00-001202 Morse Diesel Civil, Llc vs. Department Of Transportation Status: Closed Recommended Order on Wednesday, July 5, 2000.

Summary: Department of Transportation improperly denied Petitioner`s Application for Qualification to perform construction work on Department contracts.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MORSE DIESEL CIVIL, LLC, )

)

Petitioner, )

)

vs. ) Case No. 00-1202

)

DEPARTMENT OF TRANSPORTATION, )

)

Respondent. )

___________________________________)

RECOMMENDED ORDER

Pursuant to n otice, a hearing was held in the case in

Tallahassee, Florida, on April 19, 20, and 21, 2000, before

William R. Pfeiffer, Administrative Law Judge, with the Division

of Administrative Hearings.

APPEARANCES

For Petitioner: Cynthia S. Tunnicliff, Esquire

Brian A. Newman, Esquire

Pennington, Moore, Wilkinson,

Bell & Dunbar, P.A.

Post Office Box 10095

Tallahassee, Florida 32302-2095

For Respondent: Brian F. McGrail, Esquire

Brian A. Crumbaker, Esquire

Department of Transportation

Haydon Burns Building, Mail Station 58

605 Suwannee Street

Tallahassee, Florida 32399-0450

STATEMENT OF THE ISSUE

Whether Respondent, Department of Transportation (DOT),

properly denied Petitioner's Application for Qualification to

perform work on DOT contracts which exceed $250,000.00 pursuant

to Chapter 337, Florida Statutes, and Rule Chapter 14-22, Florida

Administrative Code.

PRELIMINARY STATEMENT

On March 3, 2000, DOT issued a Notice of Intent to Deny

Application for Qualification to Petitioner, Morse Diesel Civil,

LLC (Petitioner). On March 10, 2000, Petitioner timely filed a

Petition for Administrative Hearing.

Petitioner's Petition for Administrative Hearing was filed

with the Division of Administrative Hearings on March 20, 2000.

The petition was designated Case No. 00-1202 and was initially

assigned to Administrative Law Judge William F. Quattlebaum.

Petitioner filed a Motion for Expedited Hearing Date and

Discovery Schedule on March 23, 2000. The Notice of Hearing

issued March 29, 2000, initially set the final hearing for April

20, 2000, in Tallahassee, Florida. Thereafter, an Amended Notice

of Hearing was issued assigning William R. Pfeiffer as the

Administrative Law Judge and set the final hearing for April 19,

20, and 21, 2000, in Tallahassee, Florida.

DOT based its written denial of Petitioner's Application for

Qualification on alleged false, deceptive, or fraudulent

statements made on its application.

At hearing, DOT further alleged that Petitioner failed to

submit an audited financial statement that accurately reflected

the financial condition and transactions of its corporation at

the time of Application for Qualification, and that Petitioner

did not seek to amend the statement and accurately reflect the

financial condition and transactions prior to final hearing.

At the final hearing Petitioner presented the testimony of

five witnesses and offered nine exhibits. DOT presented the

testimony of six witnesses and offered seventy-two exhibits. All

of Respondent's Exhibits were admitted into evidence except

numbers 3, 4, 25, 29, 31, 57, 61, and 72 which were not admitted

into evidence.

Initially, Respondent's Exhibit 14 was not admitted into

evidence. DOT presented a certified copy to Petitioner's

corporate president, Mitchell Becker during his post-hearing

testimony. During his sworn testimony, Mr. Becker identified the

Notice of Termination to Morse Diesel International, Inc., stated

that he had received a copy of the Notice of Termination while

employed as a corporate officer, and that it was a true and

accurate copy. DOT then offered the certified copy of the Notice

of Termination into evidence over objection of Petitioner, and it

is accepted as Respondent's Exhibit 14.

There was an agreement of the parties, approved by the

Administrative Law Judge, that the record be kept open for the

purpose of obtaining the testimony of Mr. Becker, the corporate

representative for Petitioner and two former West Virginia

Department of Highways employees, Mr. Earl Scyoc and Mr. Fred

Vankirk. The deposition of Mr. Becker was taken on May 4, 2000.

DOT filed a Motion to Substitute Witness on May 9, 2000.

Petitioner filed a response opposing said substitution. The

Administrative Law Judge granted Respondent's motion, but limited

the testimony of the records custodian to the documents Mr. Earl

Scyoc would identify. Ultimately, the Department did not depose

either of the West Virginia witnesses for the purpose of filing

their testimony for the record.

By stipulation of the parties, the depositions of Jennifer

Olson and Robert Teraska were submitted for the record in lieu of

their appearance at the final hearing.

The parties timely submitted their respective Proposed

Recommended Orders which were considered.

FINDINGS OF FACT

1. Petitioner, Morse Diesel Civil, LLC ("Morse Diesel"), is

a new company created to perform heavy civil construction, in

particular large road and bridge projects.

2. Morse Diesel is owned 80 percent by Morse Diesel Civil,

Inc., and 20 percent by KPG, Inc. Morse Diesel Civil, Inc., is

owned by AMEC Holdings, Inc.

