MINUTES OF MEETING
NORTH SPRINGS IMPROVEMENT DISTRICT
The regular meeting of the Board of Supervisors of the North Springs Improvement District was held Thursday, August 1, 2002 at 4:10 p.m. in the District Office, 10300 N. W. 11 Manor, Coral Springs, Florida.
Present and constituting a quorum were:
Matt Lauritzen President
Salvatore J. Mendolia Secretary
Also present were:
Rhonda K. Archer Finance Director
Dennis Lyles Attorney
Donna Holiday Recording Secretary
John McKune Gee & Jenson
Warren Craven WCI Communities
Roger Moore District Staff
FIRST ORDER OF BUSINESS Roll Call
Mr. Lauritzen called the meeting to order at 4:10 p.m.
SECOND ORDER OF BUSINESS Approval of the Minutes of the July 3, 2002 Meeting
Mr. Lauritzen stated that each Board member had received a copy of the minutes of the July 3, 2002 meeting and requested any additions, corrections or deletions.
There not being any,
THIRD ORDER OF BUSINESS Status Report on Water Plant Expansion Project and Felix Equities
Mr. McKune stated at the end of January this year, we started getting calls from some of the contractor's suppliers and subcontractors about not getting paid by the general contractor, Felix Equities. Felix is the contractor for our water plant expansion. It is a contract valued at about $6.5 million. There is roughly $600,000 to $700,000 worth of work to complete so we are fairly well through the job. After fielding more and more calls from the subs for not getting paid, I received a call from the Felix Project Manager on-site who said he was still holding a check for $125,000 sent to him for the December pay request. He had not sent it to the office in New York because for the last three months when he sent our payment to that office, they disappeared and they haven't paid the subs. He handed the $125,000 check back to me and we put it back in the construction trust fund. We spoke with the bonding company, we spoke with Felix at length and discussed it with Mr. Moyer, Mr. Lyles, Mr. Moore and Ms. Archer. We came up with the process we have used in the past when there were delinquent payments to the subs and that is we entered into a joint check arrangement where at the end of each month Felix gave us their request for the monthly draw and a list of their subs and suppliers who had sent in invoices for the previous month and we would approve those individual amounts and the District cut a check for the subs made to Felix and the sub. The way it was supposed to work is that we would sit in our office with a stack of checks, Felix would arrive at our office with his subs, we would give the sub a check if they gave us a partial release of lien and we would do that through the end of the job. We have done that before. We progressed for about three months in that manner and caught up on about three months of delinquent payments to the subs in the first round of joint checks. About a month ago we started accumulating the next group of joint checks. We had more and more of a problem with Felix who was having a problem getting the subs to appear on site. On July 9, Felix and its parent company filed for Chapter 11. We again were speaking regularly with their bonding company and this is a bonded job and if Felix disappears, it is the obligation of the bonding company to complete the job. Of course, bonding companies don't want to honor that obligation. They were anxious for us to complete and continue with the joint check procedure because every check we wrote diminished their liability. Having filed for Chapter 11, we decided to stop the joint check exercise. We wrote to the contractor several times saying we will not do anything until we get something in writing from the bankruptcy court and from their bonding company indicating the requirements for them to continue on the job. Felix abandoned the job last Friday. They walked off the job at 9:30 a.m. We received a call saying they were going to do that because the day before, they petitioned the bankruptcy court and asked to be relieved of the job. They had shown to the bankruptcy court that Felix was not going to make a profit on the job. As you will recall when we awarded the job to them, they were a very low, low bidder. They left a lot of the table. They abandoned the job at 9:30 a.m., I called their bonding company and informed their attorney that they had walked off the job and asked what they proposed doing. About an hour later I received a call from the Felix representatives saying they had struck a deal with the bonding company to allow them to continue on the project so at 4:00 p.m. they started to round up the people they had fired at 9:30 a.m. They had a problem doing that. By Monday they had rounded up their primary labor force. They had hired a project manager who had really whipped the job into shape during the last three or four weeks they were on the job and unfortunately he passed away the day after he got fired on Friday. He personally wanted to do a good job. That was the remaining knowledge on the job that Felix had.
