ALJDEC

98F-2646-ROC · Registrar of Contractors · 1998-11-17

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: October 9 and November 17, 1998 APPEARANCES: Philip Rupprecht, Attorney at Law, on behalf of the Complainant Bob Sanders, President, on October 9, 1998 and Mark Barker, Attorney at Law on November 17, 1998, on behalf of the corporate Respondent ADMINISTRATIVE LAW JUDGE: Allen Reed _____________________________________________________________________

The Complainant plumbing subcontractor and Respondent general contractor entered into a series of contracts for various projects at sundry locations in the greater Phoenix area and Gila River, Arizona, in late 1997 and early 1998. Some of the contracts were for a fixed price term, others for time and materials. Some contracts were in writing and some were oral. Work on certain contracts commenced prior to a contract being signed. The Complainant initially submitted five complaints on five different projects. At the time of the hearing, the Complainant withdrew one of the specific complaints relating to a particular project. The Respondent’s defense consists in part of the assertion that work done by the Complainant, including work on projects not at issue in the hearing or withdrawn from the hearing, was of such poor workmanship as to justify a setoff or back charge against Complainant on all projects which were the subject of a contract between the parties. FINDINGS OF FACT Three of the four contracts (projects) which are specifically at issue in this hearing were in writing with a specific price term. The specific work to be done was not set forth in the written contracts which were admitted as exhibits 1, 2, and 3. The three written contracts are referred to as Shanti (Shanti), with a price term of $17,300.00; Naval Space Command (Naval Space), with a price term of $3,000.00; and Early Childhood Center (Early Childhood), with a price term of $14,800.00. One oral contract at Sawyer Aviation (Sawyer) was for time and materials. The Complainant’s claim is that Shanti had change orders amounting to $1,025.00 for a total of $15,825.00 due on the construction. Naval Space remained at $3,000.00. Early Childhood change orders were set at $525.00 for a total of $17,825.00 due on construction. Sawyer had asserted time and materials costs of $8,249.00. The total of the costs claimed for the projects addressed at this hearing is $34,899.00. The Complainant asserts that $7,744.43 has been paid on Shanti, nothing has been paid on Naval Space, $9,342.00 on Early Childhood, and $839.00 on Sawyer. The total asserted to have been paid on the above projects is $17,925.43. Therefore, the Complainant seeks the difference between $34,899.00 and $17,925.43 ($16,973.57). The Respondent claims that the Complainant has been overpaid $12,304.00 on all contracts. Charge backs or change orders in the amount of $13,408.00 on three of the contracts at issue in this hearing are charged against the Complainant by the Respondent. The evidence in the Respondent’s Exhibit E, shows that for the four projects at issue in this hearing, the amounts owing to the Complainant even after the charge backs, are $93.00 on Early Childhood, $3,000.00 on Naval Space, $1,647.00 on Sawyer, and with a claimed overpayment to the Complainant on Shanti of $2,370.00 for a total admitted as owing to the Complainant on those projects, of $2,370.00. (See Exhibit E, Summary for Alpha and Omega). Although the Respondent acknowledges these amounts as owing, they are not accepted as accurate for the reasons which will become apparent. A July 31, 1998 invoice in the amount of $3,000.00 from the Complainant to the Respondent asserts Naval Space is completed. In January, 1998, the Complainant had sent the Respondent an invoice in the amount of $1,200.00 for work asserted as done to that time on Naval Space. The evidence showed and the Complainant acknowledged a mistake in asserting completion of the project since a sink was still to be installed. This is assertedly because the Respondent had failed to provide the cabinet for the sink. However, nothing has been paid to the Complainant by the Respondent on this project.

