Construction managers on millions of dollars worth of state courthouse projects must completely insure their work or they will be held in default of their contracts and lose the work.
State Supreme Court Chief Justice John D. Minton Jr. has sent a letter to 16 county judge-executives telling them to write "default letters" to construction managers building courthouses in their counties, said William Geisen, a Fort Mitchell lawyer appointed by Minton to investigate the state's courthouse construction program.
Geisen issued an opinion March 24 requiring construction managers to furnish 100 percent bonds — insurance for their work — "immediately."
Once the default letters are received, the companies will have seven days to comply.
Twelve of those letters are being sent to Codell Construction of Winchester, which has managed the vast majority of courthouse construction, and has contracts for 24 of the 35 courthouses planned or under way.
The courthouses are part of a project started in 1998 by former Supreme Court Chief Justice Joseph E. Lambert, who retired a year ago, to build 65 new justice centers around the state worth $880 million. There was no competitive bidding for managing the projects.
The letters to Branscum Construction of Russell Springs and Alliance Construction of Glasgow for four projects will be rescinded, Geisen said, because those two companies have said they will provide the bonds.
"They're dealing with us in good faith, and it appears the issues in those four counties will be resolved," Geisen said. "I cannot say that about Codell. We're not changing our position. The issues with Codell are not resolved, and it does not appear at this point they will be resolved."
Codell and the other two companies have said they shouldn't have to pay the premiums on bonding 100 percent of the project's construction value during the design phase and should be able to wait until construction actually starts.
John Hays, an attorney for Codell, said the company was surprised about the notices for judicial centers that aren't yet under construction.
"Codell has provided to these counties and AOC ...bonds for 100 percent of its fees during the pre-construction phases of the project, as AOC directed," Hays wrote in an e-mail Tuesday. "Codell intends to ask the counties to clarify the grounds for the notices of default before deciding how to respond."
Under a previous understanding with the Administrative Office of the Courts, construction managers were allowed to bond only their fee, about 5 percent of the construction costs, despite language in their contracts and in state law that requires bonds of 100 percent. Instead, the companies required 100 percent bonds from all their subcontractors.
Minton asked Geisen to investigate the AOC's building program after the Herald-Leader reported that Codell had been routinely allowed to bond only 5 percent of its work on the courthouse projects.
Garlan VanHook, the former facilities director for the AOC, resigned shortly after the Herald-Leader began questioning the process. In addition, his brother worked for Codell Construction.
On May 21, Minton and Geisen met with 25 county representatives about the bonding issue. According to minutes of the meeting, it was a very contentious discussion, with several judge-executives stating that the projects would be double-bonded if companies were required to have 100 percent bonds.
"It seemed like the AOC was getting hammered," recalled Hancock County Judge-Executive Jack McAslin, who sent a letter to Codell on Friday. Codell is managing construction of the new $8.3 million justice center in Hancock County. "If their rules and laws say the construction managers have to bond the amount of the whole project, that's what they need to do."
Codell has provided the 100 percent bonds on nine other courthouses that were already under construction or about to begin.
McAslin said that Codell had indicated it would provide the full amount of the bond, which protects the owner from possible default.
Franklin County Judge-Executive Ted Collins said he would send Codell a letter Tuesday about the bonding for the $20 million judicial center in Frankfort. He thinks the requirement is too onerous, he said, because even though Codell signed a contract, there is no site and no design for the building yet.
"It seems like it's a bit premature because we don't have a site or a building," he said.
Branscum Construction is building courthouses in Russell and Garrard counties, Alliance is building in Monroe and Rowan and Codell is the manager for courthouses in Allen, Breckinridge, Campbell, Carlisle, Franklin, Hancock, Mercer, Owen, Pike, Todd, Whitley and Wolfe counties.