ALJDEC

99F-1756-ROC · Registrar of Contractors · 1999-05-06

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: May 6, 1999 APPEARANCES: James Allison, President, on behalf of the Complainant Craig Nelson, Project manager, on behalf of the Respondent ADMINISTRATIVE LAW JUDGE: Allen Reed _____________________________________________________________________ Findings of Fact 1. The parties entered into a contract in early June of 1998, whereby the Complainant would pour floor concrete as part of the remodeling of two restaurants at Scottsdale Fashion Square Mall. 2. The Complainant had substantially completed its portion of the agreement toward the end of June 1998. The original contract between the parties was for $51,836.00 but certain reductions in the work resulted in a cost of $42,251.00 for the concrete work. This amount included a 10% ($4,225) retention by the Respondent. The Complainant was paid $38,026.00 in July 1998. 3. The total cost of the remodeling was an amount agreed upon between the owner and Respondent plus 10%. The evidence is that the entire project was to be approximately two and a half million dollars. The first five pay applications from may to September show this amount was constant. 4. On July 30, 1998, the parties executed a written contract (contract), with respect to the work already performed by the Complainant. According to the written contract, upon submission of the dollar value of the work completed by the Complainant and receipt of payment by the Respondent from the owner, payment would be made to the Complainant less retention in the same amount as the percentage held back by the owner. 5. The amount of retention was to be 10% until 50% of the entire contract had been completed at which time it was to be reduced to 5%. 6. The contract also provided that the Respondent after giving 48 hours written notice, could provide labor and materials as necessary and deduct the cost from any money due the Complainant. Additionally, back charges from the Respondent to the Complainant for services or materials were to be promptly furnished to the Complainant. 7. The restaurants opened for business in October 1998. 8. The Complainant was not paid the retainage and made inquiries of the Respondent in July, August, September and October about said payment. In November, 1998 the Respondent informed the Complainant that there were defects in the floor which caused improper drainage in the dish washing area shared by the restaurants. The poor drainage caused water to run to or gather in other floor areas. 9. In early November, 1998, the Respondent had corrective work done over a period of three nights (between 11:30 p.m. to 8:30 a.m.), so the restaurants could remain open during normal business hours. The work was done by someone other than the Complainant. The work involved saw cutting an eight inch wide in trough around the dish washing area which would collect the water and direct it to the various drains. 10. The Respondent determined that the cost of the corrective work should be split between itself, the Complainant, and the party which laid the tile, under the theory that all three were equally responsible for failing to discover the floor problem. The amount assessed against the Complainant as a charge back is $3,952.00. 11. According to the Respondent, due to certain architectural problems, change orders in excess of $285,000.00 had to be accomplished and the cost is still owed to the Respondent. In addition another $350,000.00 on the original contract is also claimed as owing to the Respondent due to financial difficulties regarding the financing of the project. 12. The contract between the Respondent and owner allowed for the retainage to be lowered to 5% after 50% of the contract was completed. Although the Respondent’s invoices show 50% completion by the end of July, 1998, the Respondent did not request the 5% retainage until the invoice of mid September, 1998. The Complainant asserts that had the Respondent timely invoked its right to the retention reduction, it would have been required to pay another 5% to the Complainant. 13. Exhibit 4, Application number 6 for payment from the Respondent to the owner in mid September, 1998, shows retainage for concrete as 5% ($2,546.37). This is on a “Total Completed and Stored to Date” which had not changed since July, 1998 ($50,927.40). It would appear that the Respondent’s retainage figure did not accurately reflect actual amounts paid or retained by the owner. Rather, at least with respect to the concrete, it is a declaration by the Respondent of a percentage which the Respondent decided to label retained rather than amounts actually retained by the owner. The fact is that the Respondent did not pay the Complainant the additional 5% it credited to itself from the retainage on the concrete in mid September, 1998. This was well before the defective floor was discovered upon which the Respondent relies for failing to pay the Complainant because of the need to charge back the cost of correction to the floor. Based on the evidence the charge back defense for failure to pay has little merit. 14. The evidence (exhibit 4), shows full payment for concrete had been received by the Respondent before the end of November 1998. The Respondent’s pay application number 7 which would cover October, 1998, is missing without explanation.

Conclusions Of Law

The allegations of the Citation and Complaint concern A.R.S. §32- 1154(A)(7), wrongful or fraudulent conduct and (A)(11), failure to pay for material or services when able. 1. To the extent that paragraph 12and 13 of the findings above show the Respondent unjustifiably held 5% ($2,112.50) when said amount was owing as a consequence of the retainage reduction, the Respondent’s conduct is both wrongful and a failure to pay in violation of the cited statutory provisions. 2. The evidence shows that the Respondent had to expend extra funds to correct work which was not done properly by the Complainant. Balanced against this is the Respondent’s duty to properly supervise and check the work of the Complainant prior to acceptance. 3. The Respondent offered evidence that the Complainant did not act promptly and did not act satisfactorily on some concrete matters which needed attention (grinding, slope of the floor to the drain, pier at the southeast corner). The evidence on these issues was rather general and unclear with respect to how the matters were communicated to the Complainant and what duty attached to the Complainant to attend to them. These issues were raised by the Respondent in response to the Complainant’s assertion that the failure of the Respondent to notify the Complainant of the floor problem deprived the Complainant of the opportunity to correct the problem prior to the charge back being assessed. The Respondent’s defense is suspect because the testimony was that the problem was noted within a day or two of the restaurants opening. This was in the first week of October, 1998. However exhibit 2 shows the work was done almost a month later in early November, 1998. This castes doubt on the Respondent’s urgency defense for failure to give notice and an opportunity to correct to the Complainant. The Complainant’s reliance on the 48 hour written notice provisions of the contract is somewhat misplaced in that it relates to the original work done and not warranty work some three to four months after performance under the original contract. 4. The issue is what, if anything, is the Complainant entitled in terms of payment under the facts of this case. It is apparent that neither party is totally to blame or blameless. The amount still retained by the Respondent is $4,225.00. The charge back is asserted as $3,952.00. At a minimum the Respondent owes $273.00, irrespective of the charge back. Whether the total amount of the charge back was accurate was not challenged although its appropriateness in light of no notification or opportunity to correct to the Complainant, was challenged. Under all the facts of this case it is concluded that the Respondent has greater culpability than the Complainant on the issues raised. The Complainant is not found without fault but on a comparative basis, it is less than the Respondent. The Complainant is entitled to 50% restitution of the back charge assessed against it ($1,976.00), plus the $273.00 in retainage as set forth in paragraph 4 of these conclusions, for a total of $2,249.00, in satisfaction of its claim.

Recommended Order In view of the foregoing it is recommended commencing on the effective date of the Order entered in this matter, that the Class B license of the Respondent shall be suspended until the Registrar of Contractors receives written proof that the Respondent has paid or tendered payment in the amount $2,249.00 to the Complainant; It is further recommended that upon acceptance of payment from the Respondent, the Complainant shall forthwith release any lien filed against the Respondent as a consequence of the claims arising from this case; It is further recommended that if the Respondent pays in accordance with the provisions of the Order entered in this matter, then the aforementioned suspension shall not take place and the Complaint and Citation upon which it is based shall be closed.

Done this day, May 12, 1999

______________________________________ Allen Reed Administrative Law Judge

Original transmitted by mail this ____ day of ____________, 1999, to:

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

By ___________________________

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

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