Arbitration costs Clark County $76 million, and the meter is running

Clark County's costs for the Regional Justice Center construction mess actually are higher than that nearly $53 million arbitration award to AF Construction. From what I can see, Clark County spent at least $76 million in its unsuccessful effort to blame the contractor for delays and cost overruns.

Don't forget about the legal costs, which county officials estimate were about $22 million. Plus, the county bought the claims of two subcontractors, spending $3 million for that ... and then lost on the merits of those claims.

The county settled with the architectural firm Tate Snyder Kimsey Architects for $1.8 million, agreeing not to sue the architects, thus lost the ability to recover damages from them. Maybe that was a wise move, maybe it was giving away the store. The crystal ball doesn't know.

The county settled with the architectural firm on Nov. 5 without waiting for the Nov. 30 binding arbitration decision that concluded seven major issues with the justice center were design flaws. That's exactly what AF Construction had claimed all along.

Under the settlement with the county, Tate Synder bought a $2 million insurance policy and the county received $1.8 million and reimbursed Tate Synder $50,000 for the cost of the insurance policy's deductible.

The county had teamed with Tate Snyder in a joint defense to fight AF Construction and defend themselves from the "meritless and grossly exaggerated claims" by the contractor, the settlement agreement said.

The county even paid the architectural firm's employees, lawyers and others to help in the defense. These costs are among the $22 million in legal costs, county officials said.

Well, turns out the claims were not so meritless, and not grossly exaggerated. And if county officials had waited three weeks before settling with the architects, the county would have known that.

Any regrets about the rush to settle? No.

"That's what we were advised to do. Receiving $1.8 million is still significant. I'm not sure we'd do much better if we tried to sue," said County Manager Virginia Valentine, who inherited the justice center construction headaches.

Legal costs were born by each side. The contractor's insurance company had one law firm from Virginia, the county had three local firms: Jones Vargas, Rooker Rawlins and Peel Brimley.

But what about the county's decision to pay $3 million to purchase claims of three of the subcontractors, Quality Mechanical, Accuracy Glass and a small claim from Custom Floors?

The three subcontractors were sued by the contractor for breach of contract. Yet in 2006, well after the arbitration was in full swing, the county bought their claims, drawing them onto the county's side and once again agreeing not to sue the subcontractors.

Because the county lost on those claims as well, the county is out that $3 million, too. A million here, a million there.

Clark County Chief Financial Officer George Stevens confirmed my sometimes dubious math.

"The $76 million is accurate. However, the $22 million in litigation costs and the $3 million in subcontractor costs have already been paid. Also, the county currently has approximately $36 million in unpaid project funds (in addition to the funds paid by the architect's insurance company). That leaves a balance of approximately $15 million which the County will need to allocate to pay the judgment."

Now there's another issue. The panel gave the contractor daily prejudgment interest of $10,427 and the contractor's lawyers contend that every day the county doesn't pay, the total rises by more than $10,000.

Assuming the county will need to pay interest, Stevens said, "the interest to be paid will be offset by interest earned on the settlement amount while it is invested by the county. At a 5 percent rate of return, daily interest earnings would be approximately $7,250 reducing the net interest payable to about $3,200 per day."

County commissioners will be briefed on the arbitration decision behind closed doors during their first meeting of the year on Jan. 5. No decision has been made whether to appeal the binding arbitration decision, according to Chief Administrative Officer Don Burnette.

A loss of $76 million is a big bite in times like these when the county budget isn't fat and sassy.

Call me cheap, but I wouldn't want to kiss off $3,200 a day either.

Jane Ann Morrison's column appears Monday, Thursday and Saturday. E-mail her at Jane@reviewjournal.com or call (702) 383-0275. She also blogs at lvrj.com/blogs/morrison/.