3. KPG, Inc., is owned by Richard Kelly ("Kelly") and Jack

Palmer ("Palmer"). Together, Kelly and Palmer have over 50

years' experience in heavy civil construction.

4. On October 8, 1998, Morse Diesel filed an application

for qualification with the Florida Department of Transportation

("DOT") to perform all classes of road and bridge work except for

bascule bridge rehabilitation. Since the company was new and had

not yet performed any work, the letters of recommendation

provided in the application related to Morse Diesel

International, Inc. ("MDI"). MDI is a large commercial

construction management company owned by AMEC Holdings, Inc.

5. Through DOT requests for additional informat ion, Morse

Diesel learned that DOT was interested in the experience of its

principals and recommendations regarding their work. The work

experience of Kelly, Palmer, John Zito, and Grant Ralston was

provided to DOT in response to those requests.

6. Unde r Rule 14-22.003, Florida Administrative Code, DOT

thoroughly evaluated Morse Diesel and awarded it an Ability

Score of 75 out of 100. DOT found that Morse Diesel had the

necessary organization and management, adequate equipment, and a

satisfactory work performance record which included an evaluation

of the quality of completed work, any history of payment of

liquidated damages, untimely completion of projects for which

liquidated damages were not paid, cooperative attitude, contract

litigations, claims, and defaults. Their score of 75 also

included an evaluation of their integrity and responsibility. To

date, Morse Diesel's ability score remains unchanged and in

effect.

7. On January 11, 1999, Morse Diesel was granted a

Certificate of Qualification to perform all classes of work

requested except major bridges and provided a maximum capacity

rating of $200,000,000; that is, the total aggregate dollar

amount of uncompleted work a contractor may have in progress at

any time.

8. Thereafter, Morse Diesel applied for a revised

Certificate of Qualification to include major bridge

classifications. DOT requested and was supplied additional

information regarding the work experience of Kelly, Palmer, Zito

and Ralston.

9. DOT served a Notice of Intent to Deny the application

for additional classes of work and Morse Diesel filed a request

for a Section 120.57, administrative hearing. That case was

dismissed as moot when Morse Diesel did not renew its Certificate

of Qualification.

10. On February 2, 2000, Mor se Diesel applied for a

Certificate of Qualification for all classes of road and bridge

work except for bascule bridge rehabilitation. DOT denied its

application on March 3, 2000.

11. The decision to deny an application for Qualification

is a very serious matter and each application is thoroughly

evaluated by DOT. Less than one percent of all applications are

denied.

12. The decision to deny the February 2, 2000, application

of Morse Diesel was made by the DOT pre-qualification engineer,

Lewis Harper. The Notice of Intent to Deny the Application

("Notice of Intent") was written by Mr. Harper and Brian McGrail

of the legal staff and identified the factual bases for the

denial of the application and all the statutory and rule criteria

utilized in the review of the application.

Summary of Allegations

13. The grounds for denial identified by DOT in the written

Notice of Intent are: (a) a record of contract litigation,

claims, uncooperative attitude, untimely completion of projects

without payment of liquidated damages, and defaults by the

management of Morse Diesel (Kelly and Palmer) when they worked

for S. J. Groves and Sons, Inc., and Balfour Beatty Construction,

Inc., on major bridge projects in Alabama, West Virginia, and

Florida; (b) S. J. Groves was defaulted on the Cochrane Bridge

Project by the State of Alabama; (c) Kelly and Palmer had

substantial supervisory and management responsibilities for the

Cochrane Bridge project and contributed substantially to the

difficulties experienced by the Alabama Road Department; (d) The

answer to Question 19-2 of the application regarding Kelly's and

Palmer's involvement in the Cochrane Bridge project does not

accurately reflect their role and is considered false, deceptive

or fraudulent; (e) Kelly and Palmer had responsibility for

prosecuting work and making decisions for filing claims on the

Wierton-Stubenville Bridge project in the State of West Virginia

and there were substantial delays and disputes over settlement of

claims; (f) Kelly and Palmer were litigious and claims-oriented

when they were associated with Balfour Beatty in Florida; (g) MDI

is an affiliate of Morse Diesel because Norm Fornella is an

officer is both companies and MDI was not listed in the

application as an affiliate; (h) Morse Diesel did not advise DOT

of the default of MDI; and (i) KPG is an affiliate of Morse

Diesel because Kelly is an officer in both companies and KPG was

not listed in the application as an affiliate.

14. The application was not denied due to a lack of

adequate experience or equipment.

15. Although Morse Diesel listed the same affiliates in its

1998 application as it did in its 2000 application, the 1998

application was partially granted and the failure to list

affiliates was not a ground for denial of the request for

additional classes.

Allegations ( a )-( d ): Record of Contract Litigation, Claims,

Uncooperative Attitude, Untimely Completion of Projects and

Defaults by Management of Morse Diesel

16. The right to submit a claim is a valuable right of the

contractor. If a contractor contends he/she is due additional

time and money, it is common for him/her to pursue his/her claims

rights. If the liability for unforeseen circumstances falls on

the owner, the contractor typically pursues claims based upon the

increased cost associated with the extra time and expense

occasioned by the unforeseen circumstances.

