STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
MORSE DIESEL CIVIL, LLC, )
)
Petitioner, )
)
vs. ) Case No. 00-1202
) DEPARTMENT OF TRANSPORTATION, )
)
Respondent. )
)
RECOMMENDED ORDER
Pursuant to notice, a hearing was held in the case in Tallahassee, Florida, on April 19, 20, and 21, 2000, before William R. Pfeiffer, Administrative Law Judge, with the Division of Administrative Hearings.
APPEARANCES
For Petitioner: Cynthia S. Tunnicliff, Esquire
Brian A. Newman, Esquire Pennington, Moore, Wilkinson,
Bell & Dunbar, P.A. Post Office Box 10095
Tallahassee, Florida 32302-2095
For Respondent: Brian F. McGrail, Esquire
Brian A. Crumbaker, Esquire Department of Transportation
Haydon Burns Building, Mail Station 58 605 Suwannee Street
Tallahassee, Florida 32399-0450 STATEMENT OF THE ISSUE
Whether Respondent, Department of Transportation (DOT), properly denied Petitioner's Application for Qualification to
perform work on DOT contracts which exceed $250,000.00 pursuant to Chapter 337, Florida Statutes, and Rule Chapter 14-22, Florida Administrative Code.
PRELIMINARY STATEMENT
On March 3, 2000, DOT issued a Notice of Intent to Deny Application for Qualification to Petitioner, Morse Diesel Civil, LLC (Petitioner). On March 10, 2000, Petitioner timely filed a Petition for Administrative Hearing.
Petitioner's Petition for Administrative Hearing was filed with the Division of Administrative Hearings on March 20, 2000. The petition was designated Case No. 00-1202 and was initially assigned to Administrative Law Judge William F. Quattlebaum.
Petitioner filed a Motion for Expedited Hearing Date and Discovery Schedule on March 23, 2000. The Notice of Hearing issued March 29, 2000, initially set the final hearing for April 20, 2000, in Tallahassee, Florida. Thereafter, an Amended Notice of Hearing was issued assigning William R. Pfeiffer as the Administrative Law Judge and set the final hearing for April 19, 20, and 21, 2000, in Tallahassee, Florida.
DOT based its written denial of Petitioner's Application for Qualification on alleged false, deceptive, or fraudulent statements made on its application.
At hearing, DOT further alleged that Petitioner failed to submit an audited financial statement that accurately reflected
the financial condition and transactions of its corporation at the time of Application for Qualification, and that Petitioner did not seek to amend the statement and accurately reflect the financial condition and transactions prior to final hearing.
At the final hearing Petitioner presented the testimony of five witnesses and offered nine exhibits. DOT presented the testimony of six witnesses and offered seventy-two exhibits. All of Respondent's Exhibits were admitted into evidence except numbers 3, 4, 25, 29, 31, 57, 61, and 72 which were not admitted into evidence.
Initially, Respondent's Exhibit 14 was not admitted into evidence. DOT presented a certified copy to Petitioner's corporate president, Mitchell Becker during his post-hearing testimony. During his sworn testimony, Mr. Becker identified the Notice of Termination to Morse Diesel International, Inc., stated that he had received a copy of the Notice of Termination while employed as a corporate officer, and that it was a true and accurate copy. DOT then offered the certified copy of the Notice of Termination into evidence over objection of Petitioner, and it is accepted as Respondent's Exhibit 14.
There was an agreement of the parties, approved by the Administrative Law Judge, that the record be kept open for the purpose of obtaining the testimony of Mr. Becker, the corporate representative for Petitioner and two former West Virginia
Department of Highways employees, Mr. Earl Scyoc and Mr. Fred Vankirk. The deposition of Mr. Becker was taken on May 4, 2000. DOT filed a Motion to Substitute Witness on May 9, 2000.
Petitioner filed a response opposing said substitution. The Administrative Law Judge granted Respondent's motion, but limited the testimony of the records custodian to the documents Mr. Earl Scyoc would identify. Ultimately, the Department did not depose either of the West Virginia witnesses for the purpose of filing their testimony for the record.
By stipulation of the parties, the depositions of Jennifer Olson and Robert Teraska were submitted for the record in lieu of their appearance at the final hearing.
The parties timely submitted their respective Proposed Recommended Orders which were considered.
FINDINGS OF FACT
Petitioner, Morse Diesel Civil, LLC ("Morse Diesel"), is a new company created to perform heavy civil construction, in particular large road and bridge projects.
Morse Diesel is owned 80 percent by Morse Diesel Civil, Inc., and 20 percent by KPG, Inc. Morse Diesel Civil, Inc., is owned by AMEC Holdings, Inc.
KPG, Inc., is owned by Richard Kelly ("Kelly") and Jack Palmer ("Palmer"). Together, Kelly and Palmer have over 50 years' experience in heavy civil construction.
