Courts, Codell Construction reach settlement

After a bruising seven-month conflict, state court officials and Codell Construction have reached a settlement over how much money should be paid — and when — by Codell to insure courthouse construction.

On Monday, the Administrative Office of the Courts released the signed settlement, which gives both sides some of what they sought. On one hand, the Winchester-based construction company will have to pay the insurance premiums to insure 100 percent of its work on more than $200 million in new courthouse construction, instead of the former practice of insuring roughly 5 percent of the projects.

On the other hand, Codell will get to buy that insurance in phases and doesn't have to insure the construction work before it begins.

If Codell does insure 100 percent of its work, it will get a $150,000 payment from AOC next year.

"Codell Construction and the AOC had some legitimate business disputes with each other," Kentucky Supreme Court Justice John D. Minton said in a statement on Monday. "As a result of this settlement agreement, we can put those issues in the past and work together going forward."

However, one of the people who discovered that Codell routinely under-insured its courthouse projects described the settlement as "justice, Kentucky-style."

"From my viewpoint, these jobs were procured against the terms and conditions of the contracts and the terms and conditions of Kentucky statutory bonding requirements," said Todd Loehnert, a Louisville bond expert.

"Our only objective was to protect the people of the Commonwealth and the integrity of the state's public procurement system," said Bruce Stigger, a Louisville attorney who also investigated the bonding issue. "We wanted every contractor to play by the same rules and to have every project fully bonded."

The agreement is a departure from a legal opinion issued seven months ago under Minton's direction, which said Codell and two other firms were violating the contracts it had signed to manage new courthouse construction and AOC rules by not providing 100 percent payment and performance bonds at the start of the projects.

That opinion, by Fort Mitchell attorney William Geisen, ordered the firms to supply the 100 percent bonds "immediately."

But Codell, a politically-connected firm, balked at providing the total bonds before construction started, and at paying for the bond premiums, which are usually about 1 percent of the construction costs. The AOC said bond premiums are included in the construction management fee.

The AOC threatened to terminate Codell from most of its jobs under contract. The battle eventually went into mediation on June 23, and confidential settlement discussions continued until last week.

"Codell looks forward to building judicial centers that Kentuckians can be proud of for years to come," said a statement issued by Codell president Jim Codell.

Since 1998, Codell has managed more than 60 percent of new courthouses built across the state. Under a verbal agreement with the AOC's former facilities director, Garlan VanHook, Codell and two other firms, Alliance Construction and Branscum Construction, were allowed to bond only the amount of their fees, about 5 percent of the total costs, despite signing contracts that required construction managers to provide bonds insuring 100 percent of the construction costs.

Van Hook resigned in February, shortly after disclosing the agreement to the Herald-Leader, which also reported that his brother worked for Codell.

In at least five cases, Codell didn't provide any bonds at all for courthouses until after construction was well under way or was complete.

Alliance and Branscum decided to provide the required bonds for the AOC and stayed out of mediation.

The settlement affects only the 21 projects that Codell has under contract currently. Any future projects will be governed by current AOC regulations that require 100 percent bonding.

However, Geisen said the next phase of his audit will be to review those requirements.

Under the agreement:

■ On Monday, Codell provided 100 percent bonds for four projects that are about to start construction. They are in Carlisle, Hancock, Mercer and Whitley counties. Also on Monday, Codell bonded pre-construction costs on the Franklin County project. Over the past few months, Codell also has provided required bonding for projects in Grant, Green, Jackson, Laurel, Logan, Marion, Pendleton, Shelby, Trigg, Allen, Breckinridge, Campbell, Owen, Pike, Todd and Wolfe counties.

■ If Codell fails to provide the needed bonds, the counties can terminate their agreements immediately without sending out default letters. If Codell is terminated from any project, the company will not seek any AOC work for six months.

■ The AOC and counties will provide $150,000 for an escrow account, which can be used to reimburse counties in finding another construction manager if Codell is terminated. Any and all money left as of June 30, 2010, will be released to Codell.

■ Neither Codell nor the AOC may sue over potential bonding problems with projects in the agreement.

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