West Virginia disputes claims on RISE issues
CHARLESTON — State officials handling the $149 million flood recovery program for those still rebuilding from the 2016 floods said statements by a construction company owner alleging that Thompson Construction Group and its subcontractor are overspending and skirting state law are untrue.
Randy Young, owner of ANR Construction in Kanawha County, alleges that South Carolina-based Thompson Construction is overcharging the state by thousands of dollars to build cinder block foundations for homes being raised above the floodplain.
According to a master agreement signed Oct. 3, 2018, between Thompson Construction and the State Development Office where the RISE West Virginia program is managed, the state agreed to pay Thompson $15,950,01 for “fixed fee structural elevation” for every layer of cinder block.
Young said that amount equates to approximately $106 per cinder block, with four rows of cinder blocks equating to the cost of two $32,000 couches, alluding to the custom-made furniture purchased by former state supreme court justice Allen Loughry.
“This is not illegal, because they submitted the contract and the state signed it,” Young said. “This is not fraud or illegal, right? But this is gross use of funds. Think of how many more people they could put in houses. That’s just malicious abuse.”
That $15,000 price tag is not the full story, according to officials at the State Development Office. That price includes the cost of additional engineering depending on how high the foundation goes, as well as labor, equipment, and miscellaneous costs.
Young’s information also does not include a change order between the state and Thompson. Under the change order, the first 30 inches of cinder block placement to get homes above the floodplain are free. Any layer above 30 inches then costs $15,000. For fiscal year 2020 projects, the first 40 inches of cinder block are free.
Michelle Tharp Penaloza, program manager for Community Development Block Grant-Disaster Recovery at the State Development Office, also explained the costs of certain projects are dictated by the number of companies that bid. Despite putting out homes for bid in small groups, no smaller construction firms in the state have placed bids, leaving the state at the mercy of larger construction companies.
“The state has put out 17 different solicitations for just our single-family housing projects, and of those 17, I’ve only had two bidders on them,” Penaloza said. “The idea was let’s put out a contract with six projects on it. We were hoping that a mom-and-pop contractor, someone local in West Virginia, could go out and build these homes…and we’ve had nobody come and bid on these.”
On March 28, ANR Construction entered into a contract with Carolina Post Frame (CPF) Construction, another South Carolina-based company doing subcontractor work for Thompson Construction. Young’s company was working on stick-build homes with CPF Construction in a contract for $9.2 million for 125 homes.
However, CPF Construction was not a valid business entity in West Virginia at the time the contract was signed. According to the West Virginia Secretary of State’s Office, CPF did not apply for a business license until Sept. 19. The company didn’t receive a contractor’s license until Sept. 26 — 183 days after signing its contract with ANR Construction.
CPF was also not on a list submitted by Thompson to the state for subcontractors expected to perform more than $25,000 worth of work.
“(CPF) participated for five months not being licensed,” Young said. “They handled over $628,000 with this job and were not licensed to do so.”
According to state code, vendors with the state must be in good standing and licensed in order to do business with the state. The Development Office is also supposed to review subcontracts to check for compliance monitoring upon requests and leaves it up to the contractor to ensure subcontractors are following state law and grant requirements set by the U.S. Department of Housing and Urban Development.
Penaloza said the Development Office was just informed last month that CPF Construction was a subcontractor for Thompson for fiscal year 2019 projects, but CPF was included on lists submitted by Thompson for fiscal year 2020 projects.
“The state’s contract is with Thompson,” Penaloza said. “We monitor and we make sure that our contract is a legal contract that was procured in a competitive market…we manage our state contract through state procurement and our legal team. Every contract we do goes through the Attorney General’s office. We were not notified of (CPF) until last week or a week before.
Thompson Construction was one of four construction companies named in a Legislative Auditor report released June 24, 2018. According to the audit, the state entered into seven contracts with Thompson and the other companies worth more than $71 million before HUD granted approval Feb. 20, 2018, to start spending the $149 million for home rehabilitation, reconstruction, and mobile home placements.
During testimony before a legislative committee, the Legislative Auditor’s Office questioned whether any homes had been constructed before June 1, 2018. After discovering issues with another contract, Gov. Jim Justice ordered a pause in the RISE program on Feb. 27, 2018. Yet, Thompson Construction and two other companies received more than $300,000 between February and June 2018.
After West Virginia National Guard Adj. Gen. James Hoyer took over supervision of the RISE program on June 4, 2018, the construction contracts were renegotiated. During this time, HUD placed the state on the “slow spender” list due to issues with no contractors wanting to bid on projects. By July 28, only Thompson remained as a contractor, focused on mobile home placements and subcontracting RISE projects to other companies, such as CPF Construction.
As of Sept. 26, there are 52 homes in active construction phases through four contractors, including Thompson, according to the National Guard. Between Jan 8, 2018 and Sept. 11, Thompson has been paid more than $3.2 million by the state through the RISE program.
Thompson did not return a request for comment.