Deficient contract raises false claims concerns (fraud)
In April, 2023, the Incline Village General Improvement District signed a contract with Granite Construction for a phase (GMP1) of the effluent pipeline project. Examination of the contract shows it lacks a key detail: the Construction Manager’s Fee as a percentage.
The contract is based on the “Construction Manager at Risk” contract provided by the Associated General Contractors of America.
Use of such standard construction contracts is a best practice. A standard construction contract is an example contract for construction services published by a professional associations or standards body.
But a standard contract does not mean that legal counsel has no work. Any changes to the wording have to be scrutinized closely to ensure essential elements are included. And of course negotiation of those essential elements is critical.
In early June, 2023, the Board was made aware that the Construction Manager’s Fee Percentage was missing from the contract – when a resident alerted them.
In the Board meeting of Aug 30, 2023, Trustees Schmitz and Tulloch asked questions about a 14% Construction Manager’s Fee Percentage. IVGID employee Hudson Klein, PE responded to the questions and defended the 14%. [TRANSCRIPT]
But what is shocking is that the contract is SILENT on the Construction Manager’s Fee Percentage. The GRAPHIC below shows the Standard Contract (left) vs the Granite-IVGID Contract (right). Rather than a percentage, wording was substituted involved actual costs and “7.3.4 The Construction Manager’s profit,” which is not defined in Section 2.5 DEFINITIONS.
What is even more shocking is that no change order has been approved to remediate this glaring deficiency, even though the Board was made aware of the error.
Now, Granite has been making progress on the work – and submitting invoices. And IVGID has been paying the invoices. If IVGID has been paying 14% – when no 14% is in the contract – this raises the question of potential violations of the Nevada False Claim Act, Chapter 357 [GRAPHIC]. 
We would like to examine the invoices – but our public records requests have been stone-walled. [UPDATE Sept 25, 2023: We received 4 Granite construction invoices which show the 14% is indeed being charged, and that IVGID has approved payment, even though the 14% is NOT IN THE CONTRACT. As of July 31, 2023, $560,695.27 had been charged. See invoice graphic.]
A 2022 audit of the State of Nevada Construction Projects in Higher Education found that INCORRECT MARKUP FEES over $800,000 on a CMAR contract were being paid. If IVGID is paying 14% – and there is no contract wording to substantiate that 14% – IVGID is paying more than obligated per contract.
Conclusions
1) Although a standard contract was used, modifications by Granite Construction negated the benefits.
2) The essential element, construction manager’s fee percentage, was NOT INCLUDED in the contract Section 7, or anywhere else in the contract.
3) Lawyers for IVGID appear to have been deficient in not realizing #2. IVGID contracted with special outside counsel to review this contract – one can see that they likely did not get what they paid for (about $15,000).
4) IVGID TRUSTEES are deficient in not realizing the 14% (construction manager’s fee percentage), must be in contract – IF IT IS to be paid. Where is Trustee Noble on this? Even though his Nevada Bar Status is currently “inactive”, does that mean he just sits silent on a key legal point?
5) Hudson Klein is deficient in not pointing out the contract does not include the construction manager’s fee percentage. He is the owner’s Point of Contact – and has to know what is in the contract – and what is not. Klein alluded to the RFP response – that is immaterial. The contract is the governing document – no verbal agreements or other documents matter.
6) A WRITTEN contract change order needs to be prepared and executed to correct Section 7. In construction, there is no such thing as a verbal change order.
7) IVGID needs to obtain competent legal counsel for contracts.
Any payments made must conform to the contract. Invoices that do not reflect the contract obligations have to be refused. Contract change orders are not retroactive. Overpayments need to be refunded to IVGID. If these steps are not taken, there are substantive questions of false claims and fraud. In 2013, Granite Construction Company paid $367,500 to the federal government to resolve false claims allegations. Overpaying on a contract obligation also raises the specter of kickbacks.
This article contains allegations and the defendant is presumed innocent until and unless proven guilty in a court of law.
The author, Clifford Dobler, is a long-time resident and property owner of Incline Village and a registered voter. J. Gumz, a long-time resident, owner, and voter of Incline Village, contributed to this article.
IVGID does not have nor has it ever had in recent memory any good contract management or oversight. They have never had on retainer a decent contract lawyer who is familiar with construction contracts. Whether it is the $300,000 that Pinkerton sent to a Canadian pipeline inspection company where no apparent work was done, the $4.5 million dollar pool at Burnt Cedar which probably should have cost $2.0 million, the Mountain Golf Course cart path project 2 years ago that was cockroached and did not comply with the written specifications, and now the gigantic Granate project where the Public Works ratepayers will get it stuck to them for tens of millions.
On the Canadian company PICA – some work was done but NOT THE FULL SCOPE OF WORK. Yet, PICA was paid in full. This is another example of “false claims”.
And BTW, there was no competitive bidding on the PICA contract.
“The False Claims Act was first enacted in 1863 to fight fraud against the Federal Government.” (source: US Dept of Justice web site – note the word FRAUD)
The Nevada False Claims Act is modeled on the Federal law.
Both Chris Nolet and Mick Homan have categorically stated that there is no evidence of fraud at IVGID. But that may not exactly be true.
For years, we the public, have brought to IVGID’s ‘management’ attention the fundamental lack of effective contract award and management (post award) process control. Our comments and observations have fallen on deaf ears. Hopefully the new GM will address the community’s concerns and address the shortcomings in IVGID’s contracting processes, practices and procedures.
The Acting GM is Mike Bandelin. Hoping and Waiting for a new GM to “do the right thing” is probably not going to being results. When Pinkerton was hired – there was hope. No changes in procurement, contract administration, and competitive bidding. Winquest – the same thing.
Other strategies and tactics are needed.