Construction firm threatens to take Palo Alto school district to trial

Dispute over money fuels lawsuit between Taisei Construction Company and Palo Alto Unified

Update: At an Oct. 30 case management conference, the judge presiding over this case refused Taisei's condition that it would only agree to mediation if she set a trial date. She instructed both parties to meet and confer with regard to finalizing discovery and a deposition schedule and to return back on Dec. 23.

Taisei Operations Risk Manager Jaysen Van said the construction company's attorneys will again push for a trial date in December.

"In my opinion, without a looming trial date, mediation will be a sheer waste of time," he wrote in an email to the Weekly.

"Every time the process is delayed, Taisei and PAUSD costs increase, and Taisei becomes more entrenched in its position.

"It will take time, and cost hundreds of thousands more, however, eventually we will get a trial date."

While Palo Alto High School students were finally able to make full use of a new classroom building and just-completed Media Arts Center at the start of this school year, the school district continues to be embroiled in a $3.5 million lawsuit filed by the construction company that built both facilities.

Taisei Construction Company, contracted by the district in 2011 for the Media Arts Center and a two-story math and social studies building, is accusing the district of employing a range of "bad-faith tactics" that delayed the buildings' openings by nearly a year. Taisei has sued Palo Alto Unified for $3.5 million to compensate for additional costs and expenses incurred as the district "substantially changed and increased the scope of the work to be performed" throughout construction, according to the lawsuit.

Palo Alto Unified's conflict with the Santa Clara-based construction company reaches back to April 2013, when Taisei filed a claim against the district demanding to be paid $1.6 million based on change orders it had submitted in connection with added or altered work the district directed Taisei and its contractors to perform.

The district rejected this claim, and Taisei filed a lawsuit in June 2013 -- the original completion date for the work. Taisei amended the suit three times as it continued with construction of the two buildings, which were completed in May. The district did not become aware of the lawsuit until July, officials said, alleging that Taisei did not notify or serve the district.

In addition to suing the district for breach of contract, Taisei is suing construction manager Gilbane Building Company and architecture firm Deems Lewis McKinley for negligence and "tortuous interferences with contract relations."

Taisei claims incomplete plans, unbuildable design elements and uncoordinated sections of the plans required the company and its subcontractors to repeatedly slow or stop work and, in some cases, remove and replace completed work, according to the lawsuit. Taisei alleges the district also failed to respond in a timely manner to requests for information.

"Taisei's position is that the plans for the project were at best defective," said Taisei Operations Risk Manager Jaysen Van. "We already have several experts who have come forth to say that not only the architect failed to meet his standard of care, the district also failed to meet their standard of care."

Van said a large portion of the delays were due to hydronic piping, which provides both heating and air conditioning and was installed at the beginning of the project but had to be "completely rerouted," causing more than $1 million in change orders. The district paid for the direct cost but hasn't compensated Taisei or any of its six subcontractors for the consequent delay of nearly a year.

The district has denied Taisei's claims, alleging in court documents that Taisei has failed to state sufficient facts to constitute a cause of action against the district and to exhaust its administrative remedies for its claim against the district. Further, the district states its conduct relating to the project was justified.

Attorneys for the district have also rejected Taisei's causes of action through the doctrine of "unclean hands," which argues that a plaintiff (Taisei) is not entitled to compensation because the plaintiff itself has committed some sort of wrongdoing.

James Lucier, attorney for construction manager Gilbane, also rejected the allegations made against its client, writing in court documents that Taisei's causes of action for negligence and interference with contract "constitute nothing more than a superficial attempt to classify the normal contractual duties of a construction manager, as torts, solely on the basis that such services may have had an adverse effect on Taisei's bottom line."

Lucier also wrote that the contract between the two companies did not create a "duty of care" under which Gilbane would be obligated to protect Taisei from economic loss. Under tort law, in order to hold a defendant liable for negligence, the defendant must owe a reasonable duty of care to the plaintiff. (A defendant responsible for duty of care is also required to exercise a professional standard of care, which is determined by the standard that would be exercised by a reasonably prudent professional in any industry.)

In court documents, Lucier cites a 2001 case over a Berkeley Unified School District construction project in which an architect made similar claims against a construction manager. The First Appellate District Court determined the construction manager "owed no duty of care to a third-party architect."

