inflated costs for Courthouse constructionWatchdogReport

Watchdog report: Millions in 'extended' fees paid for courthouse construction that missed deadline

Largest firm was paid extra on 60 percent of projects

bmusgrave@herald-leader.com;lblackford@herald-leader.comDecember 9, 2012 

The $30 million Franklin County courthouse project is one of 26 courthouse construction contracts that Cordell Construction has managed since 2006. Codell has received $227,302.44 in extended-service fees — an extra amount paid because of various delays in the project.

Kentucky's court system has paid a construction management company an extra $3.1 million in taxpayer money over the past seven years because the company did not complete construction of courthouses on time.

Codell Construction collected so-called extended-service fees on 60 percent of the courthouse projects — 17 of 26 — that it has managed since 2006, according to documents from the Administrative Office of the Courts. The $3.1 million in those fees is about 16 percent of the roughly $19 million paid to Codell so far in overall fees for the 26 courthouses.

Of the eight other courthouse projects managed by a company other than Codell since 2006, only one applied for and received extended-service fees.

Bruce Stigger, a Louisville construction attorney, said the courts' rules were "incredibly favorable" to construction managers. Stigger said the Administrative Office of the Courts rules, which paid for bad weather, were "not the norm in the construction industry."

An attorney for Codell told the Herald-Leader that construction delays were not caused by the company. The company was entitled to the extended-services fees under the state's courthouse construction rules.

The rules on extended-service fees were changed in 2012 by Supreme Court Chief Justice John Minton after an extensive audit of Kentucky's controversial program to build 65 courthouses at a cost of about $880 million. However, the more stringent rules don't apply to the half-dozen current courthouse projects because no new projects have been approved since 2008.

Laurie Dudgeon, director of the Administrative Office of the Courts, provided written responses to the Herald-Leader's questions but never granted an in-person interview.

In the written responses, Dudgeon said Minton changed the rules on extended-service fees because they needed to be more precise.

"We cannot draw any conclusions as to why Codell has applied for extended services on more projects than any other construction managers," the statement said. "It may simply be because they have the majority of the projects."

According to a Herald-Leader analysis, Codell's extended-service payments have ranged from 15 percent to 48 percent of their original base fee. For example, Codell was paid a base fee of $703,879 for its work on the Shelby County courthouse. On top of that, $313,795 in extended service fees was added. That was about 45 percent of the base.

Questions about extended-service fees came to light after tornadoes destroyed much of the construction of a judicial center in Morgan County earlier this year. Codell requested extended-service fees of about $900 a day to reconstruct the building.

Rep. Jim Wayne, D-Louisville, questioned Codell's extended-service fees when the issue was addressed by a legislative committee earlier this year. Wayne said he had concerns that so much of the additional money that was needed to rebuild the courthouse was going to Codell.

After negotiations, the building will be completed under a change order with a total construction manager fee of $1.475 million for Codell, court officials said. Under the agreement, Codell cannot ask for extended-service fees. Including the roughly $522,000 that Codell was already paid for the job, it will receive a total of $1.99 million for the Morgan County judicial center.

Under the old rules for extended-service fees, a construction manager could collect the money if a courthouse was not completed by a set deadline and the Administrative Office of the Courts deemed that delays were not the construction manager's fault.

The money for extended-service fees and change-order fees comes out of a 10 percent contingency account created when bonds are sold for each courthouse project.

Construction managers could apply for extended-service fees for any delays that were "due to no fault of the (construction manager)," including change orders by the owner or weather delays. The daily rates were determined by the size of the project and the length of the delay.

However, the rules did not define a bad-weather day. Nor did they allow for a common practice called "liquidated damages," which forces the construction manager to pay the owner for delays that are the construction manager's fault.

The AOC confirmed that no construction manager has ever paid liquidated damages for delays on a project.

Under the new rules, liquidated damages will range between $1,500 and $1,750 a day. Also, a construction manager cannot make any claim for extended-service fees during the first 90 days of delay. After that time, they can seek fees for unknown conditions, owner changes, hazardous materials or weather, but only if that weather could not be reasonably anticipated under averages published by the National Oceanic and Atmospheric Administration, according to the courts.

The original regulations on extended-service fees were added to the AOC's construction rules in 2005 under then-Chief Justice Joseph Lambert, who started the courthouse construction program.

The rules were written collaboratively, courts officials said, but the drafting and executing was overseen by Garlan VanHook, then the executive officer of facilities for the courts. VanHook resigned in 2009 after the Herald-Leader published a story about VanHook's brother working for Codell.

Under VanHook's leadership of the court construction program, Codell also routinely under-insured its courthouse projects, a practice discontinued after the audit.

Codell's attorney, John Hays, said Codell was entitled to extended-service fees because of weather or changes made by local project development boards that oversee courthouse projects.

For example, in Franklin County, a complicated downtown site with historical buildings meant that demolition for the project added 267 days to the construction duration, which was not part of the original scope of work, Hays said. For the $30 million Franklin County project, Codell has so far received $227,302.44 in extended-service fees.

In an email, Hays said the court's interpretation of extended services is "more demanding" than standard contract provisions, because it depends on whether there is contingency money left in the budget. That means that sometimes, construction managers might not get paid for delays that were not their fault.

Steve Branscum, president of Branscum Construction in Russell Springs, said the $123,000 in extended-services fees paid to his company on the Adair County judicial center project were because of changes to the plaza and the dome of the building. The project-development board made the changes late into the project.

He said the Administrative Office of the Courts is a good steward of taxpayer money. In his case, he said, "we've been declined a lot more than we've received. They don't give us one penny extra."

Bruce Stigger, the Louisville construction attorney, called the 2012 rule changes an "improvement and a better safeguard of public monies from questionable practices."

Since the courthouse construction program started in 1998, Codell has received contracts to manage 63 percent of the projects. Since 2005, it has received 81 percent of all fees to construction managers, totaling about $19.2 million.

Most of the state's courthouse projects — which are overseen by groups of county politicians — were not competitively bid. Instead, the local boards issued a request for qualifications, allowing companies to present their background and experience. Because Codell has built the most courthouses, it is usually considered to have the best qualifications.

In addition, Codell employees have been generous political donors, giving more than $300,000 to legislative and statewide candidates since the courthouse program began in 1998.

But Rep. Wayne said Codell's disproportionate share of the extended services fees in the court house construction program is an example of the previous cozy relationship between the AOC and Codell Construction.

"It should be a concern to everyone," Wayne said of the amount of money Codell has received through extended-service fees. "The whole courthouse construction program was flawed in many ways, including wasting money in small, rural counties on these Taj Mahals that are really not appropriate."

Beth Musgrave: (502) 875-3793.Twitter: @BGPolitics. Blog: Bluegrasspolitics.bloginky.com.Linda Blackford: (859) 231-1359.Twitter: @lbblackford.

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