AAA_Arbitration_Brief-Addison[1]

AAA_Arbitration_Brief-Addison.DOC 8284.2
KUMMER KAEMPFER BONNER
RENSHAW & FERRARIO
Seventh Floor
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
BEFORE THE AMERICAN ARBITRATION ASSOCIATION
ADDISON, INC., a Nevada corporation,
Claimant,
vs.
STATE OF NEVADA, ex rel., STATE
PUBLIC WORKS BOARD,
Respondents.
AND RELATED CLAIMS
AAA CASE NO.: 79 110 Y 0072 04 JISI
ADDISON, INC.'S ARBITRATION BRIEF
THOMAS F. KUMMER
Nevada Bar No. 1200
SHERI ANN FORBES, ESQ.
Nevada Bar No. 7337
KUMMER KAEMPFER BONNER RENSHAW & FERRARIO
Seventh Floor
Telephone: (702) 792-7000

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TABLE OF CONTENTS
Page
I. GLOSSARY—KEY TERMS PARTIES, WITNESSES, ORGANIZATIONS, ETC........... i
II. INTRODUCTION............................................................................................................. 1
III. STATEMENT OF FACTS ................................................................................................ 2
A. Preconstruction History of the Southern Nevada Veteran's Home........................... 3
1. Prebid Review of the Project Plans and Specifications. ................................... 4
a) Peer review by RAFI................................................................................. 5
b) Peer review by DPA.................................................................................. 7
c) Peer review by JBA................................................................................... 7
d) Review by State Board of Licensure.......................................................... 7
2. The Bid Process. ............................................................................................. 8
B. Construction of the Southern Nevada Veteran's Home............................................ 9
1. Design Flaws. ................................................................................................. 9
2. Problems with Dimensions and Gridlines.......................................................12
3. The Delays Caused by the UL-P518 Issues. ...................................................17
4. Cracking in the Dry Wall. ..............................................................................20
5. Requests For Information...............................................................................22
6. Addison's Delay Claims. ................................................................................24
7. Addison's Progress Payment Applications......................................................26
8. The State's Internal Memos, Emails and Meetings, Evidencing an
Intent to Fund the Project Through Claims Against Addison..........................29
9. Addison's Attempts to Settle Its Differences with the State.............................33
10. Punch Lists. ...................................................................................................36
a) Addison's punch list. ............................................................................... 36
b) HCA's punch list. .................................................................................... 36
11. Days Held in Abeyance..................................................................................38
C. The Termination of Addison. ................................................................................39
D. Completion of the Project Under MBI...................................................................40

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IV. ARGUMENT ...................................................................................................................45
A. The State is Responsible for HCA's Design Errors and Omissions
(Spearin), Therefore, the State Materially Breached the Contract. .........................45
1. The State's Changes to the Project Amounted to Cardinal Changes. ...............49
2. The State Acted in Bad Faith..........................................................................54
B. The State Caused Delays and Disruptions to Addison............................................59
1. The Change Orders Do Not Eviscerate Addison's Delay Claims.....................61
2. The State and Addison Modified the Change Order Language........................62
C. The State's Breach of the Contract Also Violated Nevada's Public
Works Prompt Pay Statutes...................................................................................64
D. The State Is not Entitled to Liquidated Damages ...................................................66
E. The State Wrongfully Terminated Addison. ..........................................................68
1. The State Had No Valid Basis To Terminating Addison.................................68
2. The State's Termination of Addison Was in Bad Faith....................................69
3. The State's Termination of Addison Was Invalid by the Terms of
the Contract. ..................................................................................................71
F. Damages and Prayer for Relief..............................................................................72
1. Contract Damages..........................................................................................72
2. Overhead and Profit.......................................................................................73
3. Delay Damages Due to the State's Bad Faith..................................................74
4. Eichleay Formula...........................................................................................74
5. Reversal of Termination and Damages For Termination.................................75
6. NRS Ch. 338 Provides for an Award of Interest, Costs and
Attorney's Fees. .............................................................................................76
V. CONCLUSION ................................................................................................................77

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I. GLOSSARY—KEY TERMS PARTIES, WITNESSES, ORGANIZATIONS, ETC.
"A & A".............................................................................................................. Anshen & Allen
Design subcontractor to HCA
"Addison"................................................................................................................ Addison, Inc.
Claimant/counterrespondent/respondent General Contractor
"ASI" ..............................................................................Architectural Supplemental Instructions
"Baggett".................................................................................................................Brian Baggett
"CCD"...........................................................................................Construction Change Directive
"CCMC" ................................................................Construction Claims Management Consulting
"COR"....................................................................................................... Change Order Request
"Dale" .......................................................................................................................... Evan Dale
Accountant for Nevada State Public Works Board
"Delta" ...................................................................................................................Delta Drawing
Drawing issued on 8 ½ x 11 paper by architect that changes plan drawings
"DPA"..................................................................................................Drottar Prinski Associates
Consultant engineering firm hired by State to perform peer review
"Elliott"...................................................................................................................... John Elliott
Addison's construction expert with Roel
"Foster"..................................................................................................................... Steve Foster
Vice President of Operations at Addison
"Frehner"..................................................................................................................Greg Frehner
State's construction expert with CCMC
"Gray"....................................................................................................................... Robert Gray
Mojave and Quality's construction expert
"HCA" ........................................................................................... Harry Campbell & Associates
Architect hired by State to design Project
"JBA"...................................................................................................JBA Consultant Engineers
Hired by State to perform peer review
"Jetstream"........................................................................................ Jetstream Construction, Inc.
Claimant Drywall Subcontractor to Addison
"Kersey".................................................................................................................Martin Kersey
State Inspector

