LOUISVILLE, Ky. (WDRB) – The construction firm that built the KFC Yum! Center failed to follow Kentucky procurement law when it awarded an excavation contract on the project nearly a decade ago, a judge has ruled in a civil lawsuit.

Franklin Circuit Judge Phillip J. Shepherd determined that M.A. Mortenson Co. likely told one of two companies vying for a subcontract to change its bid to create the “misleading appearance” of a cheaper proposal.

Minnesota-based Mortenson then recommended that arena officials choose the company – Veit, also a Minnesota firm – over Louisville’s RAM Engineering & Construction, even though that decision ultimately led to higher costs to the arena project, Shepherd wrote.

He concluded that RAM was the lowest bidder “under every scenario.”

“In reality, accepting the Veit proposal resulted in substantial additional cost to the project, and the cost of the change order for Veit to perform this work could have been avoided if the RAM bid had been accepted,” Shepherd said in his June 30 ruling.

He has sent the case to mediation, where the sides would determine any damages. Typically, a case would head to trial if mediation fails.

RAM sued Mortenson and arena and state officials in 2008. Shepherd’s order sheds new light on how Mortenson apparently chose not to inform the arena authority about the differences in how it negotiated with Veit and RAM.

According to Shepherd's ruling, Mortenson officials did not tell the Louisville Arena Authority or its former chairman, Jim Host, that they had allowed Veit to submit a 1 percent discount to its bid without giving RAM the same opportunity.  

The discount lowered Veit’s bid to $4.48 million, or about $16,240 less than RAM’s proposal, but Veit did not include the cost of an earth-retention system that was required for the project, court documents show.

An internal email from a Mortenson executive referred to the discount as “the icing on the cake,” court documents show.   

“It appears to the Court that Veit’s cake was being baked to the specifications of Mortenson in order to ensure that its numbers would appear to be slightly lower than the final proposal of RAM which Mortenson already had in hand,” Shepherd wrote.

A Mortenson spokesman did not respond to a request for comment left Monday morning.

Bruce Stigger, an attorney for RAM, declined to comment.

The Finance and Administration Cabinet, one of the defendants in the lawsuit, is reviewing the ruling and considering its options, spokeswoman Pamela Trautner said.

At its meeting Monday morning, the Louisville Arena Authority held a closed executive session to discuss litigation. While arena officials did not disclose the contents of the session, the authority’s only active lawsuit is the RAM case.

Reached Monday afternoon, chairman Scott C. Cox said the arena board is still analyzing Shepherd’s opinion, “but we are pleased that he did not find that the arena authority had done anything inappropriate.”

Arena officials selected Mortenson to be its “construction manager-at-risk,” a method in which the company ensured the project’s maximum price and took responsibility for any cost overruns. It was a fairly new type of construction oversight allowed in Kentucky when the arena was being planned.

At the time, the arena board and the Finance Cabinet believed that only the Mortenson contract needed to be competitively bid. Mortenson then negotiated the other, smaller subcontracts.

But Shepherd ruled that the Finance Cabinet erred when it determined that competitive sealed bidding didn’t apply to the contracts sought by RAM and Veit on the arena project because the maximum price had yet to be set.

Even so, he ruled that Mortenson violated the state’s procurement code, which requires “good faith, fair dealing and the use of commercially reasonable practices.”

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