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Developer, contractors brawling over FBI construction project

March 31, 2012
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The FBI’s new Indianapolis field office—a modern limestone office building, parking garage and maintenance facility protected by a formidable fence and surrounded by professional landscaping—might be called “gleaming” in a real estate listing.

But there’s no shine left on the deal itself, as the developer and contractors squabble in court one year after wrapping up work on the $39 million project just north of Castleton Square Mall.

fbi-map.gifOhio-based Welty Building Co. Ltd., the general contractor, has filed a mechanic’s lien on the property at 8825 Nelson B. Klein Parkway, claiming Welty and its contractors are owed $6.6 million. The firm’s contractors on the project individually have filed more than two dozen liens claiming unpaid bills totaling more than $3.4 million.

The developer and building owner, an affiliate of Ohio-based Carnegie Management & Development Corp., has sued Welty for $6.4 million to cover the shortfall, claiming the firm let costs spiral out of control and far exceeded the so-called guaranteed maximum price it had quoted. Welty has filed a counterclaim seeking the $6.6 million.

Competition is always fierce for development deals that lead to lucrative long-term leases with the federal government, but the FBI field office deal has been particularly messy from the beginning.

It took three attempts before the U.S. General Services Administration managed to find and stick with a developer for the project. The agency awarded the deal to a Missouri company, then switched to locally based Duke Realty Corp., before it ultimately settled on Carnegie, after the company complained to the Government Accountability Office that it had been unfairly passed over in an earlier round of bids.

Carnegie formed a company called Indy Fedreau to own and develop the property. In February 2009, Indy Fedreau hired Welty to actually build the facility, for an original guaranteed maximum cost of just under $22 million.

Indy Fedreau says in court papers it already has paid more than $22 million to Welty and its subcontractors.

The company claims Welty failed to submit change orders as required for additional costs, refused to make payments for costs incurred in excess of its maximum price as required by the contract, made false statements claiming its subcontractors had been paid, and failed to deliver the project by a preset deadline.

“Welty has held the project hostage, has refused to complete its work, and has steadfastly declined to provide documentation and information necessary for Indy Fedreau to achieve full occupancy for its tenant and final completion of the work,” the company wrote in November 2011.

In its counterclaim, Welty says Indy Fedreau concealed material information about the project, provided plans with errors and other defects, continued to change the scope and specifications of the project without agreeing to pay for the changes, and lied to Welty’s subcontractors about payments.

Welty said its initial project quote was a hurry-up job done as a favor to Indy Fedreau, which had originally obtained estimates for construction from R.P. Carbone Co., also based in Ohio, which ceased operations in 2009 after filing for bankruptcy.

“The GSA would not permit Indy Fedreau to use Carbone … because of one of its principal’s alleged involvement in a criminal bribery scheme,” Welty says in a January 2012 filing.

“Indy Fedreau recognized and acknowledged that Welty did not have sufficient time to obtain pricing from subcontractors and material suppliers, and represented that prices would be equitably adjusted to reflect Welty’s efforts to assist Indy Fedreau on short notice,” the filing notes. “Welty reasonably relied on these representations.”

Welty attorney Sam Laurin, a partner with Bose McKinney & Evans LLP, said in a statement that, in 67 years in business, his client has never been treated by a property owner in such a “one-sided” way.

“The fact is Welty completed the work in a professional and timely manner despite numerous obstacles and having not been paid since November 2010,” Laurin wrote. “It is a shame that the owner is not paying for work performed by subcontractors and at the same time is collecting rent from public tax dollars.”

By the time Welty finished work on the project in August 2011, contractors already were lining up to collect on unpaid bills.

Among the largest locally based creditors are Barth Electric, which claims it is owed $708,000; F.A. Wilhelm Construction Co., which has an unpaid bill of $455,000; and Circle B Construction, which is owed $328,000, records show.

The largest lien against the property, Welty’s $6.6 million claim, would cover all the unpaid bills for the firm’s contractors and suppliers, Laurin said.

An attorney for Indy Fedreau, Peter French in the local office of Benesch, did not respond to phone messages or an e-mail request for comment.

The federal government is paying about $2.9 million to lease the facility this year, and the rent will rise to $4.5 million per year starting in the second lease year, a GSA spokeswoman said in an e-mail.•
 

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