Airport Contractor Accused of Violating Subcontracting Law

A company that once did foundation work on Orange County’s new $48-million airport terminal said Wednesday that it has complained to the county that the prime contractor has established a pattern of illegally using subcontractors.

The complaint was lodged by Structural Beton Inc. of Rancho Palos Verdes. In a Feb. 10 letter to the Board of Supervisors, the firm said payments should be halted to the prime contractor on the terminal, Taylor Woodrow Construction California Ltd.

Taylor Woodrow has failed to list subcontractors as required by law, Structural Beton alleged, and has failed to pay $155,000 that Structural Beton said it is owed on a $1.6-million subcontract for concrete work. Structural Beton was fired from the project 4 months ago for what Taylor Woodrow said were major construction errors and schedule lapses.

Neither the county nor Taylor Woodrow would respond directly, saying they had received neither Structural Beton’s letter nor a formal “stop notice” that Structural Beton said it mailed Friday. The notice is a formal, legal demand that payments be halted.

Legal Requirements

State law requires general contractors to either list all subcontractors they intend to use for major work or do the work themselves. According to Patrick Duffy, Structural Beton’s attorney, the law is intended to prevent general contractors from engaging in unfair, last-minute price manipulation through switching of subcontracts between firms competing for work.

General contractors who violate these conditions can lose their contracts or face fines equal to 10% of all the subcontracts on the project, said officials, who stressed that it is not yet clear whether any laws have been broken in this case.

Richard Begley, project manager for HPV, the consulting firm hired by the county to oversee the $310-million airport expansion project, said he has not seen the complaint but is investigating Taylor Woodrow’s possible use of unlisted subcontractors.

“It is of some concern to us, to be sure, and I think it may have happened in one or two instances, but the issue is far from resolution,” Begley said.

Deputy County Counsel Dan Didier said: “The issue of unlisted subs has been of concern to me.” He declined further comment.

Airport officials have argued that the terminal project may not be bound by the subcontracting provisions because its design underwent major changes after Taylor Woodrow received its prime contract. The changes took place after Taylor Woodrow’s low bid came in $17 million over the county’s budget for the project, setting off weeks of controversy over the entire airport project.

$57.4-Million Contract

Taylor Woodrow’s contract with the county currently is worth $57.4 million but may be reduced by as much as $9 million as a result of cost-cutting redesigns to the terminal.

Both the letter of complaint from Structural Beton and the stop notice were signed by Structural Beton President Edick Shahnazarian.

The letter states: “We have reason to believe this violation is not an isolated one but a widespread pattern of behavior by TWCC that affects both of the contracts that TWCC holds with the county” as part of the airport expansion program.

“As you are aware, the Legislature has leveled the playing field somewhat by limiting some of the general contractors’ superior bargaining power once a low bidder is determined, by insisting . . . on the listing of all subcontractors on the bid form,” the letter adds. “The violations of Code Section 4107 are a serious matter and require your immediate attention.”

Board of Supervisors Chairman Thomas F. Riley, in whose district the airport is located, said Wednesday that he was unaware of Shahnazarian’s allegations and could not comment on them until he has seen them. But Riley added that he is surprised that airport personnel had not warned him in advance that Taylor Woodrow’s alleged use of unlisted subcontractors had become an issue.

Shahnazarian acknowledged that his firm was terminated last November because of allegations that it had not properly installed anchor bolts in the terminal’s concrete foundation--allegations that he strongly denies. About a third of his firm’s assigned work had been completed when he left the site, Shahnazarian said.

Shahnazarian said he is raising the subcontract issue not only as part of his efforts to gain payment of the $155,000 that he said Taylor Woodrow owes him under a written severance agreement, but also because he believes that Taylor Woodrow’s failure to officially list some subcontractors is a deliberate attempt to pressure some subcontractors into lowering their prices.

“It’s symptomatic of the way they treat subcontractors,” Shahnazarian said. “They want the subcontractors to come begging to them for every nickel and dime.”

Officials at Taylor Woodrow said it is costing between $150,000 and $250,000 to fix the construction errors blamed on the firm. Chris Elliott, Taylor Woodrow’s project chief, said no firm working at the site has a subcontract worth more than one-half of 1% of the total project cost, the legal threshold for triggering the penalty provisions of the state law involving use of unlisted subcontractors. Elliott declined further comment.

Several weeks ago, some subcontractors threatened to walk off the job in payment disputes with Taylor Woodrow. Since then, the firm appears to have settled most of the subcontractors’ payment complaints, except for change orders requiring approval by the Board of Supervisors.

The project has been controversial since officials disclosed last fall that $17 million in cost overruns had sparked an intense redesign effort aimed at saving $10 million. Some of the savings involve reducing the use of marble and steel and taking advantage of smaller projects that were coming in under budget, such as a parking garage.