Wednesday, May 30, 2012

School District disputes McKinstry money claims

Business manager acknowledges district approved some cost overruns

Express Staff Writer

Blaine County School District Business Manager Mike Chatterton is shown here in July 2010 discussing the benefits of a massive geothermal energy development program undertaken by contract with the McKinstry Essention engineering firm. Chatterton is now saying the district was misled by McKinstry. Express file photo.

The Blaine County School District claims that McKinstry Essention Inc. is asking for nearly $8 million more than the company deserves for energy development and other district facility work done over the past two years.

District Business Manager Mike Chatterton acknowledged Tuesday that the district authorized work above the original contract amount of $15.1 million, but said further that McKinstry claims of expenditures of close to $26 million are excessive.

"We did not approve any change orders that would have even come close to the $26 million which McKinstry has stated we owe them," Chatterton said. "Our authorized change orders should have increased the contract to approximately $18.7 million, but we also withdrew some items from the contract scope of work in the amount of approximately $800,000.

"We feel the amount we were obligated to pay McKinstry was around $17.9 million, and possibly much less as we examine the project financials and our litigation."

A two-year contractual agreement between the district and McKinstry wound up in 5th District Court earlier this month when both parties filed lawsuits against each other on May 15. The School District is seeking unspecified monetary damages from McKinstry, while McKinstry is claiming that it did work worth $25.8 million but has been paid only $18.9 million, and the School District still owes the company nearly $7 million.

The district entered into a $15.1 million Energy Services Performance Contract with McKinstry in April 2010 for geothermal resource development, heating, ventilating and air conditioning retrofits and other improvements at eight district schools or facilities.

Funding for the work came from a 10-year $59.8 million plant facilities levy approved by Blaine County voters in 2009 and a $5 million energy conservation grant from the U.S. Department of Energy.

The School District is now making numerous claims against McKinstry, including a claim that the district was misled by McKinstry's assurances that subcontracts could be awarded to qualified local contractors without going through a public bidding process.

"As the court filings show, the district believes that it was misled by McKinstry throughout this project," Chatterton said. "We asked for an energy savings contract, and despite promising us an energy savings contract, McKinstry now claims we signed a cost-plus contract.

"In order to protect the Blaine County taxpayers, the school board and Superintendent [Lonnie] Barber have taken issue with the McKinstry position."

Officials at McKinstry, headquartered in Seattle, were contacted but did not provide the Idaho Mountain Express with any statements regarding the lawsuits by press deadline Tuesday.

School district allegations

In its complaint against McKinstry, the school district makes nine specific allegations against the company, including fraud, breach of contract, negligence, breach of express warranties, breach of fiduciary duty, breach of implied covenant of good faith and fair dealing, violation of Idaho code, violation of the Idaho Consumer Protection Act and lack of an accounting.

The district accuses McKinstry of fraud in its complaint, claiming that company officials made misrepresentations about energy savings and about the legality of awarding subcontracts without putting the work out for bid. The complaint states that McKinstry officials made representations that they knew to be "false or fraudulent and were made by McKinstry with reckless disregard for the veracity of the representations made."

The district further claims that misrepresentations were made to induce the district into entering into the contract and allowing work to begin, and that the district would not have done those things had it "known the truth" about the McKinstry claims.

The breach of contract claim alleges that McKinstry did not fulfill terms of the written agreement.

The negligence claim alleges that McKinstry, as a Qualified Energy Services Company, failed in its duty to the school district to ensure compliance with state law. The claim further alleges that McKinstry failed in its duty to perform work with "a duty of skill, care and diligence."

The district alleges breach of express warranties by accusing McKinstry of "refusing to complete all performances under the contract and by refusing to correct deficient performance previously identified by the district."

The breach of fiduciary duty claim alleges that McKinstry had a professional and contractual obligation of "loyalty and care" with district funds and that the company failed in that duty by "claiming excessive amounts due for all contractual payments" and for change orders.

The School District accuses McKinstry of violation of Idaho code by awarding subcontracts without going through a public bid process.

The allegation of violation of the Idaho Consumer Protection Act accuses McKinstry of "unconscionable methods, acts and practices."

The accounting allegation states that the district has not received an "equitable accounting" from McKinstry regarding the contract. The claim further states that the district needs a full accounting of McKinstry's claimed expenditures "in order to determine the full extent of McKinstry's fraud, breaches of contract, breaches of duties and district's resulting damages."

Terry Smith:

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