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"Larsen" .......................................................................................................................Pat Larsen
Superintendent for Addison from onset of Project to March 3, 2000.
"Lewis" ..................................................................................................................Richard Lewis
State's Architectural expert from CCMC
"Mojave"..................................................................................... West Edna dba Mojave Electric
Claimant Electrical Subcontractor to Addison
"NNC" ................................................................................................Notice of Non Compliance
"O'Brien"............................................................................................................... Daniel O'Brien
Manager of the Nevada State Public Works Department
"OVS"...................................................................................Nevada Office of Veterans Services
End User of the Project
"Patrick"..................................................................................................................Ward Patrick
Interim Manager of the Nevada State Public Works Board
"Payne" .....................................................................................................................Sherri Payne
Architect with Robert Fielden, Inc.
"PCO" ..................................................................................................... Proposed Change Order
"Project"....................................................................................Southern Nevada Veterans Home
Subject Construction Project
"Quality"........................................................................................................Quality Mechanical
Claimant Plumbing and Electrical Subcontractor to Addison
"Raecke" ....................................................................................................................Eric Raecke
Manager of the Nevada State Public Works Board
"RAFI"...........................................................................................................Robert Fielden, Inc.
Independent Architect hired to perform peer review
"RFI"...................................................................................................... Request For Information
"RFP".............................................................................................................Request For Pricing
"Roel" .............................................................................................................. Roel Construction
Addison's Construction Expert
"Schmidt".............................................................................................................. David Schmidt
Project Manager for the Nevada State Public Works Board
"Sias" ...................................................................................................................... Jonathan Sias
Director of Nevada Office of Veterans Services

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"State".............................................................. State Public Works Board ex rel. State of Nevada
Defendant/Counterclaimant Owner
"VanMeetran" ..................................................................................................Steve VanMeetran
Owner of Addison
"Wilczak"................................................................................................................ Rich Wilczak
Project Manager for Addison

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II. INTRODUCTION
In this arbitration, Addison, Inc. ("Addison"), seeks recovery from the Nevada State
Public Works Board ex rel. the State of Nevada (the "State") for monies owed under Addison's
contract with the State to build the Southern Nevada Veteran's Home in Boulder City, Nevada,
known as State Labor Commission PWP No. Cl-1999-330, Project No. 97-C16 (the "Project").
Addison also seeks compensation for delay damages, its wrongful termination from the Project,
and damages resulting from the State's bad faith. The claims of three of Addison's
subcontractors, West Edna Associates Ltd. dba Mojave Electric ("Mojave"), Jetstream
Construction, Inc. ("Jetstream") and Quality Mechanical Contractors, Inc. ("Quality
Mechanical"), have been combined with this action.
At the heart of this dispute are the State's grossly defective plans and specifications to
build the Project. The State put out to bid a set of plans and specifications that were not
buildable; as a result, the Project was designed to fail. Delays by the State and its Project
architect, Harry Campbell & Associates A.I.A. Ltd. ("HCA"), in reconciling the design flaws in
the plans and specifications, as well as the additions to the design to make the Project code
compliant, directly caused delays in many aspects of Addison's construction of the Project. As a
result, a substantial portion of the construction work had to be performed out of sequence in an
attempt to keep construction moving forward. Changes made to the Project rose to the level of
cardinal changes causing substantial damages to Addison. Moreover, the State acted in such
extreme bad faith toward Addison, including planning to fund the Project with manufactured
default damages from Addison, as to entitle Addison to delay damages in addition to contract
damages, damages for wrongful termination, interest, attorney's fees and costs.