On October 8, 1998, Morse Diesel filed an application for qualification with the Florida Department of Transportation ("DOT") to perform all classes of road and bridge work except for bascule bridge rehabilitation. Since the company was new and had not yet performed any work, the letters of recommendation provided in the application related to Morse Diesel International, Inc. ("MDI"). MDI is a large commercial construction management company owned by AMEC Holdings, Inc.
Through DOT requests for additional information, Morse Diesel learned that DOT was interested in the experience of its principals and recommendations regarding their work. The work experience of Kelly, Palmer, John Zito, and Grant Ralston was provided to DOT in response to those requests.
Under Rule 14-22.003, Florida Administrative Code, DOT thoroughly evaluated Morse Diesel and awarded it an Ability Score of 75 out of 100. DOT found that Morse Diesel had the necessary organization and management, adequate equipment, and a
satisfactory work performance record which included an evaluation of the quality of completed work, any history of payment of liquidated damages, untimely completion of projects for which liquidated damages were not paid, cooperative attitude, contract litigations, claims, and defaults. Their score of 75 also included an evaluation of their integrity and responsibility. To
date, Morse Diesel's ability score remains unchanged and in effect.
On January 11, 1999, Morse Diesel was granted a Certificate of Qualification to perform all classes of work requested except major bridges and provided a maximum capacity rating of $200,000,000; that is, the total aggregate dollar amount of uncompleted work a contractor may have in progress at any time.
Thereafter, Morse Diesel applied for a revised Certificate of Qualification to include major bridge classifications. DOT requested and was supplied additional information regarding the work experience of Kelly, Palmer, Zito and Ralston.
DOT served a Notice of Intent to Deny the application for additional classes of work and Morse Diesel filed a request for a Section 120.57, administrative hearing. That case was dismissed as moot when Morse Diesel did not renew its Certificate of Qualification.
On February 2, 2000, Morse Diesel applied for a Certificate of Qualification for all classes of road and bridge work except for bascule bridge rehabilitation. DOT denied its application on March 3, 2000.
The decision to deny an application for Qualification is a very serious matter and each application is thoroughly
evaluated by DOT. Less than one percent of all applications are denied.
The decision to deny the February 2, 2000, application of Morse Diesel was made by the DOT pre-qualification engineer, Lewis Harper. The Notice of Intent to Deny the Application ("Notice of Intent") was written by Mr. Harper and Brian McGrail of the legal staff and identified the factual bases for the denial of the application and all the statutory and rule criteria utilized in the review of the application.
Summary of Allegations
The grounds for denial identified by DOT in the written Notice of Intent are: (a) a record of contract litigation, claims, uncooperative attitude, untimely completion of projects without payment of liquidated damages, and defaults by the management of Morse Diesel (Kelly and Palmer) when they worked for S. J. Groves and Sons, Inc., and Balfour Beatty Construction, Inc., on major bridge projects in Alabama, West Virginia, and Florida; (b) S. J. Groves was defaulted on the Cochrane Bridge Project by the State of Alabama; (c) Kelly and Palmer had substantial supervisory and management responsibilities for the Cochrane Bridge project and contributed substantially to the difficulties experienced by the Alabama Road Department; (d) The answer to Question 19-2 of the application regarding Kelly's and Palmer's involvement in the Cochrane Bridge project does not
accurately reflect their role and is considered false, deceptive or fraudulent; (e) Kelly and Palmer had responsibility for prosecuting work and making decisions for filing claims on the Wierton-Stubenville Bridge project in the State of West Virginia and there were substantial delays and disputes over settlement of claims; (f) Kelly and Palmer were litigious and claims-oriented when they were associated with Balfour Beatty in Florida; (g) MDI is an affiliate of Morse Diesel because Norm Fornella is an officer is both companies and MDI was not listed in the application as an affiliate; (h) Morse Diesel did not advise DOT of the default of MDI; and (i) KPG is an affiliate of Morse Diesel because Kelly is an officer in both companies and KPG was not listed in the application as an affiliate.
The application was not denied due to a lack of adequate experience or equipment.
Although Morse Diesel listed the same affiliates in its 1998 application as it did in its 2000 application, the 1998 application was partially granted and the failure to list affiliates was not a ground for denial of the request for additional classes.
Allegations (a)-(d): Record of Contract Litigation, Claims, Uncooperative Attitude, Untimely Completion of Projects and Defaults by Management of Morse Diesel
The right to submit a claim is a valuable right of the contractor. If a contractor contends he/she is due additional
time and money, it is common for him/her to pursue his/her claims rights. If the liability for unforeseen circumstances falls on the owner, the contractor typically pursues claims based upon the increased cost associated with the extra time and expense occasioned by the unforeseen circumstances.
Kelly and Palmer have been involved in very difficult, highly technical jobs throughout their careers. It is common for these projects to involve a number of problems and related change items. Industry-wide, complex projects often involve change item costs ranging between 12 percent and 20 percent of the contract price.
