City And Contractor At Odds Over Rehabilitation Project

By Jon A. Brake

According to his customers Nick Zack does good work. According to the City of Manhattan he does not complete his jobs in a timely manner.

Good or not Zack will not be paid according to the contract he had with the City. The problem goes back two or three years when Zack worked on several home rehabilitation jobs for the City and completed them behind schedule. When a new home rehabilitation project was put out for bids this summer Zack was low bidder by several thousand dollars. City employees did not recommend Zack to the City Commission.

At the meeting Zack appeared and requested that he be given the job. On a 3-2 vote the Commission agreed with Zack.

It ended with Zack doing good work, according to the owner, but took too long, according to City staff. Now Zack will not get the complete $14,807.00 that he contracted. He will be $2,100.00 short. Lawyers are involved and Zack will not get his money unless he takes the City to court. Problem? It would cost $5,000 to get the $2,100.00. Here are two letter from the attorneys:

William Frost

City Attorney

Dear Bill:

As we discussed, our office is representing Nick Zack regarding the contract entered into with the City of Manhattan as to the property located at 2301 Blueberry, Manhattan, Kansas.

I. Contract.

It is my understanding that the work has been completed to the satisfaction of all parties. The issue now becomes the payment owed to Mr. Zack. The original contract was for an amount of $14,486.00. There was a change order that resulted in an increase of $321.00, for a total of $14,807.00. Mr. Luthi of the City informed us that he deducted $2,100.00 as liquidated damages due to a purported 21 day delay. Therefore, it is uncontested that $12,707.00 is due and owing to Mr. Zack. Mr. Zack would like to accept this money without giving up his right to pursue additional amounts he is entitled to under the contract. It is my understanding that Mr. Zack intends to sign the necessary paperwork at the City to obtain such funds. However, I want to be clear that such acceptance by Nick Zack of this amount does not act as a release to the City for the amounts owed to Mr. Zack as indicated below.

LI. Additional Amount Owed by City to Nick Zack.

There are a few issues that took place during the term of the contract that entitle Mr. Zack to funds greater than the $12,707.00 being offered by the City of Manhattan. First, there was a design issue with the project involving the garage door header. Nick Zack consulted with Charles Bissey regarding the header and Charles Bissey uncovered the truss deficiency design. However, due to the delay in getting the design issue resolved and an additional eighteen (18) day delay in receiving the trusses after they were ordered, when it should have been at most six (6) days, Mr. Zack was unable to finish the contract within the contract period. In addition, there were numerous weather delays which prevented work for at least six (6) days. There was an additional issue of correction of an east soffit overhang that required additional labor and materials totaling $500.00.

There were many delays that were unjustified due to the interference caused by the City of Manhattan questiornng the work being provided under the contract. Based on the delays caused by the trusses not being delivered on time, the abnormal and unforeseeable rain, the extra work on the east sofflt and the interference by the City of Manhattan, Nick Zack should not be responsible for the liquidated damages of $2,100.00. Also, he has the additional labor and expenses for the east soffit overhang, totaling $500.00, and the consulting fee of Charles Bissey of $100.00. Nick Zack is entitled to receive an additional payment of $2,700.00 plus damages for the delay not allowing him to finish other projects and for his attorney fees.

II. Offer of Settlement.

Nick Zack has completed the project in a matter that is satisfactory to the clients. Further, it is our understanding that the City of Manhattan does not have a practice of charging liquidated damages on all cases involving these types of contracts. In fact, the contract indicates the Contractor may be required to pay liquidated damages. The City has discretion in charging such damages, it is not a mandatory charge. It would be arbitrary to enforce such liquidated damages provision in this case, particularly in light of the numerous issues involved with the contract. Nick Zack has detailed notes regarding the design issue, the truss issue, the soffit issue, and the interference he encountered by the City of Manhattan. While Mr. Zack would like to have a continuing business relationship with the City of Manhattan, he should not be unfairly punished for the services provided in this situation and intends to pursue the appeal process if necessary.

While recognizing that both parties have issues regarding this contract, Nick Zack proposes that there be a resolution of the case for a total payment of$ 14,707.00. In other words, he requests an additional $2,000.00 from what the City of Manhattan is currently offering. If the City of Manhattan is not willing to pay this additional amount of $2,000.00, please consider this as Nick Zack’s application for an appeal of the payment amount due under the contract and he will seek to recover the full payment as stated above.

Please let me know your response to this matter.



By: William J. Bahr

Dear Bill:

I am in receipt of your letter dated October 19, 2001, regarding the above-entitled matter. I have discussed the information contained in your letter with City Administration. City Administration cannot agree to the offer of settlement set forth in your letter. The purpose of my letter is to attempt to piovide you with the City’s position on the issues you have raised. I will attempt to identify those issues and provide you with our response, as follows:

1. Garage Door Header Design Issue. Your letter suggests that Mr. Zack’s delay in completing the contract was due, in-part, to what he alleges to be a "design issue" involving the garage door header. The City disagrees that there was any such design issue. The manufacturer, prior to the solicitation of bids, approved the design of the garage door header. While Mr. Zack was entitled to modify this design, as long as it remained consistent with the required specifications, there was certainly no need on his part, to do so. Therefore, any delay that was caused by this issue was because of Mr. Zack and not because of any flaw in the original design.