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III. STATEMENT OF FACTS
On May 19, 1999, Addison contracted with the State to build the Project, a one-story,
88,000 square foot resident nursing facility to house Nevada's veterans. The Project was to be
built according to the designs, plans and specifications provided by the State and according to the
Owner-Contractor Agreement and General Conditions of the Contract between Addison and the
State (the "Contract").1
The Contract price was originally for approximately $14.8 million.
HCA designed the Project and provided the Project plans and specifications. Pursuant to the
Contract, the Project was to be "substantially completed and accepted by the State" by May 1,
2000.2
Subsequently approved Change Orders substantially extended the time for performance
and changed the completion date to January 4, 2001. Additional extensions to the time for
performance of 350 days remain, to this date, pending approval by the State in the form of "days
held in abeyance,”3
and 127 days requested by Addison for delays caused by the UL-P518 issues
discussed infra, were never reviewed, denied or granted. The State took possession of and began
temporary occupancy of the administrative offices of the Project on June 25, 2001. The patient
portion of the Project was occupied in August 2002.
As detailed below, construction of the Project was severely hampered by numerous
design defects contained in the Project plans and specifications. Addison and its subcontractors
made repeated requests for design corrections and clarifications, responses to which were not
given in a timely fashion. Numerous additional changes to the plans and specifications were
made by the State and HCA. The majority of the 21 Change Orders issued by the State resulted
in additional work that was not contemplated by Addison in its bid to the State.1
Additionally, in
implementing many of the owner-requested changes to the scope of the Contract, Addison
1
Proposed Arbitration Exhibit 102 at § 2.1.1 (Bates Stamp No. ADD03585).
2
Proposed Arbitration Exhibit 101 at 2 (Bates Stamp No. ADD07612).
3
See Proposed Arbitration Exhibit 501 at 13 (Bates Stamp No. ADDX00213); Exhibit 63 at Change Orders 12 – 21.

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expended extra materials and labor for which Addison was not adequately and equitably
compensated. On August 3, 2001, the State wrongfully terminated Addison, claiming the delays
were caused by Addison.2
The State hired Metcalf Builders, Inc. ("MBI") to act as construction
manager over the Project after Addison was terminated.
As the detailed history below establishes, throughout the course of the Project, the State
and its agents failed to act and/or acted in bad faith, causing delay and prejudice to Addison.
A. Preconstruction History of the Southern Nevada Veteran's Home.
On January 20, 1998, the State entered into a Professional Services Agreement with HCA
for the designs, plans and specifications for the Project.3
Dave Schmidt, a licensed architect
employed by the State as the project manager for the Project, testified that HCA was hired to
provide full design services for the Project.4
Jon Sias, then Director of the Southern Nevada
Veteran's Home, testified that Schmidt and an HCA representative traveled around the country to
inspect similar facilities prior to HCA designing the project.5
The purpose of Schmidt and
HCA's travels was to become familiar with the special design requirements of the Southern
Nevada Veteran's Home as a nursing facility.6
Despite this national tour taken by Schmidt and
the HCA representative, Sias testified that that various design elements and items of equipment
necessary to the function of a Veteran's home were left out of the design of the Project.7
1
Proposed Arbitration Exhibits 63.1-63.21.
2
Proposed Arbitration Exhibit 84 (Bates Stamp No. ADD12450).
3
Proposed Arbitration Exhibit 100 (Bates Stamp No. HCA-00001 - 62)]
4
Deposition of Dave Schmidt ("Schmidt Depo.") at 35-38.
5
Deposition of Jon Sias ("Sias Depo.") at 41:7-21.
6
Sias Depo. at 41:7-21.
7
Sias Depo at 40:24-44:8; see also April 3, 2001 Email by Schmidt (Bates Stamp No. SON00020643).

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1. Prebid Review of the Project Plans and Specifications.
Schmidt testified he reviewed the plans and specifications for the Project prior to the
plans being put out to bid,1
and that the plans and specifications were ready to be put out to bid
after some revisions were made. Schmidt testified, "I can't recall really a whole lot about it,
other than there were some revisions requested by the Office of Veterans Services. And I went
through and made a list of things that I felt needed more work in the plans and the specifications,
and those items were addressed."2
Schmidt only recalled asking HCA to make revisions to the
Project specifications such as door finishes, paint finishes, etc.3
Schmidt also recalled that the
only constructability review done of the Project plans and specifications was by the State's
internal staff. “My recollection is that the reviews that were done on this were internal staff
reviews in various jurisdictions that we knew were going to be involved in the final approvals.”4
Eric Raecke, a licensed architect who was the Manager of the State Public Works
department at the inception of the Project, testified that the Project plans and specifications were
not reviewed by any independent agency for constructability,5
but instead, all reviews would
have been done by the State's various departments.6
Raecke claimed there were not an above
average amount of errors and omissions in the Project plans and specifications when they were
put out to bid.7
Additionally, Raecke testified that if there were above average errors and
omissions in the Project plans and specifications, the State would not have put them out to bid.8
1
Schmidt Depo. at 39:7-8.
2
3
4
Schmidt Depo. at 298:23 – 299:33.
5
Deposition of Eric Raecke ("Raecke Depo.") at 33:21-34:8.
6
Raecke Depo. at 33:21-34:8.
7
Raecke Depo. at 21:12-16.
8
Raecke Depo. at 21:16-18.