17. Kelly and Palmer have been involved in very difficult,

highly technical jobs throughout their careers. It is common for

these projects to involve a number of problems and related change

items. Industry-wide, complex projects often involve change item

costs ranging between 12 percent and 20 percent of the contract

price.

The Cochrane Bridge Project; Kelly's and Palmer's Involvement;

and Application Question 19-2

18. Construction on the Cochrane Bridge was begun in 1985.

Kelly was an executive vice president of S. J. Groves at the time

and was also responsible for 30 or 40 other projects. At the

same time, Palmer was a vice president of operations for S. J.

Groves responsible for 10 to 12 projects. The project manager

for the Cochrane Bridge project reported to Palmer and Palmer

visited the project every two weeks, mainly to solve problems.

19. The Cochrane Bridge was one of the first cable-stayed

bridges built in the United States. It was designed by an

Italian design firm and could not be built in accordance with the

method of construction proposed by the designer. Moreover, each

time there was a design problem, the Italian design firm had to

be consulted, which took a great deal of time and caused delays.

20. The Cochrane Bridge was designed to withstand a certain

maximum load after construction was completed. The bridge,

however, was undergoing greater stress while it was under

construction. Consequently, disagreement ensued over the

sequence of erection, whose responsibility it was to develop the

erection sequencing, whether additional strengthening was needed

during construction and, if so, who would pay for it.

21. While these issues were addressed, S. J. Groves stopped

work on the project. The State of Alabama requested Groves to

work on other areas of the project during the down-time, but Mr.

Groves refused for economic reasons. Alabama threatened to

default Groves if they did not return to work. Kelly and Palmer

attended several high-level company meetings where the issue of

whether to continue the project was discussed by Franklin Groves,

the owner of S. J. Groves, as well as the company's president and

general counsel. Although Kelly and Palmer recommended that S.

J. Groves remain on the project, their recommendation was

overruled and a default was entered by the State of Alabama.

22. Kelly and Palmer left S. J. Groves within 6 months of

the default and formed their own company, RNE, in 1989.

23. There is no reliable evidence that they "contributed

substantially to the difficulties experienced by the Alabama Road

Department" as charged in the Notice of Intent to Deny.

24. S. J. Groves pursued litigation against the Alabama

road department regarding the default and a settlement was

reached. The contractor chosen to take over the job after the

Groves default, filed claims of approximately $10,000,000 to

$12,000,000, and also wound-up in litigation with the State of

Alabama.

25. There were thirty to forty vice presidents of S. J.

Groves. Neither Kelly nor Palmer understood that they served as

a corporate officer of S. J. Groves until after Morse Diesel had

filed the 1998 application and were shown corporate forms filed

with the Secretary of State.

26. In response to Question 19-2 in the application, Morse

Diesel stated: "Richard Kelly and Jack Palmer were denominated

vice presidents of S. J. Groves, which defaulted on a job in

Alabama in 1989. S. J. Groves had a number of people denominated

as Vice Presidents and neither Mr. Kelly nor Mr. Palmer was at

the level of management responsible for the decision to abandon

the Cochrane Bridge Project. Both Mr. Kelly and Mr. Palmer

recommended against abandoning the project and were overruled.

They then left the company." There is no evidence which

contradicts this finding.

Allegation (e): Kelly's and Palmer's Involvement in the Wierton-

Stubenville Project

27. DOT presented no evidence to support its charge in the

Notice of Intent that Kelly and Palmer were responsible for

making the decision to file claims on the Wierton-Stubenville

Bridge in the State of West Virginia and that there were

substantial delays and disputes over settlement of claims. The

only direct evidence is that Kelly was not involved in the

preparation of claims or claims settlement on the Wierton-

Stubenville project. The record is silent as to Palmer's

involvement, if any.

Allegation (f): Kelly's and Palmer's Involvement in

Litigation and Claims at Balfour Beatty

28. Kelly and Palmer were involved in Balfour Beatty's

initial foray into the heavy civil construction business in

Florida. In the early 1990's, Kelly met with DOT on Balfour

Beatty's application for qualification to bid. At that time,

DOT was on notice and inquired about Kelly's and Palmer's

involvement in the S. J. Grove's default in Alabama. The

Cochrane Bridge project was discussed in detail during a meeting

held at DOT headquarters in Tallahassee. After being qualified,

Balfour Beatty bid $82,000,000 on a large I-95 project in Broward

County and was the successful low bidder by $1,000,000.

29. In the beginning of the project Kelly and Palmer

acquired staff and equipment, wrote purchase orders for

materials, and supervised the project. On December 31, 1991, Dan

White was hired as the project manager and Palmer visited the

site every couple of weeks until problems on the project

escalated.

30. As the project manager, Dan White was in charge of the

job and was responsible for the filing of claims. There were

right-of-way problems and contaminated soil which delayed the

project from the beginning. An initial design problem resulted

from the project having been designed by two different design

firms operating from different types of surveys. Consequently,

the road was not aligned at the same elevation to match existing

structures. These elevation problems shut down the project for

months.

31. None of the design, right-of-way, or soil contamination

problems was the fault of Balfour Beatty. Nonetheless, DOT

rejected all change items and required Balfour Beatty to file

claims.

