Lopez: ‘We got on board, and they were just so far behind.’
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Priced at $1.2 billion, Terminal D was to be a prime opportunity for small contractors.
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A D V E R T I S E M E N T
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A D V E R T I S E M E N T
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Direct Flight to Trouble
A new terminal at DFW Airport should have helped minority builders. Instead, it helped ruin some of them.
By MICHAEL WHITELEY, Photos by Vishal Malhotra
International Terminal D opened at Dallas Fort Worth International Airport last July, a showcase project with state-of-the-art baggage-handling technology, soaring 80-foot ceilings, and improvements designed to enhance the work of the security inspectors in a post-9/11 world.
The project was also planned as a showcase of another sort — a chance for the world’s third-busiest airport to shine by cutting in minority- and women-owned contractors for a bigger share than ever of one of the richest construction pies in North Texas.
Instead, the project ended up as one of DFW’s worst construction headaches — a multi-million-dollar mess that has spawned bankruptcy filings, bitter disputes over fault, a spate of lawsuits in which the airport has — thus far — paid out millions of dollars in judgments, and a deep well of bad feelings in the North Texas construction industry about the airport and Austin Commercial L.P., the Dallas-based Terminal D general contractor. Ironically, the project that was expected to bring a lot of much-needed income to the coffers of minority- and women-owned contractors instead drove some of those companies and others out of business or right to the brink.
In a letter sent earlier this year to members of the airport board of directors, the CEO of one Terminal D subcontractor wrote that the airport’s conduct toward companies like his was “nothing short of reprehensible in its delay tactics.” Thomas S. Rooney of Insituform Technologies Inc., the parent company of Affholder Inc., said his company will survive the Terminal D fiasco, but that the years of delay in paying for airport work have severely damaged smaller subcontractors.
“Many of these [minority and women-owned] firms are small companies that do not have access to capital,” he wrote. “To survive, they depend on being paid timely for their work. When a rich and powerful owner such as DFW chooses to take years to resolve small disputes, these small firms suffer the most, and often go out of business waiting to get paid for legitimate work.”
The airport, by law, is required to pay its construction bills within 30 days if there is no conflict over the billing. The normal workings of the construction industry — with several layers of subcontractors sending their bills up the chain to the general contractor, who eventually bills the airport and sends payments back down the line — mean that companies frequently don’t get paid that quickly. But neither do they usually have to wait years for payment — which records show happened repeatedly on the Terminal D project.
The airport and some contractors blame Austin Commercial for the slow payments. Austin officials declined to be interviewed in any detail for this story.
“DFW Airport has a history of paying its invoices ... on time,” airport board vice chair Lillie Biggins told Fort Worth Weekly by e-mail. “The DFW board and DFW staff have visited with Austin on many occasions about this problem and will continue to have these conversations until the payment situation is resolved for the contractors.”
But the picture is much more complicated than a question of who sat on the check. A review of more than 7,000 pages of airport documents and lawsuit and bankruptcy filings, plus interviews with airport officials and contractors, tells a story of chaos in the construction at Terminal D as a design-as-you-build approach descended into claims of broken contracts, flawed designs, bill padding, inaccurate basic studies, and mismanagement. The new international terminal, including a parking garage and other associated buildings and upgrades, was originally expected to cost more than $1.07 billion. The bill thus far, airport officials estimated, is closer to $1.2 billion — with many changes occasioned by 9/11, but with numerous lawsuits still outstanding.
Many of the lawsuits, filed in Tarrant County, have entered mediation — the subcontractors in most cases sued Austin Commercial, which then dragged the airport in as a third party. But a failed mediation in one suit could bring the airport even more grief than it has already endured over Terminal D.
Top officials of Missouri-based Affholder Inc., the subcontractor hired to dig a storm drainage line, have accused the airport of acting in bad faith and vowed to warn Fort Worth and Dallas taxpayers about what the airport was doing.
Tod O’Donoghue, in-house counsel at Affholder, told the Weekly he believes that the fast-rising costs of the Terminal D project looked so bad that the airport itself took a hand in slowing down the payments. “For political reasons, the board didn’t want to resolve these claims,” he said, because of the cost overruns they would have revealed.
