Friday, October 19, 2001
Ohio's attorney general will fight the ruling.
By JEFF ORTEGA
VINDICATOR CORRESPONDENT
COLUMBUS -- None of the $2.4 million in questionable expenses the Mahoning Valley Sanitary District paid a contractor were illegal, a federal judge ruled.
In an order issued late Wednesday, U.S. District Judge George C. Smith granted the Gilbane Building Co.'s motion for summary judgment, dismissing the $2.4 million lawsuit filed by Ohio Attorney General Betty D. Montgomery against Gilbane for repayment of the contested expenses.
The lawsuit stemmed from findings for recovery against Gilbane issued by Ohio Auditor Jim Petro in 1997.
"The court holds, as a matter of law, the auditor's findings for recovery against defendant do not describe illegal expenditures of public money," Judge Smith wrote. Because of that, the judge wrote, the state can't recover the money.
Not satisfied: Montgomery vows to get the judgment overturned, her spokesman said Thursday.
"We disagree with that reading of the law," Montgomery spokesman Joe Case said. "We're frustrated from the legal angle. We can only imagine how frustrated the people of the Mahoning Valley must be."
Meanwhile, the Rhode Island-based Gilbane Building Co. said it feels vindicated.
"We've felt all along that this is an unjust accusation against Gilbane, and we're pleased to have it come to a resolution, & quot; said Wes Cotter, a company spokesman.
Case said he was unsure whether state lawyers would seek a motion for reconsideration or pursue an appeal.
Court records show the sanitary district, which provides water to Youngstown and Niles, hired Gilbane in 1992 to be the construction manager for a multimillion-dollar program to upgrade a water treatment facility.
The original agreement called for Gilbane to receive $1.5 million plus reimbursement for all costs, court records show. The agreement was later changed so that Gilbane would instead receive $112,500 per month for 27 months for construction management services, court records say.
Gilbane and the sanitary district entered another contract in February 1995, which was to run through May 1998. It called for Gilbane to instead receive $5.6 million during a four-year period, say court papers.
Little progress: At some point, the building program fell behind schedule, which Gilbane has said was the fault of the MVSD board of directors for failing to authorize the awarding of construction and procurement contracts that had been bid, court documents say.
Meanwhile, Gilbane continued to get paid under the agreement, despite poor construction progress.
In a special audit issued in 1997, Petro found that Gilbane received public money for work not performed. The special audit also concluded that Gilbane paid another subcontractor public money for design services not supported by documentation and that Gilbane permitted one contractor, the V Group, to earn a profit of more than 80 percent, court documents say.
Money breakdown: Petro's office issued findings for recovery against Gilbane totaling $2.4 million:
* $1.96 million for services not provided.
* $385,000 for services not documented.
* $27,592 connected to change orders.
* $2,308 for improper document reproduction costs.
Judge Smith's decision said that the $1.96 million item resulted from the company's fixed-fee contract and that the contract payments were not tied to construction progress.
The judge's decision said the $385,000 item did not involve public money. The $385,000 paid to Mascaro Inc. of Pittsburgh "clearly came from the $500,000 fixed payment that defendant received for its work during the design phase," the judge's decision said.
"Defendant was free to use that money for any reason including hiring a consultant, paying its employees, or making a charitable donation."
The judge's decision said the two remaining items may have constituted breaches of contract, but they were not illegal.
Supports efforts: Petro said he'll support Montgomery's efforts to have the decision overturned.
"With all due respect to the court, the ruling is wrong and must be overturned," a Petro spokeswoman said. "Ohio law is clear that public funds must be strictly accounted for. Regardless of what any contract may say, it is not lawful for a contractor to receive millions of dollars from a public office for services the contractor acknowledges it did not deliver."
Two former MVSD directors who hired Gilbane to oversee the improvements program -- Edward A. Flask of Poland and Frank D. DeJute of Niles -- also are being sued by the state for $2.4 million based on the special audit.