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Thus, Raecke's testimony was that the State's policy was not to put out for bid plans containing
an above average number of errors and omissions.
Notwithstanding Schmidt's and Raecke's testimony, in or about October 1998, the State
hired no less than three separate firms to perform independent peer reviews of the Project plans
and specifications: the architectural firm of Robert Fielden, Inc. ("RAFI"), the engineering firm
of JBA Consultant Engineers ("JBA") and the engineering firm of Drottar Prinski Associates
("DPA").1
Additionally, the State Bureau of Licensure and Certification conducted a review of
the Project plans and specifications.2
a) Peer review by RAFI.
Sherri Payne, a licensed architect with RAFI, performed an architectural review
of the Project plans and specifications to check the Project plans and specifications for
buildability, mistakes and coordination between the different design disciplines.3
In reviewing
for buildability or constructability, Payne determined whether a contractor would be able to
complete a building based on the information contained in the Project plans and specifications.4
Payne testified that her best estimate of the completeness of the Project plans and specifications
when she received them in October 1998 was "[m]aybe 70, 75 percent,"5
and that "[a] set of
plans cannot be buildable at 75 percent."6
RAFI was given only two weeks by the State in which to complete its peer review of the
Project plans and specifications,7
which time was insufficient given the incompleteness of the
1
Proposed Arbitration Exhibit 225 (Bates Stamp Nos. SON15166-192); Proposed Arbitration Exhibit 349; Proposed
Arbitration Exhibit 226 (Bates Stamp Nos. SON15203-07); Proposed Arbitration Exhibit 336 (Bates Stamp No.
SON0004877); Deposition of Mark Hobaica, architect with HCA, ("Hobaica Depo.") at 81-82.
2
Proposed Arbitration Exhibit 689 (Bates Stamp Nos. SON00015145-160).
3
Payne Depo. at 10:12-15.
4
5
Payne Depo. at 16:2.
6
Payne Depo. at 25:21-25 (emphasis added).
7

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Project plans and specifications when RAFI received them.1
Payne stated that in order to
perform a good peer review, construction documents must be 95% complete.2
On October 30, 1998, Payne provided to Schmidt and HCA a list of comments to the
Project plans and specifications ("Comments") and informed him that the Project plans and
specifications were not in the 95% completeness range.3
Payne continued reviewing the Project
plans and specifications beyond the two week time deadline and increased the number of
Comments previously sent on October 30, 1998.4
On November 5, 1998, Payne sent additional
Comments to Schmidt and HCA, stating on the fax cover sheet to Schmidt that her office was
"still finding more comments."5
Additionally, on November 9, 1998, Payne delivered yet
another set of Comments to HCA and Schmidt.6
In total, Payne provided to Schmidt and HCA,
622 separate comment items representing design errors or omissions in the HCA plans and
specifications for the Project.7
Payne also testified that if only half of the Comments were addressed, the Project plans
and specifications should not have gone out for bid.8
The evidence shows that a substantial
number of the 622 Comment Items were never addressed prior to bid. Only a handful of the
Comments were addressed in Addenda issued prior to when construction began on the Project.9
Payne testified that because the Project plans and specifications were so deficient, a plan
backcheck should have been performed to ensure that the Comments provided to HCA were
1
Payne Depo. at 17:5-19, 15:9-10, 21:4-8.
2
3
Payne Depo. at 19:10-15, 20:4-16; Proposed Arbitration Exhibit 349 at 2.
4
5
Proposed Arbitration Exhibit 225 (Bates Stamp Nos. SON00015166-192); see also Proposed Arbitration Exhibit
349 at 2-22.
6
Proposed Arbitration Exhibit 349 at 28-30.
7
Proposed Arbitration Exhibit 349 at .
8
Payne Depo. at 52-53.
9
See Proposed Arbitration Exhibits 900-915; Proposed Arbitration Exhibis 227-229; Proposed Arbitration Exhibit
502.33 (Bates Stamp Nos. ADDX-00909-925).

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sufficiently addressed in a new set of plans and specifications. However, Payne was never asked
by the State to perform a backcheck to the Project plans and specifications.1
b) Peer review by DPA.
On October 30, 1998, DPA provided to the State a set of comments containing 41
separate items with regard to structural deficiencies noted in the Project plans and specifications
("Structural Comments").2
c) Peer review by JBA.
On October 20, 1998, JBA provided a preliminary list of 132 separate comment
items. Moreover, on October 26, 1998, JBA provided an additional list of 63 separate comment
items and on October 28, 1998, JBA provided a final list with nine more separate comment
items. Each of the JBA comment lists, totaling 204 comment items, concerned mechanical and
plumbing deficiencies noted in the Project plans and specifications ("Mechanical/Plumbing
Comments").3
d) Review by State Board of Licensure.
On November 9, 1998, HCA received a list of “concerns” generated by the Health
Division of the Nevada Bureau of Licensure and Certification (the “Health Division”), after the
Health Division had conducted a plan review of the Project plans and specifications. The Health
Division’s list included 65 separate “concerns” and recommendations, involving 64 different
requirements under chapter 449 of the Nevada Administrative Code and the Nevada Revised
Statutes, the Life Safety Code and the Uniform Building Code (“Health Division Concerns”).1
It
should be noted that neither the Health Division nor the State Fire Marshal’s Office approved
the Project plans and specifications prior to them going out to bid. Approval by the Health
1
2
3
Proposed Arbitration Exhibit 336 (Bates Stamp No. SON0004878-96).