The Naval Space and Early Childhood projects are subject to federal construction wage regulation under the Davis-Bacon Act (prevailing wage legislation). Forms which were to be submitted for payment in conformance with the requirements of the federal legislation, were not timely submitted by the Complainant to the Respondent. Some forms (certifications) for payment were submitted as required by the legislation but the Complainant did not establish any amounts which were owed based on those submissions. It was not shown whether the Complainant was informed of the prevailing wage requirement prior to entering the Naval Command and Early Childhood contracts. Change orders dated December 1, 1997 and March 25, 1998 (exhibits 12 and 13) for the Shanti project include installation for a new gas service from the meter to the water heater and kitchen (cost $300.00), and changing steel tubs to fiberglass tub and shower units (cost $375.00). This does not amount to the $1,025.00 claimed for change orders for Shanti in exhibit 6. In April, 1998, the Complainant had problems with its computer accounting program and the Complainant’s costs were not accurately reflected in the program. According to Roxanne Wills (Wills), the Complainant’s office manager and the person responsible for billings, records and payroll, the program was not picking up all of the Complainant’s costs. Additionally, according to Wills, one of the Complainant’s employees (Judith) was apparently committing unspecified errors in relation to some aspects of the instant cases. According to Bob Anderson (Anderson) a supervisor for the Complainant, he sometimes submitted figures for billing in anticipation of certain work being completed. Wills relies in part on figures given by Anderson for billing purposes. The Respondent had paid Keenan Supply (Keenan) $839.00 on April 23, 1998, for the benefit of the Complainant, for material on the Sawyer job. Exhibit credits the Respondent’s payment to Keenan as a payment to the Complainant. In a letter dated April 2, 1998 (also in Exhibit A), from Wills to the City of Phoenix, the Complainant asserts that the Respondent owes the Complainant $8,500.00 on the Sawyer job which is allegedly completed. This was well before there was any payment to Keenan. If the Keenan credit is added, the total is $9,339.00. An Estimate of Job Expenses and Revenues dated April 30, 1998, and well after the asserted completion of the Sawyer job, prepared by the Complainant (part of Exhibit A) lists a total of $4,014.14 on the Sawyer job. By letter dated August 27, 1998, the Complainant demanded payment in the amount of $7,900.00 for labor and materials and $400.00 for “mark up materials left on job site” for the Sawyer project (in Exhibit A and Complainant’s Invoice No. 19205), for a total of $8,300.00. Since the amount to Keenan was paid by the Respondent in April, 1998, it seems it should have been credited by the Complainant prior to the letter of August 27, 1998, four months later. If the credit is added as a cost, then the total is $9,139.00 Exhibit 9 sets forth the purported hours for Complainant’s work on Sawyer. Based on it, there were 153 regular hours and 21.5 overtime hours. At a cost of $40.00 for regular hours and $60.00 for overtime, the labor cost is $7,410.00. When the Keenan payment by the Respondent is credited, the amount comes to $8,249.00 which is listed on Exhibit 6. Wills testified she believed half the time incurred on the Sawyer job was not billed. Complainant’s exhibit 7 (individual time sheets for employees) shows time spent on Sawyer. Some of the hours on the time sheets do not correspond exactly to the hours on exhibit 9. Exhibit 7 shows 33 ½ hours billed to the Sawyer project for the week ending January 24, 1998, for a Gene Benki, social security no. [SSN redacted], and another 33 ½ billed to the Sawyer project, also for the week ending January 24, 1998, for a Eugene Benki, social security no. [SSN redacted]. Neither of these time sheets are signed by Benki but both are signed by Anderson, the Complainant’s supervisor. It is noted that both Benki time sheets reflect the exact same hours for the respective days of the week and both were filled out by the same person (the printing is almost identical). Benki is only submitted once in the calculations in Exhibit 9. Wills testified that exhibits 7 and 9 were the basis for payment by the Complainant to its employees. This does not explain why two unsigned time sheets for the same individual and the same times but with different social security numbers, signed off on by Anderson, came into being for submission as evidence. An invoice for the Sawyer work, from the Complainant, dated January 25, lists an amount due of $4,000.00 (Invoice No. 16450). A second invoice (No. 15265) of the same date also lists $4,000.00 (invoices in Exhibit A). Wills testified that Invoice No. 16450 was a duplicate invoice. The evidence showed that the Complainant had concluded the project on January 24, 1998. According to Wills, there was to be a future billing on the Sawyer job. If the invoices submitted to the Respondent (15265 and 16450) were duplicates, there is no evidence to show that the total billing submitted in March, 1998 for work on Sawyer, was in the vicinity of the $8,000.00 claimed in Exhibit 6, Exhibit 9 or the August 27, 1998 letter and invoice attached to the letter. The fax cover sheet for the March