"In conclusion, one can only imagine the chaos that would ensue in the construction industry, if suddenly construction managers become saddled with a duty to protect the general contractor from economic harm on a construction project," Lucier wrote. "The legal, contractual, and economic repercussions would be drastic, and would turn the traditional role on a construction manger on its ear."

Van said that Taisei has been trying to mediate with the district for some time, with no success.

The district's attorneys, from law firm Dannis Woliver Kelley (DWK), delayed mediation after the initial claim was filed. Van said one of the line items in Taisei's claim was a $400,000 projection for additional delays -- submitted before the project was not complete. DWK attorneys requested "back-up" information for this amount, which Taisei promptly provided -- and updated the figure to $700,000, Van said.

The district asked for 90 days to study the revision and delayed mediation.

Van said he made a "last ditch effort" to schedule a mediation for Oct. 2. The district's attorneys again refused to participate, saying they need more time to study the complaint, he said.

Bob Golton, the district's bond program manager, said Taisei's attorneys made "material changes to their claim that had whole different theories involved" about a month before the October mediation, so the attorneys requested more time to complete a full analysis.

Golton would not comment since the case is still under litigation, but said, "This is a very common statement by parties to a lawsuit. In other words, it's commonplace for one party to say that it's the other party that's a problem in settling it."

Van wrote in an email to the Weekly, "This is not a matter of 'if' the District will pay, but rather 'how much.'"

And with more than a year of litigation under its belt, the district has already spent more than $300,00 in legal fees on this case. In the first eight months of this year, DWK billed the district $229,827.

"If I decide to take this to trial, they'll spend another million through trial," Van said. "They'll spend more defending this than it would have taken to settle."

Taisei has recently engaged in similar litigation with other California school districts. In September 2013, the construction company filed a $25 million lawsuit against Delta College in Stockton over the construction of a new math and science building, alleging the school and its building manager withheld construction information, provided non-buildable designs and increased the scope of work after construction began, according to news reports.

Similar conflict arose at El Camino College in Torrance over the delayed opening of a math, business and health complex, with Taisei criticizing the district's management of the project and the district blaming Taisei's failure to properly coordinate its subcontractors, according to student news site El Camino College Union.

A case management conference in Santa Clara County Superior Court is set for this Thursday, Oct. 30. Van said he has instructed his attorney to tell the judge Thursday that Taisei is no longer interested in mediation and to seek the earliest trial date possible.

"I fully expect that when the judge learns that mediation has failed as a result of PAUSD's bad faith, that she will set a trial date for mid-2015," Van said.

Golton said this week that the district's attorneys are now working with Taisei's counsel to reschedule mediation in December or early January.

"The district remains hopeful that the parties will continue their dialogue and resolve the dispute," he said. "We are doing everything possible to reach that objective."

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10 people like this
Posted by muttiallen
a resident of Adobe-Meadow
on Oct 28, 2014 at 11:16 am

muttiallen is a registered user.

This is what happens when gov't agencies submit vague plans, and then have to take the lowest bidder. Construction companies know they can bid low and then make up the difference in change orders and law suits. There is a much better system -- get competitive bids then throw out the low and the high, average all the others and take the one closest to the average. That encourages construction companies to bid 'real' not unrealistically low.

6 people like this
Posted by More mismanagement
a resident of Esther Clark Park
on Oct 28, 2014 at 11:24 am

More legal fees that didn't need to be spent instead of settling. This is the result of 8 years of nobody home at 25 Churchill Street. The crises mounted up, the lawyers are running the show, and the raid on our taxpayer funds has been stunning. Between this and the OCR mess, we are on track to spend ONE MILLION DOLLARS IN LEGAL FEES IN 2014.

That is astonishing. It is waste at some order of magnitude never before contemplated. ONE MILLION DOLLARS that could have been spent on our children, that now are going to line the pockets of district lawyers.

[Portion removed.]

10 people like this
Posted by Learn From Mistakes
a resident of Duveneck School
on Oct 28, 2014 at 11:25 am

Geez, with all the Palo Alto and Stanford buildings, can't the city get good recommendations on who to work with?!

I know someone who knows an architect who reviewed the Mitchell Park Library plan and said it was impossible to build that plan. But a contractor claimed he could - and the rest is history.

9 people like this
Posted by Jo Ann
a resident of Embarcadero Oaks/Leland
on Oct 28, 2014 at 11:33 am

Gee, hard to believe the city was incompetent when it's taking them 9+ years to get an RFP out on how to syncrhronize one lousy traffic light. That's of course before the hard work of turning a switch actually begins. (Sarcasm intended.)