32. A lawyer for DOT eventually became involved in the

project in an attempt to settle the disputes which resulted in

the preparation of Supplemental Agreement Number 73. SA-73

settled the claims up to that date, set new dates for project

completion and paid money for completion by those dates. SA-73

was entered into based upon DOT's assurance that a

constructibility review had been completed to make sure that the

remainder of the project could be constructed in accordance with

the existing plans and there would be no further design problems.

33. However, the constructibility review was not complete

and new design problems occurred immediately. The design of the

parking lots was changed as they were being built. Core holes,

used to determine the depth and density of the pavement had not

been drilled. This caused more delays and claims. Balfour

Beatty filed a lawsuit against DOT, Morrison Knudsen, the CEI on

the project, and DOT personnel on site. The case was settled

against DOT and its personnel for $4,750,000 and a jury awarded

$4,300,000 against Morrison Knudsen.

34. Balfour Beatty remains qualified to bid on DOT projects

and was awarded a contract to build the Fuller Warren Bridge in

Jacksonville. Kelly and Palmer, as consultants to Balfour

Beatty, participated in preparing the bid for the Fuller Warren

Bridge and that project is currently staffed with many of the

same personnel who worked on the Broward County I-95 project,

including the project manager, Dan White.

35. The Broward County I-95 project was awarded on a bid of

$82,000,000. DOT paid Balfour Beatty $97,000,000. The

completion of the I-95 project was one to two years late and

resulted in over 100 claims being filed. The Fuller Warren

Bridge project was awarded on a bid of $81,000,000 and has cost

to date approximately $94,000,000 to $96,000,000.

36. None of the problems on the I-95 project were caused by

Kelly or Palmer. Neither Kelly nor Palmer was involved in the

preparation of the lawsuit or its settlement.

ALLEGATION ( g ): Statements in the Application on Affiliations

37. According to DOT's application,

"The term 'affiliate' means a predecessor or

successor of a contractor under the same, or

substantially the same, control or a group of

business entities which are connected or

associated so that one entity controls or has

the power to control each of the other

business entities. The term 'affiliate'

includes the officers, directors, executives,

shareholders active in management, employees

and agents of the affiliate. The ownership

by one business entity of a controlling

interest in another business or a pooling of

equipment or income among business entities

shall be prima facie evidence that one

business entity is an affiliate of another."

38. In its application for bid qualification, Morse Diesel

listed Morse Diesel Civil, Inc. and AMEC Holding, Inc. as its

affiliates. Morse Diesel did not identify either MDI or KPG as

"affiliated companies" in response to question number 8 in the

application. The application was prepared under the direction of

Morse Diesel's President, Mitchell Becker who has a master's

degree in civil engineering and a law degree. Based upon his

interpretation of the definition, he determined in good faith

that MDI and KPG were correctly omitted from the response to

question 8 because neither met the criteria for "affiliate" as

defined in the application.

39. The answer to question 8 is the same in both the 1998

application and the 2000 application and DOT did not request

additional information in the 1998 application related to the

response nor did it list the failure to name MDI and KPG as

affiliates as a ground for denial of the additional classes of

work in 1999.

40. There was a notation on page 2 of 19 in the 1998

application referring to MDI as a "sister company." The question

requested letters of recommendation. Morse Diesel was a newly

formed company, and did not have recommendations for projects it

had completed. Instead, it supplied the recommendations of MDI.

It became apparent to Morse Diesel through subsequent requests

for additional information that DOT was interested in

recommendations about the principals and management of Morse

Diesel, not MDI. Consequently, when filing its 2000 application,

Morse Diesel did not supply MDI letters of recommendation and

instead provided recommendations on previous work completed by

Morse Diesel personnel while associated with other companies.

41. The only entities that are predecess or entities or have

any control over Morse Diesel are Morse Diesel Civil, Inc. and

AMEC Holding, Inc. KPG is not a predecessor or successor of

Morse Diesel and has no ability to control it with 20 percent

ownership. Similarly, MDI is not a predecessor or successor

entity and has no controlling interest in Morse Diesel.

42. There was no intent to hide the nature of Morse

Diesel's relationship with MDI or KPG. The fact that Mr. Becker

and Mr. Fornella are officers of both Morse Diesel and MDI is

clearly stated in their résumés in the application. It is DOT's

policy to deny application for misrepresentation only when it is

intentional.

43. Morse Diesel listed MDI as an affiliate in its Virginia

application because the definition of "affiliate" in that

application was broader and appeared to encompass MDI.

44. Footnote 3 on page 7 of the audited financial

statements refers to a transfer of funds from MDI to Morse

Diesel. Mr. Becker, as president of Morse Diesel testified that

the footnote in the financial statement attached to the

application was a mistake. MDI has never advanced money to Morse

Diesel. The advances made to Morse Diesel were made by Morse

Diesel Civil, Inc. Mr. Becker as president of Morse Diesel is

aware of the financial condition of the company and reviews the

financial statements each month.

45. There is no pooling of equipment or income between

Morse Diesel and MDI.

