ALJDEC decisions subject to certification as final

2012A-2103-ROC · Registrar of Contractors · 2013-07-03

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: June 10, 2013, at 8:00 a.m. This matter was held open until June 17, 2013, to allow the parties sufficient time to complete their negotiations. APPEARANCES: Southwest Hazard Control Inc. (hereinafter “Complainant”) appeared through its Environmental Services Officer, James Faas. Bison Contracting Co. Inc. (hereinafter “Bison” or “Respondent”) appeared through its Vice-President, Terx Surkala. ADMINISTRATIVE LAW JUDGE: M. Douglas _____________________________________________________________________

Evidence and testimony were presented and the following Findings of Fact, Conclusions of Law, and Recommended Order are made: FINDINGS OF FACT The March 22, 2013 Order of the Registrar of Contactors provided as follows: On November 7, 2012, Respondent filed a timely Petition for Rehearing in this matter with the Registrar on the grounds that the Registrar’s October 4, 2012 Default Decision and Order violated Respondent’s right to due process. Respondent maintained that it failed to file a timely written Answer because it never received the July 6, 2012 Citation and Complaint, thus Respondent has been deprived of an opportunity to present its valid defenses to the violations alleged in the Citation and Complaint. In support of its contention, Respondent attached to its Petition the affidavit of Respondent’s regular mail carrier asserting that in his experience, Respondent has never refused to accept or to sign for any certified mail. Respondent further requested that the Default Decision and Order be set aside and that Respondent be given the reasonable opportunity to be heard.

On or about November 19, 2012, Complainant filed its Response in objection to Respondent’s Petition.

Upon review and consideration of Respondent’s Petition for Rehearing and Complainant’s Response in objection thereto, as well as the entire record in this matter, with good cause appearing and in the interest of justice, IT IS ORDERED that the Registrar’s October 4, 2012 Default Decision and Order is QUASHED.