The Cochrane Bridge Project; Kelly's and Palmer's Involvement; and Application Question 19-2
Construction on the Cochrane Bridge was begun in 1985. Kelly was an executive vice president of S. J. Groves at the time and was also responsible for 30 or 40 other projects. At the same time, Palmer was a vice president of operations for S. J. Groves responsible for 10 to 12 projects. The project manager for the Cochrane Bridge project reported to Palmer and Palmer visited the project every two weeks, mainly to solve problems.
The Cochrane Bridge was one of the first cable-stayed bridges built in the United States. It was designed by an Italian design firm and could not be built in accordance with the method of construction proposed by the designer. Moreover, each
time there was a design problem, the Italian design firm had to be consulted, which took a great deal of time and caused delays.
The Cochrane Bridge was designed to withstand a certain maximum load after construction was completed. The bridge, however, was undergoing greater stress while it was under construction. Consequently, disagreement ensued over the sequence of erection, whose responsibility it was to develop the erection sequencing, whether additional strengthening was needed during construction and, if so, who would pay for it.
While these issues were addressed, S. J. Groves stopped work on the project. The State of Alabama requested Groves to work on other areas of the project during the down-time, but Mr. Groves refused for economic reasons. Alabama threatened to default Groves if they did not return to work. Kelly and Palmer attended several high-level company meetings where the issue of whether to continue the project was discussed by Franklin Groves, the owner of S. J. Groves, as well as the company's president and general counsel. Although Kelly and Palmer recommended that S.
J. Groves remain on the project, their recommendation was overruled and a default was entered by the State of Alabama.
Kelly and Palmer left S. J. Groves within 6 months of the default and formed their own company, RNE, in 1989.
There is no reliable evidence that they "contributed substantially to the difficulties experienced by the Alabama Road Department" as charged in the Notice of Intent to Deny.
S. J. Groves pursued litigation against the Alabama road department regarding the default and a settlement was reached. The contractor chosen to take over the job after the Groves default, filed claims of approximately $10,000,000 to
$12,000,000, and also wound-up in litigation with the State of Alabama.
There were thirty to forty vice presidents of S. J. Groves. Neither Kelly nor Palmer understood that they served as a corporate officer of S. J. Groves until after Morse Diesel had filed the 1998 application and were shown corporate forms filed with the Secretary of State.
In response to Question 19-2 in the application, Morse Diesel stated: "Richard Kelly and Jack Palmer were denominated vice presidents of S. J. Groves, which defaulted on a job in Alabama in 1989. S. J. Groves had a number of people denominated as Vice Presidents and neither Mr. Kelly nor Mr. Palmer was at the level of management responsible for the decision to abandon the Cochrane Bridge Project. Both Mr. Kelly and Mr. Palmer recommended against abandoning the project and were overruled. They then left the company." There is no evidence which contradicts this finding.
Allegation (e): Kelly's and Palmer's Involvement in the Wierton- Stubenville Project
DOT presented no evidence to support its charge in the Notice of Intent that Kelly and Palmer were responsible for making the decision to file claims on the Wierton-Stubenville Bridge in the State of West Virginia and that there were substantial delays and disputes over settlement of claims. The only direct evidence is that Kelly was not involved in the preparation of claims or claims settlement on the Wierton- Stubenville project. The record is silent as to Palmer's involvement, if any.
Allegation (f): Kelly's and Palmer's Involvement in Litigation and Claims at Balfour Beatty
Kelly and Palmer were involved in Balfour Beatty's initial foray into the heavy civil construction business in Florida. In the early 1990's, Kelly met with DOT on Balfour Beatty's application for qualification to bid. At that time, DOT was on notice and inquired about Kelly's and Palmer's involvement in the S. J. Grove's default in Alabama. The Cochrane Bridge project was discussed in detail during a meeting held at DOT headquarters in Tallahassee. After being qualified,
Balfour Beatty bid $82,000,000 on a large I-95 project in Broward County and was the successful low bidder by $1,000,000.
In the beginning of the project Kelly and Palmer acquired staff and equipment, wrote purchase orders for
materials, and supervised the project. On December 31, 1991, Dan White was hired as the project manager and Palmer visited the site every couple of weeks until problems on the project escalated.
As the project manager, Dan White was in charge of the job and was responsible for the filing of claims. There were right-of-way problems and contaminated soil which delayed the project from the beginning. An initial design problem resulted from the project having been designed by two different design firms operating from different types of surveys. Consequently, the road was not aligned at the same elevation to match existing structures. These elevation problems shut down the project for months.
None of the design, right-of-way, or soil contamination problems was the fault of Balfour Beatty. Nonetheless, DOT rejected all change items and required Balfour Beatty to file claims.
A lawyer for DOT eventually became involved in the project in an attempt to settle the disputes which resulted in the preparation of Supplemental Agreement Number 73. SA-73 settled the claims up to that date, set new dates for project completion and paid money for completion by those dates. SA-73 was entered into based upon DOT's assurance that a constructibility review had been completed to make sure that the
remainder of the project could be constructed in accordance with the existing plans and there would be no further design problems.
