STATE OF FLORIDA, DEPARTMENT ) OF PROFESSIONAL REGULATION, ) FLORIDA CONSTRUCTION INDUSTRY ) LICENSING BOARD, )
vs. ) CASE NO. 80-479
Respondent. )
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, James E. Bradwell, held a public hearing in this case on November 18, 1980, in Fort Lauderdale, Florida.
For Respondent: Barry G. Roderman, Esquire
RODERMAN & BERMAN, P.A.
The issue posed for decision herein is whether or not the Petitioner established, by competent and substantial evidence, that the Respondent, a certified general contractor, engaged in acts and/or conduct which constitute a diversion of funds or abandonment of a construction project in violation of Sections 460.112(2)(e) and (h), Florida Statutes (1977). 1/
Based upon my observation of the witnesses and their demeanor while testifying, the documentary evidence received and the entire record compiled herein, the following relevant facts are found.
The parties stipulated that Respondent, Donald Euske, is a registered general contractor and is the holder of license No. RG0012553, which license is current and active.
On January 24, 1979, Respondent entered into a contract with Messr. Ekstrom for the construction of a "strip" shopping center (Center) for a price of $99,800.00. In this regard, evidence reveals that the parties entered no less than three (3) construction agreements for the subject Center.
According to the terms of the Administrative Complaint filed herein, Respondent abandoned the above referred project on May 15, 1979, when it was approximately 70 percent complete after having received $81,000.00 or approximately 81 percent of the contracted price.
Construction on the Ekstrom Center progressed at a normal rate and Respondent timely obtained all the necessary permits from the Broward County Building and Zoning Enforcement Section to commence construction. (Petitioner's Composite Exhibit No. 1 and testimony of witnesses Reffrett and Marchitello)
Respondent and Messr. Ekstrom had had one other prior contractual relationship for the construction of a commercial building. That building was completed without incident.
As stated, Respondent and Messr. Ekstrom entered at least three (3) agreements for the construction of the subject Center which is situated at 3671- 3687 Davie Boulevard, Fort Lauderdale, Florida. One agreement was entered into primarily for the purpose of obtaining construction and permanent financing; another agreement was entered for what was considered a "turn-key building" and another was entered into for construction of a "shell" without walls and air conditioning. Based on Messr. Ekstrom's prior relationship with Respondent, an acceptable draw schedule was entered and Messr. Ekstrom executed pre-signed draw releases for the construction monies.
Additionally, the agreement was modified by the owner in several particulars including a substitution for tempered glass as opposed to plate glass since it would not comply with Code requirements. The substitution resulted in an upward price adjustment of approximately $900.00 and the parties disagreed as to who should bear the responsibility of that adjustment.
Another item that surfaced as a dispute between the parties was a cost item of approximately $3,000.00 to $3,500.00 for fill dirt. The cost for fill was not specifically mentioned in either of the parties' construction agreements. Messr. Ekstrom refused to authorize payment for the fill, contending that it was an item which was necessarily included in the contracted price whereas Respondent contends that the cost of fill was purposely omitted from the agreement due to the varying soil conditions and varying costs dependent upon the degree of compaction required to bring the building site into Code compliance.
Respondent left the construction site during May of 1979, after the Center was, according to the owner's estimate, approximately 70 percent complete. At that stage, Respondent had erected all exterior walls; completed the roof; roughed the electrical and plumbing systems; erected partition studs and all entrance and exit doors, including windows, were hung.
After learning of his financial difficulties, Respondent approached his accountant who was commissioned to complete a cost analysis such that Respondent could review his expenses, compute his costs and attempt to complete the project and receive a reasonable margin of profit based on what was required to complete the Center. When the cost analysis was completed, Respondent, in fact, approached owner Ekstrom who refused to go along with the payment of any
additional monies over and above that set forth in the contract which called for an agreed price of $99,800.00.
When Respondent left the project, the owner was able to subcontract the work remaining for completion of the building using most of the mechanics previously retained by Respondent.
Using the figures tendered by the owner, approximately $18,000.00 was needed to complete the Center when Respondent left. At that time, there remained in the construction draw account, approximately $19,800 for completion of the building. Thus, there existed in the construction draw account, more than sufficient funds to complete the project.
The McGinnis Project
On July 14, 1978, the Respondent entered into a contract with John McGinnis to construct a residence for a price of approximately $140,000.00. Messr. McGinnis was familiar with Respondent's reputation and workmanship and thus secured his services as a general contractor to build his residence. Numerous changes were made in the design of Messr. McGinnis' residence which delayed construction and increased Respondent's costs. Some of the changes included modifications to room dimensions, substitution of the exterior walls with cedar siding etc.
When the McGinnis project was approximately 94 percent complete, Respondent again found himself in financial trouble and commissioned his accountant to prepare a cost analysis for the McGinnis residence. Based on that analysis, Respondent requested a profit of approximately $25,000 from Messr. McGinnis to complete the project. Messr. McGinnis refused and Respondent advised him that he felt he was entitled to a reasonable profit and could not complete the residence with the remaining funds available in the draw account. Messr. McGinnis utilized the services of the materialmen and subcontractors that were retained by Respondent to complete his residence. Owner McGinnis requested and obtained without difficulty a certificate of occupancy for his residence.