Affholder is an example of a subcontractor that, almost literally, hit a brick wall in its negotiations with DFW. In Affholder’s case, however, it was a wall of rock.
The Insituform subsidiary was hired by Austin in September 2002 to build the main storm drainage line from Terminal D’s parking garage to a neighboring creek bed. Originally, part of the line was to be installed in a tunnel and the rest in an open ditch. When the Federal Aviation Administration imposed some new rules, it triggered a decision to tunnel the entire project, which greatly increased the costs.
A second problem lay in the reports Affholder had received about the kind of ground it would be tunneling through — a significant factor in its cost estimate for the work. Instead of the soft ground and loose sandstone that an airport report predicted, the drillers slammed into sandstone rock more than 15 times harder than they’d expected. The tougher material burned up the massive drill head on Affholder’s boring machine, and it took three months and $364,000 before a new drill head could be designed, built, and installed.
“The project just kind of came to a halt,” O’Donoghue said. “It put a hurt on us, but it’s not the kind of project that would put you out of business.”
O’Donoghue said Austin was cooperative in Affholder’s attempts to get paid an extra $3.2 million over its original $21 million contract price, for the delays and extra equipment needed. But wrangling with the airport on the issue dragged on. Finally, Affholder sued Austin Commercial (since the airport, like other public entities, is protected from most lawsuits), and Austin brought the airport in as a third party.
“Unfortunately, DFW did not honor its promise to mediate and in fact took the opposite tack by effectively cutting off communications” with Affholder, Rooney said. “There is absolutely no reason that it should have taken 10 months after [Affholder] filed suit for DFW’s management to recommend that the board agree to begin mediation,” he wrote in the February 2006 letter to the airport board. He said airport staffers finally offered to recommend the board authorize remediation at its meeting last month. But he said the offer “is simply too little, too late.”
The airport has declined comment on the case, except to say Affholder broke off communications — more than two years after its work was finished on Terminal D.
Insituform is not a minority contractor. In fact, it’s a publicly traded company that posted $595 million in revenue in 2005. Affholder’s parent company will weather the storm, O’Donoghue said. But Rooney said two minority subcontractors that did work on the storm drain were hurt worse.
“Omega Contracting and Renaissance Contractors, minority contractors that performed work for [Affholder], have also been damaged by being forced to wait years for final payment, including final retention,” Rooney wrote.
Omega, based in Dallas, did not respond to repeated requests for an interview. Atlanta-based Renaissance could not be reached for comment. But Rooney said DFW stressed the participation of minority- and women-owned contractors, known as M/WBE firms, throughout its dealings with Affholder.
The 41-year-old electrical business owned by Ernesto Lopez and his family had a solid track record with DFW Airport stretching back more than 15 years. Lopez Electric’s customer list also included major corporate players in the Metroplex, including Abbott Diagnostic Laboratories, Boston Market, Hunt Construction Group, and Texas Instruments Corp. And while work was shaping up at Terminal D, Lopez also was doing $2 million worth of wiring for Colorado-based Hensel Phelps, the airport’s general contractor on the people-mover project known as Skylink. Lopez and other contractors say that project paid on time with few glitches.
So when Lopez won a contract for the bulk of the electrical work for the service and lobby levels of the airport’sHyatt Hotel as part of the Terminal D project, he was a known commodity and one of at least six minority- and women-owned businesses heeding a call from State Sen. Royce West of Dallas and others to make Terminal D a showcase for M/WBE participation.
Documents and news reports show that throughout the project, the board and area leaders were pushing the airport staff to maintain a high share of M/WBE work. The goal was for 26 percent of the Terminal D money to go to those companies, but records show that Austin consistently exceeded that, giving about 31 percent of the work to minority- and women-owned companies.
But the $1 million job that Lopez was awarded by Mills Electrical Co, the chief electrical sub under Austin, took Lopez’ company to the precipice of ruin.