Mr. Lauritzen asked can we rebid the job?
Mr. McKune responded no. We cannot do anything because there is still a valid contract between the District and Felix.
Mr. Lyles stated there are two things that restrict us from doing that. We have a valid and binding contract that requires the surety to now step into the shoes of the contractor and through whatever means they can put together, either hiring Felix people already familiar with the job, or bringing in another general contractor entirely, they are obligated to complete the job in accordance with the contract and we at that point will start paying them. As draws come due we would make periodic payments to USF&G and even though the job ends up costing them additional money over and above what it would have cost, they have to complete the job. That is one layer of protection. Mr. McKune and I have ensured that every step with all of these things with Felix was immediately made known to USF&G so they can't claim surprise or that we were not notifying them of what was going on with the job. They have been notified of everything that has been happening so that from our point of view they would be positioned to step in immediately and keep the job going and there would be no defenses on their part under the surety instruments to say that we have waived our right to have them complete the job because we didn't give them notice so that they would have an opportunity to cure before this terrible thing happened to Felix Equities.
The other problem is that Felix is in bankruptcy court now and as you know stays are entered and you can't alter the contractual relationships you have. We are not a creditor of Felix, we will be paying Felix under our contract. That flow of funds is necessary to hopefully, reorganize Felix Equities so that they can pay their creditors or some portion of what they owe their creditors. The bankruptcy court is not going to let us terminate the contract.
Mr. Lauritzen stated that is the bonding company's problem.
Mr. Lyles stated if we were to terminate the contract with Felix, it would be our problem. We can't do that. The completion of the job is the bonding company's responsibility and problem. We don't want it done haphazardly or done just to get a completion certificate. We want it done right and will monitor whoever comes in and however the engineer handles that is something that will develop as the weeks go by. We are in good shape considering we have had this multifaceted disaster descend upon us because we kept the surety involved, they know and are not denying anything. We will closely monitor what goes on with the bankruptcy court and make sure we don't do anything such as writing a two party check that the bankruptcy court doesn't want going to a sub but it may be the trustee in the bankruptcy that we end up writing checks to.
Getting the job done under these circumstances is not the same as having an ongoing contractual relationship with a live and viable contractor. There will be bumps in the road.
Mr. Lauritzen stated I am concerned with the hesitancy of the bonding company to do their job. That is why they are a bonding company.
Mr. Lyles stated what they do is cut deals. They may have wanted to cut a deal with us.
Mr. McKune stated the bonding company's attorney asked me if we wanted to take over the job. I said no.
Mr. Lyles stated they wanted us to take over the job and may want to give us what remains and let the excess become our responsibility. We want them to take over and complete the job. That is why they are the surety.
Mr. Lauritzen asked what stage of the job are we in?
Mr. McKune responded we told the contractor to give us a new estimate of completion that accounts for all the delays and problems. He has worked up a preliminary number. It will be toward the end of the year by the time it is done. I didn't want to present any estimated date of completion to you until we receive in writing from the bankruptcy court and bonding company, the instructions of procedural methods.
Mr. Lauritzen asked what else does that effect that we have to be concerned about?
Ms. Archer stated this contract is so far behind schedule that we should have already started the next plant expansion and we haven't completed this one. The only relief we have is that we are in the rainy season. Otherwise, I think our demand would be exceeding our capacities. There are components that are getting completed.
Mr. McKune stated fortunately, we are at a stage with this job such that the major components are in operation. The water plant has been expanded. Everything on site at the main plant is done. We have half the new wells on line and we are close to getting three more new ones on line because they recently started up that particular facet of the wellfield. We had one major pump station at the county line which is probably thirty days away from bringing on line. We have uprated the capacity of the plant so we can go for an extended period of time without having a problem. In the past thirty days we installed two additional high service pumps that will address any potential low pressure problems in the extremities of the District.
Mr. Lauritzen asked what is the worst case scenario? If everybody drops the ball where are we at?
