a three-panel window. Although this was a deviation from the plans, it is not material and did not prejudice Complainants. CONCLUSIONS OF LAW 1. The burden of proof at an administrative hearing is generally upon a complainant.[26] Further, the standard of proof at hearing is by preponderance of the evidence.[27] Therefore, Complainants bear the burden of showing, by a preponderance of the evidence, that Respondent has violated the statutes cited in the Citation and Complaint.[28] Complainants have not met that burden. 2. The Citation and Complaint alleges violations of A.R.S. § 32- 1154(A)(1)(abandonment of a contract without legal excuse), A.R.S. § 32- 1154(A)(2)(failure to follow plans, specifications or building codes), A.R.S. § 32-1154(A)(2)(A)(3) by way of Arizona Administrative Code (A.A.C.) R4-9-108 (failure to meet minimum workmanship standards), A.R.S. § 32- 1154(A)(9)(failure to complete a project for the agreed-upon price), and A.R.S. § 32-1154(A)(2)(A)(23)(failure to comply with a CWO). The evidence does not show violation of those provisions. 3. As found above, the evidence does not show that Respondent abandoned the project without legal excuse. Respondent legally suspended performance under the Prompt Pay Act and is not required to further perform until Complainants pay Respondent the undisputed amount of $10,428.00. If Complainants do so, Respondent will be required to complete the project under the terms of the agreement. Because Respondent has legally suspended work, Respondent has not violated the other provisions cited. 4. This matter should be dismissed. RECOMMENDED ORDER Based on the foregoing, it is hereby recommended that Citation and Complaint 2011-5747 against Respondent Crest Renovations, Inc. be dismissed.

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 11, 2012.

/s/ Eric A. Bryant Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] Exhibit A. [2] Although Complainants argued that the last page of Exhibit A, a sheet entitled “The Role and Responsibilities of a General Contractor,” was part of the terms of the contract, the evidence does not support that assertion. Based on the evidence presented, the sheet is merely informational. [3] Exhibit 4. [4] It was shown at the hearing that Mrs. Swain had an erroneous belief that the project would be completed by the end of July. [5] Exhibit 6. [6] Id. [7] Exhibit 7. [8] Exhibit 10. [9] Exhibit 8. [10] Exhibit 10. [11] Exhibit 11. [12] Respondent explained that only a “green tag” is issued on final inspection of a remodel, not an actual C/O, but this Decision will use “C/O” because it is more descriptive. [13] Id. [14] Exhibit 13. [15] Exhibit 14. [16] Exhibit 12. [17] Exhibit 15. [18] Exhibit 16. [19] Exhibit 9. [20] Exhibit 17. [21] Exhibit 18. [22] This position is supported by Stonecreek Building Co. v. Shure, 216 Ariz. 36, 162 P.3d 675 (App. 2007). [23] A.R.S. § 32-1129.04(E): A contractor or subcontractor that suspends performance as provided in this section is not required to furnish further labor, materials or services until the contractor or subcontractor is paid the amount that was certified and approved, together with any costs incurred for mobilization resulting from the shutdown or start-up of a project.

[24] Because of this, those items cannot be the basis for a finding of poor workmanship due to A.R.S. § 32-1155(C). [25] Exhibit 1. [26] Utah Construction Company v. Berg et al, 68 Ariz. 285, 205 P.2d 367 (1949). [27] Smith v. Arizona Dept. of Transportation, 146 Ariz. 430, 706 P.2d 756 (App. 1985). [28] Culpepper v. State, 187 Ariz. 431, 437, 930 P.2d 508, 514 (Ct. App. 1996).

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