billing (Exhibit A) indicates the two invoices were treated as separate billings by the Complainant. The evidence on the issue of the referenced invoices appears contradictory. The various amounts for the same job (Sawyer), set forth in paragraphs 11 through 14 above, when coupled with the facts in paragraph 16 above, do not lend themselves to inspiring confidence in the Complainant’s evidentiary presentation. Irrespective of how much time was actually spent on Sawyer, on the evidence presented in this case, it would be pure speculation to try and determine that time with any reasonable degree of accuracy. At one point, the Complainant had to stop work at Sawyer because of the Complainant’s failure to obtain a necessary permit. The delay was approximately three months and the Respondent did not have the work completed by the Complainant. By letter dated September 10, 1998 from the Respondent to the Complainant, the Respondent asserts that the Complainant’s work at Sawyer had to be replaced. The Respondent set costs which the Complainant could charge to the Respondent at 32 man hours, at $65.00 an hour plus the $839.00 to Keenan, for a total of $2,919.00. Of this amount the Respondent claimed $2,486.00 in charge backs leaving $433.00 owing to the Complainant. The Respondent determined the $433.00 was chargeable against the Complainant for field supervision and administrative fees set at 15% under the default provisions of the Subcontract General Conditions (Exhibit 5). The problem with this is that the Sawyer project was not a written contract and there was no showing that the conditions in Exhibit 5 which were specifically referenced in the written contracts were part of the oral Sawyer contract. This one sided determination on the part of the Respondent, with no credible supporting evidence is arbitrary and not shown to be justified. A check dated February 17, 1998, No. 15504 (Exhibit T), from the Respondent to the Complainant in the amount of $4,035.04 with the notation that endorsement constitutes full and final payment of all invoices through February 17, 1998, relating to the Scottsdale Fire station (a project not at issue in this hearing), is listed as a $4,000.00 payment for Shanti in Exhibit N. According to the Respondent’s witness Bob Sanders (Sanders), the parties agreed to this arrangement (that certain amounts of payments on Shanti were determined by amounts owed on the Scottsdale Fire Station including the Respondent refraining from assessing certain charge backs). The check is marked “Insufficient Funds”. This type of mixing of separate jobs and contracts in the context of accounting does nothing to assist in the determination of what if any amounts may actually be owing on the Shanti project. Shanti failed to pass a City of Phoenix plumbing inspection in August, 1998. The Complainant made the necessary corrections. It was the Complainant’s responsibility to call for the final inspection for the Shanti project which the Complainant had failed to do. Although the instant complaints were filed in April, 1998, in late August of 1998, the Respondent sent a 24 hour notice of default (Exhibit I) to the Complainant and the Complainant was demanding payment (Exhibit K) on the Shanti project. By letter dated September 8, 1998, the Respondent sent a claim for back charges for Early Childhood in the amount of $2,755.00 to the Complainant (included in Exhibit E). Among the costs claimed by the Respondent against the Complainant, is an unsubstantiated amount of $500.00 for a sink as well as $600.00 for eight letters of default. This is a cost of $75.00 per letter. The Respondent claimed this was his cost but presented no competent evidence to show this assertion was in good faith or had any relationship to reality. Sander’s testimony that the Respondent is subject to a potential liability of $7,000.00 for materials on behalf the Complainant at Early Childhood was not challenged and merely adds to the lack of certainty with respect to the monetary claims of the parties. By letter dated September 9, 1998, the Respondent sent back charges to the Complainant on the Shanti job in the amount of $5,110.00 (included in Exhibit E). Items which were claimed as incorrect were the shower drain which was 8 inches off and had to be replaced, the installation of copper lines in interior walls and the attendant masonry work, as well as other repairs. In general terms, the Complainant accuses the Respondent of inadequate or faulty plans and the Respondent accuses the Complainant of shoddy workmanship requiring correction by the Respondent and the cost of which was charged back to the Complainant. Neither party presented competent evidence to sustain there respective positions but rather engaged in conclusory assertions or self serving documentation which was not adequately supported by susbstantive and credible foundational facts. CONCLUSIONS OF LAW The allegations in the instant Citation and Complaint concern A.R.S. §32-1154(A)(7), wrongful or fraudulent act, and (A)(11), failure to pay in excess of $750.00 for material or services when able to do so. The amounts billed by the Complainant for the Sawyer project vary and the foundation for the asserted time spent on the project is suspect. The amounts for the projects which have a price term are subject to charge backs, some of which appear justified and others appearing unjustified. In any