R-5000 contractor under suit: DeVere being sued by bonding company
There’s another kink in the knot surrounding the ill-fated R-5000 road project connecting N.C. 107 and N.C. 116 in Jackson County — a legal battle raging between DeVere Construction, the company originally hired to build the road, and its bonding company Liberty Mutual.
According to Liberty, which is suing DeVere for $12.5 million, DeVere “willfully breached” its duty to Liberty in the way it spent funds from the bonding company, and the company also “intentionally submitted false, misleading and/or inaccurate information contained in the financial statements submitted to Liberty.”
“As a direct and proximate result of (DeVere’s) Indemnitors’ violation of law, Liberty has been damaged,” the suit alleges.
In its reply, Devere denies many of the allegations, and of the actions it admits — such as spending money from Liberty for overhead expenses rather than directly on the project it was intended for — it casts blame elsewhere. Namely, at the N.C. Department of Transportation.
“After 31 years of successful contracting, we have come to the realization we cannot recover from the damage done to our firm by the North Carolina Department of Transportation,” DeVere’s president Dick Crittenden wrote in a Nov. 24, 2015, letter to Liberty. In the company’s reply to the lawsuit, DeVere points to the “cash flow issue caused by the North Carolina Department of Transportation’s intentional and improper failure to timely pay DeVere for projects it had completed.”
For its part the DOT says that the $4.9 million of payment withheld from DeVere’s North Carolina projects was done according to contract and due to the company’s routine tardiness meeting deadline — the same reason DOT stopped awarding any new projects to DeVere in 2014.
In Liberty’s book, the issue goes back to 2013, when financial statements from the individuals named in DeVere’s indemnity agreement — Crittenden, Cheryl Lumsden and Cynthia Gabara — were submitted to assure Liberty there was enough collateral there to protect Liberty from harm. The statements claimed more than $20 million in total assets.
But when the statements were resubmitted two years later, they reported just about $7.5 million in total assets. The marked difference between the two claims set off red flags for Liberty.
“Had Liberty been aware of the misrepresentations and/or decrease in available assets, Liberty would not have continued with the bonding program it had in place on behalf of DeVere Construction,” the suit reads.
As a result, Liberty sent a Nov. 20, 2015 demand that the indemnitors post collateral and allow the bonding agency access to its books.
According to Liberty, the indemnitors never executed the agreement, never posted the collateral Liberty demanded and denied Liberty access to its books, though DeVere replied that it allowed the access.
DeVere did, however, write a letter four days later asking Liberty to bankroll its overhead for a long list of current projects — and, also, attorney’s fees for claims against the N.C. DOT. According to the letter, DeVere has more than $21 million in pending claims against the DOT.
“We are confident that between receipts from the Liberty bonded jobs and the proceeds from our legal actions regarding these jobs, DeVere will be able to repay all advances,” the letter reads.
Liberty agreed to advance DeVere $2.5 million.
But the requests didn’t stop there. On Jan. 5, DeVere asked for an additional $4.1 million to keep its projects going, saying that “without such additional financial assistance from Liberty they will be unable to satisfy their obligations on the projects bonded by Liberty,” according to court documents.
Liberty didn’t say no. But it did require that DeVere agree to a stringent set of terms, including liens on title to an array of eight vehicles — including campers, a sailboat and a snowmobile — owned by the three indemnitors and a list of all assets contained in trusts to which the three had an interest.
DeVere did not comply with the agreement, and after a charged Jan. 28 email exchange during which Liberty told DeVere that walking off the project was not its only option and DeVere insisted it was, it became clear that Liberty and DeVere would not come to an agreement. On Jan. 29, DeVere walked off its remaining projects with the N.C. DOT, including R-5000 in Webster. By Feb. 8, the DOT had deemed DeVere officially in default.
DeVere is alleging that the DOT didn’t pay the company on time, creating the bedrock of its troubles with Liberty. But the DOT and DeVere don’t have a rosy history. In 2014, the company was banned from bidding on any new projects with the DOT due to its tendency to miss deadlines. The R-5000 project at Southwestern Community College began in January 2013, before that ban went into effect, but according to division engineer Brian Burch, DeVere deadline issues have been present on that project as well.
The R-5000 project had been scheduled to be driver-ready in November 2015, a deadline that DOT was expecting the company to meet, Burch said. There didn’t seem to be a good reason for the delay.
“From our perspective they didn’t pursue the work toward the end of the season and they were not having subcontractors complete the work, nor were they completing their work, so unfortunately they ended up defaulting,” Burch said.
After DeVere had missed its deadline without being able to convince DOT there was need for an extension, they started getting hit with penalties — to the tune of $1,500 per day. So far, DOT has held $218,000 from the $15.9 million construction contract for damages, Burch said.
The situation with R-5000 pales in comparison to that of other DeVere projects in North Carolina. A bridge project along Interstate 26 in Buncombe County, for example, was supposed to be done by now but is only 62 percent complete.
“They didn’t uphold their contract and meet deadlines, and the contract includes nonpayment of services if you don’t meet certain deadlines,” said DOT spokesman Steve Abbott.
Now that DeVere has defaulted, it’s up to Liberty to get the work completed. DOT will not have to pay anything above its original contract with DeVere and will continue to hold $1,500 per day until the work is complete. Liberty has secured Waynesville-based WNC Paving to finish the work, something that Burch feels bodes well for the project.
“Based on our history with WNC Paving, we expect things will go well,” he said.
But DeVere’s legal issues could continue even beyond the suit from Liberty. During the course of construction, a sudden vibration took hold of SCC’s Balsam Center building, with cracks appearing afterward. The campus abuts the road project, and it’s widely believed that the construction activities caused the cracks. The college is currently considering whether to file a suit against DeVere, DOT or both to get the damage fixed. The two entities missed the Feb. 19 deadline SCC had issued to receive a plan for fixing the damage, and the school’s board of trustees discussed the issue in a closed-session meeting last week.
“The college is in discussions with the various parties and is diligently trying to work out a solution,” said Chad Donnahoo, attorney for SCC.
Crittenden did not return requests for comment.