Allegation (h): Notice of the MDI Default

46. Question 19-2 on page 16 of 23 of the application asks

whether "any officer or partner of your organization has ever

been an officer, partner or owner of some other organization that

has failed to complete a construction contract?" In response to

that question, Morse Diesel explained in the application that

Kelly and Palmer had been associated with S. J. Groves when it

defaulted on the Cochrane Bridge project in Alabama, but

otherwise answered the question "no." Although Mr. Becker and

Mr. Fornella are officers of both MDI and Morse Diesel, the

application did not reveal the default of MDI on a project in

St. Louis because the company is contesting the default and has

not as yet failed to complete that construction contract; it is

in litigation.

47. There is no credible evidence that Morse Diesel or Mr.

Becker intentionally omitted any information from the 2000

application.

Allegation (i): See Findings for Allegation (g).

48. Morse Diesel has demonstrated that it is competent and

has experience to prosecute the work requested in the

application.

49. DOT has allowed at least o ne other applicant to amend

its application to identify related companies as affiliates after

DOT has denied certification on that basis.

50. The résumés in the application and evidence presented

at hearing reflect the work experience of the management of Morse

Diesel and indicate extensive experience in heavy civil

construction, including highly complex projects.

51. The management of Morse Diesel has experience

constructing all the types of road and bridges for which

qualification is sought.

52. Morse Die sel has been qualified in New Jersey, North

Carolina, South Carolina, Virginia, Delaware, and Pennsylvania.

Furthermore, Pennsylvania qualified Morse Diesel on the condition

that Mr.Palmer remain associated with Morse Diesel and involved

in any project awarded there.

CONCLUSIONS OF LAW

53. The Division of Administrative Hearings has

jurisdiction of the parties to, and the subject matter of, this

proceeding. Section 120.57, Florida Statutes. (All references

are to rules and sections of the Florida Administrative Code and

Florida Statutes, respectively.)

54. The burden of proof is on the party asserting the

affirmative of the issue in this proceeding. Department of

Transportation v. J.W.C. Co. , 396 So. 2d 778 (Fla. 1st DCA 1981);

Antel v. Department of Professional Regulation , 522 So. 2d 1056

(Fla. 5th DCA 1988); and Balino v. Department of Health &

Rehabilitative Services , 348 So. 2d 249 (Fla. 1st DCA 1977).

55. Although the Notice of Intent to Deny Qualification

issued by DOT alleged several enumerated grounds for denial,

Petitioner met its initial burden of proof and established a

prima facie case for entitlement to a Certificate of

Qualification under Section 337.14 which requires:

(1) . . . Each applicant seeking to bid on

construction contracts in excess of $250,000

shall furnish the department a statement

under oath, on such forms as the department

may prescribe, setting forth detailed

information as required on the application.

Each application for certification shall be

accompanied by the latest annual financial

statement of the applicant completed within

the last 12 months. . . . Each audited

annual or interim financial statement must be

accompanied by the opinion of a certified

public accountant or a public accountant

approved by the department. . . .

(3) Upon receipt of an application for

certification, the department shall examine

it, verify its statements when necessary, and

determine whether the applicant is competent,

is responsible, and possesses the necessary

financial resources to perform the desired

work.

56. In this proceeding, Petitioner is asserting the

affirmative, that it is entitled to the Certificate of

Qualification to bid on DOT contracts in excess of $250,000.00

pursuant to Section 337.14, Florida Statutes, and bears the

ultimate burden of persuasion that its application should be

granted.

57. Section 337.167 adopted by the legislature in 1983,

states:

(1) A certificate to bid on a department

contract, or to supply services to the

department, is intended to assist the

department in determining in advance the

performance capabilities of entities seeking

to supply goods and services to the

department and is not a "license" as defined

in s. 120.52. The denial or revocation of a

certificate is not subject to the provisions

of s. 120.60 or 120.68(3). The provisions of

ss. 120.569 and 120.57 are applicable to the

denial or revocation of such certificate.

58. The instant proceeding was initiated as a result of

DOT's issuing a Notice of Intent to Deny Qualification to

Petitioner to bid on DOT contracts in excess of $250,00.00.

Petitioner applied for qualification in October 1998 and was

granted a certificate for limited classifications of work, minor

and intermediate structures.

59. Petitioner applied for additional classes of work in

February 1999. This request was denied on April 30, 1999.

Thereafter, Petitioner's certificate to bid on DOT contracts

expired. Petitioner filed a new Application for Qualification,

including the additional classes of work, on February 2, 2000.

DOT denied the application on March 3, 2000.

60. The petition for a formal administrative proceeding, as

in this case, commences a de novo proceeding. J.W.C. Co., 396 at

785. See General Development Corp. v. Division of State

Planning , 353 So. 2d 1199 (Fla. 1st DCA 1977). A de novo

proceeding is intended "to formulate agency action, not to review

action taken earlier and preliminarily." McDonald v. Department

of Banking and Finance, 346 So. 2d 569, 584 (Fla. 1st DCA 1977).

61. Pursuant to Section 337.16(2), DOT is authorized to

deny or revoke a contractor's Certificate of Qualification for

good cause. Section 337.16(2) provides in pertinent part as

follows:

(2) For reasons other than delinquency in

progress, the department, for good cause, . .