A claims consultant Lopez hired to sort out the mess estimated that design flaws, change orders, and scheduling nightmares increased by 123 percent the number of worker hours Lopez Electric had to put into the job over the next two years. The consultant estimated the West Dallas contractor was owed more than $1.3 million for cost overruns, design changes, and legal fees.
For Lopez’ part of the work alone, the project triggered more than 400 change orders and 6,000 e-mails — many of them frustrated exchanges among Mills, Lopez, Austin, and the airport. The average million-dollar job, Lopez says, generates about 30 e-mails.
From the beginning, nothing seemed to fit. “It was pathetic,” he said. For instance, “They would make one change on the architecturals and wouldn’t take into consideration that now you have a different width of the walls.”
Lopez won the airport hotel contract in January 2003 — with an unusual caveat. Lopez was responsible for buying and installing the lighting fixtures for his part of the project. Because Mills could buy in bulk at a discount, it actually supplied the fixtures, with the agreement that Lopez would kick in about $400,000 on the cost, Lopez said. The job was expected to take a year.
The flurry of change orders started almost immediately. The height of the ceilings was repeatedly changed, he said. The hotel’s main slab had to be “cut” — or retrenched — twice because the plumbing kept showing up in the wrong place. The trenches, he said, kept his workers from being able to roll the giant lifts needed to install wiring in the ceiling. And the building’s plumbing woes caused repeated flooding. Those problems meant that his need for people on the job ranged widely, from two to 20 workers, and so he hired temporary workers to cover the shifting demand.
“We got on board, and they were just so far behind,” he said. “We had scheduled people [to work], and then for some reason the plumbing was in the wrong place. There would be massive water accumulation from the plumbing and anytime it rained.”
Beginning in October 2003, Lopez was forced to shut down his work on the hotel for four to six weeks while the airport ironed out the problems. “We just got to the point we couldn’t do anything,” he said. “It was one of those jobs where everything that could go wrong did go wrong.”
But the real nightmare surfaced when Lopez realized none of the light fixtures purchased by Mills were going to match the building’s specifications. “We were saying, ‘How could this be our fault?’” Lopez recalled.
Contractors and subcontractors are usually paid with “draws” — payments against the money banked to pay off the entire contract. By 2004, with much of the work still not done, Lopez had drawn the entire $1 million.
After that, any money he was paid was OK’d through the change order process. Often, he said, changes to plans were made on the spot with no prices agreed to up front. By the time bills reached the airport’s construction management offices, prices were disputed, details had to be clarified, and the money came late or not at all. So the subcontractor was left having to pay for crews and materials, with no money or not enough money coming in to cover it.
“We got paid up until the time the [original contract amount] ran out, and we were nowhere near the end of the job,” Lopez said. “All of the sudden, we weren’t getting money and just didn’t have the money to keep funding it.”
By then, Alan S. Kuhn, Terminal D projects manager for Mills Electric, was voicing his frustration over the delays and warning that the minority contractors were at risk.
In an e-mail sent on Aug. 28, 2004, Kuhn warned that the airport had rejected requests for information on five change orders and added, “They found a way to make DFW happy and get the job in budget ... take it from the subs.” Refusal by the airport to OK added work, he said, would force the subcontractors to bankroll the project for another 45 to 60 days.
“This does not seem fair to the minority subcontractors on this project. They have proceeded months ago on some of these changes without change orders, to not delay the project,” he wrote. “Why can they not get paid at least the 95 percent of this completed work?”
In November 2004, Lopez finally pulled his company off the job and filed for Chapter 11 bankruptcy. With his permanent staff reduced from 45 to 20, Lopez said he was forced to “wind down” on other projects, while the court reassembled his family’s business.
Kuhn appeared before the airport board in February 2005 to plead for help — but none was forthcoming for months, in Mills’ case.
Finally, in November, Lopez was summoned to a tense meeting at the airport with Austin, Mills, and airport officials and struck what he thought was a deal. The airport would pay Mills $400,000 for the light fixtures. In turn, Mills would pay Lopez $300,000 of that for his extra labor and materials costs. “Then we would walk away,” Lopez said.
But as of a few days ago, Lopez still was waiting for his money. Lopez said he was told Mills never got the $400,000 because of accounting problems between Mills and the airport. Airport officials would not discuss specific cases, and Mills officials could not be reached for comment.
