December 12, 2007

Stanislaus County fines Gallo contractor $190,538

Clark & Sullivan, the prime contractor on the Gallo Center for the Arts building, will be fined $190,538 for hiring a subcontractor for the project without county permission.

The Stanislaus County Board of Supervisors voted 3-1 Tuesday morning to levy the fine, with Supervisor Jim DeMartini casting the dissenting vote. Supervisor Tom Mayfield was absent from the meeting.

According to county staff, a growing dispute between Clark & Sullivan and its heating, ventilating and air conditioning subcontractor, Custom Air, led Clark & Sullivan to bring in a second company, Modern Air.

The Public Contract Code requires that a prime contractor get the county's consent before hiring a subcontractor not listed on the bid documents.

The county sent a letter to Clark & Sullivan in May of last year when it became aware of the substitution, warning that the firm needed permission, according to Patty Hill Thomas, county chief operating officer.

By June of last year, Modern Air had replaced Custom Air on the project. Clark & Sullivan requested permission for the substitution on July 31, 2006.

A hearing was held on Aug. 16, 2006, before an independent hearing officer, who concluded that Clark & Sullivan had violated the Public Contract Code. Under the code, the Board of Supervisors can levy a penalty of up to 10 percent of the subcontracted work, $190,538 in this case.

Custom Air in financial trouble

"I have a radically different interpretation of what happened," said Dick Cowan of Clark & Sullivan.

Cowan said Custom Air was experiencing financial problems and that his staff believed the company could not meet the construction schedule or quality standards. Cowan said he discussed the situation with county staff, who urged him to take action to correct the situation.

Modern Air was suggested to him by a county construction manager, Cowan said, and in May, he brought in Modern Air to assist Custom Air. At that point, it was not a substitution of a subcontractor, Cowan said.

By June 9, 2006, Custom Air had abandoned the job, leaving Clark & Sullivan to pay the ma-terial suppliers, Cowan said. That amounted to nearly $1 million, he said.

Custom Air's contract never was canceled, Cowan said, though the company subse-quently filed a Chapter 7 liquidation bankruptcy.

"Every step of the way, we've done what is right for the project and what is right for the county," Cowan said. "The project would not be at completion if we had waited. I had to pursue the project."

Eric Firstman, an attorney representing the county, said Custom Air was the low bidder for the contract and by law was entitled to a hearing before losing the contract. Clark & Sullivan was notified by letter about the need for permission to make the substitution two months before the company requested the authority, Firstman said.

Company 'has lost enough'

Supervisors said the situation put them in a difficult position, but most of them sided with staff on levying the fine.

DeMartini commented that the law on substitution is designed to prevent prime contractors from "bid shopping," looking for a lower-cost subcontractor after bids are awarded.

"The project could have stopped, putting the county in a worse situation," DeMartini said. "I have trouble seeing how the county was harmed by the substitution. ... I think Clark & Sullivan has lost enough on this job without a penalty."

Supervisor Jeff Grover said the staff, county counsel and the hearing officer all agreed there was a violation. "I'm comfortable supporting the staff recommendations," he said.

Board Chairman Bill O'Brien said it was a matter of timing. "The county letter in May said they needed to do it. The subcontractor abandoned the job in June, and on July 31 they asked for a substitution. It makes no sense to me at all," he said.

Delays in the Gallo Center's construction are at the center of a lawsuit Clark & Sullivan filed against the county in January seeking more than $1 million. The company alleges the county provided conflicting designs and changed plans while the project was under way, causing delays and running up costs.

The county has countered that Clark & Sullivan "failed to perform all conditions, covenants and promises required to be performed."

Last month, supervisors voted to withhold about $2.2 million from Clark & Sullivan until the contractor and the county resolve their billing discrepancies.

Bee staff writer Tim Moran can be reached attmoran@modbee.com or 578-2349.

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