Bison is the holder of License No. A.106559-C issued by the Registrar of Contractors. This is a commercial matter wherein the parties entered into a contract on or about April 18, 2011, for Complainant to remove lead paint striping on the Payson to Showlow Highway (SR 260) for the total sum of $64,756.94.[1] At the conclusion of the construction project, Bison paid Complainant the sum of $48,259.19. Bison withheld the remaining $16,497.75 based on its assertion that Complainant had caused extra costs in the construction project. Complainant demanded that Bison pay the remaining $16,497.75. When Bison refused, Complainant filed a formal Complaint against Bison with the Registrar of Contractors. The parties were unable to resolve their differences and Complainant requested an administrative hearing. James Faas (hereinafter “Mr. Faas”) testified that Complainant fully completed the removal of the lead paint striping in accordance with the terms of the parties’ contract. Mr. Faas stated that Complainant’s paint removal work was inspected and approved by the Arizona Department of Transportation (hereinafter “ADOT”) and Bison. Mr. Faas testified that ADOT fully paid Bison for the paint removal work performed by Complainant. Mr. Faas testified that ADOT mandated that contractors utilize one of five pre-approved subcontractors for the construction project at issue.[2] Mr. Faas stated that Complainant was one of the lead abatement contractors listed. Mr. Faas testified that Complainant’s first invoice was rejected by ADOT. Mr. Faas stated that Complainant’s first invoice was rejected because Bison failed to inform Complainant that its invoices would need to include a detailed time-and-materials breakdown. Mr. Faas testified that Bison was not cooperative with Complainant. Mr. Faas testified that there was no schedule of completion for the construction project. Mr. Faas stated that the only documentation of an agreed-upon schedule was an email chain that stated the lead paint removal work would be completed in three long days.[3] Mr. Faas testified that Complainant utilized Road Marking Inc (hereinafter “RMI”)[4] as a lower-tier subcontractor on the construction project. Mr. Faas stated that Bison and ADOT were fully aware of the fact that RMI was working on the construction project, as shown on ADOT’s daily log for May 3, 2011.[5] Mr. Faas testified that Complainant did not cause any delays in completing the construction project. Mr. Faas stated that the construction project was completed in three days. Mr. Faas testified that Bison’s sole contractual remedy for inadequate performance or lack of performance is set forth in the parties’ construction agreement. Mr. Faas testified that RMI was recalled to the project three days after it initially completed its work by ADOT to perform additional work on the highway. Mr. Faas stated that ADOT required RMI to perform additional work, not warranty work. Mr. Faas testified that ADOT paid RMI for the additional work. Mr. Faas testified that the parties had agreed that the sum of $1,700.00 was the daily amount for liquidated damages due to the difficulty in and impracticality of determining actual damages. Mr. Faas stated that the maximum amount that Bison could withhold from the final amount due and owing to Complainant for any delays at the construction project was the sum of $6,800.00 for the five days that Complainant took to complete the construction project. Mr. Faas testified that RMI was a licensed contractor in 2011. Mr. Faas stated that RMI was a fully qualified subcontractor. Mr. Faas stated that the construction work completed by RMI was accepted by ADOT and by Bison after it was corrected by Complainant. Mr. Faas denied that Complainant had represented to Bison that Complainant was renting RMI’s equipment. Mr. Faas denied that Complainant had represented to Bison that RMI’s employees were working directly for Complainant. Terx Surkala (hereinafter “Mr. Surkala”) testified that Complainant had represented that it was renting equipment from RMI and that Complainant had retained workers from RMI to work directly for Complainant as employees. Mr. Surkala testified that Bison was unaware that Complainant was using RMI as a lower tier subcontractor for the Payson to Showlow highway project until the project was nearly completed [6] Mr. Surkala testified that RMI was not qualified and not approved to perform construction work on the highway project. Mr. Surkala stated that every sub-tier contractor has to be approved by ADOT for the specific construction project before the sub-tier contractor can perform work on an ADOT construction project. Mr. Surkala testified that the back charges assessed against Complainant were based on the extra work that had to be performed by Bison and Bison’s subcontractors to correct the work performed by Complainant and RMI. Mr. Surkala testified that there was a written schedule given to Complainant at the beginning of the construction project. Mr. Surkala stated that Bison had numerous discussions with Complainant about the schedule during the construction project. Mr. Surkala testified that Bison expected Complainant to complete the construction project within four working shifts. Mr. Surkala testified that the liquidated damage provision in the written contract was not applicable to the back charges against Complainant because Bison spent additional money to complete the construction project on time. Mr. Surkala stated that Bison suffered direct damages because Bison worked twenty hour days and brought in additional subcontractors in order to complete the construction project in a timely manner to avoid liquated damages being imposed by ADOT against Bison. Mr. Surkala testified that last paragraph of section six of the parties’ contract allows Bison to assess back charges against Complainant. Mr. Surkala stated that the contract specifically allowed Bison to impose its costs plus 15%. Mr. Surkala stated that the back charges imposed against Complainant consisted of Bison’s direct costs of employing several subcontractors and for Bison’s additional labor costs to complete the construction project in a timely manner. Mr. Surkala stated that Bison did not add its administrative costs to the back charges that it assessed against Complainant. Mr. Surkala acknowledged that RMI was approved by ADOT on or about September 22, 2011.[7] Mr. Surkala stated that the approval was obtained “long after the work was performed.” Virginia Rush (hereinafter “Ms. Rush”) testified that she is a division manager for Complainant. Ms. Rush testified that she prepared the estimate for the removal of lead paint from the Payson to Showlow Highway. Ms. Rush stated that she decided to retain RMI as a subcontractor due to the production requirements imposed by Bison. Ms. Rush testified that she had not worked with RMI previously. Ms. Rush testified that Bison provided the contact information for RMI. Ms. Rush stated that she picked RMI because Bison recommended that she utilize RMI. Ms. Rush testified that she issued an e-mail to Bison on April 29, 2011, stating that Complainant was going to rent a second machine to increase production in an attempt to satisfy Bison’s demands.[8] Ms. Rush stated that she did not recall receiving a written schedule for completion from Bison. Ms. Rush testified that she discussed production rates with Bison several times. Ms. Rush acknowledged that production rates and scheduling are similar concepts. Ms. Rush denied that she asked Bison for a recommendation for a sub-tier contactor. Ms. Rush testified that she could not recall a discussion regarding the specific number of days that Complainant would take to complete the construction project. Ms. Rush testified that she issued an email on April 22, 2011, to Bison stating that with two machines running, Complainant’s production would be about twenty thousand linear feet per day.[9] Ms. Rush stated that Complainant completed the construction project in three days. Ms. Rush testified that she first became aware of Bison’s dissatisfaction on May 18, 2011. Ms. Rush stated that Complainant returned to the construction project and made another “pass” over the stripes. Ms. Rush testified that her understanding at the start of the construction project was that she would rent equipment from RMI and that RMI employees would work directly for Complainant. Ms. Rush acknowledged that on or about May 6, 2011, ADOT initially rejected portions of Complainant’s completed construction work. Ms. Rush testified that Complainant received e-mails with attached photographs from Bison indicating that there were problems with the completed construction work.