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Division and the State Fire Marshal’s Office is a prerequisite to issuing Public Works plans for
bid.2
2. The Bid Process.
Despite receiving more than 800 comments from the three separate peer reviews in
October and November 1998, the State first published its Notice to Contractors/Invitation to Bid
on December 22, 1998. 3
The deadline for submitting a bid was January 27, 1999,4
which was
subsequently extended by the State to February 4, 1999.5
Addenda Nos. 1, 2 and 3 to the Project
plans and specifications, in the form of 8 ½ by 11 inch sheets, were issued by HCA on January
13, 1999, January 26, 1999, and February 1, 1999, respectively.6
Those Addenda addressed only
a portion of the issues raised by the consultants in their peer reviews. As will be discussed infra,
some of the Comments that were not addressed presented issues that were essential to the
successful completion of the Project. The November 30, 1998 Project plans and specifications,
Addenda Nos. 1, 2 and 3, the Project Manual Volumes 1 and 2 comprised the documents
provided to contractors for bidding purposes ("Bid Documents").7
Prior to the time for
submitting a bid, 78 pre-bid requests for information from contractors other than Addison or
Addison's subcontractors were submitted to the State and HCA. None of the 78 pre-bid requests
for information involved any of the design issues that caused delays to the Project.8
On February
4, 1999, Addison submitted the lowest bid.9
Addison and the State entered into the Owner-
1
2
Proposed Arbitration Exhibit 100 at 22 (Bates Stamp No. HCA-00022).
3
Proposed Arbitration Exhibit 230 at 37-38 (Bates Stamp No. ADD03499-3500).
4
5
6
Proposed Arbitration Exhibit 101 (Bates Stamp Nos. ADD07628 – 30).
7
See Hobaica Depo. at 99:9 – 100:2.
8
Proposed Arbitration Exhibit 394 at 24-197 (Bates Stamp Nos. MOJ-HCA02270-2441).
9
Bates Stamp Nos. ADD07621 – 27.

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Contractor Agreement on May 19, 1999,1
and the next day the State issued to Addison a Notice
to Proceed with construction on June 7, 1999.2
B. Construction of the Southern Nevada Veteran's Home.
As might have been expected given the vast quantity of peer-review comments that
remained unaddressed prior to the bid process, myriad difficulties arose during the construction
phase. As early as June 1999, Addison encountered and brought to the State's attention
numerous problems with the Project plans and specifications.
Although poor design plagued virtually every aspect of the Project, certain areas require
particular focus as they resulted in repeated periods of delay. Those areas include the dimension
and guideline inconsistencies, roof and ceiling assembly design flaws, and dry wall cracking.
These and other problems required Addison to issue repeated Requests for Information ("RFI"),
but more often than not, neither the State nor HCA responded timely to those RFIs. The
Project's lack of adequate funding further contributed to construction difficulties, leading the
State to develop a plan to obtain funding through claimed construction deficiencies, despite the
history of acceptance of completed work up until the time the plot was hatched.
1. Design Flaws.
From the very beginning of construction of the Project, Addison and its subcontractors
encountered an inordinately large number of design defects and deficiencies in the plans and
specifications. Construction Claims & Management Consulting ("CCMC"), the State's expert,
acknowledges that the initial design defects and deficiencies were "immediately brought to
HCA's attention."3
Construction began on June 7, 1999. A mere three days later, on June 10,
1999, Addison issued the first RFI containing nine separate questions regarding information
1
2
Proposed Arbitration Exhibit 116 (Bates Stamp No. HCA00087).
3
Proposed Arbitration Exhibit 504 at 3 (Bates Stamp No. SON-X000003).

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missing from the Project electrical plans or requiring clarification.1
In total, Addison submitted
no less than 618 RFIs addressing 774 individual RFI items, to the State and HCA seeking
corrections and directions to remedy the design errors and omissions encountered.
However, the State and HCA failed to timely respond to many of the critical RFIs that
Addison and its subcontractors submitted.2
The defects and deficiencies eventually resulted in a
large number of Delta Drawings and Architectural Supplemental Instructions ("ASIs"). In total,
there were 62 Delta Drawings that showed changes to the Project plans and specifications and 76
ASIs to correct errors and omissions. The numerous flaws in the design of the Project led to
repeated instances of delay. These delays were exacerbated by the failure of the State to respond
in a timely fashion.
Construction Claims & Management Consulting ("CCMC"), the State's expert,
acknowledges that design issues with HCA's plans and specifications continued throughout
construction of the Project, even after Addison was terminated.1
The design deficiencies, in
addition to a "more than typical" number of owner requested changes, resulted in 21 Change
Orders, covering 229 separate items, and a 248 day extension of the Contract completion date, to
January 4, 2001.
Throughout construction of the Project, the State and HCA also initiated a large number
of Change Orders for other design and specification changes and corrections that were outside
the scope of the Contract. Many of these Change Orders incorporated work on the Project that
was not contemplated by Addison or its subcontractors in their bids submitted to the State. As a
result, Addison and its subcontractors have expended extra materials and labor not contemplated
in the Contract in implementing the State and HCA's Change Orders.
1
2
Proposed Arbitration Exhibit 635 (Bates Stamp Nos. ADD39633-736); Proposed Arbitration Exhibit 502 at 5
(Bates Stamp No. ADDX-00888).