4 people like this
Posted by Joe
a resident of Another Palo Alto neighborhood
on Oct 28, 2014 at 11:44 am

> I know someone who knows an architect who reviewed the
> Mitchell Park Library plan and said it was impossible
> to build that plan.

Did your friend say why he/she thought it would be impossible to build to (presumably the original) plan?

This article does not indicate who in "the District" actually made the decisions for the District that has led to this litigation. Was it Skelly? Was it Robert Golton? The School Board? Some one, or some group, made the final decision as to saying NO! to compensation that Taisei's claimed.

At some level, none of the team assembled to educate the District's children have any experience building buildings. Certainly when a Board of Education (5 people who have no building experience) sign off on plans for a new building--they are saying that they have reviewed the documents, and have determined that they are correct, complete and buildable. Yet--here we are--with both the City of Palo Alto and the PAUSD in legal tussles with builders about plans that the builders are saying "can not be built".

So--who is responsible? That question needs to be answered.

It should be noted that none of the candidates for either the City Council, or the School Board, have had much to say about the mess at Mitchell Park, or this much smaller problem with Taisei. Certainly makes one proud to live in a town with the best educated people in the world driving the train.

Like this comment
Posted by JKidd
a resident of University South
on Oct 28, 2014 at 12:56 pm

I agree w/ muttiallens diagnosis, but not the prescription. "This is what happens when gov't agencies submit vague plans, and then have to take the lowest bidder. Construction companies know they can bid low and then make up the difference in change orders and law suits." Absolutely correct! But the remedy is not to take bids at all until the plans are complete. Period. The only way to start construction before all parties have made up their minds what they want is with a negotiated contract, which I presume the School District cannot do. If you go to bid with incomplete plans - which Palo Alto has obviously done too often - you are inviting the kind of abysmal abuse that the competitive construction market is accustomed to dealing out. The problem is not solved by going out to bid and then choosing the middle bidder.

Like this comment
Posted by JA3+
a resident of Crescent Park
on Oct 28, 2014 at 12:59 pm

Hindsight is always perfect but, as with any construction project, the best approach is easy: take the time to do the plans carefully, with precision, detail and absolutely no conflicts or questions. Within the design process, bring on a third-party design check firm: review all; resolve any and all outstanding conflicts or questions. Then -- and only then -- go out to bid.

Like this comment
Posted by Joe
a resident of Another Palo Alto neighborhood
on Oct 28, 2014 at 1:20 pm

Public Works Competitive Bidding In California--

Web Link

In turn, a public entity has authority and discretion to reject all bids and to re-advertise for bids. For example, it is not uncommon for a public entity to reject all bids and re-bid the project when the bids exceed the budgeted amount for the work. Occasionally, a pubĀ­lic entity will reject all the bids to avoid a bid protest. Irrespective, if the rejection of all bids is done in bad faith, an unsuccessful bidder should consider informing the governing body of the awarding entity of the reasons why the staff=s recommendation for rejection is in bad faith.

Alternatively, the public entity can reject the lowest bidder if the lowest contractor (a) is not a responsible bidder, (b) the lowest bidder refuses to sign a contract, or (c) the bid is not responsive. However, the awarding body must act in good faith. If a public entity rejects the lowest bidder, that bidder may be entitled to a hearing if the rejected bidder was deemed be not responsible.

Public agencies do not have to accept the lowest bidder. They have options.

6 people like this
Posted by Suspicious
a resident of Midtown
on Oct 28, 2014 at 1:28 pm

Taisei are not an ethical company. In order to get paid as a sub-contractor, our company had to file a mechanic's lien. They eventually coughed up all of the money, but we felt like part of their profit plan was keeping the sub-contractor's money.

3 people like this
Posted by senor blogger
a resident of Palo Verde
on Oct 28, 2014 at 3:09 pm

Repeal the Public Contract Code.

Then let the City and the School District select their contractors like Stanford does

1 person likes this
Posted by Charlie
a resident of Leland Manor/Garland Drive
on Oct 28, 2014 at 5:12 pm

It's lucky anything got built.

3 people like this
Posted by paly parent
a resident of Old Palo Alto
on Oct 28, 2014 at 5:19 pm

Though the project may have felt tortuous, i think the correct word for the quote in the fifth paragraph is "tortious" - of or pertaining to a tort.

