Jackson lawsuits stem from weather, delays

What began as simple disagreements about a damaged roof and overage expenses on electrical work at a Jackson School District expansion project led to more than a decade of litigation and millions of dollars in settlements, penalties and fees -- and the case isn't over.

Hundreds of pages of court documents and correspondence among the parties detail the allegations, findings and rulings and hint at the growing tension as the case of Penzel Construction vs. Jackson R-2 School District has worn on.

That suit focuses on Jackson High School Events Center. The Penzel firm won the contract for the project in 2006. The Jackson-based company served as general contractor and hired a number of subcontractors, including Drury Co. of Cape Girardeau and Total Electric of Farmington, Missouri. Drury installed the center's roof, and Total Electric was the electrical contractor for the project.

Though there are a number of parties and issues involved, the multi-prong case boils down to two central contentions:

• Early on, the center's roof sustained water damage. The subcontractor -- Drury -- contended weather caused the problems and the district's insurance should cover costs associated with replacing the roof. The school district countered that the roof hadn't been properly shielded from the elements and Drury should incur any replacement costs.
• The project took much longer to complete than the contract called for -- 15 months longer than the 550 days specified. Total Electric claimed this was because of faulty district-supplied plans and a failure of the district's representatives -- the project's architect and engineering firm -- to provide guidance in a timely manner. The district said the plans were fine and delays were the fault of the subcontractor.

The first lawsuit -- involving the roof -- involved initial damages of $535,000 ($220,000 Penzel and $315,000 Drury). According to Phil Penzel, president of Penzel Construction, he and Drury Co. offered to settle the suit for a total of $270,000, but the district rejected the offer. Ultimately, the case went to the state Supreme Court, and the district lost. Penzel received $402,000, and Drury received $768,000, Penzel said, more than four times the settlement offer.

The second suit -- involving the electrical work -- led recently to the district paying more than $4 million to Total Electric, with the issue of remaining interest to be paid still unsettled. According to correspondence on behalf of Total Electric, the interest could surpass an additional $5 million, though the district disputes the computation.

Jackson superintendent Scott Smith said the suits are unfortunate.

"This matter began with disputes related to project specifications and contractual claims related to ongoing construction at Jackson High School. As detailed in court records, the disputes stem from contracts entered into in 2005 and contract claims brought against the district that arose in 2009. Those claims predate the current Central Office administration," he wrote in an email. "The Jackson R-2 School District is in the business of educating children, and when the District has large construction projects it hires design and construction professionals, including architects, contractors, and other experts to design, manage, and construct those projects. This project was no different. The Jackson R-2 School District looks forward to the final resolution of this matter and remains focused on doing what it does best, providing a high-quality public education for our children."

Roof suit

Weather in the region was extreme in the first part of 2008, with a cycle of severe weather, rain, ice, snow and tornadic events pummeling the area for several months.

It was at this time Drury Co. was in the midst of installing a cementitious roof deck on the events center. However, the precipitation and non-drying conditions not only hampered the work but also allowed water to infiltrate the roof through the plastic sheeting used to cover the roof.

A letter from Warner, Nease, Bost Architects, dated March 26, 2008, and signed by architect Garrett Warner, claims Drury failed to protect the roof from the elements: "... the cementitious roof deck has not been installed in accordance with the specifications or the manufacturer's written installation guidelines. The requirements are very specific with respect to protection of the deck from weather and moisture in particular, yet they have been ignored on this project. The failure to comply with the installation requirements has resulted in visible damage to all components of the deck."

Warner contended Drury should replace the damaged roof panels.

A letter from Penzel, dated April 1, 2008, and directed to Jackson superintendent Ron Anderson, said the company and school district should pursue an insurance claim to replace the roof. The district had self-insured the project up to a total of $500,000 and had an insurance policy on the project through Missouri United School Insurance Council, a not-for-profit insurance cooperative serving most of the state's public schools.

An engineering report to the district from Porter Engineering and Reconstruction Co., dated April 12, 2008, blames weather for the damaged roof but states the roof had not been properly protected. However, the report notes other issues:

Construction obstacles inherent to the roof system designed. The roof design is characterized as antiquated: "It is reasonable to assume that no qualified firm available to the insured in this area has attempted to install such a roof system during the past 20 years."

Lack of control resulting in improper construction sequences. The report indicates insufficient storage areas for materials that would have allowed workers to install the roof in portions, providing better ability to protect the roof from weather.

Failure to provide proper protection. According to the report, the weather protection was not equal to the task: "It is our opinion that the use of 6-mil plastic weighted by lumber was entirely insufficient and inappropriate. ... It is our opinion that the direct cause of this loss is identifiable as negligence on the part of the contractors to properly execute this portion of the expansion project."

In May 2008, a firm hired by the district to work on the project's insurance -- Gallagher Bassett Services Inc. -- informed the district the insurance carrier had denied a claim on the roof loss, with several reasons given, including faulty workmanship, loss of use and wet rot.

For several months, Penzel, Drury Co. president Jerry Cummins, the district and others exchanged letters debating the matter.

The issue went before a mediator in the summer of 2009, with Drury seeking about $360,000 in damages and Penzel seeking just less than $300,000. No resolution came from the mediation.

In July 2010, Penzel, as the general contractor, sued the school district, MUSIC (insurance provider) and the architectural firm, claiming breach of contract. Penzel eventually won the suit, with insurance proceeds covering the total $1.17 million judgment.

The roof portion of the project was complete in September 2008.

The other lawsuit

Total Electric's contract for its portion of the job was $1,040,444. Its breach-of-contract lawsuit against the district was for an additional $1.4 million -- $873,268 labor, $278,500 project management/supervision, $192,982 uncompensated change-order work, $30,000 estimated electrical consultant, $17,294, wage escalation and $15,344 interest. (The eventual suit included Penzel Construction as a litigant because the project contract entitled the general contractor to a 10% fee [overhead and profit] of any additional costs involved with the project. Penzel later waived the fee and exited the suit.)

In court documents, Total Electric contended the additional expenses arose from faulty project plans and communication issues: "It is recognized under the law that when plans and specifications are furnished to the bidding contractor and its subcontractors, there is an implied warranty that the plans and specifications are adequate, and that the intended result will occur when the contractor and its subcontractors follow the plans and specifications."

The contention led to a precedent-setting angle to the case in the State of Missouri. A federal legal theory, raised in United States vs. Spearin, had never been tried in Missouri courts. The theory involves the implied validity and correctness of plans provided by a government body.

Eventually, when the case went to trial in Cape Girardeau County in front of Judge Benjamin Lewis, the judge granted summary judgment to the district.

Penzel, on behalf of Total Electric, appealed the case to the state appellate court on several grounds, including objections with several jury instructions and the trial court's refusal to consider the Spearin component of the case. The appellate court found in Penzel's favor and remanded the case back to the local court.

The local jury found in Total Electric's favor for $800,000 in damages, prejudgment interest at the rate of 9% per year beginning in May 2010 and $630,884 in attorneys' fees.

The district appealed the verdict to the appellate court.

In this round before the appellate court, another issue involved total interest owed, with Total Electric claiming a penalty of 1.5% per month for the district's refusal to pay the judgment. The court found this to be another precedent-setting question (what the court refers to as an issue of first impression).

The case has gone up and down the court system, with the state Supreme Court deciding in Penzel's favor late last year, prompting the $4 million payment from the district, with the final amount still to be determined.

Coming next: Long-running lawsuits sow bad blood.