“Mills was saying the airport was dragging its feet,” Lopez said. “The airport was saying, ‘No. We don’t remember that agreement. There’s no money to fund that agreement.’”
Lopez emerged from Chapter 11 in January. Earlier this month, he spoke at the airport board meeting, promising that if he were paid he wouldn’t “darken the door” of the airport board for its May meeting.
At stake, he said, is the company started by his father, Ernesto Lopez, in 1965.
The elder Lopez trained with a German master electrician in Mexico City and brought his family to the U.S. in the late 1950s with the help of a Dallas sponsor. The younger Lopez built up the business and became the founding director of the Hispanic Contractors Association of DFW and the incorporating president of the West Dallas Chamber of Commerce. He knows the political ropes of the Metroplex.
Or at least he thought he did.
There are stories like Lopez’ and Affholder’s in every part of Terminal D and two companion projects — the hotel and an upgrade of the airport’s central utility plant. Lawsuits spawned by those projects produced a string of out-of-court settlements in December in which the airport paid about $2.7 million, mostly to electrical contractors who’d waited months and sometimes years to settle up on change orders. And more suits are still being litigated or mediated.
At the heart of the claims filed by Lopez and others is the contention that the design changes, materials problems, and conflicts between the airport board and Austin together constituted a “cardinal change” in the scope of the projects they tackled at Terminal D.
Chickasaw Electric Corp., for instance, won two contracts worth more than $1.9 million to provide wiring and lighting for the majority of the gatehouses — the areas behind airline counters that include operations for the gates and jet bridges — at Terminal D. Almost immediately, according to a claim Chickasaw filed with the airport, the contractor ran into a landslide of change orders and scheduling conflicts. By the time the job was finished, the Carrollton subcontractor had fielded 5,000 requests for information from the airport and more than 400 changes in the documents outlining the project’s specifications. Chickasaw said it had to deal with duplicate inspectors representing the airport, Austin Commercial, and Mills Electric. Instead of working on each gatehouse four to six times, as it expected, the company sent crews to each structure 50 to 75 times. The company filed a claim asking for an extra $892,437 for the job. Frustrated, Chickasaw officials bypassed the airport chain of command and went to Jeff Fegan, the airport’s executive director. The company finally got a check for $425,000 to settle its claims.
Fort Worth-based All-Fair Electric reached a similar settlement for its work on the new terminal, the hotel, the sky bridges, and the parking garage. In the end, the company accepted a payment of $245,156 — about $90,000 more than its original contract, to cover costs of three months of delays.
The Terminal D troubles also have been blamed for the collapse of Dallas-based mechanical contractor Burden Brothers Inc., which shut down most operations two years ago. At the time, airport spokesman Ken Capps blamed Burden’s troubles on “poor management at the prime and subcontractor level,” according to a Dallas Business Journal story.
Within the past two weeks, the company closed its Oak Cliff headquarters for good. Former chief executive Jerry Burden said the contracts to provide the plumbing for the Hyatt Hotel and storm sewer work in the main terminal were the last two jobs the company did, and he’s still waiting to settle a $3 million claim.
“We’ve lost everything, and it’s destroyed a 60-year-old company,” Burden said. “We haven’t filed for bankruptcy. But we’re definitely insolvent. I signed up for unemployment, and my house is in foreclosure.
Walker Building Corp. still hasn’t gotten what the North Richland Hills company says it’s owed for work, from pipe supports to boiler installation, it did at the utility plant. Design flaws in the boiler caused the company to suspend work on the project from November 2003 to March 2004, and eventually raised the total on the company’s work to $3.2 million from original contracts totalling about $2.5 million. Thus far, the company’s only received $1.6 million. The case is set for binding arbitration in October, which means Walker will have waited at least two years to get its demands resolved.
Company president Joe Walker said that, contrary to earlier news reports, the $2 million he’s owed hasn’t pushed the company to the brink of bankruptcy — but it hasn’t helped. The real impact, he said was felt on down the line. “It’s driven a lot of third-tier contractors and suppliers out of business,” he said.
