The chief architect of the Kentucky court system, who has overseen more than $800 million in new courthouse construction, has stepped down after the Herald-Leader and national experts raised questions about the failure of his office to make sure courthouse projects are fully insured.
Garlan VanHook is returning to private practice, effective immediately, Chief Justice John D. Minton Jr. announced in a statement Wednesday. He could not be reached for further comment.
In a recent interview about the bonding of new courthouse construction, VanHook defended the practice of the Administrative Office of the Courts that allows general contractors to bond only 5 percent of the value of their work, instead of the 100 percent required by state law.
On Wednesday, two national surety bond organizations sent a letter to 35 county judge-executives, saying that "questionable practices" are being used to insure the projects.
"Obtaining bonds from the construction manager at risk for 100 percent of the contract price is vital to protect the financial interests of taxpayers," the letter said.
In addition, VanHook confirmed last week that his brother, Willie VanHook, works for Codell Construction, which has built or is building 38 of the 65 new courthouses since 2000.
VanHook said he did not think his brother's job was a conflict. Codell confirmed that VanHook had been hired in November but did not work on courthouses.
The Feb. 25 letter questioning the bonding practice, said the AOC's practice of allowing contractors to underinsure their work constitutes "statutory and regulatory violations" of the courthouse contracts.
"That's not normal at all," said Edward Gallagher, general counsel for The Surety & Fidelity Association of America and co-author of the letter.
Kentucky law and the contracts signed by construction managers require 100 percent payment and performance bonds. But Codell and Alliance Construction of Glasgow bond many of the state's new courthouse projects at roughly 5 percent of the projects' costs, which also equals their fee.
In some cases, there was no construction management bond at all when courthouses were begun. Washington County is about to open its new $12 million judicial center. The contract for the project was signed on March 13, 2006. The pay and performance bond was not acquired until Jan. 8, 2009.
"This is disturbing," said Washington Judge-Executive John Settles. He said he didn't know the work hadn't been bonded by Codell until last month and thought the AOC would have made sure the project was properly insured.
Five percent bonds were also issued in the past two months for projects already under way in Boyd, Grant, Laurel and Logan Counties. That occurred shortly after bond expert Todd Leohnert and construction attorney Bruce Stigger sent out a raft of open records requests to counties regarding bonds on judicial projects.
"It's a sham," said Leohnert, a senior vice-president and bond manager for Wells Fargo Insurance in Louisville. "The bonds are there to protect taxpayers' dollars. This is black and white, and it's wrong."
Codell officials said they had merely been following the accepted practice at AOC.
Tommy Gumm, president of Alliance, said that as the construction manager on four projects, his company doesn't need to be insured at 100 percent because all the subcontractors are bonded separately. In total, he says, there is bonding on 100 percent of the projects' costs.
However, experts say that the law is there for a reason.
A 100 percent performance bond protects the owner, in this case the county, if a construction manager defaults. Under the AOC's practice, the owner could only recoup 5 percent of the costs.