Airport cargo site stalls amid legal battle

First of two parts

More than six years after the state awarded a contract to build a $73 million maintenance and cargo facility at Honolulu Airport, the partially finished project stands vacant and stuck in a legal tangle of disputes among a general contractor, subcontractors and the state Department of Transportation.

Those problems with the job have proved to be expensive for the state on several fronts. Delays and construction flaws in the project are adding to its cost and are also preventing the airports system from collecting millions of dollars in rent from Hawaiian Airlines for use of a new facility that was supposed to open in 2015, according to court filings.

The state Attorney General’s Office has also resorted to hiring outside lawyers to pursue lawsuits over the stalled project, which means extra legal fees and court costs for the state.

The Department of Transportation would not provide an estimate of how much the problems with the contract have cost the state, but the stalled project has proved quite costly for others.

Alvin Borges Jr., president of a subcontractor called Commercial Shelving Inc., said he is still owed $535,000 for work his company did on the airport job. He is one of 30 subcontractors the state says were owed a total of $4.2 million when the Transportation Department stopped construction and locked down the job Dec. 28, 2015.

Construction has not resumed on the roughly 280,000-square-foot terminal, and it is unclear how much it will cost the state to complete the project. The facility was supposed to be finished in October 2015.

“This job is a mess,” said Borges, who has approached a number of state lawmakers asking for help. Borges said he believes the problems began before 2010, when the state hurried to issue the request for proposals for the facility to quickly generate work for the sluggish construction industry.

Borges said the specifications for his portion of the project were poorly written, and he believes general contractor dck Pacific Construction LLC bid too low for the job because it was hungry for work. The company has been a significant player in the Hawaii construction market, handling high-profile projects such as the University of Hawaii’s Information Technology Center and the International Market Place.

Complaints sink contractor

State officials signed a contract with dck Pacific in 2010 for $73.43 million, but dismissed the company from the job at the end of 2015 citing construction deficiencies and complaints from subcontractors who said they had not been paid, according to court records.

“The job went badly,” the Transportation Department said in a Dec. 30 court filing by the Attorney General’s Office. “It was behind schedule and dck was having to modify the contracted work without change orders or plans.

“Subcontractors were not showing up for work. The state learned the subcontractors’ reticence about coming to the job site stemmed from dck’s failure to pay the subcontractors’ monthly bills,” the DOT statement said. Court records show the state also became concerned about dck’s high rate of staff turnover during the job.

The department made 36 monthly payments to dck under the contract but alleged in its Dec. 15, 2015, notice of default and termination that dck failed to forward millions of dollars to 30 subcontractors. Transportation officials did not respond to a request from the Honolulu Star-Advertiser for an accounting of the total amount the state paid to dck for the project.

In a December letter to dck, state Transportation Director Ford Fuchigami said the company’s failure to pay the subcontractors “is evidence of dck’s adverse financial position which has caused much delay” in the project.

“We view the foregoing as a commission of an act of bankruptcy or insolvency,” which amounted to a violation of the state’s contract with the company, according to the letter.

That letter also cited “dck’s many other failures in contract work performance,” and included a seven-page list of alleged construction defects ranging from leaks in the roof to cracked pavement and cement that was poured at the wrong elevations.

State claims damages

A court filing by the Attorney General’s Office last year alleged the state suffered damages from the stalled project that included lost rental income and delays in completion of the facility.

Fuchigami declined to be interviewed about the cargo and maintenance facility, and state DOT spokesman Tim Sakahara said the department cannot answer questions about the unfinished facility because dck, the state and the subcontractors are suing one another over the stalled project.

Staff for dck in Honolulu referred questions about the dispute to the company’s headquarters in Pittsburgh. Laurie Bowers, director of communications for dck Worldwide, said the company will not comment on the project because it is in litigation.

The company argued in court filings that it was the state that “breached its obligations” under the construction contract by failing to make required payments as the work progressed. The company also claimed the state required it to perform extra work without increasing the contract amount or allowing more time, and said that dck satisfied all contract requirements.

