Friday, April 5, 2013

District accuses McKinstry of financial scam

New court filings allege numerous instances of fraudulent billing

Express Staff Writer

In newly filed court documents, the Blaine County School District is accusing Seattle-based McKinstry Essention of engaging in a systematic scheme of fraudulent billings to increase company profits.

In the documents, the district alleges that McKinstry overbilled for staff hours and equipment purchases and kept two sets of books to hide real costs from those reported to the district.

The documents were filed on Monday to bolster a district claim that it deserves punitive damages in its lawsuit with McKinstry and to counter McKinstry’s attempt to have a fraud allegation removed from the district’s counterclaim against the company.

McKinstry, in one its most recent court filings, accused the School District of making “slanderous accusations” in a “smear campaign” against the company.

In an email Wednesday to the Idaho Mountain Express, McKinstry spokeswoman Heidi De Laubenfels declined to address the new allegations and stated that the response will be “in accordance with established court procedures.”

“Meanwhile, as we have from the start, we stand by our integrity and professionalism,” De Laubenfels stated. “These latest allegations, like the many before them, are unfounded and inaccurate.”

Litigation between the district and its energy contractor started in May 2012 when both parties filed lawsuits against each other. The lawsuits were later consolidated into one case with McKinstry listed as the plaintiff and the School District listed as the defendant and counterclaimant.

The litigation stems from a contract entered into between the parties in 2010 for energy savings work and other improvements at eight district schools and other facilities.

McKinstry has claimed that it performed work worth $25.9 million and that the School District still owes it about $7 million. The district claims it authorized work worth only $18.6 million and is claiming damages against McKinstry for at least that amount.

A jury trial is scheduled to begin in Blaine County 5th District Court on Oct. 15. In the meantime, both parties continue to file motions and countermotions to strengthen their positions once the case goes to trial.

The next court hearing, at which McKinstry is seeking to have the fraud claim removed from the district’s counterclaim, is scheduled for April 22 before Judge Robert Elgee. 


New accusations

The new district court documents were filed on the district’s behalf by attorneys Robert L. Bilow, of Greener Burke Shoemaker Oberrecht P.A. in Boise, and Kyle D. Kring, of Kring & Chung, LLP in Irvine, Calif.

The attorneys wrote in the filings that new information supporting fraud claims was found through discovery, a process wherein opposing parties in litigation are required to provide each other with potential evidence, and through deposition, during which people involved in the litigation are questioned by opposing counsel.

Bilow and Kring claim that the new information shows that McKinstry knew before the work ever started that energy savings realized would not pay for the work. Further, they wrote, the company knew early in the work that the project was over budget, but failed to tell the School District until late 2011 and 2012 when the company submitted more than 30 change orders seeking additional money.

The attorneys allege that McKinstry conducted a systematic “scam,” reaching into high company management, to defraud the School District by raising its allowable profit margin of 8 percent to as high as 18 percent.

Regarding overbilling by McKinstry staff, the attorneys wrote: “In one particular example, McKinstry employees billed over 2,323 hours in a single week. This included five employees that billed over 200 hours, including a single employee, Joel Stobie, that billed a remarkable 557.5 hours for a single week of work. All the above information was hidden from the district until McKinstry was forced to produce it through discovery.”

The attorneys also claim that McKinstry misrepresented professional services provided to the district by billing for people who were not actually involved in the work. For example, the district was billed $855,000 for design work involving 48 McKinstry employees. However, Bilow and Kring wrote that many of those people “had absolutely nothing to do with the design of the project.”

Bilow and Kring further claim that McKinstry overbilled the district by several million dollars for equipment that the company purchased for the project. In one example cited by the attorneys, equipment with a purchase date of July 31, 2011, was billed to the district at $4,385,223.81, when the actual cost to McKinstry was $1,916,541.91.

The attorneys accuse McKinstry of keeping two sets of books to hide the real numbers from the district.

“None of the above was known by the district until McKinstry turned over its internal documents in discovery,” Bilow and Kring wrote. “This is because the district made one critical mistake in the process; it trusted McKinstry.”

Terry Smith:


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