[10] Ms. Rush stated that Complainant corrected the unsatisfactory areas that Bison was dissatisfied with on the fifth day of work. Ms. Rush testified that ADOT did not actually reject Complainant’s work. Ms. Rush stated that ADOT “expressed concerns” about Complainant’s work. Chrissann Karches (hereinafter “Ms. Karches”) testified that she is an officer and owner of Complainant. Ms. Karches stated that she first became aware of the back charges imposed by Bison when Complainant received a conditional waiver and lien release on final payment that was $16,497.75 less than the amount that was billed by Complainant. Ms. Karches testified that she received the reduced payment nearly one year after the construction work was complete. Ms. Karches stated that she had repeated e- mail conversations with Bison and ADOT over an extended period of time and that there was not any discussion of alleged back charges. Ms. Karches testified that she believed that the back charges imposed by Bison were based on alleged delays in the construction project caused by Complainant.[11] Ms. Karches testified that she agreed to whatever changes Bison and ADOT requested.[12] Ms. Karches stated that the final invoice from Complainant for the construction project was approximately $20,000.00 less that the first invoice that was prepared by Complainant. Ms. Karches stated that she knew that Bison had been fully paid for Complainant’s work by ADOT. Ms. Karches testified that she authored a written communication to ADOT asking for ADOT’s assistance in obtaining full payment from Bison.[13] Ms. Karches stated that Complainant prepared the invoice as directed by Bison and that Bison then passed the invoice through to ADOT. Ms. Karches testified that she assumed that Bison agreed with the invoice because it passed the invoice through to ADOT without objection. Cassandra Johnson (hereinafter “Ms. Johnson”) testified that she is the office manager for Bison. Ms. Johnson stated that she had previously been president of Bison. Ms. Johnson testified that one of the long delays in presenting final payment was caused by problems in the certified payroll documents submitted by Complainant and RMI. Mr. Surkala testified that he was Bison’s senior project manager for the Payson to Showlow Highway construction project. Mr. Surkala stated that the alleged violation of A.R.S. § 32-1124(B) was based upon the fact that Complainant had forwarded only a portion of the actual back charges to the Registrar of Contractors. Mr. Surkala testified that the cover page of the actual back charges does have Bison’s ROC license number on it.[14] Mr. Surkala testified that Bison did not realize that RMI was a sub-tier subcontractor on the project for all of the construction work that was being performed by Complainant. Mr. Surkala stated that it quickly became apparent that Complainant was not going to be able to complete its obliteration work in the agreed-upon amount of time. Mr. Surkala testified that initially, Complainant started its obliteration work going in the wrong direction. Mr. Surkala testified that approximately four and one-half hours into the first day of construction, Complainant’s equipment broke down. Mr. Surkala stated that Bison had to sustain the flag and support operations while Complainant repaired the rig. Mr. Surkala testified that ADOT refused to pay for the costs of the flag and support operations incurred during the time the equipment was being repaired. Mr. Surkala stated that Bison was forced to run flag stations and a pilot truck during the down time. Mr. Surkala testified that Complainant was unable to repair the rig on the first day and Bison had to pay to have the barrier relocated. Mr. Surkala stated that the majority of the back charges were caused by two events. Mr. Surkala testified that the first event was that Complainant obliterated markings that were not supposed to be obliterated. Mr. Surkala stated that Bison had to re-stripe the stripes that were mistakenly obliterated by Complainant. Mr. Surkala testified that ADOT refused to pay for the re- striping work. Mr. Surkala testified that on the second day, Complainant again obliterated striping that was not supposed to be obliterated. Mr. Surkala stated Bison had to bring in a subcontractor to repaint the obliterated striping. Mr. Surkala testified that the areas that were supposed to be obliterated were clearly marked by Bison. Mr. Surkala testified that Complainant was notified onsite that Complainant would be back charged for Bison’s additional costs incurred as a result of Complainant’s equipment problems and obliterating work that was not supposed to be obliterated. Mr. Surkala stated that ADOT notified Complainant on a daily basis of the problems with the work performed by Complainant. Mr. Surkala testified that the equipment utilized by Complainant did not operate in a satisfactory manner. Mr. Surkala stated that he still thought that the obliteration work was being performed by Complainant with equipment rented from RMI. Mr. Surkala testified that Bison became aware of RMI status as a sub-tier subcontractor after the initial work was completed. Mr. Surkala testified that the back charges assessed to Complainant were solely based on the times when ADOT cut Complainant off of the “force account” for the problems at the construction site. Mr. Surkala stated that all of Bison’s support crews and subcontract crews for the flagging, piloting, and barricade work were then also cut off from being paid by ADOT. Mr. Surkala testified that the back charges are based on Bison’s direct costs incurred as a result of Complainant’s production and equipment problems.[15] Mr. Surkala testified that Bison had to pay for Bison’s support crews and subcontract crews despite that fact that ADOT refused to pay for the additional costs caused by Complainant’s repeated production and equipment problems. Mr. Surkala stated that Bison paid an additional $8,054.42 to its support crews and subcontract crews for additional work caused by Complainant’s production and equipment problems. Mr. Surkala testified Bison was required to pay its workers an additional $5,885.40 for additional labor caused by Complainant’s production and equipment problems. Mr. Surkala stated that Bison was required to spend an additional $587.61 for the use of its own equipment and pay an additional $1,970.32 for rental equipment because of Complainant’s production and equipment problems. Mr. Surkala testified that Bison did back charge Complainant for all of the additional costs to Bison caused by Complainant’s production and equipment problems. CONCLUSIONS OF LAW The burden of proof at an administrative hearing falls to the party asserting a claim, right, or entitlement and the standard of proof on all issues in these matters is by a preponderance of the evidence. See 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). There was no credible evidence presented to establish that Bison violated the charged provision of A.R.S. § 32-1124(B).[16] This Tribunal concludes that Complainant failed to meet its burden of proving by a preponderance of the evidence that Bison violated the charged provision of A.R.S. § 32- 1154(A)(13),[17] namely A.R.S. § 32-1124(B). Complainant used a sub tier contractor that had not been pre-approved by ADOT. ADOT required the parties to perform corrective work at the construction site. ADOT cut Complainant off of the “force account” for the problems at the construction site. Bison’s support crews and subcontract crews that were necessarily involved in the continuing flagging, piloting, and barricade work at the construction project were then also cut off from being paid by ADOT. Bison was required to pay for those costs. This Tribunal concludes that Complainant failed to meet its burden of proving by a preponderance of the evidence that Bison violated the charged provision of A.R.S. § 32-1154(A)(11).[18] RECOMMENDed order In view of the foregoing, it is recommended that this Citation, together with the Complaint that it is based upon, be dismissed. In the event of certification of this 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 the certification Done this day, July 3, 2013.

