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  • Not guilty plea: The man charged with first-degree murder in the December, 2014, death of a Greenville woman pleaded not guilty last week.
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Feather River College uses special reserve to pay construction overruns

Mona Hill
Staff Writer

Faced with more than $800,000 in overruns and accounting errors on the learning resource center construction project, Feather River College trustees voted June 23 to use a special reserve fund to pay for the majority of the unanticipated costs.

The move reduces the special fund, carefully built over many years using Secure Rural Schools money, by nearly half.

The $800,000 figure may go up, pending negotiations with contractors and whether or not the college can shift a deferred maintenance block grant to the project.

“Ultimately, my name is all over the project,” said Facilities Director Nick Boyd, “so I guess it’s on me.”

Trustee John Sheehan also shouldered some of the blame. “The board is responsible for the appropriate use of funds … I don’t think we did that in this case.”

It took trustees one regular meeting June 16 and two special meetings June 20 and 23 to grasp the situation and chart a course of action. Over that time, the estimate of the overruns fluctuated from a low of $700,000 to a high of nearly $1 million.


What went wrong

Board president Bill Elliott and trustee John Schramel, in separate telephone conversations, cited several factors that contributed to the delay in recognizing the extent of construction overruns.

The initial, inaccurate soils analysis probably accounts for the largest portion of the total. In addition to the cost of a second report and foundation modifications, the problem delayed construction until corrected.

Because the college acted as its own general contractor, that delay left the college open to claims from the contractors who followed, notably $45,000 due to Randy Hill Construction Inc. (RHCI). Although the college thought it would save money by acting as its own general contractor, the move left it responsible for other costs.

While Counterpoint Construction Services acted as a project manager, it was in the capacity of vetting contractor invoices, change orders and approvals. Boyd oversaw the construction project’s operations and interacted with the various contractors. He also coordinated processing of invoices, change orders and approvals through the college.

Trustees received periodic updates, usually from Boyd, throughout the project but did not receive formal financial reports.

There was no separate project accounting beyond Boyd’s updates. In addition, the college switched accounting systems during the course of construction.

The state reimbursed the college in arrears. FRC would submit its paid invoices to the state and request reimbursement. As the college received reimbursement, it would post the funds received.

A $313,515 accounting error, now being called “unreimbursed expenses,” occurred when previously paid expenses were not deducted from the reimbursement, giving the impression there was a larger fund balance than there actually was.

In reality, the “unreimbursed expenses” were reimbursed and contribute to the $820,798 in project overruns. Delay in discovering the overruns did not allow trustees an opportunity to find savings elsewhere in the project.

In a telephone conversation, Boyd said the college actively managed the project, eliminating several nonessential building features, including rock facings, sidewalk snowmelt features and new anti-theft library equipment.

He admitted there was a lack of clear communication to the board: something he and Chief Financial Officer Jim Scoubes would normally provide.

As chief financial officer, Scoubes has responsibility for the college’s finances, including the staff and systems that contributed to the error.

How Scoubes missed the error is not clear. By press time, he had not returned calls from Feather Publishing.


Next steps

Elliott said over the course of the next few months, administrators and the board will develop a memorandum outlining requirements for future construction projects, including a separate accounting system and supporting staff, as well as monthly financial reporting.

He agreed with trustee Leah West’s assessment during the June 23 board meeting: “Since we overspent, we need to retreat from future expenses (for the time being) and make do with less.”

Sheehan expressed reluctance to make further cuts to the recently approved budget, saying, “Everyone made good faith efforts to cut expenses and achieve the needed reductions.”

College president Dr. Ron Taylor agreed, saying that while he didn’t think there would be much more in savings, capital accounts would be the place to look for them.


June 16

At its regular board meeting, Scoubes presented trustees with a request to allocate $700,000 to pay construction overruns of about $308,000, an estimated $307,000 of previously unknown costs due to an accounting error, and a $45,000 settlement with RHCI.

At the time, Scoubes and Boyd indicated the $700,000 was a “soft” figure because of outstanding retention payments, the college’s pending claims and negotiated settlements with contractors.

FRC retains 10 percent of the prime contractor’s total contract to ensure contractors meet all contractual obligations and correct any deficiencies.

The $45,000 settlement with RHCI is a result of negotiations regarding the company’s billing to the college for construction delays stemming from an inaccurate soils analysis and inclement weather.


June 20

At this previously planned special meeting, Taylor provided trustees with a new overrun figure: $973,627.

Anticipated liquidated damages of $77,000 would bring FRC’s out-of-pocket costs down to $896,627. Taylor explained to trustees that payments to RHCI were in negotiations. Backup material showed an audio-visual contract balance of $93,213. Of that amount, FRC is withholding $34,281 for third-party claims against RHCI.

The amount is due and payable, whether to RHCI or to the company’s suppliers and subcontractors.

Taylor also said the college is in negotiations with RHCI over repairs to concrete flooring and issues related to architectural standards. In a later telephone conversation, Taylor declined to be more specific, citing ongoing negotiations with RHCI.

A math error discovered after the meeting resulted in a $22,000 understatement of the balance due to RHCI by Sept. 15.

Trustees were so confused by the unusual report format and its lack of detail that they declined to approve the original allocation request and a revised request that would leave just under $500,000 in the SRS account by eliminating all other proposed expenditures.

The board directed Taylor to notice a second special meeting June 23 to deal solely with the allocation and to provide trustees with a detailed report in standardized accounting format.


June 23

Scoubes provided the board with a well-documented accounting to support the request for SRS allocation. The most recent accounting showed a total projected cost of $10,775,799 for the learning resource center, originally estimated at $9,955,001.

Scoubes grouped the overages into four categories: $313,515 in unreimbursed expenditures — the previously unidentified overruns revealed as an accounting error at the June 16 meeting; unpaid construction invoices totaling $77,688; retentions of $336,383; and $93,213 remaining on the audio-visual contract with RHCI, yielding the $820,798 figure.

Scoubes also identified $320,475 in potential recoveries from contractors: $54,000 in liquidated damages stemming from a contractor’s lack of an onsite construction superintendent; $34,000 in liquidated damages caused by additional delays; $34,281 in third-party delays; $150,000 for additional soils analysis costs incurred; and $48,194 in engineering claims.

Scoubes’ total for potential recoveries is a best-case scenario. If the college can recover the total amount, net estimated project overruns would be $500,323.

While liquidated damages are likely, recouping the entire amount is not certain.

Boyd and Taylor told the trustees the college had documented claims, but contractors would dispute the claims. The total amount depends on negotiations and potential legal costs — whether it is cost-effective to bring legal action.

In a final motion, trustees asked the administration to report on capital improvement reductions to apply toward the overruns and set priorities.

The board’s highest priority was to identify and begin work to recover any potential claims against contractors, followed by payment priorities.



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