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By January 2000, it became apparent to Addison that the Project was hopelessly plagued
by design errors and omissions. In a meeting held on January 19, 2000, Addison requested that
the State issue a Stop Work order on the Project to give HCA an opportunity to work out all the
design deficiencies, errors and omissions that were continually cropping up during construction.
The State, however, refused to acknowledge the many deficiencies to Addison. The State
rejected Addison's request and ordered that construction continue. HCA's Project Meeting
Minutes report that in a Project Meeting held on March 15, 2000, Jetstream commented that the
Contract documents were defective, to which the State reportedly said that the Contract
documents were "reviewed both in-house and by outside A/E firms and are, in fact, industry
standard quality and that the Contract documents were not deemed deficient."2
However, the State did acknowledge deficiencies to HCA. In an April 12, 2001 email to
HCA, Schmidt complained to Hobaica that, "Your office has been working on this project for
over four years and you still do not have final approval for your design solution for [the living
and dining room] areas from the State Fire Marshal's office."3
HCA then sent a letter to the State
Fire Marshal, Bryon Slobe, as follow-up to their request for a variance and approval of the
design sent just one month prior.4
On May 7, 2001, the State Fire Marshal wrote a letter to HCA
detailing HCA's failure to provide code compliant designs early in the plan review process, and
inquiring why the State Fire Marshal's conditions for the requested variance "were not addressed
earlier versus now, so close to the end of the project. Having to resolve these issues now may
cause additional delays," and asking HCA to "Please respond."5
1
Proposed Arbitration Exhibit 504 at 7 (Bates Stamp No. SONX000007).
2
Proposed Arbitration Exhibit 700.23 at 3 (Bates Stamp No. ADD02193).
3
Proposed Arbitration Exhibit 648 at 2 (Bates Stamp Nos. SON00020521-23).
4
5
Proposed Arbitration Exhibit 651 at 2 (Bates Stampn No. SON00020825-27).

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Chuck Fulkerson, Executive Director of the Office of Veterans' Services, wrote a letter to
the State asking for explanations for the numerous design deficiencies evident by the work
ordered in Change Order 20.1
Schmidt responded on May 1, 2001, with handwritten notes
indicating the State would be pursuing claims against the architects.2
Additionally, on December
20, 2001, at an open meeting of the State Public Works Board, O'Brien acknowledged that the
architect on the Project was the source of problems on the Project due to errors and omissions in
the Project plans. O'Brien further commented that the State was not going to pay the architect
for the extra support that was needed on the Project.3
Although by no means a comprehensive list, the following is a detailed narrative of some
of the major design issues that caused disruption and delays on the Project.
2. Problems with Dimensions and Gridlines.
Among the most devastating of the design flaws were those relating to the dimensions
and gridlines. As early as June 25, 1999, Rich Wilczak, Addison's Project Manager, informed
HCA that "numerous dimension busts" contained in the architectural and structural documents
needed to be addressed before excavation could begin.4
Mr Wilczak also advised HCA,
"Although we are presently in a delay mode [due to the dimension errors], it is far better to catch
the dimensional busts now then [sic] wait until construction is further along. It would only
further delay the project plus we would incur costs over and above the original contracted
amount."5
Wilczak followed up his June 25, 1999 Letter with another letter to HCA dated July 1,
1999. In his July 1, 1999 Letter, Wilczak again reminded HCA that Addison could not begin
1
Proposed Arbitration Exhibit 655 (Bates Stampn Nos. SON00020883-94).
2
3
Proposed Arbitration Exhibit 642 at 4 (Bates Stamp No. SON0054144).
4
5