Mr. McKune responded we are in good shape; we can make water, we can treat water; we can send it out and give everybody what they need. In a workmanlike manner we need to finish the plant. There are some work items that remain that are not part of this contract yet. There was a change from the gas chlorination system to the liquid system because of safety concerns and that is a costly system to put it. It requires its own building. We just about have the building permit from the City to add these structures and we were going to add this work by change order to this contract. We are not going to do that now because not only do we not want to give Felix any more work, the bonding company will refuse to accept any more liability. We will have to put this additional work in another package and put it out to bid. I want to wait and get Felix complete and off the job because the next expansion area is in the middle of where Felix is working in now. We don't want to get two contractors on the site at one time. We would like to be going into the next plant expansion. We may end up taking this additional work and put it in a bigger contract and we will have enough plant capacity to take the time to do that.
Mr. Lauritzen asked is there any way we could have avoided this?
Mr. McKune stated we are a victim of circumstance. We were reluctant to award the job to Felix to begin with for reasons other than this. This type of problem was not a concern at the time. About midway through the job Felix Equities was purchased by a firm called Link.net and it turns out that Link.net's major business is the installation of fiber optic cable throughout the U.S. Our payments were going to Link.net and they were trying to keep themselves afloat. It is Link.net that filed for chapter 11 along with their subsidiaries. As far as continuing with the joint check procedure, that is something we are able to do but we are not going to do anything until we get instructions from the bankruptcy court and the bonding company.
Mr. Mendolia asked is there anything we can do legally?
Mr. Lyles asked do you mean get an injunction through the court system? No because the remedy here is set forth in the contractual documents which is calling on the surety to complete the job. Right now the surety is saying through the reorganization process and their negotiations with Felix, the subsidiary, they are ready to go back to work and we just have to work out how we are going to process payments to keep the subs and the Felix entity working on the job. They are willing to go back to work. Mr. McKune and I are in constant contact with everything that happens here. We don't want to send payments into this bottomless hole that will result from the bankruptcy proceeding. We want to make sure that to the extent that we cut a check, it goes towards the timely completion of the project.
Mr. Mendolia asked do we have the money to complete the job?
Mr. McKune responded right now there is enough money in the construction trust fund to finish the project with the old contract. Based on the value of the work that remains, we have enough to build that. Felix is experiencing additional costs internally. We are not going to have to pay those but that adds to their financial problems.
Mr. Lauritzen asked what was the original completion date?
Mr. McKune responded six months ago.
Mr. Lauritzen asked you are saying it will take another six months to complete?
Mr. McKune responded yes. At a Board meeting some time ago we agreed that we would extend the contract date for Felix based on their estimate of time to complete the work that was going on at the time that we authorized them to do that was in addition to the then current contract amount. They agreed to do that and that is the completion date we have been waiting for. Now we know the reason why they didn't give that to us, because they simply didn't know what to do. I think we are still obligated to do this because they are doing work now and they have been doing work that they were authorized to do on a work order basis with the understanding that that work would be added to their contract price by change order. Everyone has agreed with that, even the bonding company. Probably by the next meeting we will present to you the final schedule of completion from Felix, we will also have a proposal for a change order to put a bow around all the activity. It will increase the contract amount by some amount and that will totally define the scope of work and that will be their new schedule of completion. We could probably make quite an issue out of getting liquidated damages but we would never collect. It is better to give them a new completion date and get the job done. We have enough money left in the bank to finish the work, if we have to get another contractor there is no guarantee he will honor that amount.
Mr. Mendolia asked how far away are we from bidding the next expansion?
Mr. McKune responded six months.
FOURTH ORDER OF BUSINESS Staff Reports
There not being anything further, the next item followed.
There not being anything further, the next item followed.
C. Superintendent - Meeting Dates for Fiscal Year 2003
Ms. Archer stated enclosed in your agenda package is a list of meeting dates for fiscal year 2003.
FIFTH ORDER OF BUSINESS Supervisor's Requests and Audience Comments
There not being any, the next item followed.
SIXTH ORDER OF BUSINESS Approval of Requisitions and Invoices
Salvatore J. Mendolia Matt Lauritzen