State faces hard choice after judgment

Cy Ryan

Saturday, June 17, 2006 | 7:42 a.m.

CARSON CITY - Gov. Kenny Guinn may have to make a $750,000 decision.

In the wake of an arbitration panel's ruling that the state owes $10.3 million for its poor handling of the construction of the Veterans Home in Boulder City, the state is faced with basically two choices: incur about $800,000 in estimated interest charges if it waits for the 2007 Legislature to approve the claim, or hold a one-day special session, at an estimated cost of $50,000, to get legislative approval.

On Friday the governor said that he has been talking with legislators about such a session, but at this point, it would be a "last resort."

Attorneys for contractor Addison Inc. and its subcontractors, who won the judgment, are expected to file the arbitration panel's decision in District Court in Las Vegas next week. That could start a tab for additional interest on the judgment.

Meanwhile, I. R. "Rene" Ashleman, a Las Vegas lawyer and public works board chairman, said it will name an acting general manager to replace Dan O'Brien, who quit Thursday after meeting with Guinn. O'Brien will serve until the end of June.

Guinn said Friday he asked for O'Brien's resignation because he "had lost confidence in him, and it was time to go."

Budget Director Andrew Clinger said that in addition to the judgment, the state spent $3.9 million in legal fees and expert-witness costs to defend the suit and binding arbitration with Addison and the subcontractors.

Steve Foster, Addison's vice president for operations, said Friday the firm is considering a defamation suit against the state for comments critical of the company and for eventually removing it from the job.

He said there were continual "negative" statements by David Schmidt, project manager for the state board, "kicking us at every opportunity with the news media."

Guinn said Schmidt is currently managing a tile-replacement project at the Sawyer State Office Building in Las Vegas. The arbitration panel said Schmidt "did not meet his responsibilities" as the project manager for the Veterans Home.

Attorneys for the state said every avenue would be explored in attempting to overturn the $10.3 million decision.

While it is rare that a court will reverse the finding of an arbitration panel, Ashleman said, "there are some examples."

Addison attorney Thomas Kummer said that less than 1 percent of appeals from binding arbitration are successful. There must be a showing of fraud, corruption or other type of misconduct by the arbitrators, he said, and "none of that occurred in this case."

In May 1999 the public works board awarded a $14.7 million contract to Addison. But problems developed during construction and O'Brien fired the company.

The arbitration panel found that the public works board, Schmidt and architect Harry Anderson were responsible for the delays and cost overruns.

In addition to the more than $9.3 million awarded Addison and its subcontractors, the state was also ordered to pay other costs, including the six weeks of arbitration hearings in Las Vegas.