/s/ M. Douglas Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors

----------------------- [1] See Exhibit No.R-1 (Subcontract Agreement). [2] See Exhibit No. R-19 (ADOT Advertisement for Bids). [3] See Exhibit No. C-3 (E-mail chain) and Exhibit No. R-14 (same). [4] Administrative notice is taken of Road Marking Inc’s prior license record as reflected on the Registrar of Contractors’ public website June 27, 2013. Such prior license record reflects that License No. AE-103593-C was suspended for non-renewal on 08/01/12 and suspended for lack of bond on 08/24/12. [5] See Exhibit No. R-11 (ADOT Force Account Daily Report). [6] See Exhibit R-5 (9/22/11 Letter). [7] See Exhibit No. C-9 (Subcontractor Request Form). [8] See Exhibit No.R-14 (4/29/11 E-mail). [9] See Exhibit No. R-12 (4/22/11 E-mail). [10] See Exhibit No. R-16 (5/6/11 E-mails from Bison with photographs of allegedly unsatisfactory work). [11] See Exhibit No. C-15 (Summary of back charges). [12] See Exhibit No. C-12 (Email chain starting April 3, 2012). [13] See Exhibit No. R-17 (Undated letter). [14] See Exhibit R -8 (Subcontract Invoice). [15] See Exhibit R -8 (9/01/11 Subcontractor invoice). [16] A.R.S. § 32-1124(B) provides, in pertinent part, as follows:

Licenses issued under this chapter and any renewals shall be signed by the registrar or the registrar's designated representative and by the licensee. The license shall be nontransferable, and satisfactory evidence of possession shall be exhibited by the licensee upon demand. The license number appearing on any licenses held by the licensee shall be preceded by the acronym "ROC" and shall be posted in a conspicuous place on premises where any work is being performed, shall be placed on all written bids submitted by the licensee and shall be placed on all broadcast, published, internet or billboard advertising, letterheads and other documents used by the licensee to correspond with the licensee's customers or potential customers in the conduct of business regulated by this chapter. A violation of this subsection relating to posting and placement of license numbers shall be, at the discretion of the registrar, grounds for disciplinary action pursuant to section 32-1154, subsection A, paragraph 13, but not grounds for preventing the award of a contract, voiding an awarded contract, or any other claim or defense against the licensee. For the purposes of this subsection, advertising does not include a trade association directory listing that is distributed solely to the members of the association and not to the general public.

[17] 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.” [18] A.R.S. § 32-1154(A)(11) includes among the grounds for disciplinary action against a contractor’s license, failure by a licensee or agent or official of 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.

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