Horne claim costs Town of Rye more than settlement amount
NEWS ANALYSIS: 14 months late on 12-month project, contractor reaps $300,000
What's wrong with this picture?
- The Horne Construction Company of Rochester wins the contract for the Rye Public Safety building partly on the basis that it can complete the project in 12 months. It takes 26 months.
- Horne's contract is for $2.9 million. It winds up with nearly $3.3 million.
- Even though taking more than twice as long for the construction, the building springs a roof leak, has a pipe burst, has paint peeling from the front bay windows, etc.
- Additional costs to the Town of Rye caused by the lateness include payment for part-time services by the clerk of the works for several months after the agreed-to "substantial completion" date, ongoing payments to the architect whose final bill of $9,225 was for the months of December, 2006, and January, 2007, for a building that was supposed to be completed in December, 2005.
- Then there are the legal costs Rye has absorbed: (1) A total of $145,000 was budgeted for all legal costs, including the building, for 2006, according to the town report; $253,263 was spent for fiscal 2006 ending December 31--an increase of $108,263 over what was budgeted. (2) The cost to Rye for all claim-related services including negotiations and mediation by Town Counsel Michael Donovan was $23,048.37. (3) Rye had to pay the claims consultant, Rider Hunt, another $23,805, according to information obtained by the Office of Selectmen. (4) Rye had to pay the mediator $3601.13.
Horne walked off with $300,000 in a settlement--$190,000 from Rye and $110,000 from the architect, HKT Associates, because Horne claimed more than $800,000 worth of costs caused by change orders and delays. (See Rye Settlement Statement, below).
Horne has not responded to repeated telephone and email requests by Rye Reflections
for comments for the past year.
Interviewed on April 29, 2006, deposed Project Manager Victor Azzi had said prophetically, "I believe by their actions, these leaders of our Town are eager to settle this matter out of court, because they do not want the world to know of the gory details of the deceit and cover-up."
Rumblings regarding delays and change orders started emanating from Horne about a year ago.
In a March 15, 2006 certified-mail letter sent to Interim Town Administrator Alan Gould rather than to then-Project Manager Azzi, Horne ticked off expenses it accrued related to delays, including $290,073 for "home office expenses attributable exclusively to this project" (180 calendar days at $1,611.52 per calendar day).
Feb. 4, 2006, photo shows roof work being redone on Public Safety Building.
A few days later, on March 24, Horne sent a letter to HKT Architects making the case that it was due $23,596.49, because "Horne Construction was forced to stop work on the roof, as the Clerk of the Works and Architect both took the position that the roof was wet after removing the panels." The breakdown was as follows:
|Horne Provided Labor||$6,624.48|
|Original sub cost||$15,000.00|
|Less Original Contract Value||-$24,500.00|
TOTAL DUE HORNE CONSTRUCTION
The roof issue was the most visible aspect of the project. Anyone driving by the parking lot adjacent to the Congregational Church could see the sandwich-like roof panels piled up exposed to the elements for many weeks. A manufacturer's label reportedly called for them to be kept dry before being applied to a roof. They were put on wet, and Horne president Ralph Blackington took responsibility in a Nov. 10, 2005 interview with the Portsmouth Herald.
"We feel awful - wish it didn’t happen - and we’re going to fix it," Blackington told the Portsmouth Herald.
Azzi, in a Rye Reflections' opinion article last July, wrote the following:
“Despite our protestations, those wet panels were installed onto wet roof sheathing, and without the water and vapor barrier applied, continued to take on more water. Instead of removing all of that wet and likely mildew and molding material, the contractor applied asphalt shingles to that wet sandwich during a nasty driving days-long rainstorm. The wet molding mess continued to fester there as Horne refused to accept the responsibility for what they had done, and we insisted that what they had done was unacceptable …After several months of impasse, Blackington finally admitted, even to the press, that what they had done was wrong and needed to be undone and replaced. He proposed to remove the panels, take them to a heated warehouse in Rochester to dry them out, and then, once the moisture content was acceptable, to return the panels to the job site for reinstallation. Many of the panels had to be pried loose from the roof sheathing because the water had frozen the panels to the sheathing…The panels, albeit damaged …were finally reinstalled sometime in February 2006, about eight (8) months late."
In March, 2006, Horne began a steady drumbeat of seeking remuneration for change orders and delays, including the $23,596.49 it said it was due on March 24 for the roof. This was the roof that was to be installed in June, 2005. It was finally replaced eight months later in February 2006. Even then, it took 30 days to replace after Horne promised to do it in three days.
And so a 12-month project takes 26 months, and everyone lives happily after, especially Horne. But is the story really over? How will the building stand up to the test of time, having gotten off to a shaky start already? And when will the taxpayer end up paying for hidden costs caused by a contractor who seemed to put more effort into negotiating a settlement than in finishing the building?
Editorial comment on Settlement
What follows is a partial text from a Portsmouth Herald editorial on the settlement, published on March 14:
The residents of Rye received a raw deal last week. Taxpayers will foot a $190,000 bill that should have been avoided, paying good money to a construction company with deeper pockets and more lawyers.