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excavation until it received the revised Contract Drawings addressing the dimension errors
encountered by Addison, and advising that all "streets, pads and subgrades have been
completed."1
Wilczak stated, "Unfortunately we are 'Dead in the Water' until such time we can
proceed with the layout and excavation for Building 'E' originally scheduled to start June 28,
1999."2
Despite this early, repeated notice, nearly two months later, by August 23, 1999, Addison
still had not received the corrected Contract Drawings to remedy the dimensional errors.
Wilczak wrote another letter to HCA,
We have experienced more than our share of delays on this project,
to date, and can no longer tolerate additional delays. We have
been geared toward a nine month schedule and it appears that HCA
has utilized our two months just in delays. Be advised that we
fully expect to be compensated for such delays."3
The kinds of problems Addison encountered of not receiving a timely response to RFIs from the
State's architect continued and grew worse throughout the construction of the Project. CCMC
acknowledged these problems in its report:
"[O]nce construction began, it became apparent that HCA had
failed to meet various aspects of its contract obligations. This was
initially evidenced during the first two months of construction
when the Contractor discovered errors and deficiencies including
various problems with dimensions shown in the plans as well as
multiple electrical deficiencies. Such deficiencies were
immediately brought to HCA's attention who assured both the
Contractor and NSPWB that corrections would be made promptly .
. . However, HCA did not respond adequately or timely to the
problems associated with the dimension errors. . . . Simply stated,
HCA had to revise the dimension plans six (6) times after the plans
were supposed to be completed to 100% design.4
1
2
3
Proposed Arbitration Exhibit 59 (emphasis added) (Bates Stamp No. ADD22667).
4
Proposed Arbitration Exhibit 504 at 3 (emphasis in original) (Bates Stamp No. SONX000003).

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The State's failure to respond to Addison's concerns about the dimension issues in the
summer of 1999, is inexcusable, especially in light of the notice of dimension errors given to the
State in the Comments provided by Payne. The State and HCA were informed of these errors
some seven months prior to the commencement of construction. The October 30, 1998, the
November 6, 1998 and the November 9, 1998 lists of Comments prepared by Payne detailed the
following errors and omissions in the Project plans and specifications in regard to problems with
the dimensions and gridlines:1
• Items 270 and 271, Sheet No. A2.1, stated respectively, "All dimensions should
be whole. Some are cut in the middle" and "Structural drawings states all
dimensions should be verified with architectural. Architectural does not should
[sic] grid dimensions, only very specific dimensions. Dimensions need to be
cross-referenced between both disciplines";
• Item 273, Sheet No. A2.1, stated, "Many dimensions throughout are drawn to CL
of wall without noting such. Additionally, structural references center of stud for
all dimensions referencing walls. Architectural and structural need to coordinate
dimension reference points";
• Item 383, Sheet No. A8.1, stated, "Detail need to have footings coordinated with
structural. Typ. of wall details";
• Item 414, Sheet No. S2.1A-S2.1E, stated, "Structural shows dimensions from CL
of wall, architectural shows dimensions from edge of gyp. bd. Partition. This
needs to be coordinated for cross-referencing of dimensions. Typical throughout";
• Item 415, Sheet No. S2.1A-S2.1E, states, "Structural references several
dimensions from architectural that are not provided. Typical throughout";
• Item 416, Sheet S2.1A-S2.1E, states, "Depressed slab areas need to be located
on/coordinated with architectural. Is any slope required to drain these areas?";
• Item 417, General note, stated, "A smaller scale plan with all grid dimensions
would make for clearer references. It is not possible in some instances to
reference between match lines of plans, due to lack of dimensions that relate to
connection points of building";
• Item 418, Sheet No. S2.1A-S2.1E, stated, "Column, box studs and other plan
structural items need to be tied dimensionally to grid lines in two axes.
Contractor will not be able to locate these items otherwise";
• Item 419, Sheet S.1A-S2.1E, states, "Column lines need to [be] provided at all
exterior bearing walls";
• Item 421, Sheet No. S2.1A-S2.1E, stated, "Some sums of partial dimensions do
1
Proposed Arbitration Exhibit 349 at 14, 18, 19 (emphasis added), 20, 21, 25.

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not add up to larger dimensional strings";
• Item 424, Sheet No. S2.1A-S2.1E, stated, "Any dimension discrepancies between
partial dimensions and grid dimensions should be corrected prior to issuance of
plans";
• Item 452, Sheet No. M2.1-M2.5, stated, "Showing gridlines would increase
clarity and ability to cross reference drawings";
• Item 471, Sheet No. P2.1-P2.5, stated, "Show gridlines for cross referencing"; and
• Item 525, Sheet No. E2.1-E2.5, stated, "Drawing does not show grid . . ."
Despite this advance notice, Comment Items 271 and 273 were never addressed until
identified by Addison during construction.1
Only Comment Items 383, 452 and 471 were
addressed before the State put the Project plans and specifications out for bid. Comment Items
414, 415, 416, 417, 418, 419, 421 and 424 all referred to dimensional problems that impacted the
entire Project throughout construction. Worse still, HCA was aware of the dimension errors in
the plans in January 1999, when Anshen & Allen, HCA’s architectural design consultants
(A&A), proposed a "fix" to a dimension error that would essentially conceal the error. On
January 21, 1999, A&A sent a fax to HCA stating, "Regarding the patient room ceiling heights, I
believe the inconsistencies between our drawings can be resolved with an absolutely minimal
amount of change to your documents . . . Basically, with a note at one detail and deleting the
dimensions from others, this item will get us the best design."1
The effect of the removal of
these dimensions from the detail was to conceal the reality of a lack of adequate space within the
ceiling cavity, thus creating the issues surrounding the location and coordination of the rough
plumbing, mechanical and electrical within in that space. It even compounded the ability of
HCA’s mechanical and plumbing consultants to identify above ceiling space constraints.
A&A's changes to the Project plans noted in its January 21, 1999 fax to HCA did nothing
more than conceal the dimension errors and exacerbated the design issues without correcting the
problem. Addison sought to address the dimension errors by issuing RFI Nos. 12, 23, 104, 106-
1
Proposed Arbitration Exhibit 502.33 at 8 (Bates Stamp No. ADDX-00916).

