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Union Pacific rail hub contractors face fines

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Copyright © 2014 Albuquerque Journal

The former out-of-state general contractor on the $400 million Union Pacific rail hub at Santa Teresa is accused of bidding for the multi-million-dollar construction job without a proper New Mexico license and hiring an unlicensed subcontractor.

Potential fines for the licensing violations could run into millions of dollars.

The state Construction Industries Division first investigated the licensing complaints more than two years ago but formal allegations weren’t filed until March of this year.

The Union Pacific intermodal facility opened in April, with construction ending a year ahead of schedule.

Typically, cases of improperly licensed contractors are sent to public hearing if a complaint filed by the state can’t be resolved.

But the public won’t hear the details of this case because the state Construction Industries Commission and the office of Attorney General Gary King agreed to send the matter to a closed-door mediation that begins Tuesday in Albuquerque.

The mediator is Albuquerque attorney Paul Kennedy, who represents Governor Susana Martinez in two unrelated court cases and was her former appointee to the state Supreme Court in 2012.

The eight people on the commission, which regulates the construction industry in the state, are appointed by Martinez.

“The normal process is not likely to be workable in this case for a number of reasons,” AG spokesman Phil Sisneros said last week.

The case involves a “huge contract” amount of about $178 million, he said, and state law allows for a fine equivalent to about 10 percent of the value of the contract for each violation. There are three separate cases relating to the Union Pacific project.

“Accordingly,” Sisneros said in an email to the Journal, “the potential value of the case is huge.”

He said the legal issues are “also fairly complex and it seems likely that there will be wide variation of opinion on the Commission as to what the settlement value of the case should be.”

The commission would have to vote publicly on any resolution to result from mediation.

A Union Pacific spokesman referred the Journal to the companies involved for comment. Their attorneys declined to talk about the case, but state records show the companies have denied any wrongdoing.

The state investigation into the former general contractor – a joint venture called Ames/Sundt JV – was spurred by an Albuquerque businessman who bid on part of the Union Pacific job, but lost out on the contract, according to state emails obtained by the Journal.

Ames/Sundt JV was formed to act as general contractor on the massive rail yard project in Santa Teresa near the U.S.-Mexico border. The rail hub was expected to create 3,000 construction jobs and up to 600 permanent positions.

Union Pacific decided to relocate its intermodal facility from El Paso to nearby Santa Teresa after Martinez and the Democrat-controlled state Legislature approved a locomotive fuel exemption to the gross receipts tax and compensation tax in 2011.

Later that year, Union Pacific hired Ames/Sundt JV as general contractor for Phase Two of the rail hub project. The corporations involved included Ames Construction, headquartered in Burnside, Minn,. and Sundt Construction, which is based in Tempe, Ariz.

In April 2012, Kevin Yearout of Yearout Mechanical in Albuquerque sent an email to Martinez’s office, state Economic Development Director Jon Barela and J. Dee Dennis Jr., then-superintendent of the state Regulation and Licensing Division.

Yearout complained the joint venture wasn’t properly licensed under New Mexico law at the time it bid on the project in September 2011. He claimed the proper license wasn’t obtained until “after the fact” – some 75 days later.

Moreover, his email stated, the joint venture in March 2012 awarded a $23 million contract to install industrial piping on the project to a subsidiary of Sundt that didn’t have a mechanical license in New Mexico. Yearout’s company had bid on that work.

“So now we have the largest project in the state, and the poster child for the administration’s economic development program, being awarded to out-of-state, unlicensed contractors. I know this is not going to sit well with many of the Governor’s supporters,” wrote Yearout, who couldn’t be reached for comment this week.

Yearout serves on the state Construction Industries Commission as a Martinez appointee.

After an initial investigation by CID, the commission in May 2012 voted to close two cases involving Sundt Construction and Ames Construction, records show.

Two months later, in early July 2012, Sundt Construction, under the name Sundt New Mexico, obtained a New Mexico mechanical license.

The company became the sole general contractor on the rail hub project when Phase Two of the hub began that same month.

Several weeks later, on July 26, 2012, the Commission met again and voted to send the licensing complaints against Ames and Sundt to the AG’s office.

A subsequent AG investigation found important documents were missing for a prosecution, Sisnero’s email said. CID eventually transferred more than 400 additional pages of information to the AG’s Office last year.

The companies involved also had claimed “trade secret confidentiality,” so a “pre-investigative” subpoena was issued for other information, the AG’s email stated.

With the two-year statute of limitations about to expire, the commission in March of this year voted to file a “notice of contemplated action” against Sundt, Ames and Ames/Sundt JV, authorizing the AG to enter into settlement negotiations.

Yearout recused himself from deliberations and public voting on the matter, according to meeting minutes.

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