However, the constructibility review was not complete and new design problems occurred immediately. The design of the parking lots was changed as they were being built. Core holes, used to determine the depth and density of the pavement had not been drilled. This caused more delays and claims. Balfour Beatty filed a lawsuit against DOT, Morrison Knudsen, the CEI on the project, and DOT personnel on site. The case was settled against DOT and its personnel for $4,750,000 and a jury awarded
$4,300,000 against Morrison Knudsen.
Balfour Beatty remains qualified to bid on DOT projects and was awarded a contract to build the Fuller Warren Bridge in Jacksonville. Kelly and Palmer, as consultants to Balfour Beatty, participated in preparing the bid for the Fuller Warren Bridge and that project is currently staffed with many of the same personnel who worked on the Broward County I-95 project, including the project manager, Dan White.
The Broward County I-95 project was awarded on a bid of
$82,000,000. DOT paid Balfour Beatty $97,000,000. The completion of the I-95 project was one to two years late and resulted in over 100 claims being filed. The Fuller Warren Bridge project was awarded on a bid of $81,000,000 and has cost to date approximately $94,000,000 to $96,000,000.
None of the problems on the I-95 project were caused by Kelly or Palmer. Neither Kelly nor Palmer was involved in the preparation of the lawsuit or its settlement.
ALLEGATION (g): Statements in the Application on Affiliations
According to DOT's application,
"The term 'affiliate' means a predecessor or successor of a contractor under the same, or substantially the same, control or a group of business entities which are connected or associated so that one entity controls or has the power to control each of the other business entities. The term 'affiliate' includes the officers, directors, executives, shareholders active in management, employees and agents of the affiliate. The ownership by one business entity of a controlling interest in another business or a pooling of equipment or income among business entities shall be prima facie evidence that one business entity is an affiliate of another."
In its application for bid qualification, Morse Diesel listed Morse Diesel Civil, Inc. and AMEC Holding, Inc. as its affiliates. Morse Diesel did not identify either MDI or KPG as "affiliated companies" in response to question number 8 in the application. The application was prepared under the direction of Morse Diesel's President, Mitchell Becker who has a master's degree in civil engineering and a law degree. Based upon his interpretation of the definition, he determined in good faith that MDI and KPG were correctly omitted from the response to question 8 because neither met the criteria for "affiliate" as defined in the application.
The answer to question 8 is the same in both the 1998 application and the 2000 application and DOT did not request additional information in the 1998 application related to the response nor did it list the failure to name MDI and KPG as affiliates as a ground for denial of the additional classes of work in 1999.
There was a notation on page 2 of 19 in the 1998 application referring to MDI as a "sister company." The question requested letters of recommendation. Morse Diesel was a newly formed company, and did not have recommendations for projects it had completed. Instead, it supplied the recommendations of MDI. It became apparent to Morse Diesel through subsequent requests for additional information that DOT was interested in recommendations about the principals and management of Morse Diesel, not MDI. Consequently, when filing its 2000 application, Morse Diesel did not supply MDI letters of recommendation and instead provided recommendations on previous work completed by Morse Diesel personnel while associated with other companies.
The only entities that are predecessor entities or have any control over Morse Diesel are Morse Diesel Civil, Inc. and AMEC Holding, Inc. KPG is not a predecessor or successor of Morse Diesel and has no ability to control it with 20 percent ownership. Similarly, MDI is not a predecessor or successor entity and has no controlling interest in Morse Diesel.
There was no intent to hide the nature of Morse Diesel's relationship with MDI or KPG. The fact that Mr. Becker and Mr. Fornella are officers of both Morse Diesel and MDI is clearly stated in their résumés in the application. It is DOT's policy to deny application for misrepresentation only when it is intentional.
Morse Diesel listed MDI as an affiliate in its Virginia application because the definition of "affiliate" in that application was broader and appeared to encompass MDI.
Footnote 3 on page 7 of the audited financial statements refers to a transfer of funds from MDI to Morse Diesel. Mr. Becker, as president of Morse Diesel testified that the footnote in the financial statement attached to the application was a mistake. MDI has never advanced money to Morse Diesel. The advances made to Morse Diesel were made by Morse Diesel Civil, Inc. Mr. Becker as president of Morse Diesel is aware of the financial condition of the company and reviews the financial statements each month.
There is no pooling of equipment or income between Morse Diesel and MDI.
Allegation (h): Notice of the MDI Default
Question 19-2 on page 16 of 23 of the application asks whether "any officer or partner of your organization has ever been an officer, partner or owner of some other organization that
has failed to complete a construction contract?" In response to that question, Morse Diesel explained in the application that Kelly and Palmer had been associated with S. J. Groves when it defaulted on the Cochrane Bridge project in Alabama, but otherwise answered the question "no." Although Mr. Becker and Mr. Fornella are officers of both MDI and Morse Diesel, the application did not reveal the default of MDI on a project in St. Louis because the company is contesting the default and has not as yet failed to complete that construction contract; it is in litigation.
