The Contractor State Licensing Board has issued a citation to the Melchiori Construction Company, claiming the Santa Barbara firm has failed to pay subcontractors that worked on Santa Barbara County’s new Emergency Operations Center.
The complaint from the state panel, filed late last month, comes as dozens of subcontractors continue to complain that they haven’t been paid for their work on several large public works projects done by Melchiori.
The company served as the general contractor on the Emergency Operations Center, which was completed last year near the county’s Fire Department headquarters off Cathedral Oaks Road. But there are still 17 stop-notice payments to subcontractors, according to county officials, with $837,000 owed.
The licensing board issued the citation on March 22, alleging failure to timely pay a subcontractor. Officials from the oversight agency didn’t disclose the amount of the fine or the company that wasn’t paid.
Melchiori attorney Kristine Mollenkopf said the company has appealed the citation.
In addition to the EOC, Melchiori has been involved with several high-profile public works projects, such as the UCSB Ocean Sciences Center and the county’s Public Defender’s Office. Stop-notices also have been filed on the Ocean Sciences Center, with some of the subcontractors in litigation.
For those types of projects, the government agency commissioning the project must pay a general contractor when the work is completed. The general contractor in turn pays the subcontractors. Once a subcontractor has been paid, it files a release to the county or other government agency.
“It’s been very difficult to track those releases on the EOC project,” said Celeste Manolas, EOC project manager for the county.
The public code governing the payments was written during a time when it was very easy to pay subcontractors, but “things have changed because a lot of subcontractors are going out of business daily, and the onus is on contractor,” she said.
While the county has received releases from some of the larger subcontracts on the EOC, others are still waiting to see any money.
Manolas said the county stopped making payments to Melchiori last summer, and she couldn’t comment on whether the complaints are legitimate or if Melchiori is simply waiting for paperwork from subcontractors.
Manolas, who is also working on the Public Defender’s Office, said a similar situation is unfolding there. Though that project is close to being completed, the county says Melchiori has submitted incomplete pay applications. The company is still on site and the work is continuing, but some of the subcontractors have stopped work, Manolas said.
The county does put general contractors through a questioning process before they are hired, to check on lawsuits against the company and how many stop-notices it has from subs. But Melchiori passed all the checks, and didn’t have those issues when it was approved in 2009.
A number of the subcontractors on the EOC project are also suing the county.
One such case involves Wolf CGS, an EOC subcontractor out of Arroyo Grande. It is suing for breach of contract and fraud, and has accused Melchiori of violating the RICO Act, alleging that the company shows a pattern of related offenses on other government projects. Melchiori has filed a counter suit again Wolf.
Filed in February of this year, the suit claims Wolf CGS entered into a contract two years ago to provide labor and materials to install storefronts, windows and glazing on the EOC. The suit states that on Feb. 1, 2011, Melchiori told the county that it had been billed by Wolf for labor and materials for the month previous. But the company hadn’t actually done any work during that time period, or billed Melchiori at all, the complaint states.
After submitting an application for payment to Melchiori, Wolf was told that it would be paid as soon as the county paid Melchiori. When Melchiori did not pay, Wolf filed stop notices with the county.
Melchiori did issue two “notices to cure” to the county in July and August 2011, alleging that the work done by Wolf was “completely unacceptable,” according to the suit, and said it would pay the subcontractor once the work was deemed satisfactory.
“The repairs and corrections required in these notices to cure are remarkable only in their insignificance: two tubes of sealer for one window and the adjustment of two screws on the opening mechanism on another window,” the suit states. The other notices deal with non-work performance issues.
Wolf’s lawsuit also alleges that Melchiori has unlawfully delayed or refused to pay several other contractors on the project.
“In each of these cases, Melchiori issued similarly frivolous notices to cure, alleging substandard work,” the lawsuit states.
It alleges that Melchiori is withholding $57,000 from a company called Merit Metals, “challenging whether some exposed rivets meet the architects specifications.”
The lawsuit even names Manolas, who they allege continued to authorize payments anyway even though she knew Melchiori had not paid subcontractors.
Wolf alleges that it’s had to lay off workers, and its credit rating has been ruined, making it difficult to bid on other projects and order materials.
Anger for the lack of payment has been building among those owed.
One EOC subcontractor, who spoke with Noozhawk on the condition of anonymity, said he was even interviewed by a Santa Barbara police detective last month about a death threat sent via cell phone to a Melchiori official.
“This thing has gone way too far,” the subcontractor said. “I know several subs are waiting on hundreds of thousands of dollars in payment from Melchiori. ... These guys are out in the trenches, just trying to pay bills. There’s a lot of emotion out there.”
Santa Barbara police Sgt. Riley Harwood confirmed that a detective had been working the case after a threatening message was sent to Melchiori Vice President Jean Mollenkopf, but that the case had been closed for lack of leads.
Mollenkopf, Melchiori’s attorney, said she had no comment on the threat, but said the company is sorting through the cases.
“The thing to bear in mind is that the county only recorded the notice of completion on Feb. 29,” she said, noting that date triggers when the county is obligated to release retention bond funds. “I know everybody wants to make it sound like this is extremely unusual or something sinister going on,” but that the process isn’t out of the ordinary.
But Manolas said that even though the release of the retention bond funds has been triggered, the county is still required to withhold 125 percent of amounts claimed under filed stop notices until a release of those notices is received.
“We can’t make any payment because the sum of stop notices exceeds the amount remaining in the contract,” she said.
While the county has $500,000 to cover the stop notices, Melchiori actually owes more.
Mollenkopf said that the construction environment, with such little work for subcontractors, “has made it a somewhat difficult process.”
Not only have subcontractors filed their stop notices, but their own subcontractors and suppliers have as well, she said.
“It makes the total amount of claims look like they’re larger than they really are,” she said.
That level of complication is what the company is sorting through now. Several of the cases are in Superior Court, and “we’re really just working through the litigation,” she said.
As for the Contractors State Licensing Board complaint, Mollenkopf said Melchiori just received the formal notification from last week.
She said the information is vague in the letter, but she suspects the case involved is related to the claim with Wolf CGS.
“We filed a lawsuit against them, and it’s a little unusual for the board to get involved with something that’s still in litigation,” she said.
Mollenkopf said she expects to hear a response from the CSLB within the next 60 days.