. may deny, suspend or revoke any certificate

of qualification. Good cause includes, but

is not limited to, circumstances in which a

contractor or the contractor's official

representative . . . .

The statute clearly contemplates that "good cause" can be

established as to the circumstances pertaining to the contractor

or the contractor's official representative.

62. Rule 14-22.012(1)(a) states that the contractor's

Certificate of Qualification shall be denied or revoked for at

least one year when it is determined by DOT that good cause has

been demonstrated. Good cause is specifically contemplated by

the operation of the statute and rule to deny an application for

qualification.

63. Petitioner unsuccessfully argued in its Motion in

Limine that DOT cannot properly consider, as evidence of "good

cause," the history of contract litigation, claims, untimely

completion of projects without liquidated damages, defaults or

uncooperative attitude with project owners because these are

enumerated criteria under Rule 14-22.003, which concerns rating

the applicant. Though rating the applicant is one function in

the application review, DOT may consider these criteria, as well,

in determining whether "good cause" exists to deny an applicant

qualification. DOT must act reasonably when evaluating the

eligibility of each applicant.

64. It is clear from the context of the statute and rule

that "good cause" is not restricted to the six expressed

circumstances that demonstrate "good cause." DOT can reasonably

rely on its own interpretation of the statutes and rules to take

such action and is entitled to great deference. State

Contracting and Engineering, Corp. v. Department of

Transportation, 709 So. 2d 607 (Fla. 1st DCA 1998).

65. Holding a Certificate of Qualification entitles a

contractor the privilege of bidding on DOT contracts in excess of

$250,000. Denial of a contractor's qualification does not

deprive him of his livelihood to engage in other business as

would the denial of a professional or business license.

66. Petitioner's claim that it has a right to do business

in the State of Florida is not a guarantee or a right to be

qualified with DOT to bid on construction contracts in excess of

$250,000.00. Petitioner has the burden to demonstrate it has met

all the statutory and rule requirements entitling it to a

Certificate of Qualification.

Allegations of Excessive Claims, Contract Litigation, Project

Delays, and Defaults

67. DOT points to substantial claims, contract litigation,

construction delays, and one default on projects Kelly and

Palmer worked on while associated with other contractors as

grounds for denial. Specifically, DOT states in its Notice of

Intent that "Messrs. Kelly and Palmer had substantial supervisory

and management responsibilities for the Cochrane Bridge Project

and contributed substantially to the difficulties experienced by

the Alabama Road Department"; and with respect to a project in

West Virginia, that "Messrs. Kelly and Palmer were in positions

of substantial responsibility for prosecuting work and decision

making for filing claims on that project."

68. DOT has not alleged and has not provided evidence that

the claims and litigation Mr. Kelly and Mr. Palmer presented were

either fraudulent or meritless. Likewise, DOT has not presented

any evidence from which it can be concluded that Kelly or Palmer

were responsible for or made the decision to file the claims or

litigation on this project. Finally, DOT has not presented any

evidence from which it could be determined whether Kelly or

Palmer was responsible for any of the construction delays on

these projects or the default on the complex Cochrane Bridge

project. Instead, DOT seems to suggest that the mere existence

of claims, litigation, delays, and the default demonstrates an

"uncooperative attitude" on the part of Kelly and Palmer, and

that it can deny the application on that basis.

69. DOT points to the language of Rule 14-22.012 and argues

that the rule does not enumerate an exhaustive list of grounds

which constitute "good cause" to deny an application. However,

an agency must put an applicant or licensee on reasonable notice

of the conduct which is proscribed. Section 120.54 specifically

states:

Rule-making shall be presumed practicable to

the extent necessary to provide fair notice

to affected persons of relevant agency

procedures and applicable principles,

criteria or standards for agency decisions

unless the agency proves that:

(a) Detail or precision in the establishment

of principles, criteria or standards for

agency decisions is not reasonable under the

circumstances, or

(b) The particular questions addressed are

of such a narrow scope that more specific

resolution of the matter is impractical

outside of an adjudication to determine the

substantial interests of a party based on

individual circumstances.

70. "Good cause" under Rule 14-22.012 cannot be

demonstrated by the mere existence of past claims, contract

litigation, defaults, or delays of non-DOT contracts. DOT has

unreasonably failed to properly consider the causes and

culpability of these past incidences.

71. Although DOT in evaluating whether "good cause" exists,

may reasonably consider an applicant's history of substantial

claims or litigation, there must be some showing of frivolity,

fault, or malfeasance in filing the claims or litigation.

Assertion of one's lawful rights under a contract cannot be

ground for denial of an application. Moreover, DOT cannot

require a contractor to file claims in order to formalize

legitimate change orders and then use the filing of the same

claims as a basis to deny bidding on future projects. Likewise,

citing construction delays or defaults, without determining the

cause of the delay or default, cannot support denial of the

application.