2. Trusses Design Deficiency. Your letter suggests that part of the reason for Mr. Zack’s delay in completing the contract was an alleged deficiency in the design of the trusses. Again, the City does not agree that any such deficiency existed; however, even if it did, correcting that deficiency should have taken no more than a matter of minutes in discussions with Component Fabricators. Component Fabricators’ computer software is capable of modifying the design of their trusses by simply inputting the new data. If Mr. Zack felt there was a need to modify the trusses, providing that information to Component Fabricators-should not have resulted in any delay on the project.

3. Ordering of the trusses. Your letter suggests that the majority of Mr. Zack’s delay in completing the project was due to a delay in receiving the trusses after they were ordered. The City does not believe that any such delay was warranted. The City Commission awarded Mr. Zack this contract on July 17, 2001. On the very next day, Mert Luthi, the City’s Housing Rehabilitation Inspector, called Mr. Zack and informed him that there were three (3) items that would require advanced ordering. One of those items was the girders and trusses as shown in the specifications. He was further notified at that time that there would be a two (2) week lead-time in receiving those products. The purpose of this notification is to allow the contractor plenty of time to order the materials that are necessary, before an official notice to proceed is given so that when that notice to proceed is given, and the completion date is set, the contractor has had ample opportunity to acquire the necessary materials. The official notice to proceed was provided to Mr. Zack on or about August 1, 2001. That notice to proceed informed him that the completion date for the work was September 17, 2001. Mr. Zack should have known at that time whether or not he had already ordered these materials and whether or not that completion date was realistic. Mr. Luthi contacted Component Fabricators on or about August 9, 2001, and was informed that Mr. Zack had not yet ordered the trusses. Any delay of this project because of a failure to receive the trusses in a timely manner was due entirely to Mr. Zack’s failure to get them ordered in a timely manner.

4. Weather delays. Your letter suggests that Mr. Zack was delayed because of the weather. The City disagrees that Mr. Zack is entitled to claim any such delay. Section I(Q)(4)(b) is the provision that sets forth Mr. Zack’s right to contend that he should not be charged with liquidated damages as a result of weather delays. That provision makes it clear that any delays because of weather must be for "abnormal and unforeseeable weather". In addition, the provision requires Mr. Zack to promptly give written notice of such delay to the City. The City is not aware of any "abnormal" or "unforeseeable" weather that occurred between August 1, 2001, and September 17, 2001. Moreover, Mr. Zack has never provided the City with any notice that his delay in completing the project was due to such weather. The City is aware that there were numerous days during this contract period in which Mr. Zack performed absolutely no work on this project. The reason for Mr. Zack’s delay in completing this project is because of his failure to have adequate personnel to perform the work in a timely manner and has nothing to do with any "abnormal or unforeseeable" weather conditions.

5. Interference caused by the City. You allege that Mr. Zack was delayed because of interference by City officials. You have provided no facts upon which that allegation is based. I am aware that there was at least one (1) day towards the end of this contract, where the City notified Mr. Zack that his contract was terminated. Subsequent to that, the City relented and allowed Mr. Zack to complete his work. In calculating the delays on this project, the City has not counted the day where he was prevented from working by the City’s actions. I am not aware of any other circumstances where the City has done anything other than require Mr. Zack to comply with his contract and to comply with the codes of the City. Therefore, the City cannot accept this reason for Mr. Zack’s delays.

6. Correction of the east soffit.. Mr. Zack was informed not to make the correction on the east soffit that he was proposing. He did so anyway, and contrary to instructions by the City. The correction was unnecessary for the project. Therefore, any additional cost, or delay, Mr. Zack is requesting related to this issue is inappropriate.

7. Practice of charging liquidated damages. Your letter suggests that the City does not routinely charge liquidated damages in these types of contracts. That is an incorrect statement. The City imposes liquidated damages whenever that provision in the contract is applicable and whenever the circumstances are appropriate. While the City does in-fact have some discretion in applying these damages, this is certainly not one of the circumstances where the City feels it would be appropriate to waive those damages. As I have indicated above, the City is unwilling to pay Mr. Zack anything more than the sum of $12,707.00, which recognizes a deduction of $2,100.00 in liquidated damages due to Mr. Zack’s delay in completing this project. It is my understanding that the payment of $12,707 to Mr. Zack is currently in the process for approval. Once it has been approved, that payment will be made; however, the City does not intend to pay him any additional amounts. We understand that Mr. Zack’s execution of documents, related to the payment of this amount, does not amount to a release of the City for any amounts that Mr. Zack claims he is owed above and beyond that sum.

Your letter also indicates that if the City is unwilling to accept your offer of settlement, that you want the City to consider your letter as an application for an appeal of the payment. I suspect this language was due, in part, to my earlier comments to you that your letter might want to include such a statement. My earlier comments were based upon a misunderstanding of the rules regarding this type of program. It was my understanding that there was an appeal process that applied to Mr. Zack’s contract with the City. Upon further review of the rules related to this program, I believe that appeal process is only applicable to the property owners that are participants in the program. There is no appeal process available to contractors that have entered into a contract with the City. Their legal rights are simply governed by the terms of that contractual arrangement. Therefore, I do not believe any appeal process is available to Mr. Zack. In any event, Karen Davis, Director of Community Development and Ron Fehr, City Manager have both reviewed the position of the City set forth in this letter. Those two individuals would be the persons responsible for addressing any appeal. They are in agreement with the positions set forth in this letter and therefore, even if such an appeal was applicable, you can consider it denied.

If you have any further questions regarding this matter, please do not hesitate to contact me.