Oxford Community Schools suffered a large blow to its fund balance last month when it was required to pay a contractor nearly $815,000 for work performed while constructing the new high school in the early 2000s.
‘Obviously, that’s the biggest hole blown in the (operating) budget for this year,? said Tim Loock, assistant superintendent of business and operations.
Since this expense wasn’t originally budgeted for, ‘it’s coming out of our fund balance at the end of the day,? he noted. ‘That’s what’s going to be reduced.?
Based on the June 30, 2009 audit, the district started the current school year with a fund balance (or cash reserves) of approximately $5.4 million.
On Feb. 4, a panel of arbitrators awarded the Detroit-based Boomer Co. $675,376 for the steel work the company did with regards to converting the middle school into the high school back between 2002 and 2004.
When interest and fees, dating back to when Boomer commenced legal action against the school district in early 2007, were tacked on, the award total swelled to $814,922.
Because the payout was part of legal action, no approval from the school board was required to write the check, which was issued March 10.
‘I think the arbitrators felt that because of the length of time the project went beyond originally anticipated, there were some delay costs that the contractor suffered,? Loock said.
However, Loock noted two things.
First, the ‘contractor received additional compensation through change orders for additional work that came along as the project progressed, but they still felt they were owed money.?
Secondly, the district’s contract with its construction manager, Skanska USA Building Inc., ‘had language in there that they couldn’t make claims for damages due to delays.?
‘We attempted to get the whole matter dismissed based on procedural issues like that,? Loock said. ‘But the arbitrator panel chose to hear this case anyway.?
When asked why Boomer went after the district for the additional money instead of the construction manager, Skanska USA Building Inc., Loock replied, ‘Because of the type of contract that the district had.?
‘It was an agency contract with the construction manager, so the district held the contracts with all the subcontractors,? he explained. ‘Therefore we ended up being sued because we held the contract. The contractor’s issues were really with the architect and the construction manager, but we held the contract, so we’re the one that ends up (having) to defend ourselves.?
When asked why the district signed such a contract that made it, not the construction manager, responsible, Look responded, ‘I couldn’t tell you. I wasn’t here.?
He wasn’t hired until August 2006.
Loock noted the district’s at-risk contract with the Lansing-based Granger Construction Company ? who will be overseeing work stemming from the November 2009 voter-approved bond issue ? has the construction manager holding the contracts with the subcontractors, so the type of thing that occurred with Boomer can’t happen again.
‘If there is an issue with the contractor, it’s not the school district that’s going to be liable,? he said. ‘That’s the role that Granger is accepting under the form of contract that we have.?
School Board President Colleen Schultz, who’s served on the board for 12 years, tried to shed some light on why the Skanska contract was done that way.
‘Here’s what I can tell you of my recollection of this: Back then, we were going on the recommendation of administration. I’m sure this is what they recommended to us,? she said.
The fact that the district held the contracts for all the subcontractors was something that ‘certainly was not brought to my attention (from what) I remember.?
It wasn’t until Boomer began its legal action against the district that Schultz learned this wasn’t a standard practice.
‘I’m now finding out it is a very unusual way to do business,? she said. ‘I certainly wasn’t happy about it. I was quite disturbed and concerned about it.?
‘It’s a crappy thing that happened,? Schultz added.
Schultz indicated steps to ensure such a thing doesn’t happen again were taken. Instead of having subcommittees of three board members meet with administrators, the entire seven-member board now meets with administration and discusses things during a work session meeting held at 6:30 p.m. on the second Monday of each month.
‘It’s more meetings for us, but it certainly (brings) more voices to the table, so that we can understand things better,? she said.
The beginning of Boomer’s legal action against the district was around the same time as the school board’s vote in late March 2007 to place former Superintendent Virginia Brennan-Kyro on administrative leave until her retirement that June.
When asked if the two events were connected, Schultz replied, ‘Because what happened to Virginia happened in a closed session (meeting), all I can tell you is that it was a culmination of many things.?
All things considered, the award isn’t nearly as bad as it could have been given Boomer was seeking approximately $6.77 million. ‘It had been higher than that, it had been lower than that,? Loock said. ‘That number, up until the day of the hearing commencing, was all over the place.?
Boomer ‘felt they were owed additional compensation for lost profits and all kinds of things that they baked into their original demand,? he said. ‘The arbitrator saw fit not to award any of that.?
The contractor attempted to argue that the high school that was built wasn’t the same as what was designed.
‘Their contention was the project changed significantly from the original design and were trying to claim a breach of contract ? that we abandoned the contract,? Loock said. ‘That was proven (to be) not the case. The high school looks like it was designed. It isn’t a different design from what was originally drawn.?
Even though the amount paid was millions less than what was sought, the impact of nearly $815,000 on the district’s fund balance is still quite significant.
‘Obviously, it’s going to reduce the ‘rainy day? fund that we have to deal with uncertainties going forward,? Loock said.
When asked if this payout to Boomer was part of the projected $3.8 million deficit for the 2010-11 school year, Loock replied, ‘No, it’s a separate issue.?
‘The deficit for next year’s budget is based on assumptions for revenue and expenditures,? he explained. ‘Whatever our fund balance winds up being this year, (it) is not part of that scenario for next year’s budget.?
The district won’t know where the fund balance is going to be at the end of the 2009-10 fiscal year until the final audit.
The district is attempting to recover as much, if not all, of the $814,922 as it can from the high school’s architect, the Bloomfield Hills-based TMP Associates, and Skanska.
‘I don’t want to say we’re the innocent bystander, but it was really the construction manager and the architect,? Loock said.
‘Delays in getting drawings? from the architect combined with the construction manager ‘trying to work around the design delays caused by the architect? worked in tandem to cause ‘the steel contractor to be out there on the job longer than they originally anticipated,? Loock explained.
Loock noted the district’s experience with TMP Associates is not a reflection of the quality work the firm typically performs.
‘They’re a good firm,? he explained. ‘They do a lot of design work for schools in a lot of districts. This is just one of those unfortunate situations that occasionally can occur.?
Will the architect and construction manager pay the district? ‘I think there’s a reasonable chance that we’ll get a fair amount of that recovered. It may take us a little while,? Loock said. ‘We’re hopeful that we’ll be able to recover most of that money.?
When asked to give a dollar amount or percentage that he thinks the district could recover, Loock said he couldn’t.
‘In a perfect world, we’d get it all back, but I don’t want to put a number out there or a percentage out there,? he said. ‘Our goal is to recover all of it.?
Skanska has already paid the district money related to problems from the high school project. ‘We received a $200,000 payment last year in partial settlement of issues,? Loock said. ‘That agreement is structured to allow us to seek additional money from Skanska related to the Boomer settlement and we’re in those discussions right now.?
Of course, no matter what the district receives from TMP Associates and Skanska, it won’t cover the approximately $250,000 in legal fees the district’s spent on all this over the last three years. ‘Typically, when you get into a problem of this magnitude, you’re going to be spending that kind of money to defend yourself,? Loock said.
The district is seeking to avoid further legal fees through direct negotiations with the architect. ‘Our hope is we can settle this and resolve it without having to go through the time and expense of arbitrating it,? Loock said.
The district is also hoping for a better result by seeking the money itself rather than through a third party.
‘Just like any kind of legal action once you turn it over to a judge or a jury or a panel of arbitrators, whatever the outcome is you live with it,? Loock said. ‘If you’re able to settle it ahead of time, you’ve got more control over your destiny. Our goal is to try to resolve the issue outside legal proceedings, so that we have more control over the outcome.?