There is no credible evidence that Morse Diesel or Mr. Becker intentionally omitted any information from the 2000 application.
Allegation (i): See Findings for Allegation (g).
Morse Diesel has demonstrated that it is competent and has experience to prosecute the work requested in the application.
DOT has allowed at least one other applicant to amend its application to identify related companies as affiliates after DOT has denied certification on that basis.
The résumés in the application and evidence presented at hearing reflect the work experience of the management of Morse Diesel and indicate extensive experience in heavy civil construction, including highly complex projects.
The management of Morse Diesel has experience constructing all the types of road and bridges for which qualification is sought.
Morse Diesel has been qualified in New Jersey, North Carolina, South Carolina, Virginia, Delaware, and Pennsylvania. Furthermore, Pennsylvania qualified Morse Diesel on the condition that Mr.Palmer remain associated with Morse Diesel and involved in any project awarded there.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction of the parties to, and the subject matter of, this proceeding. Section 120.57, Florida Statutes. (All references are to rules and sections of the Florida Administrative Code and Florida Statutes, respectively.)
The burden of proof is on the party asserting the affirmative of the issue in this proceeding. Department of Transportation v. J.W.C. Co., 396 So. 2d 778 (Fla. 1st DCA 1981); Antel v. Department of Professional Regulation, 522 So. 2d 1056 (Fla. 5th DCA 1988); and Balino v. Department of Health & Rehabilitative Services, 348 So. 2d 249 (Fla. 1st DCA 1977).
Although the Notice of Intent to Deny Qualification issued by DOT alleged several enumerated grounds for denial, Petitioner met its initial burden of proof and established a
prima facie case for entitlement to a Certificate of Qualification under Section 337.14 which requires:
. . . Each applicant seeking to bid on construction contracts in excess of $250,000 shall furnish the department a statement under oath, on such forms as the department may prescribe, setting forth detailed information as required on the application. Each application for certification shall be accompanied by the latest annual financial statement of the applicant completed within the last 12 months. . . . Each audited annual or interim financial statement must be accompanied by the opinion of a certified public accountant or a public accountant approved by the department. . . .
(3) Upon receipt of an application for
certification, the department shall examine it, verify its statements when necessary, and determine whether the applicant is competent, is responsible, and possesses the necessary financial resources to perform the desired work.
In this proceeding, Petitioner is asserting the affirmative, that it is entitled to the Certificate of Qualification to bid on DOT contracts in excess of $250,000.00 pursuant to Section 337.14, Florida Statutes, and bears the ultimate burden of persuasion that its application should be granted.
Section 337.167 adopted by the legislature in 1983, states:
A certificate to bid on a department contract, or to supply services to the department, is intended to assist the department in determining in advance the performance capabilities of entities seeking to supply goods and services to the department and is not a "license" as defined
in s. 120.52. The denial or revocation of a certificate is not subject to the provisions of s. 120.60 or 120.68(3). The provisions of ss. 120.569 and 120.57 are applicable to the denial or revocation of such certificate.
The instant proceeding was initiated as a result of DOT's issuing a Notice of Intent to Deny Qualification to Petitioner to bid on DOT contracts in excess of $250,00.00. Petitioner applied for qualification in October 1998 and was granted a certificate for limited classifications of work, minor and intermediate structures.
Petitioner applied for additional classes of work in February 1999. This request was denied on April 30, 1999. Thereafter, Petitioner's certificate to bid on DOT contracts expired. Petitioner filed a new Application for Qualification, including the additional classes of work, on February 2, 2000. DOT denied the application on March 3, 2000.
The petition for a formal administrative proceeding, as in this case, commences a de novo proceeding. J.W.C. Co., 396 at 785. See General Development Corp. v. Division of State Planning, 353 So. 2d 1199 (Fla. 1st DCA 1977). A de novo proceeding is intended "to formulate agency action, not to review action taken earlier and preliminarily." McDonald v. Department of Banking and Finance, 346 So. 2d 569, 584 (Fla. 1st DCA 1977).
Pursuant to Section 337.16(2), DOT is authorized to deny or revoke a contractor's Certificate of Qualification for
good cause. Section 337.16(2) provides in pertinent part as follows:
(2) For reasons other than delinquency in progress, the department, for good cause, . .
. may deny, suspend or revoke any certificate of qualification. Good cause includes, but is not limited to, circumstances in which a contractor or the contractor's official representative . . . .
The statute clearly contemplates that "good cause" can be established as to the circumstances pertaining to the contractor or the contractor's official representative.
Rule 14-22.012(1)(a) states that the contractor's Certificate of Qualification shall be denied or revoked for at least one year when it is determined by DOT that good cause has been demonstrated. Good cause is specifically contemplated by the operation of the statute and rule to deny an application for qualification.