72. Although there are no reported Florida dec isions on

point, at least one other jurisdiction has recognized that

similar accusations do not constitute adequate grounds to

disqualify a contractor from bidding on a public project. In

Hilton Construction Company, Inc. v. Rockdale County Board of

Edu. , 266 S.E. 2d 157 (Ga. 1980), the Georgia Supreme Court held

that the Board of Education wrongly disqualified Hilton's bid on

a public project because it "heard" that Hilton was late on

another project. In rejecting such hearsay as a basis for

disqualification, the Court stated:

Finally, the information conveyed to the

board at its July 2 meeting that plaintiff

was late on the Georgia Tech project did not

establish that the plaintiff was not

responsible. Being late on a project without

any finding as to who caused the delay does

not show that a bidder was not 'responsible'.

Id. at 161.

73. While these grounds do not support denial of Morse

Diesel's application, it is concluded that Morse Diesel has

demonstrated through evidence of Mr. Kelly's and Mr. Palmer's

past experience with numerous successful projects that they do

not have a "history" of involvement with problematic projects.

To the contrary, with over 50 years of collective experience Mr.

Kelly and Mr. Palmer have been involved in only one project that

was defaulted by the owner. The irrefuted testimony is that the

Cochrane Bridge default, which occurred 11 years ago, was entered

after the contractor abandoned the project and over the

objections of Mr. Kelly and Mr. Palmer.

74. Furthermore, DOT admitted it has granted the

applications of other contractors who have previously defaulted

on other projects. DOT has an obligation to evaluate applicants

for pre-qualification uniformly. "Inconsistent results based

upon similar facts, without a reasonable explanation, violate

Section 120.68(12)(b) as well as the equal protection guarantees

of both the Florida and United States Constitutions." Amos v.

Department of Health and Rehabilitative Services , 444 So. 2d 43,

47 (Fla. 1st DCA 1983).

False, Deceptive or Fraudulent Statements in the Application

75. DOT also contends the 2000 application contains several

false omissions or misstatements justifying denial under Section

337.16(2)(a). First, DOT contends that Morse Diesel failed to

identify MDI and KPG as affiliates in response to question 8.

Second, DOT contends the application misrepresented Mr. Kelly's

and Mr. Palmer's involvement in a default which occurred on the

Cochrane Bridge project. Finally, DOT contends the application

fails to identify a default of MDI on a federal project in St.

Louis, Missouri.

76. Under Rule 22-14.012(1)(a)1 (by reference to Section

337.16(2)(a)), an application may be denied due to the submission

of a false, deceptive, or fraudulent statement in an application

for Certificate of Qualification. According to testimony from

the DOT's pre-qualification engineer, DOT's policy is to deny

applications when an intentional misstatement or omission occurs

in the application process. This policy is clearly stated in the

application as follows:

NOTICE

APPLICANTS FOR PREQUALIFICATION ARE HEREBY

NOTIFIED THAT INTENTIONAL INCLUSION OF FALSE,

DECEPTIVE OR FRAUDULENT STATEMENTS ON THIS

APPLICATION CONSTITUTES FRAUD. FURTHERMORE,

YOU ARE HEREWITH NOTIFIED THE STATE OF

FLORIDA CONSIDERS SUCH ACTION ON THE PART OF

THE APPLICANT TO CONSTITUTE GOOD CAUSE FOR

DENIAL, SUSPENSION OR REVOCATION OF A

CERTIFICATE OF QUALIFICATION FOR BIDDING ON

STATE AND FEDERAL-AID HIGHWAY PROJECTS LET TO

CONTRACT BY THE STATE OF FLORIDA DEPARTMENT

OF TRANSPORTATION. (emphasis added)

Consistent with this policy, DOT has admittedly allowed at least

one other applicant to subsequently cure its failure to

completely identify all of its affiliated companies on its

application. This policy is consistent with decisions

interpreting similar provisions which hold that denial of a

license based upon a false statement in an application requires a

showing of the applicant's intention to mislead or deceive.

Savino v. Department of Health, Board of Medicine , DOAH Case

No. 97-3635; and Schmidt v. Department of Insurance and

Treasurer , DOAH Case No. 85-0789. In other words, an application

will not be denied based upon an innocent, non-material

misstatement or omission as long as the application as filed

otherwise demonstrates the applicant's fitness.

77. There is no evidence that Morse Diesel made any

intentional misstatement or omission in either of its

applications. According to the testimony of Mitchell Becker,

Morse Diesel's President and CEO, the applications filed by

Morse Diesel did not list MDI or KPG as affiliates because he did

not consider these related entities to be affiliates under the

definition contained in the application.

78. There was no attempt made by Morse Diesel to hide its

relationship with MDI or KPG. In fact, the résumés of Mitchell

Becker and Norman Fornella (vice president/secretary of Morse

Diesel) attached to the 1998 and 2000 applications state that

both are officers in MDI. Attachment A to the 2000 application

indicates that KPG owns 20 percent of Morse Diesel.

79. DOT points to Morse Diesel's identification of MDI and

KPG as affiliates in an application it filed with the Virginia

Department of Transportation as evidence of its intentional

omission of MDI from DOT applications. The Virginia application,

however, defines "affiliate" more broadly than the definition

found in DOT's application.

80. DOT also challenges Morse Diesel's failure to reveal

the default of MDI on a project in St. Louis in response to

Question 19-2. Question 19-2 asks whether any officer or partner

of the applicant has ever been an officer, of some other

organization "that has failed to complete a construction

contract." It does not ask whether the organization has ever

been "defaulted." A contractor may be defaulted by a project

owner and later complete the construction of the same project.

