03/05/2020
A jury ruled that a Charleston engineering firm defrauded a utility contractor over a water project. Now a town needs more state money to finish it.
A prominent Charleston engineering firm was ordered to pay more than $2 million in damages to a Dunbar construction company after a jury found the firm committed fraud by misleading contractors about a water system replacement project.
On Jan. 30, a Randolph County jury determined Potesta and Associates provided false documents to Upton Construction Company for a water project in Mill Creek, a small town just outside of Elkins.
The jury found the project map Potesta sent to the West Virginia Public Service Commission for approval was not the same map that was sent out to bid after the PSC authorized the project.
The fraudulent map misrepresented the complexity of the water project to drive down the bid price, Upton’s counsel wrote in a verified complaint.
The PSC approved Mill Creek’s application to replace its water redistribution system on Dec. 9, 2014, according to documents obtained through a records request from the West Virginia Infrastructure Jobs and Development Council.
The project was never completed, because when Upton started digging in Mill Creek, contractors found water lines and other utilities in places they weren’t supposed to be, along with other inaccuracies, said Jim Upton, owner of the company.
But in August 2019, five years after the initial project was approved, Mill Creek and Potesta reapplied for funding for the project, according to the records. The project will now cost around $1.8 million more than it would have in 2014, according to the Infrastructure Jobs and Development Council.
The Infrastructure Jobs and Development Council is a state agency, meaning these loans are funded by taxpayers. These projects are also partially funded through state-funded grants, but construction on the Mill Creek project stopped before any grant money was used, said Cary Smith, the Council’s Project Manager for the region.
And although Upton was awarded $2 million from Potesta, along with an undisclosed amount after settling with Mill Creek out of court in 2019, Jim Upton said Potesta’s actions have put his company in serious jeopardy.
“We are destroyed. We can’t come back from this,” he said, noting the award from the jury was still not enough to cover losses from the project and ensuing litigation.
Upton said his company has not bid on a project since 2015 due to losses from this project.
Potesta, who also owns locations in Morgantown and Wi******er, Virginia, declined to comment. Mill Creek, through its counsel, also declined to comment.
What needed to be fixed?
Mill Creek’s water system currently serves 385 customers, and also sells water to the nearby town of Huttonsville, where the Tygart Valley Regional Jail is located, according to the preliminary engineering report Potesta submitted in 2013.
Potesta was hired by Mill Creek to inspect the town’s water system, and the firm submitted its report to the Infrastructure Jobs and Development Council and PSC for funding and approval.
The 2013 report noted most of Mill Creek’s water distribution system was installed more than 50 years ago, was deteriorating and was experiencing numerous leaks.
Funded by a grant from the state, Potesta conducted a water loss study in Mill Creek. It found high unaccounted water losses, which ranged from 50 percent to 70 percent in the preceding 10 years, and 150 leak repairs were needed in the three years prior, according to the report.
According to an EPA report, the national average for water loss in systems in 2013 nationally was 16 percent. In West Virginia, the PSC considers any system with more than 15 percent unaccounted water loss to be noncompliant. According to a Gazette-Mail analysis from 2013, more than half of the state’s water utilities that year were noncompliant.
“Many of the lines are comprised of cast iron and asbestos cement piping that are failing on a regular basis; thus, requiring an excessive amount of resources for repair and contributing to a historic unaccounted for water loss of 50 percent or greater,” Potesta wrote in the 2013 engineering report.
Potesta submitted a second engineering report, dated Aug. 5, 2019, after Mill Creek reapplied for the project.
The 2019 report, which largely mirrors the 2013 report, said almost every line in the system needed to be replaced and that two new water storage tanks needed to be installed.
In October 2019, Mill Creek raised water rates on its residents to obtain more money for the new project, according to the documents. The ordinance said that because of increased costs for the new project, $1.8 million, rates had to be raised.
The ordinance also noted water rates were already increased once in March 2016 to fund the initial project.
Where does the project stand now?
Smith, with the Infrastructure Jobs and Development Council, said only about 13 percent of the initial project was completed.
Upton estimated his company worked for about three months in Mill Creek, laying roughly 10,000 feet of pipe, or around $700,000 worth.
The project’s original cost was estimated to be about $4.6 million, Smith said. The project is now estimated to cost $6.45 million.
Mill Creek has already paid back around $1.3 million in loans, she said, so the remaining costs for the project sit at about $5.1 million.
After months of digging and finding seemingly misplaced lines, Upton said he asked Potesta to send an engineer to Mill Creek to ask why things kept being found out of place.
“We never did get to meet an engineer on the job site at all. They wouldn’t send one,” Upton said.
Out of suspicion, Upton said he submitted a records request to the PSC, asking for the original project plans Potesta submitted.
The plans Potesta gave to Upton showed disparities between the plans that Potesta properly submitted to the PSC, the Randolph County jury found.
Along with finding Potesta committed fraud, the jury found the firm was also negligent, caused proximate harm to Upton and committed a wrongful act with actual malice toward Upton, according to the verdict form.
“We bid the job and realized that this thing was bogus, once we got our PSC plans,” Upton said. “We confronted them with that, of course; then they did a bond claim on us and tried to take my home and try to shut our company down and bankrupt us, and we sued them for it.”
A bond, or performance bond, are assets owned by a company that are put up to guarantee a project is completed.
“They sued our bonding company and said we walked off the job; we didn’t,” Upton said.
“We worked up there for three months and we were off of the plan route for 80 percent of the time. Finally, we just got sick of it. We asked for meetings, we couldn’t get a meeting. We couldn’t get a meeting with the town, we couldn’t get Potesta to bring an engineer,” he said.
How much more funding will it take?
Mill Creek was approved for a loan to finish the project on Oct. 7, 2019, according to documents obtained in the records request.
Taxpayers will cover more than 80% of the remaining cost for the Mill Creek project, $5.1 million, while the state will pay just under 20% of that through a grant.
As for Potesta and Mill Creek working together again, Smith said the town saved money by using the same company to reevaluate the project site, regardless if the first go at the project didn’t turn out so well.
“Since the project was not complete, and Mill Creek still needs the work to be completed,” Smith said, “basically that same project team that was already initially on the project went back and again fulfilled the requirements that are needed to be applying for funding.”
“That’s what state we’re in right now,” she said.
The project was approved Feb. 6, according to the PSC.
The bid period for the project opens March 31, and completion of the project is projected by May 2021, according to the Infrastructure Jobs and Development Council website.
As for Upton, he said his business may not recover from being drained this badly. He said it’s the first time something like this has happened to him on a job site.
“I’ve never been in a lawsuit before. I’m 67 years old, I’ve been running this business right here myself for 49 years, and this is all new to me. I’ve never had this kind of a problem,” he said.
“Chances are I’ll never see a penny of this” Upton said, assuming that Potesta will eventually appeal the case to the state Supreme Court.
By Joe Severino Staff writer Mar 1, 2020