Petitioner unsuccessfully argued in its Motion in Limine that DOT cannot properly consider, as evidence of "good cause," the history of contract litigation, claims, untimely completion of projects without liquidated damages, defaults or uncooperative attitude with project owners because these are enumerated criteria under Rule 14-22.003, which concerns rating the applicant. Though rating the applicant is one function in the application review, DOT may consider these criteria, as well, in determining whether "good cause" exists to deny an applicant
qualification. DOT must act reasonably when evaluating the eligibility of each applicant.
It is clear from the context of the statute and rule that "good cause" is not restricted to the six expressed circumstances that demonstrate "good cause." DOT can reasonably rely on its own interpretation of the statutes and rules to take such action and is entitled to great deference. State Contracting and Engineering, Corp. v. Department of Transportation, 709 So. 2d 607 (Fla. 1st DCA 1998).
Holding a Certificate of Qualification entitles a contractor the privilege of bidding on DOT contracts in excess of
$250,000. Denial of a contractor's qualification does not deprive him of his livelihood to engage in other business as would the denial of a professional or business license.
Petitioner's claim that it has a right to do business in the State of Florida is not a guarantee or a right to be qualified with DOT to bid on construction contracts in excess of
$250,000.00. Petitioner has the burden to demonstrate it has met all the statutory and rule requirements entitling it to a Certificate of Qualification.
Allegations of Excessive Claims, Contract Litigation, Project Delays, and Defaults
DOT points to substantial claims, contract litigation, construction delays, and one default on projects Kelly and Palmer worked on while associated with other contractors as
grounds for denial. Specifically, DOT states in its Notice of Intent that "Messrs. Kelly and Palmer had substantial supervisory and management responsibilities for the Cochrane Bridge Project and contributed substantially to the difficulties experienced by the Alabama Road Department"; and with respect to a project in West Virginia, that "Messrs. Kelly and Palmer were in positions of substantial responsibility for prosecuting work and decision making for filing claims on that project."
DOT has not alleged and has not provided evidence that the claims and litigation Mr. Kelly and Mr. Palmer presented were either fraudulent or meritless. Likewise, DOT has not presented any evidence from which it can be concluded that Kelly or Palmer were responsible for or made the decision to file the claims or litigation on this project. Finally, DOT has not presented any evidence from which it could be determined whether Kelly or Palmer was responsible for any of the construction delays on these projects or the default on the complex Cochrane Bridge project. Instead, DOT seems to suggest that the mere existence of claims, litigation, delays, and the default demonstrates an "uncooperative attitude" on the part of Kelly and Palmer, and that it can deny the application on that basis.
DOT points to the language of Rule 14-22.012 and argues that the rule does not enumerate an exhaustive list of grounds which constitute "good cause" to deny an application. However,
an agency must put an applicant or licensee on reasonable notice of the conduct which is proscribed. Section 120.54 specifically states:
Rule-making shall be presumed practicable to the extent necessary to provide fair notice to affected persons of relevant agency procedures and applicable principles, criteria or standards for agency decisions unless the agency proves that:
Detail or precision in the establishment of principles, criteria or standards for agency decisions is not reasonable under the circumstances, or
The particular questions addressed are of such a narrow scope that more specific resolution of the matter is impractical outside of an adjudication to determine the substantial interests of a party based on individual circumstances.
"Good cause" under Rule 14-22.012 cannot be demonstrated by the mere existence of past claims, contract litigation, defaults, or delays of non-DOT contracts. DOT has unreasonably failed to properly consider the causes and culpability of these past incidences.
Although DOT in evaluating whether "good cause" exists, may reasonably consider an applicant's history of substantial claims or litigation, there must be some showing of frivolity, fault, or malfeasance in filing the claims or litigation. Assertion of one's lawful rights under a contract cannot be ground for denial of an application. Moreover, DOT cannot require a contractor to file claims in order to formalize legitimate change orders and then use the filing of the same
claims as a basis to deny bidding on future projects. Likewise, citing construction delays or defaults, without determining the cause of the delay or default, cannot support denial of the application.
Although there are no reported Florida decisions on point, at least one other jurisdiction has recognized that similar accusations do not constitute adequate grounds to disqualify a contractor from bidding on a public project. In Hilton Construction Company, Inc. v. Rockdale County Board of Edu., 266 S.E. 2d 157 (Ga. 1980), the Georgia Supreme Court held that the Board of Education wrongly disqualified Hilton's bid on a public project because it "heard" that Hilton was late on another project. In rejecting such hearsay as a basis for disqualification, the Court stated:
Finally, the information conveyed to the board at its July 2 meeting that plaintiff was late on the Georgia Tech project did not establish that the plaintiff was not responsible. Being late on a project without any finding as to who caused the delay does not show that a bidder was not 'responsible'. Id. at 161.
While these grounds do not support denial of Morse Diesel's application, it is concluded that Morse Diesel has demonstrated through evidence of Mr. Kelly's and Mr. Palmer's past experience with numerous successful projects that they do not have a "history" of involvement with problematic projects. To the contrary, with over 50 years of collective experience Mr.
