Winchester company could be in violation of 100-percent law

lblackford@herald-leader.comApril 9, 2009 

Two weeks after judicial officials decreed that four construction managers building 35 new courthouses across the state would have to "immediately" move to fully insure their work, only one has actually done so.

The company that has contracts on 70 percent of the new projects — Codell Construction of Winchester — has not yet posted bonds insuring 100 percent of the work.

Attorney William Geisen, who issued the opinion for the Administrative Office of the Courts saying that 100 percent performance bonds were required by state law, AOC regulations and by contract, said he did not have a firm date on when that bonding would be acquired for the projects.

"We are continuing to monitor whether the construction managers are making good-faith efforts to secure the extra bonds," Geisen said. "From what I have heard, they continue to make good-faith efforts."

However, one of the whistle blowers on the bonding situation says he doesn't understand how work on courthouse construction can continue.

"The fact is three contractors are in default of their contracts and they're being allowed to proceed with construction and design, which is against the contract and the (AOC) regulations," said Todd Loehnert, a bonding expert with Wells Fargo in Louisville. "There is no other contractor in this state that would be allowed to be on the job where a 100 percent performance bond is required, period."

Supreme Court Chief Justice John D. Minton appointed Geisen to investigate the state's courthouse construction program after the Lexington Herald-Leader reported that Codell Construction of Winchester was routinely bonding only 5 percent of its work on courthouse projects rather than 100 percent of the contract value.

Codell, an old-line, politically connected company, is construction manager on 24 of the 35 projects that are not currently fully bonded. Construction managers on the other 11 projects are Alliance Construction of Glasgow or Branscum Construction of Russell Springs.

Neither John W. Hayes, a Lexington attorney who represents Codell, nor Buckner Hinkle, who represents Alliance Construction of Glasgow, nor Doug Alexander, who represents Branscum, was available for comment.

Codell representatives have said in the past that they stood ready to provide the full bonding.

However, Geisen said that the bonding is at a standstill because the construction managers think the counties should pay the premiums for the full bonding. The money to pay for the bond premiums is automatically included in the construction managers' fees, so increasing the bonding will hurt the overall profit margin of the construction firm.

But Geisen said the law is clear.

"I believe the bond premiums should be paid out of their fee; I think they believe that the bond premiums should be paid as an extra," he said.

In at least five cases, Codell secured 5 percent bonds only after construction was well under way. So while the construction management fee includes money to pay the premium on a 100 percent bond, which is about 1 percent of the bond's cost, the company paid premiums for only 5 percent bonds.

Geisen said the construction manager's fee is formulated to include the cost of buying a 100 percent performance bond. But Codell has not reimbursed the counties or the AOC for the extra money they received in their fee on the projects that were only bonded at 5 percent, Geisen said.

Geisen said he would continue to work toward a resolution.

Trace Creek Construction is the only firm that has posted a 100 percent performance bond since Geisen's opinion. It is for the full cost of building the $8.1 million Fleming County judicial center.

Trace Creek's owner, Sam Howard, said he had posted a 100 percent construction bond on the Fleming County courthouse after receiving a copy of Geisen's opinion and a letter from the AOC.

"Per the requirements of the Geisen letter, before Trace Creek could receive a contract, we are required to post a 100 percent bond," said Howard. "Trace Creek will post whatever is required by law."

Reach Linda Blackford at (859) 231-1359 or 1-800-950-6397, Ext. 1359.

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