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Questionable Kentucky Courthouse Construction Practices Lead to Court Official’s Resignation, Audit, Settlement

On February 25, 2009, after questions were raised about the failure of his office to fully insure courthouse construction projects, Garlan VanHook resigned from his position as executive director of the Dept. of Facilities for Kentucky’s court system. Adding intrigue to the mix, VanHook confirmed that his brother, Willie, was employed by a company involved in 24 of the state’s 35 pending courthouse building projects, which are part of an $880 million construction initiative.

According to the company, Codell Construction, Willie VanHook was not working on any courthouse projects; not surprisingly, Garlan VanHook denied any conflict of interest as a result of his brother’s employment. Garlan, a residential architect, had been hired to run the Dept. of Facilities by former Kentucky Supreme Court Chief Justice Joseph E. Lambert after he designed Lambert’s personal residence.

In his role as facilities director for the Administrative Office of the Courts (AOC), Garlan VanHook had overseen the construction of dozens of new courthouses. While state law requires general contractors to insure 100 percent of each project they are hired to complete, the AOC’s practice was to allow construction firms to bond only 5-6 percent of the project costs. In practical terms, this would leave taxpayers holding the proverbial bag should the company go bankrupt or fail to complete the project.

For example, if a construction firm defaulted on its contractual obligations, the owners of the insurance bond – tax-payers, through government contracts – would not be able to recover a substantial part of their investment. The “questionable” nature of this practice was brought to the attention of 35 county judge-executives in a February 25, 2009 letter from two national surety bond organizations, which noted that the 5 percent bonding practice apparently provided protection solely for the amount of the fee paid to the construction company. “That’s not normal at all,” said Edward Gallagher, general counsel for the Surety & Fidelity Association of America.

On February 26, Kentucky Supreme Court Chief Justice John D. Minton, Jr. authorized the AOC to conduct an audit of the state’s courthouse construction initiative. “I am committed to ensuring that all aspects of this program are in complete compliance with state statutes and our own Administrative Procedures,” he said.

Construction attorney William Geisen was hired to conduct the audit, which was released on March 25, 2009. Geisen found that state law, AOC regulations and contracts between the counties and construction companies required the companies to post 100 percent payment and performance bonds. Minton informed county judge-executives overseeing court-house building projects that the construction firms must insure 100 percent of their work or risk being held in default.

Codell Construction, the company that employed Garlan VanHook’s brother, took issue with the audit findings but said it would comply. Construction companies involved in courthouse projects had convinced AOC representatives in December 2007 that providing bonds only to cover their fees and subcontractors would be acceptable, but Geisen found this practice “legally insufficient.”

Codell had threatened to sue the two national bond organizations that blew the whistle on the 100 percent bonding issue, demanding that they “cease and desist from making similar spurious accusations.” However, following months of negotiations, on August 12, 2009, Codell entered into a settlement with the AOC over when and how the company must insure courthouse building projects.

“Codell Construction and the AOC had some legitimate business disputes with each other,” said Chief Justice Minton. “As a result of this settlement agreement, we can put those issues in the past and work together going for-ward.” Codell agreed to deposit $150,000 in an escrow account to reimburse counties in the event the company fails to meet its obligations for courthouse construction projects.

In September 2009, it was reported that Kentucky lawmakers weren’t happy with the AOC and Minton over whether they had followed state contracting rules when hiring Geisen to conduct the AOC audit. Several legislators wanted to know why the contract to hire Geisen, who is paid $250 per hour, was not put out for bid and why the contract was not submitted to the Government Contracts Review Committee until well after it had been formalized in July.

AOC director Laurie Dudgeon acknowledged that the contract should have been competitively bid pursuant to state procurement rules, and submitted for legislative approval before it went into effect; however, the AOC said the contract would not be canceled. “When we first retained Geisen, we had no idea how big this was going to be,” Dudgeon explained.

Sources: Lexington Herald-Leader, letter from the Surety & Fidelity Association of America and National Association of Surety Bond Producers,

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