Like this comment
Posted by Truth before CYA
a resident of Another Palo Alto neighborhood
on Oct 29, 2014 at 10:09 am's very important to get to the truth here, because there are no earthquake codes for school bldgs, only a requirement to hire an architect who will presumably know what they are doing. If DLM really didnt do the greatest job, this very much needs not to be about covering up and liability, it needs to be about taking a really honest look, esp since these structures are so massive.

1 person likes this
Posted by Brian
a resident of Evergreen Park
on Oct 29, 2014 at 2:38 pm

Your comment "..there are no earthquake codes for school buildings.." is untrue. Please refer to the Field Act. Unfortunately, it does not apply to private schools.
Web Link

1 person likes this
Posted by Crescent Park Dad
a resident of Crescent Park
on Oct 29, 2014 at 4:19 pm

Additionally - all public school projects must be approved by the State Architect.

Like this comment
Posted by Herman
a resident of another community
on Oct 29, 2014 at 4:47 pm

California needs to revise its public contracting laws! How many more Mitchell Park libraries and Paly Media Arts Center disasters must take place (and there are many more)? Oregon allows public agencies that make specific findings under the Construction Manager/General Contractor format (CMGC) to retain a Contractor BEFORE plans are developed and they become an integral part of the development team - they participate in and are charged with Constructibility and Cost review, which leads to projects built on-time and at or below budget. The negotiated (not lump sum low bid) contracts allow for Guaranteed Maximum Price (GMP) contracts with cost savings shared with Owners. Lawsuits are very rare. These negotiated contracts are almost always used by private sector owners because they want to choose the BEST contractor for price and quality. The Contractor is truly part of the entire Team (Architect, Owner, Engineers).

The major criticism is that Owners may not be getting the "best deal" - however, in Oregon Contractors must submit detailed proposals where the Contractors fee and General Conditions (GC's) are proposed in advance along with a very specific plan for building the project plus their past experience and qualifications. The fee and GC's constitute a small part of the overall project cost, and ALL the actual construction work must be competitively bid out to the Subcontractor community. Public agencies generally select the Contractor based on a point system that includes a myriad of factors -- fee being just one of the factors. After 35 years as a Owner, Contractor, and Project Manager this is by far the best type of contract for ALL parties.

Like this comment
Posted by Way to Spend $
a resident of Ohlone School
on Oct 29, 2014 at 9:31 pm

Here we go again, anoother way to spend our kids dollars.

1 person likes this
Posted by Learn From Mistakes
a resident of Duveneck School
on Oct 30, 2014 at 12:24 am

@Joe: "Did your friend say why he/she thought it would be impossible to build to (presumably the original) plan?" All I heard was that because it was a friend who knows the architect. I assume "impossible" means a structurally deficient plan, but of course, it could also mean financially impossible.

I haven't been following the details of the lawsuit/delays. All I know is my son is a freshman in college now and never stepped foot into the new library that was supposed to be completed while he was in high school. And now both the Main Library and Mitchell have been closed for how long? Might have been wiser to remodel the Main Library once Mitchell was open.

I have high hopes for a competent City Council to be elected next week. We have some good choices - Eric Filseth and Lydia Kou both wouldn't make such uncommon sense decisions as the past members have.

1 person likes this
Posted by Sea REDDY
a resident of College Terrace
on Oct 30, 2014 at 3:28 am

Dear friends

Here, what I see is some body found out we have 'deep pockets'.

Next time; better SOW-statement of work; senior civil engineer that has experience managing these projects; research early if the builder we are choosing has had prior habit/dealing on litigating. This all comes with experience. Hope we have it.


Like this comment
Posted by Cassie
a resident of Downtown North
on Oct 30, 2014 at 6:22 am

Stick with the original plan and leave it at that!

Won't have these problems.

Like this comment
Posted by Mike
a resident of Mountain View
on Oct 30, 2014 at 2:47 pm

As long as the lawyers live in Palo Alto, what's the problem? it just stimulates the local economy. Amirite?

Like this comment
Posted by Don't donate to PiE
a resident of Another Palo Alto neighborhood
on Oct 31, 2014 at 8:17 pm

These decisions were Bob Golton and Kevin Skelly. There is definitely money to burn, as long as PiE provides a cushion of a couple of million dollars for expenses that should be paid for by the general fund. PiE is making unnecessary spending worse.

Sorry, but further commenting on this topic has been closed.

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