Kelly and Mr. Palmer have been involved in only one project that was defaulted by the owner. The irrefuted testimony is that the Cochrane Bridge default, which occurred 11 years ago, was entered after the contractor abandoned the project and over the objections of Mr. Kelly and Mr. Palmer.
Furthermore, DOT admitted it has granted the applications of other contractors who have previously defaulted on other projects. DOT has an obligation to evaluate applicants for pre-qualification uniformly. "Inconsistent results based upon similar facts, without a reasonable explanation, violate Section 120.68(12)(b) as well as the equal protection guarantees of both the Florida and United States Constitutions." Amos v. Department of Health and Rehabilitative Services, 444 So. 2d 43, 47 (Fla. 1st DCA 1983).
False, Deceptive or Fraudulent Statements in the Application
DOT also contends the 2000 application contains several false omissions or misstatements justifying denial under Section 337.16(2)(a). First, DOT contends that Morse Diesel failed to identify MDI and KPG as affiliates in response to question 8. Second, DOT contends the application misrepresented Mr. Kelly's and Mr. Palmer's involvement in a default which occurred on the Cochrane Bridge project. Finally, DOT contends the application fails to identify a default of MDI on a federal project in St. Louis, Missouri.
Under Rule 22-14.012(1)(a)1 (by reference to Section 337.16(2)(a)), an application may be denied due to the submission of a false, deceptive, or fraudulent statement in an application for Certificate of Qualification. According to testimony from the DOT's pre-qualification engineer, DOT's policy is to deny applications when an intentional misstatement or omission occurs in the application process. This policy is clearly stated in the application as follows:
NOTICE
APPLICANTS FOR PREQUALIFICATION ARE HEREBY NOTIFIED THAT INTENTIONAL INCLUSION OF FALSE, DECEPTIVE OR FRAUDULENT STATEMENTS ON THIS APPLICATION CONSTITUTES FRAUD. FURTHERMORE, YOU ARE HEREWITH NOTIFIED THE STATE OF FLORIDA CONSIDERS SUCH ACTION ON THE PART OF THE APPLICANT TO CONSTITUTE GOOD CAUSE FOR DENIAL, SUSPENSION OR REVOCATION OF A CERTIFICATE OF QUALIFICATION FOR BIDDING ON STATE AND FEDERAL-AID HIGHWAY PROJECTS LET TO CONTRACT BY THE STATE OF FLORIDA DEPARTMENT
OF TRANSPORTATION. (emphasis added)
Consistent with this policy, DOT has admittedly allowed at least one other applicant to subsequently cure its failure to completely identify all of its affiliated companies on its application. This policy is consistent with decisions interpreting similar provisions which hold that denial of a license based upon a false statement in an application requires a showing of the applicant's intention to mislead or deceive.
Savino v. Department of Health, Board of Medicine, DOAH Case No. 97-3635; and Schmidt v. Department of Insurance and
Treasurer, DOAH Case No. 85-0789. In other words, an application will not be denied based upon an innocent, non-material misstatement or omission as long as the application as filed otherwise demonstrates the applicant's fitness.
There is no evidence that Morse Diesel made any intentional misstatement or omission in either of its applications. According to the testimony of Mitchell Becker, Morse Diesel's President and CEO, the applications filed by Morse Diesel did not list MDI or KPG as affiliates because he did not consider these related entities to be affiliates under the definition contained in the application.
There was no attempt made by Morse Diesel to hide its relationship with MDI or KPG. In fact, the résumés of Mitchell Becker and Norman Fornella (vice president/secretary of Morse Diesel) attached to the 1998 and 2000 applications state that both are officers in MDI. Attachment A to the 2000 application indicates that KPG owns 20 percent of Morse Diesel.
DOT points to Morse Diesel's identification of MDI and KPG as affiliates in an application it filed with the Virginia Department of Transportation as evidence of its intentional omission of MDI from DOT applications. The Virginia application, however, defines "affiliate" more broadly than the definition found in DOT's application.
DOT also challenges Morse Diesel's failure to reveal the default of MDI on a project in St. Louis in response to Question 19-2. Question 19-2 asks whether any officer or partner of the applicant has ever been an officer, of some other organization "that has failed to complete a construction contract." It does not ask whether the organization has ever been "defaulted." A contractor may be defaulted by a project owner and later complete the construction of the same project. The irrefuted testimony from Mr. Becker is that MDI is legally challenging the default which was declared in June 1999 and has not "failed to complete" the project.
Moreover, the default of MDI is not material to DOT's consideration of Morse Diesel's application. According to Rule 14-22.012(1)(c), an application can be denied:
"[I]f the contractor is an affiliate of a contractor who has been determined non- responsible, pursuant to Rule 14-22.0141, F.A.C., or whose Certificate of Qualification was suspended, revoked, or denied and the contractor is dependent on the affiliation for personnel, equipment, bonding capacity, or financial resources, then that contractor's Certificate of Qualification shall be suspended, revoked, or denied for the same time period as the affiliate."
