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State cost won't rise on projects

FRANKFORT — A new requirement that construction managers on 35 state courthouse projects must insure 100 percent of the value of their work will not increase the state's cost for the projects, an attorney investigating the projects said Friday.

But William Geisen of Fort Mitchell said the profit margins of the companies managing the construction might decrease.

He said some construction managers contend that county governments should pay the costs of 100 percent performance bonds, which could total as much as $3.6 million in additional costs. Some firms have been insuring only about 5 percent of the value, rather than 100 percent required by state law.

"That is a big question left unresolved," said Geisen, who did not identify any specific construction managers who want county governments to pick up the bill.

Asked who will decide who pays for the performance bonds if the issue is not resolved, Geisen only said, "We're working on it."

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 the amount of its fee on courthouse projects rather than 100 percent of the contract value.

Codell is construction manager on nearly 70 percent of new courthouse projects — 24 of the 35 projects currently at issue. Construction managers on the other 11 projects are Alliance Construction of Glasgow or Branscum Construction of Russellville.

John W. Hayes, a Lexington attorney who represents Codell, could not be immediately reached for comment.

Geisen's comments came at a meeting of the Court Facilities Standards Committee, a 10-member panel under the auspices of the Administrative Office of the Courts, which reviews new court facilities statewide.

It was the group's first meeting since Minton said on March 24 that he would ask county judge-executives to require construction managers on their courthouse projects to furnish immediately a performance and payment bond equivalent to 100 percent of the contract sum.

Geisen concluded that state law, state court regulations and contracts between construction managers and counties for new courthouses require 100 percent payment and performance bonds as soon as contracts are signed.

Minton replaced Joseph E. Lambert as chief justice last year. Lambert, who retired, spearheaded the ambitious program to put a new courthouse in every county.

Geisen said in an interview that he has followed up with county judge-executives to be sure construction managers "are putting forth a good-faith effort" to secure full bonding.

"We have learned that they are doing that," he said.

Asked if any construction manager has challenged his opinion, Geisen said, "I have talked to some of their attorneys and some believe that the county should pay the premium for the 100 percent of the bond.

"I'm of the opinion that the bond performance cost is included in their fee."

Asked whether county governments or construction managers should pay for the full bonding, Minton said, "That's a matter of debate."

Minton also noted that there will be no requests for new courthouse projects in the six-year building plan the courts will submit in the next few weeks for consideration by the 2010 General Assembly.

In other business Friday, the standards committee signed off on three new courthouse projects — an $11.5 million center in Owen County, a $20.5 million facility in Hopkins County and a $9.5 million courthouse in Todd County.

The panel learned that Todd County was financing its project with the Kentucky Association of Counties at an interest payment rate of 3.79 percent.

Sen. Robert Stivers, a co-chair of the committee, said that rate is much lower than that charged by many other financial institutions for courthouse projects. He said the usual rate is at least 4 percent.

Stivers, R-Manchester, said he has asked the budget staff of the Administrative Office of the Courts and the state legislature to look at KACO's financing arrangements and find out why more state building projects do not take advantage of its low rates.

"This could save millions of dollars," he said.

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