September 21, 2014

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Sewer district, contractor fight over payment

CLEVELAND – A regional sewer district is battling one of its contractors over $9 million stemming from an overpayment the district`s trustees didn`t know about, a newspaper reported Friday.

The overpayment was given to a tunneling contractor by the Northeast Ohio Regional Sewer District and found in an audit in 2005, although district administrators didn`t tell the trustees about it, The Plain Dealer reported.

The contractor – Cleveland-based KMM&K – has sued the district for breach of contract. The sewer district trustees and Director Julius Ciaccia want the company to return what the audit called $7 million in overpayments.

A second independent audit recently commissioned by the sewer district says the tunneling company overcharged the district $9 million. Neither former district Director Erwin Odeal nor former legal counsel William Schatz shared the audit with their trustees, the newspaper said.

Yet, Schatz gave a copy of a draft – written for the sewer district – to the tunneling company, sewer officials said. KMM&K then disputed the audit in a letter to the sewer district in March 2005 and apparently no one from the district pursued the overpayment, The Plain Dealer said.

Odeal and Schatz resigned this year amid an ongoing FBI investigation of the project. Messages seeking comment were left at listings for Odeal and Schatz on Friday. More than two years passed before Ciaccia, the new director, discovered the audit this summer.

Ciaccia said he was surprised to learn that the trustees never knew an audit was performed.

Gary Starr, mayor of Middleburg Heights and a sewer trustee for more than a decade, told The Plain Dealer that he`s concerned the missing audit hints at other fiscal blunders yet to be revealed.

KMM&K – a joint venture of Kassouf Co., Mole Constructors, Murray Hill Construction and Kenny Construction – bid $58.3 million in 2004 to dig part of the Mill Creek Tunnel, a subway-size sewer to help relieve overflow in Garfield Heights.

On Aug. 27, 2004, workers ran into methane gas and the sewer district halted the project. While the sewer district figured out how to clear out the gas, it told KMM&K to remain on standby.

This, KMM&K officials said, tied up all of their staff and equipment, including an enormous boring machine that was digging the tunnel 300 feet underground. KMM&K estimated it would cost them about $1.5 million a month to sit idle.

Sewer district officials agreed to pay it and sewer trustees signed off. Sewer district officials said they would audit the project to assure KMM&K`s estimates were accurate.

If the estimates were too high or low, payment adjustments would be made. Few if any other such sewer district agreements carried an audit provision, Starr said.

“This runs much deeper than this one case,” Starr said this week.