General contractor Melchiori Construction Co. has faced 31 claims from subcontractors and suppliers that it did not pay them for their work on Santa Barbara County’s $4.5 million Emergency Operations Center.
Melchiori’s subcontractors and suppliers filed 31 so-called “stop notices” with county officials for $1.5 million worth of work. In public works projects, a subcontractor can file a stop notice with the government if it believes it has not been paid by the general contractor for its work. When the notice is filed, the government is required to withhold 125 percent of the payment for the job from the general contractor as an incentive to resolve the dispute.
Of the 31 stop notices, the county has released funds to Melchiori for 12 of them, signaling that company has either resolved the dispute or put up a promise to possibly pay out of its own pocket if it cannot. About $1.2 million in stop notices remain, with claims ranging from about $1,600 to $450,000.
Two of the subcontractors — Merit Metal, which claims it is owed $57,000, and Frye Construction Co., which filed a claim for $100,000 — have also filed lawsuits against Melchiori in Santa Barbara County Superior Court.
Kristine Mollenkopf, an attorney for Melchiori, said the company is withholding payment from some of its subcontractors because it is disputing the quality of their work.
“They [Melchiori] frankly do have a reputation for being difficult with subcontractors,” Mollenkopf told the Business Times. “Absolutely Melchiori steps up to the plate to protect the owner, in this case the County of Santa Barbara and the taxpayers of Santa Barbara County. Melchiori is not going to release funds until subcontractors meet the terms and conditions of their contract, and they’re not going to be held hostage by premature lawsuits and unfounded duplicate stop notices.”
Some of the subcontractors said statutes of limitation forced them to file lawsuits because they feared they would miss their window to file a claim if they had not. Robert Weissman, a Westlake Village-based construction attorney who is representing Merit Metals in its lawsuit against Melchiori, said the dispute between Melchiori and his client was a minor quibble over whether exposed rivets met the architect’s specifications and would not justify withholding all $57,000 of his client’s claim.
“Either every single subcontractor Melchiori hired is incompetent, or Melchiori did something wrong,” Weissman said. “Our contention is that [Merit Metal’s work] was done according to the plans and specifications and within industry standards.”
Bob Nisbet, the director of the county’s general services division, said the county has paid Melchiori about $3.9 million for the project and still owes the construction firm $554,395. Though law enforcement officials began using the new Emergency Operations Center earlier this year, it has not been officially deemed complete.
Mollenkopf said the reason that the $1.2 million in stop notices is higher than the $554,395 that remains unpaid to Melchiori is that some of the stop notices are duplicates. When a subcontractor files a stop notice, she said, the subcontractor’s supplier can also file a notice for the materials used in the same job.
In at lease one case, she said, a stop notice was filed by a supplier to a subcontractor who had filed for bankruptcy. County records show that Melchiori eventually stepped in to pay that supplier. “The picture that may be painted may be worse than the actual facts of the situation,” Mollenkopf said.
The Business Times spoke to several subcontractors on the project who said they had not been paid by Melchiori. These subcontractors did not want to be named for fear that Melchiori would retaliate by contesting the quality of their work and harming their reputations in the tight-knit construction business. These subcontractors said that while the dollar figures may be tiny compared to the size of the total project, they can be make-or-break payments for small businesses trying to keep their crews employed.
“They’re not paying their subs. They’re hanging them out there to dry,” one subcontractor told the Business Times. “These are tough times. It’s not the time to be screwing around with people’s incomes.”
Nisbet, of the county’s general services division, said the county is protected by payment promises put up by Melchiori for the full value of the project that ensure taxpayers will not have to pay out of public coffers to resolve disputes. Melchiori is currently working on a remodel of the public defender’s office for the county. In that project, nine stop notices were filed, three of which have been released, Nisbet said.
“The law requires us to hold the money” when a stop notice is filed, Nisbet said. “We do that. Hopefully that provides and incentive to the general and the sub to get the job done.”