Codell honors insurance ruling

lblackford@herald-leader.comApril 20, 2009 

Codell Construction of Winchester has provided the full insurance required to start building nine new courthouses, projects that it had previously insured at only about 5 percent of the cost.

However, the company has not yet bought bonds for the 15 other construction projects that they're managing for the state judicial system.

The move to insure the nine projects comes 21/2 weeks after Fort Mitchell attorney William Geisen issued an opinion requiring 100 percent bonds immediately, overturning a practice by the Administrative Office of the Courts allowing several construction companies to provide insurance for only about 5 percent of the construction costs.

"I'm pleased that they've finally complied by furnishing the 100 percent bonds on those projects," Geisen said Thursday. "We're still under discussion with those construction managers as to the timing of when they have to furnish the rest of them."

The 100 percent bonds on the nine projects probably cost Codell about $1 million in premiums, which are usually about 1 percent of a bond's costs.

Geisen and the AOC think construction managers' performance bonds should be in place when the contract is signed, a practice followed by other large public agencies, such as the Finance and Administration Cabinet and the University of Kentucky.

The construction-management companies think they should provide full insurance only when construction starts, not during the lengthy pre-construction and design phases.

Codell has contracts to manage construction on 24 of the 35 new courthouse projects currently under way.

The nine projects that are now fully bonded by Codell — in Grant, Green, Jackson, Laurel, Logan, Marion, Pendleton, Shelby and Trigg counties — are about to begin construction.

The only other "shovel-ready" project is the Adair County courthouse, which is being managed by Branscum Construction of Russell Springs. Branscum's attorney, Buck Hinkle, was not available for comment yesterday.

One company, Trace Creek Construction, provided a 100 percent bond for the Fleming County courthouse projects last week.

Codell attorney John Hays confirmed that the bonds had been delivered to the AOC, but he declined to comment further.

Geisen's opinion concluded that the practice previously followed by Codell and the AOC — to bond only about 5 percent of construction costs — did not follow AOC regulations, state law or contract language.

Codell will get a pass on three projects — in Boyd, Taylor and Washington counties — that are almost finished, Geisen said, meaning the 100 percent bonds will not be provided.

However, Codell's construction-management fee includes payment for the premiums on 100 percent bonds. The total of those three projects is about $35 million, so the premiums on 100 percent bonds would be $350,000. The premiums Codell paid on 5 percent bonds would be roughly $17,500.

Geisen said that although the fee Codell received included the cost of a 100 percent premium, the company has not reimbursed the AOC or the counties for the difference, and he did not know whether they would make a ruling on that issue.

Supreme Court Chief Justice John D. Minton ordered an audit of the entire courthouse construction program following Herald-Leader articles about the bonding practice and other issues in the courts' $880-million program. The AOC facilities director, Garlan VanHook resigned shortly afterward.

The 100 percent bonding is required because it protects the owner from default by the construction manager.

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