event, insufficient evidence was presented on numerous charge back issues to allow for an accurate determination of the appropriate amounts so charged. Both parties have submitted a great deal of documentation to justify their respective figures. However, the majority of the evidence for computing those costs was never firmly grounded. The Complainant never established that the projects were satisfactorily completed without the need for additional or corrective work by the Respondent. With respect to both parties, some of the claims were unreasonable, some of the asserted facts unreliable, or the evidence otherwise lacked necessary conciseness, consistency and credibility. The fact that Charlene Reed (Reed), the Respondent’s office manager, relied on the figures given to her by Sanders does nothing for the reliability of those figures. It must be shown that the figures given by Sanders were reliable and this was not generally the case. Sanders testified his man hour and materials figures came from Dan Fox, one of the Respondent’s supervisors. Absent a firm foundation of how those figures were obtained and a showing that they are reasonably related to the work, corrective or otherwise related to the various projects, the asserted amounts can be given little weight or consideration as legitimate charge backs. The contracts in this case are severable. They are sufficiently distinct in identifying the specific projects by location, work to be done, owners, date of execution and other factors, to make them separate agreements. There is nothing which would cause one to construe these contracts as a single agreement or to be otherwise so interrelated as to allow a charge back in one project to be applied to another project. This defense by the Respondent is not accepted. Based on the evidence, it is apparent that the cooperative relationship of the parties broke down during the course of the performance of these projects and both parties began to attempt to threaten and intimidate each other. Any good faith attempt to perform according to the contracts stopped long before the work on these projects ceased and the parties began to jockey for position in light of the complaints that were filed with the Registrar and potential litigation. To the extent that the dispute between the parties is monetary with respect to the four projects at issue in the instant hearing, the findings show the monetary claims are best determined by a civil court. To the extent that the Complainant invokes the Registrar’s jurisdiction to regulate the conduct of contractors under the cited statute, it is concluded that some of the Respondent’s acts were wrongful and in violation of A.R.S. §32-1154(A)(7). Specifically, items such as $195.00 for the delivery of an inspection fee and attendant wait for the clearance slip (Exhibit E, Early Childhood Itemization). The process took three hours. Sanders acknowledged that his determination to charge $65.00 per man hour in order to charge back was arbitrary. The charge back of $600.00 for eight default letters is not defensible. Nor were the amounts of the charge backs on the Sawyer project supported by the evidence. This latter conclusion would have greater significance if the Complainant had been able to present cogent, consistent and credible evidence of the actual time and material cost for Sawyer. Absent a specific agreement by the Complainant, the charge back for alleged corrective work on one project against an unrelated project, is not accepted as a valid or good faith defense for the failure to pay the Complainant on a project for which there is no charge back. This conclusion can be made even though the Complainant has not satisfactorily established the specific amounts to which it is entitled. It is the manner by which the Respondent attempted to avoid payment that is found to be wrongful rather than failure to pay the amounts which may be owing. RECOMMENDED ORDER In view of the foregoing it is recommended, commencing on the effective date of the Order entered in this matter, that the Respondent be placed on probation for a period of ninety (90) days. It is further recommended that, in addition to the above provided penalty, commencing on the effective date of the Order entered in this matter, any continuation of the Respondent’s contracting rights whether or not probationary, shall be subject to a condition that the Respondent first post an additional surety bond, cash deposit or alternative deposit for a period of 24 months, including future renewal periods, in an amount two times the current amount of the Respondent’s bond or deposit. The bond or deposit shall be in addition to the required surety bond, cash deposit or recovery fund participation set forth in A.R.S.§32-1152. Cash or alternative 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 against the Respondent. Failure to timely post such bond shall result in the immediate suspension of the Respondent’s license.

Done this day, December 4, 1998.

_________________________________ ALLEN REED Administrative Law Judge

Original transmitted by mail this ____ day of December, 1998, to:

Michael P. Goldwater, Director Registrar of Contractors ATTN: Joyce Armijo 800 West Washington, 6th Floor Phoenix, AZ 85007

By _______________________________ -----------------------

Office of Administrative Hearings 1700 West Washington, Suite 602 Phoenix, Arizona 85007 (602) 542-9826