There is no evidence that Morse Diesel relies upon MDI for personnel, equipment, bonding capacity, or financial resources. Moreover, there has been no evidence or allegation that MDI was found non-responsible under Rule 14-22.014 or that MDI has been
pre-qualified in the State of Florida. Accordingly, MDI's performance on the St. Louis project is irrelevant to DOT's consideration of Morse Diesel's application.
Finally, DOT contends that Morse Diesel's response to Question 19-2 mischaracterizes Mr. Kelly's and Mr. Palmer's participation in the default on the Cochrane Bridge project. Question 19-2 asks whether "any officer or partner of your organization ever been an officer, partner or owner of some other organization that has failed to complete a construction contract." According to the testimony of Mr. Palmer and Mr. Kelly, Morse Diesel answered this question in the negative in the 1998 application because they were not aware that they were corporate officers of S. J. Groves at that time. Rather, they testified that they thought they were vice presidents in title only. The 2000 application was prepared after DOT brought to their attention that they were, in fact, corporate officers of
S. J. Groves according to corporate records on file with the Secretary of State. And in fact, Morse Diesel then amended its answer to Question 19-2 in the 2000 application to read:
Richard Kelly and Jack Palmer were denominated Vice Presidents of S.J. Groves, which defaulted on a job in Alabama in 1989.
S. J. Groves had a number of people denominated as Vice Presidents and neither Mr. Kelly nor Mr. Palmer were [sic] at the level of management responsible for the decisions to abandon the Cochrane Bridge Project. Indeed, both Mr. Kelly and Mr. Palmer recommended against abandoning the
project and were overruled. They then left the company.
Mr. Kelly and Mr. Palmer testified that the Cochrane Bridge project was defaulted after S. J. Groves refused to work on a certain phase of the project out of schedule. S. J. Groves then failed to complete the contract. The decision to abandon the project work was made by their superiors over their objection.
Their account of the circumstances of the default was both accurate and consistent with the statement contained in the 2000 application.
Finally, Rule 14-22.002(g) requires DOT to contact the applicant when it finds the application is either incomplete or inaccurate to afford the applicant the opportunity to cure any deficiency. DOT admittedly did not request any information from Morse Diesel after the 2000 application was filed despite being aware of the misstatements. DOT cites Morse Diesel's request to expedite its review of the 2000 application as justification for not requesting further information. Although Morse Diesel did request that its 2000 application not be unduly delayed due to requests for more information, this request was not a waiver of its right to cure an unintentional misstatement or omission in the application. It is, therefore, found that any inaccuracies in Morse Diesel's 2000 application have been cured through the disclosures made in this process.
Accordingly, it is found that Morse Diesel did not intentionally make or submit any false, deceptive or fraudulent statements in its application in violation of Rule 14-22.012 or Section 337.16(2)(a).
Based on the foregoing Findings of Fact and Conclusions of Law, it is
RECOMMENDED that Morse Diesel be permitted to supply DOT with corrections to the unintentional inaccuracies in its application and be pre-qualified in the classifications for which it applied.
DONE AND ENTERED this 5th day of July, 2000, in Tallahassee, Leon County, Florida.
WILLIAM R. PFEIFFER
Administrative Law Judge
Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-3060
(850) 488-9675 SUNCOM 278-9675
Fax Filing (850) 921-6847 www.doah.state.fl.us
Filed with the Clerk of the Division of Administrative Hearings this 5th day of July, 2000.
COPIES FURNISHED:
Cynthia S. Tunnicliff, Esquire Brian A. Newman, Esquire Pennington, Moore, Wilkinson,
Bell & Dunbar, P.A. Post Office Box 10095
Tallahassee, Florida 32302-2095
Brian F. McGrail, Esquire Brian A. Crumbaker, Esquire Department of Transportation
Haydon Burns Building, Mail Station 58 605 Suwannee Street
Tallahassee, Florida 32399-0458
Pamela Leslie, General Counsel Department of Transportation
Haydon Burns Building, Mail Station 58 605 Suwannee Street
Tallahassee, Florida 32399-0458
James C. Myers
Clerk of Agency Proceedings Department of Transportation
Haydon Burns Building, Mail Station 58 605 Suwannee Street
Tallahassee, Florida 32399-0458
NOTICE OF RIGHT TO SUBMIT EXCEPTIONS
All parties have the right to submit written exceptions within 15 days from the date of this Recommended Order. Any exceptions to this Recommended Order must be filed with the agency that will issue the final order in this case.
| Issue Date | Document | Summary |
|---|---|---|
| Sep. 29, 2000 | Agency Final Order | |
| Jul. 05, 2000 | Recommended Order | Department of Transportation improperly denied Petitioner`s Application for Qualification to perform construction work on Department contracts. |