Selectmen say the settlement was in the best interest of the town, which could have faced a costly legal battle. To this, we say, baloney.
From almost the very beginning, selectmen heard about a litany of issues including incomplete construction documents, architectural design steps that simply were skipped, site work delays and unreasonable schedule updates. The news was delivered by Victor Azzi, the sometimes assertive but nonetheless professional project manager, who volunteered for the job to look out for the town's interests. Week after week, he came to selectmen's meetings, facing an increasingly hostile board led by Chairman Joe Mills that didn't like to hear that it wasn't doing its job. Meanwhile, the list became longer and longer and the board continued to twiddle its thumbs. Faced finally with saving face with townspeople, selectmen fired Azzi. In his place, they appointed Town Administrator Alan Gould, who did not have the engineering expertise for the job.
This settlement involves money that need not have been spent. If selectmen had acted immediately in addressing problems with both the architect and with Horne Construction, if there had been honest and open dialogue among all parties, if the board had not taken the matter personally, the taxpayers of Rye would not be out $190,000.
We are sure that today Victor Azzi is feeling at once vindicated and saddened. This is a sorry ending to a tale of overactive egos and heads in the sand. And the people of Rye are the ones who got hurt.
Settlement Statement issued by Rye
The following is the text of a statement issued by the Town of Rye. All but the second and third paragraphs were read at the Board of Selectmen meeting on March 5 by Chairman Joseph Mills.
Town of Rye, NH, Board of Selectmen
March 5, 2007
For Additional Information, Contact:
Selectmen's Office 603-964-5523
Rye Settles Claim with Horne Construction Company
The Town of Rye Board of Selectmen has settled an $800,000+ claim arising primarily from delays in the construction of the Rye Public Safety Building, which was brought against the Town by Horne Construction Company of Rochester, NH. Under the terms of the settlement, Horne Construction Company will be paid $300,000, $190,000 from the Town of Rye and $110,000 from HKT Architects of Somerville, MA, who were the architects for the building project.
The Town, Horne and HKT Architects reached a settlement of the amounts in dispute at an all day mediation held on November 1, 2006 with mediator Patrick Coughlan, Esq. of Conflict Solutions, Inc. of Raymond, ME. The settlement was subject to attorneys for the parties working out the details of the language of the final agreement.
A $2.9 million contract for the construction of the public safety building was signed in early December 2004 and substantial completion was supposed to take 365 days. Because of delays, Rye began withholding liquidated damages from payments to Horne at $1000 per day early in 2006. Horne asserted that the delays were caused by Rye and its architect, and in March 2006, Horne notified Rye of a substantial delay claim. Substantial completion of the building occurred on June 16, 2006. At that time, Rye was holding $169,000 in liquidated damages.
The Board of Selectmen believe the settlement of Horne's claim is prudent and in the best interest of the Town for several reasons.
1) Town counsel advised that the law concerning liquidated damages, in view of the many unusual circumstances surrounding this project, is sufficiently unclear that there is significant doubt as to how a court would interpret Rye's permanent retention of liquidated damages.
2) Town counsel advised that, even though the contract contains a "no damages for delay clause," there are exceptions to those clauses which the common law (i.e., court decisions) have crafted. The court might find that under the many unusual circumstances surrounding this project, the no damages for delay clause" might have been negated. In that event, the door would be open to money damages.
3) The settlement included the costs of several unpaid change orders for work agreed to and completed, but for which the Town and Horne could not reach agreement on costs.
4) This claim, if litigated, would end up as a jury trial over a damages claim likely to be in excess of about $1.2 million, with bad faith and attorneys fees also claimed. Counsel advised that some of the witnesses who might be called by Horne would weaken the town's defense.
5) Trying this claim before a jury would require that Horne's more than 80 specific and detailed delay claims be successfully argued as not being attributable to the Town. Both parties have construction consultants with complicated spreadsheets and charts, advocating completely opposite views.
6) It would cost an estimated $100,000 to $150,000 to defend such a claim in a jury trial.
7) If the case proceeded to trial, the Selectmen believe that the cost to the Town, including defense costs, would likely be at least 50% more than the settlement amount, and could be substantially higher depending upon a decision based on the jury's interpretation of the construction matters in dispute.
8) Although the dollar amounts indicated in this settlement are not attributable to any project occurrences but rather are stipulated payments to settle all claims as of November, 2006, the Selectmen note that the Town's settlement amount of $190,000 is approximately equivalent to the value of liquidated damages withheld plus the value of work completed without executed change orders. This is presented as explanation only. The settlement amount is not applicable to these items.
9) The Selectmen note that over the course of the protracted project the Town earned a total of $133,000 in interest on invested project funds.
10) All contracted obligations for the construction of the building have been paid and the project remains under budget. This does not include the settlement amount, which State law allows to be paid from the Litigation Reserve encumbered by the Town's auditors at the end of 2006 for all pending legal matters. Thus, the settlement will have no impact on the tax rate.
In summary, having taken our prudential responsibilities seriously throughout this prolonged project, we believe the building contract and surrounding controversies have been resolved in the best interest of the Town.
Town of Rye
Board of Selectmen
Copyright © Rye Reflections 2007. All rights reserved.