The Respondent's Defense
Respondent has been licensed by Petitioner since approximately 1972. Respondent, as a licensed contractor, has not been the subject of any prior charges or complaints by Petitioner.
During October of 1978, through July of 1979, the subject projects were the only undertakings Respondent had contracted to complete. In bidding on both projects, Respondent projected that the time needed to complete both would be approximately 90 days. In excess of 150 days was needed to complete the projects, part of which was occasioned by changes and unforeseen construction developments which brought about delays in completing the projects. During this period, in addition to himself, Respondent's only other employee was a secretary. In preparing the bid for the two projects, Respondent factored into his bid a weekly salary of $500.00 per week.
Respondent encountered a delay in the Ekstrom project at the outset when he was unable to persuade the owner to prepare the site for construction. When Respondent was unable to persuade the owner to defray the cost for preparing the site for construction, Respondent advanced the approximately
$3,000.00 in costs associated therewith. Another problem Respondent encountered on the Ekstrom project centered around the placement of interior walls. This
problem arose as a result of the owner's uncertainty as to whether or not he wanted to build what is referred to as "double' or "single" spaces which, of course, impacted on the number of interior walls that had to be built in the structure. This resulted in a cost increase of approximately $3,000.00 over and above the amount envisioned by Respondent when the contract was bid upon.
Another problem Respondent encountered at the Ekstrom Center involved the removal of a sign by an adjacent land owner before the roof could be installed at the Center. The owner refused to have the sign removed and Respondent relented resulting in another unforeseen cost of approximately $500.00 over and above that envisioned when the contract was bid.
Respondent approached both owners Ekstrom and McGinnis who refused to compromise when he presented the cost analyses prepared by his accountant.
Respondent admitted that he bid on both projects without allowing for sufficient flexibility to offset cost overruns occasioned by unforeseen developments and/or inflationary trends. However, Respondent credibly testified that he used all of the draw proceeds from those projects exclusively on such projects and diverted no monies therefrom. As a matter of fact, evidence reveals that Respondent placed a second mortgage on his residence and used the mortgage money which was obtained from former Mayor and City Councilman of Hollandale, Edgar H. Galvin, who appeared and testified at this hearing.
Messr. Galvin has known Respondent since approximately 1975, and has utilized his services as a contractor to build a "Taco Beaver" Restaurant in the Broward County area. Messr. Galvin has also retained Respondent to do sundry repairs for a country club and at several other small projects that he owned. Messr. Galvin is familiar with the construction business and has built numerous homes, restaurants, hotels, etc., in the Broward County area. Messr. Galvin credibly opined that fill dirt may well be an extra based on soil conditions, if not expressly mentioned in the construction bid and resulting agreements. Construction costs during the period in question in 1978, were approximately
$35.00 per square foot. Using the $35.00 per square foot construction cost for these projects, both projects were under-bid by Respondent.
Reverend Luther Anderson, the pastor of the First Lutheran Church in Fort Lauderdale, has known the Respondent for approximately ten (10) years. Respondent enjoys a good reputation for truth and veracity in the community and has completed several construction projects for the church and Rev. Anderson, without any problems respecting the quality of the work or the amount charged for his services.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter and the parties to this action. Section 120.57(1), Florida Statutes.
The parties were duly noticed pursuant to the notice provisions of Chapter 120, Florida Statutes.
The authority of the Petitioner is derived from Chapter 468, Florida Statutes (1977). 2/
Insufficient evidence was offered to establish that Respondent diverted funds or property received for completion of the subject construction projects as alleged. To the contrary, evidence reveals that Respondent utilized
all of the funds received for the construction of these projects including the use of borrowed funds to continue progress on the subject construction projects.
Insufficient evidence was offered to establish that Respondent abandoned a construction project as alleged in the Administrative Complaint.
The evidence reveals that Respondent presented the project owners with cost analysis and breakdown schedules and requested that they make a compromise based on rising construction costs and unforeseen circumstances to no avail. The evidence reveals that Respondent's requests for cost adjustments in this regard were reasonable and were not without notification or without just cause as alleged. Therefore, no basis exists to support a conclusion that Respondent's separation from the projects involved herein constitute an abandonment as defined in Section 468.112(2)(h) (presently Section 489.129(1)(k), Florida Statutes (1979). 3/
That the Administrative Complaint filed herein be dismissed in its entirety.
RECOMMENDED this 2nd day of February, 1981, in Tallahassee, Florida.
JAMES E. BRADWELL, Hearing Officer Division of Administrative Hearings The Oakland Building
Filed with the Clerk of the Division of Administrative Hearings this day of February, 1981.
1/ Presently codified as Sections 489.129(1)(h) and (k), Florida Statutes (1979).
2/ Presently codified as Chapter 489, Florida Statutes (1979).
3/ Although it may be persuasively argued that Respondent's difficulties stemmed from his under-bidding of these projects which might well be regarded as an act of negligence on Respondent's part in the preparation of the bids, such acts in and of themselves are insufficient to result in a finding of either a diversion of funds or an abandonment of a construction project as alleged. It is so concluded.
Barry G. Roderman, Esquire Suite 2012, One Financial Plaza Fort Lauderdale, Florida 33394
