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Details emerge in $52 million binding arbitration judgment against county

Three arbitrators cut through finger pointing and bitter squabbling to find that Clark County and a contractor shared the blame for the flawed construction that caused the Regional Justice Center to open four years late and tens of millions of dollars over budget.

In a 195-page written decision, the arbitrators take a swipe at both feuding sides by quoting a federal appeals court opinion: "This is one of those messy government contract dispute cases in which … neither of the parties acquitted themselves with pure grace. The case causes one to understand better the ancient curse of ‘a plague on both their houses.’"

The arbitrators — Kenneth Gibbs, of Santa Monica, Calif., Randall Erickson of Irvine, Calif., and Philip Bruner of Chicago — attributed more of the fault to the county and awarded AF Construction $52.6 million in a binding decision. Their written argument explains in painstaking, itemized detail why each party is liable for what cost, with the scale tipping greatly in the contractor’s favor.

"It’s not black and white," said Don Burnette, the county’s chief administrative officer. "In some ways they sided with AF Construction, and in some ways they sided with us. You can’t look at it from the perspective of they won, we lost."

He noted that the case comprised dozens and dozens of claims over flawed work on a colossal project.

County staffers will study each claim within the decision to see whether there is a basis for an appeal, Burnette said. They plan to make a recommendation to commissioners in two weeks.

The county could pay part of the settlement with $22 million it withheld from AF Construction in the latter stages of the project, Burnette said. That money was budgeted for the justice center and is sitting in the county’s project fund.

He said he didn’t know how the county would pay the rest of the settlement.

To challenge the binding decision, the county would have to show that the arbitrators misapplied the law, said Kirk Lenhard, one of the attorneys who represented the county on the case.

Other attorneys, both for the county and contractor, were either unavailable or refused to comment.

At times, the arbitrators’ criticisms of the county were sharp.

The project, they said, was underfunded from the start, laying the groundwork for future problems with an unrealistic funding strategy.

Penny-pinching created havoc when the county failed to test the soil so it could save $22,000, arbitrators wrote. The parsimony also put a strain on the contractor, who was forced to work within tight constraints and with little financial leeway for problems that cropped up.

When Aviation Director Randall Walker stepped in to help straighten out the troubled project, the county took a more punitive tack that aggravated problems and heightened tensions, arbitrators said.

County officials often demanded changes to work that the contractor had already done "without considering economic waste," arbitrators wrote.

The county, they said, also slapped the contractor with an excessive number of noncompliance certificates that were "meritless and overpriced" and designed to force concessions. Arbitrators admonished the county for refusing to pay AF Construction for work that had been done. And they concluded that the county had wrongfully canceled the company’s contract.

Still, they sided with the county in some instances. They agreed with the county’s contention that the contractor was out of its depth with the justice center project.

AF Construction’s previous jobs were much smaller and less complex, they wrote. The company struggled to coordinate the justice center project, showing its inexperience in dealing with a job of that scope.

County officials have complained that they were compelled by law to take the lowest bidder because it was a public works project. That law has since changed.

The panel acknowledged that the county had legitimate gripes about AF Construction’s long list of mistakes. But arbitrators penalized the county for procedural missteps in handling those errors.

County project managers didn’t seem to realize that the burden of proof fell on them to show why the contractor should pay for repairs and new work. The arbitrators, in turn, dismissed most of the county’s claims, including those for highly publicized defects.

One such glitch was cable trays, which hold wiring, installed above pipes and other inaccessible spots rather than above ceiling tiles. That defect was ultimately the county’s fault because it decreased floor space by two feet, making it far more difficult to carry out the original plan, the panel wrote.

Arbitrators also found for the contractor on most claims for unpaid work. In many instances, the county simply did not challenge the claims, leaving the panel no choice but to side with the contractor.

The county, arbitrators said, broke the contract when it began withholding payments.

The county’s argument that AF Construction breached the contract because the project went so far past the original completion date of 2002 is invalid, they wrote. The county kept assigning work orders and continued to pay the company for another year, which kept the agreement intact.

The county quit paying the contractor in March 2003. The 17-story Regional Justice Center finally opened in November 2005, almost four years late, double the size originally planned and $60 million more than AF Construction had initially bid.

Arbitrators noted what they called the "infamous bankrupt the contractor e-mail" written by Patricia Dues, a Las Vegas City Manager’s representative.

They said they didn’t believe the county had an overt strategy to bankrupt AF Construction. But the county did engage in a systematic program to withhold all money from the contractor for the remainder of the project, they wrote.

Contact reporter Scott Wyland at swyland@reviewjournal.com or 702-455-4519.

 

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