Like Lopez, Walker has a history with the airport, which rotates its work among general contractors such as Austin Commercial. In fact, Walker was the airport’s first general contractor.
Then and now, Joe Walker said, airport staffers have been fair and efficient in handling bills and change orders. “Our problem is with Austin Commercial. At one time they were fine, 10 or so years ago. But I get the feeling they want to see how many people they could put out of business,” he said.
If starting to build part of a project while the rest of it is still being designed sounds chancy, nonetheless that’s what was supposed to happen on Terminal D. It’s a process that is being used on more and more major construction projects.
“The project was called in the industry a fast track-project,” said Terry Cassidy, the airport’s assistant vice president for program administration. “Design is going on while construction is going on. We would design all of the subsurface drainage, for example, and we would hand that to Austin as a package.”
Airport officials wouldn’t discuss specific subcontractors with the Weekly, but staffers did discuss Terminal D’s general problems at length and, as required by open records law, provided extensive documents.
Austin Commercial’s overall contract at Terminal D totaled more than $65 million — but under the fast-track system, that left out major portions of the work. In all, 38 more packages of plans were released, adding another $591 million to Austin’s total.
The project started in December 2001 and was to be “substantially complete” in April 2005. Austin had plenty of reasons to try to get the terminal built on time: The contract stipulated that the company would pay $10,000 a day in damages for every day beyond the agreed-upon deadline and another $1,000 per hour for delays in opening specific runways or taxiways on schedule.
However, that deadline became a moving target: When the airport requested design changes, the deadline would get renegotiated. The project was deemed to be substantially complete on July 22 — 21 days after the final negotiated deadline. But airport spokesman Steven Roth said the general contractor hasn’t paid any damages yet. Roth said Austin would normally do so when the project is closed out and final payment is made — which, a year after completion, still hasn’t happened.
If Austin isn’t suffering financially, however, many of its subcontractors are. Even in the normal course of a construction project, lower-level subcontractors may have to wait a couple of months to get paid, while payment requests go up the line of contractors to the general contractor and then the airport, and payments come back down.
Cassidy said the airport was not slow in handling payments and change orders. “We processed over 30,000 invoices over the five-year term of the program, and 99.99 percent of those we paid within 30 days,” he said. And, he said, the number of change orders was actually extremely low for a project of this size. But the airport wasn’t privy to the number of change orders issued by Austin to its subs and down the line.
Cassidy and others did notice problems with Austin’s handling of change orders. “We had difficulty over the term of the project getting Austin to execute change orders,” Cassidy said. “To a certain degree, that’s part of the process. To a certain degree, it may have been excessive.”
Lori Elise, director of corporate communications for Austin Industries, the contractor’s parent company, was the only Austin official who talked to the Weekly. “Our stance has always been that we have an unwavering commitment to delivering a quality project. But we’re also committed to ensuring our subcontractors are paid, because their success is important,” she said. “We dispense funds to the subcontractors as soon as the owner releases the funds to pay them.” She said the company is “closing out that project ... working through whatever open cases need to be resolved.”
During the years it took to build Terminal D, airport officials and their general contractor swapped questions repeatedly over money and progress. In August 2002, the airport’s former Terminal D managing executive, Mark A. Skjervem warned Lee Smith, Austin’s regional manager in the DFW project office, that Austin’s cost and time projections were in question.
“We do not and have not supported additional costs due to ACLP (Austin Commercial L.P) forecasts,” Skjervem said in a letter. “In fact, we strongly question and disagree with many forecasts to complete issues. Despite several meetings with your staff and conversations concerning the budget ... the forecasts continue to increase.”
In one case, Skjervem noted, Austin had submitted two different sets of financial data for the same month. He said the reporting of inconsistent financial data was an ongoing problem.
Austin adjusted its projections, and the project proceeded. When the questions continued, Austin reported in April 2003 that questions about its cash-flow projections and schedule could be blamed on a difference in bookkeeping procedures at the airport. “This has usually been caused by late design revisions or clarifications,” added Austin project manager Tom Skinner.