The irrefuted testimony from Mr. Becker is that MDI is legally

challenging the default which was declared in June 1999 and has

not "failed to complete" the project.

81. Moreover, the default of MDI is not material to DOT's

consideration of Morse Diesel's application. According to Rule

14-22.012(1)(c), an application can be denied:

"[I]f the contractor is an affiliate of a

contractor who has been determined non-

responsible, pursuant to Rule 14-22.0141,

F.A.C., or whose Certificate of Qualification

was suspended, revoked, or denied and the

contractor is dependent on the affiliation

for personnel, equipment, bonding capacity,

or financial resources, then that

contractor's Certificate of Qualification

shall be suspended, revoked, or denied for

the same time period as the affiliate."

There is no evidence that Morse Diesel relies upon MDI for

personnel, equipment, bonding capacity, or financial resources.

Moreover, there has been no evidence or allegation that MDI was

found non-responsible under Rule 14-22.014 or that MDI has been

pre-qualified in the State of Florida. Accordingly, MDI's

performance on the St. Louis project is irrelevant to DOT's

consideration of Morse Diesel's application.

82. Finally, DOT contends that Morse Diesel's response to

Question 19-2 mischaracterizes Mr. Kelly's and Mr. Palmer's

participation in the default on the Cochrane Bridge project.

Question 19-2 asks whether "any officer or partner of your

organization ever been an officer, partner or owner of some other

organization that has failed to complete a construction

contract." According to the testimony of Mr. Palmer and Mr.

Kelly, Morse Diesel answered this question in the negative in the

1998 application because they were not aware that they were

corporate officers of S. J. Groves at that time. Rather, they

testified that they thought they were vice presidents in title

only. The 2000 application was prepared after DOT brought to

their attention that they were, in fact, corporate officers of

S. J. Groves according to corporate records on file with the

Secretary of State. And in fact, Morse Diesel then amended its

answer to Question 19-2 in the 2000 application to read:

Richard Kelly and Jack Palmer were

denominated Vice Presidents of S.J. Groves,

which defaulted on a job in Alabama in 1989.

S. J. Groves had a number of people

denominated as Vice Presidents and neither

Mr. Kelly nor Mr. Palmer were [sic] at the

level of management responsible for the

decisions to abandon the Cochrane Bridge

Project. Indeed, both Mr. Kelly and Mr.

Palmer recommended against abandoning the

project and were overruled. They then left

the company.

Mr. Kelly and Mr. Palmer testified that the Cochrane Bridge

project was defaulted after S. J. Groves refused to work on a

certain phase of the project out of schedule. S. J. Groves then

failed to complete the contract. The decision to abandon the

project work was made by their superiors over their objection.

Their account of the circumstances of the default was both

accurate and consistent with the statement contained in the 2000

application.

83. Finally, Rule 14-22.002(g) requires DOT to contact the

applicant when it finds the application is either incomplete or

inaccurate to afford the applicant the opportunity to cure any

deficiency. DOT admittedly did not request any information from

Morse Diesel after the 2000 application was filed despite being

aware of the misstatements. DOT cites Morse Diesel's request to

expedite its review of the 2000 application as justification for

not requesting further information. Although Morse Diesel did

request that its 2000 application not be unduly delayed due to

requests for more information, this request was not a waiver of

its right to cure an unintentional misstatement or omission in

the application. It is, therefore, found that any inaccuracies

in Morse Diesel's 2000 application have been cured through the

disclosures made in this process.

84. Accordingly, it is found that Morse Diesel did not

intentionally make or submit any false, deceptive or fraudulent

statements in its application in violation of Rule 14-22.012 or

Section 337.16(2)(a).

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

RECOMMENDED that Morse Diesel be permitted to supply DOT

with corrections to the unintentional inaccuracies in its

application and be pre-qualified in the classifications for which

it applied.

DONE AND ENTERED this 5th day of July, 2000, in Tallahassee,

Leon County, Florida.

___________________________________

WILLIAM R. PFEIFFER

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 5th day of July, 2000.

COPIES FURNISHED:

Cynthia S. Tunnicliff, Esquire

Brian A. Newman, Esquire

Pennington, Moore, Wilkinson,

Bell & Dunbar, P.A.

Post Office Box 10095

Tallahassee, Florida 32302-2095

Brian F. McGrail, Esquire

Brian A. Crumbaker, Esquire

Department of Transportation

Haydon Burns Building, Mail Station 58

605 Suwannee Street

Tallahassee, Florida 32399-0458

Pamela Leslie, General Counsel

Department of Transportation

Haydon Burns Building, Mail Station 58

605 Suwannee Street

Tallahassee, Florida 32399-0458

James C. Myers

Clerk of Agency Proceedings

Department of Transportation

Haydon Burns Building, Mail Station 58

605 Suwannee Street

Tallahassee, Florida 32399-0458

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15

days from the date of this Recommended Order. Any exceptions to

this Recommended Order must be filed with the agency that will

issue the final order in this case.