Self-bonding questions

In its pretrial statement describing the dispute, dck alleged that the state terminated the contract “in order to have the contract completed by others, in circumvention of the public bidding laws.”

Vincent Nihipali Sr., owner of V & C Drywall Contractors, said he is still owed about $410,000 from his work as a subcontractor on the job. Nihipali said he was astonished to learn after work stopped that the construction bonds for the project were provided by Terrace Pacific Insurance Ltd., which is a “captive” insurer backed by dck itself.

“How can the state be so stupid when they have dck self-bond?” Nihipali said. Normally when a contractor fails to perform, the bonding company is required to step in to complete the project, but that didn’t happen in this case. “They kicked out the general contractor, and they kicked out the bonding company; that’s the same guys.”

Rachel Baker, a lawyer for Terrace, confirmed in an email that was filed in court that “Terrace Pacific is a captive surety. To the extent that TPI has any liability under the payment bond that was issued on the Air Cargo Project, the liability will be funded by dck Pacific.”

Nihipali said subcontractors from the job learned of that arrangement in a meeting with airport officials after work halted on the project. The subcontractors told transportation officials they were foolish to accept the bond from Terrace Pacific, but state officials replied that the company “passed all the criteria needed to perform the bond,” he said.

Conflicting instructions

The state is now suing Terrace Pacific to collect on the $78 million performance bond, and more than a dozen other subcontractors are suing dck to try to collect money they say they are owed.

Nihipali said he is writing off his loss from the job. Nihipali said he has since learned dck owes money to subcontractors for other projects, and “I’m not going to waste more money with attorneys, because look how long it’s been already.”

State officials now plan to have Hawaiian Airlines pay to complete the building, which has been standing empty since 2015, according to a state spokesman. Hawaiian Airlines Chief Executive Officer Mark Dunkerley said the airline will effectively “prepay the rent” to cover the cost of making any fixes that are required to the hangar, and the cost of completing the project.

Transportation officials did not respond to a request from the Star-Advertiser for a copy of the agreement between the state and Hawaiian Airlines that spells out the terms under which the airline would complete the project.

Borges had a $1.2 million subcontracting agreement to provide roll-up doors, storage equipment, lockers, racks and lifts for the maintenance and cargo facility, and said delivering and installing those components proved to be fantastically confusing.

The project had more than 50 roll-up doors, and the specifications for the job required electric motors for the doors “as shown on the drawings.” The drawings showed electric motors on just five doors, and Borges submitted his bid with the understanding that he would be required to install five motors.

Then dck submitted a change order to Borges’ company to add motors to all of the doors. Borges ordered the motors but discovered electrical conduit had not been run to the doors to provide the necessary power. The state then reversed the change order, Borges said.

“So, now they have motors, they have doors that are inoperable because you have doors with motors but no power, so you can’t operate the doors,” he said. “The electrical gotta be another $1 million or so just to run power to 50 doors.”

“The state is just as bad as dck,” Borges said. “I’ve seen field orders that are signed saying that they’re going to pay. Now they’re saying no, it should have been in the original scope of work, but the original scope of work was conflicting.”

Management under fire

State Sen. Donna Mercado Kim questioned how the project could have gotten so far off course when the Transportation Department hired a construction manager under a separate $4 million contract to oversee the details of the job. State procurement records show consultant Wesley R. Segawa & Associates Inc. was hired by the department to manage the project.

Kim said she believes Segawa did a poor job of overseeing the project, but added that she has been told transportation officials have agreed to continue paying Segawa to oversee completion of the facility.

Segawa did not respond to a request for comment.

“This whole thing with Segawa, I don’t understand why we would do it,” said Kim (D, Kalihi Valley- Moanalua-Halawa). “We spent all this money on these consultants. I just don’t understand.”

The Airports Division of the department has been faulted in the past for poor management of contracts. The state auditor in 2013 criticized airports officials for “a lax approach to procuring and managing significant contracts, not holding themselves or their contractors accountable for decisions.”