Such exchanges are routine on big projects, Cassidy said. He said the airport was mindful of the impact it was having on small companies and sometimes expedited payments of partial bills when other portions of the bills were in question.
“The airport stood up in front of everybody and always said ... if the airport caused it, we would pay for it,” he said. “The problem was, many of the contractors couldn’t say what caused the problem.
“And, in fact,” he added, “on many occasions, it wasn’t the airport.”
As far as the subs are concerned, however, sometimes it was the airport.
One Hispanic electrical subcontractor, who asked not to be named, said he still is waiting for payment for the work he did on Terminal D. “We had everything properly documented and finished, but it was several, several months and DFW came back and said, ‘Now we’re going into an audit process,’” the contractor said.
Compiling the list of contractors damaged or ruined during the Terminal D project is difficult, though major players in the drama say it includes dozens of minority builders and suppliers.
Cassidy suggested that, for some companies that ran into trouble during Terminal D construction, the cause lay outside the airport work. On Valentine’s Day this year, for instance, Mills Electric and four of its subsidiaries filed a massive petition for reorganization in Dallas bankruptcy court, along with 127 sister electric companies under the umbrella of Integrated Electrical Services. An attorney for the electric conglomerate said the bankruptcy isn’t related to the troubles at Terminal D.
And the groups that do appear to be hurting the most because of the airport job aren’t always willing to talk — in part, for fear of biting the hand that may feed them future jobs.
John H. Martinez, who is president of the Hispanic Contractors Association of DFW — the group Lopez helped launch in 1995 — scheduled and then canceled three interviews with the Weekly. On a third occasion, the group’s board closed its meeting without notice after agreeing to admit a Weekly reporter and discuss the problems at Terminal D. Margo J. Posey, president of the Dallas/Fort Worth Minority Business Council, said her members are writing off the troubles as a lesson on avoiding bad change orders and vying for future jobs at DFW. Even leaders of some of the companies that publicly went to court over the project wouldn’t agree to interviews.
Despite the problems caused for some minority- and women-owned businesses, the airport is still celebrating those companies’ role in the new terminal and other capital improvement projects. In a ceremony last September, airport officials said the Terminal D, Skylink, and the Grand Hyatt hotel projects had paid out $565 million to 220 minority- and women-owned businesses.
While the worst may be over in Texas, Lopez’ and Walker’s counterparts in Florida are still sorting through similar problems in a project involving Austin Commercial and New York-based Turner Construction, at Miami International Airport.
A month and a day before Terminal D’s gala grand opening, the Miami-Dade County Commission voted to remove Fort Worth-based American Airlines and its construction manager, a joint venture comprised of Austin Commercial and Turner Construction, from their supervisory roles over a massive project to renovate and expand the Miami airport’s north terminal and runway system.
John Cosper, MIA’s deputy director of capital improvements, said American Airlines withdrew from the project after managing it since 1995. By last summer, the project, another “fast-track” venture, had fallen four to five years behind schedule and the price had nearly doubled — to $1.92 billion.
Cosper said American agreed to contribute $105 million over the next decade to help pay off more than $151 million in claims to subcontractors, many of them small companies. In turn, the county agreed to defend American and its partners against lawsuits.
MIA has hired a claims consultant to work with more than 200 mostly small contruction companies that appear to have fallen through the cracks somewhere between the airline and its chief builders.
“What we’ve found in some cases is that there were change orders that went to the Turner-Austin team and never made it to American Airlines,” Cosper said. “There are some subs that were teetering on the brink. They were in a very, very precarious position.”
American spokesman Tim Wagner declined to comment on the project, except to say the Austin group had turned construction back over to the airport.
Elise, speaking for Austin, said, “It is important that the county did set up a resolution fund, and they are in the process of resolving claims through that fund.”
Lopez points to the Miami fiasco as underscoring the troubles of the dozens of small businesses ensnared at Terminal D.
At its peak, he said, Lopez Electric had 100 employees. It now has 20.
“We will recover,” he said, “if the airport doesn’t take us out.”
Local journalist Michael Whiteley can be reached at mikewhiteley@sbcglobal.net.
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