Kentucky Chief Justice John Minton Jr. ordered an audit of the state's massive courthouse construction program on Thursday after questions this week about inadequate insurance on some projects and the abrupt resignation of the courts official overseeing the program.
"I am committed to ensuring that all aspects of this program are in complete compliance with state statutes and our own administrative procedures," Minton said in a prepared statement.
"The Administrative Office of the Courts will be retaining counsel with expertise in construction law to carry out this intensive review," he said. "This audit will begin immediately, and its findings will be made public upon completion."
The AOC's chief architect, Garlan VanHook, resigned Wednesday after questions were raised about a job that his brother received last year at Codell Construction of Winchester.
Codell has won the majority of contracts for new courthouses in the past decade, for which the state has allocated $880 million.
Also, in a letter to the AOC this week, national bond experts, including the National Association of Surety Bond Producers, questioned VanHook's failure to make sure that courthouse projects are fully insured.
In a recent interview with the Herald-Leader, VanHook defended his practice of allowing general contractors to be bonded for only 5 percent of the value of their work, instead of the 100 percent that is required by state law.
Both the law and the contracts signed by construction managers require 100 percent payment and performance bonds. But Codell and Alliance Corporation of Glasgow bond many of the state's new courthouse projects at roughly 5 percent of the projects' costs, which equals their fee.
Taxpayers at risk
Critics said that allowing some contractors to put up a smaller bond gives them a competitive edge over other companies and lets them secure more state work, because they use less of their bonding capacity on each project.
It also puts the government at risk if things go wrong, said Gerry Stovall, a Louisville construction attorney who represents owners and contractors. He called the practice of bonding only 5 percent "extremely unusual."
"It's not acceptable," Stovall said. "If a subcontractor only protects his own work, it does not protect the owner." In the case of the courthouses, the owner is the county.
In some counties, there was no construction-management bond at all when courthouse projects began. For example, the contract for Washington County's $12 million judicial center, which is about to open, was signed on March 13, 2006. But the pay and performance bond was not acquired until Jan. 8, 2009.
Five percent bonds also were issued in the past two months for projects under way in Boyd, Grant, Laurel and Logan counties. That occurred shortly after Louisville-based bond expert Todd Leohnert and construction attorney Bruce Stigger sent Kentucky Open Records Act requests to various counties regarding the status of their bonds.
Grant County Judge-Executive Darrell Link, who hopes his local courthouse will be finished by year's end, said he is confident that VanHook did his job adequately at the AOC.
"Still, it would appear on the surface that there are some questions here and some answers that we need to obtain," Link said. "A little sunlight would be good."
Codell to cooperate
Minton declined through a courts spokeswoman to comment beyond his prepared statement. VanHook did not return a message left at his home.
Codell Construction and Alliance Corporation both said they welcomed the scrutiny and are confident that their business practices followed the rules as set down for them by VanHook.
"They're fine with the audit," said John Hays, an attorney for Codell. "They're going to cooperate fully, obviously."
Leohnert, who drew attention to the bonds through his Open Records Act requests, called news of the audit "awesome."
But Leohnert also wondered which law firm will be tapped by the chief justice to dig into the controversy. Ideally, the audit will be conducted by lawyers with an expertise in construction law, but without business ties to state government or major contractors in Kentucky, he said.
"The fact that Garlan VanHook resigned immediately when people started asking questions suggests it's just the tip of the iceberg," Leohnert said.