Wednesday, June 6, 2012

McKinstry and School District read contract differently

Parties argue over $26 million for ‘green’ energy program

Express Staff Writer

While both the Blaine County School District and McKinstry Essention Inc. seem reticent to talk in detail about their contract dispute, analysis of the legal complaints they've filed against each other shows that the parties have a fundamental disagreement over the nature of the contract.

The school district maintains that the contract had a fixed total price, while McKinstry claims that it became a de facto cost-plus-fee agreement.

The opposing views are at the core of a legal dispute involving about $26 million.

Both parties filed lawsuits against the other in May in Blaine County 5th District Court.

According to the School District complaint, earlier attempts to mediate the dispute failed.

McKinstry alleges in its complaint that it has performed work worth $25.8 million and that the district refuses to pay about $7 million still owed.

The district, on the other hand, claims it authorized work worth only $18.7 million. The district is further alleging damages as high as the amount it has already paid to McKinstry.

The original contract specifies a "maximum allowable construction cost" of $15.1 million.

The contract

The School District and McKinstry entered into an energy savings contract in 2010. Under Idaho law, entering into such a contract allowed the district to award the contract without going through a competitive bid process and awarding the work to the lowest responsible bidder.

The contract provided for McKinstry to perform engineering and construction management services for geothermal resource development, installation of ground heat pumps and retrofits of heating, ventilating and air condition systems and other improvements at eight district schools or facilities.

It was signed on March 31, 2010 by McKinstry Construction Manager Jason Hynes and on April 2 by district Superintendent Lonnie Barber. It designates Howard Royal, director of buildings and grounds, as the district's representative for contract oversight.


The dispute

The contract provides that if the maximum price of $15.1 million was to be changed, then the contract needed to be amended. However, no such amendment was ever made. Instead, as also provided by the contract, changes in the scope of work and the associated costs were made through change orders, presumably approved by the district.

McKinstry claims in its complaint that the change order process set up a system that led to a total project cost, at the time of the court filing, of $25.8 million. The company further alleges that any work it did, including changes in the original work scope, were done at the instigation of the district.

McKinstry further states in its complaint that some additional costs were accrued because of delays in starting work and because of a School District requirement that subcontracts be awarded, not on a lowest price basis, but to local companies instead.

The district alleges in its complaint that some change orders were submitted after work was already done.

District Business Manager Mike Chatterton has acknowledged that the district approved change orders for a total contract price of $18.7 million, but did not have an answer Monday as to why McKinstry costs allegedly spiraled to about $7 million more.

Ask McKinstry

"The district does not have an explanation of why the McKinstry costs have apparently exceeded the guaranteed maximum price," Chatterton wrote in an email to the Idaho Mountain Express. "McKinstry will have to respond as to why it allowed the costs to exceed the guaranteed maximum price."

McKinstry officials declined to answer the question.

"Your questions relate directly to active litigation, so I'm afraid we aren't able to comment on them," McKinstry spokeswoman Heidi de Laubenfels wrote in an email to the Express. "Our focus remains on delivering quality work on time in Blaine County schools so that kids and staff there have a safe, healthy environment in which to learn and work."

Regardless of the lawsuits, Chatterton acknowledged Monday that McKinstry is still working under the contract.

"McKinstry is still completing the final punch list items in the schools, and we do expect them to be completed," Chatterton wrote. "They are also continuing their testing, balancing and commissioning of all of the systems."

McKinstry claims in its complaint that once all work is completed, the district will owe the company a total of $26.1 million.

Terry Smith:

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