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109, 113, 114, 127, 130-135, 137, 138, 140-147, 160-169, and 172, among others, to get
corrections and/or clarification to the issues identified in Comment Items 414-419, 421 and 424.2
Change Order 3 attempted to address the dimensional problems, but the Project was impacted
throughout the entire construction.3
Several witnesses for the subcontractors testified that the State would issue changes to the
Project plans that would change one set of dimensions without any consideration to how the
change impacted another aspect of the Project plans. Payne testified that if the drawings were
not revised to coordinate the architectural, mechanical and structural components as noted in the
Comments, the lack of coordination would create issues for the contractor when he was ready to
commence construction.4
This is precisely what occurred. Payne also testified that cross-
coordination between design disciplines is not a task that a contractor is required or capable of
doing.5
Terry Montgomery, vice president for the survey company Red Rock Engineering &
Surveying ("Red Rock"), was the subcontractor responsible for laying out the grid lines on the
Project.6
Montgomery testified that early in the construction of the Project, Red Rock
encountered dimensional errors in the Project plans as Red Rock endeavored to lay out the grid
lines on the Project.7
Montgomery also testified that the many dimensional errors significantly
affected Red Rock's ability to lay out the horizontal grid lines on the Project. According to
Montgomery, the Project plans were "pretty close" to the worst he had ever seen. Every time an
error was discovered in the Project plans, Red Rock was required to go back and reestablish the
1
Proposed Arbitration Exhibit 394 at 74 (emphasis added) (Bates Stamp No. MOJ-HCA 02318).
2
Proposed Arbitration Exhibit 635 (Bates Stampn No. ADD39633-736).
3
Proposed Arbitration Exhibit 502.33; Project plans, specifications and Addenda.
4
5
Payne Depo. at 59.
6
Deposition of Terry Montgomery ("Montgomery Depo.") at 13-14, 16-17, 37:15-
7
Montgomery Depo. at 17:15-24.

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grid lines and ensure the subcontractors all had the same dimensions and grids. This occurred
many times on the Project.1
The State acknowledged on August 30, 2000, in an open meeting of
the State Public Works Board, that there were dimension problems that caused delays on the
Project.1
3. The Delays Caused by the UL-P518 Issues.
The Project was significantly impacted by design defects and deficiencies connected with
the UL-P518 roof and ceiling assembly, which resulted in an aggregate delay to the Project of
163 days. The term P518 refers to a design designation by Underwriters Laboratories ("UL")
that is tested and fire rated by Underwriters Laboratories. The Project plans designated that the
roof assembly was to be a UL-P518 rated assembly, meaning that the P518 assembly was rated
by the Underwriter Laboratories at a one hour fire rating. This means that the P518 assembly,
when placed in Underwriters Laboratories' test furnaces, took more than one hour to burn
through the sheetrock before it began to damage the metal structure inside the assembly.
However, the Project plans and specifications modified the P518 assembly by also calling
for I-beams that penetrated through the assembly, destroying the UL fire rating. In other words,
because the I-beam modified the assembly that had been tested by Underwriters Laboratories,
and did not match the P518 assembly that was tested by Underwriters Laboratories, it was
impossible to construct the P518 assembly as shown on the Project plans and have it meet the
UL-P518 rating as tested by Underwriters Laboratories that was called for in the Project plans
and specifications. Therefore, what was shown on the Project plans and specifications was
contradictory. Although the Project plans and specifications called for a UL-P518 fire rating, the
plans also called for the I-beam that modified, and thus would destroy, the UL-P518 fire rating
applied by Underwriters Laboratories. In other words, HCA modified the UL-P518 assembly
1
Montgomery Depo. at 37-38.

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instead of changing the design to fit the UL-P518 assembly.
The UL-P518 design deficiency threatened the structural integrity of the entire Project.
Proper construction of the Project required the deficiencies to be remedied. Virtually every trade
on the Project was delayed until HCA Remedied the UL-P518 design deficiency. As with other
design flaws, the State and HCA had notice of the roofing and ceiling assembly design flaws
well before bidding – let alone construction – but chose to do nothing to remedy the problem.
Even when informed of the delays resulting from the deficiencies after construction had begun,
the State and HCA failed to remedy the design flaws for months.
A chronological account of the UL-P518 design deficiency reveals that more than twenty
months passed from the time the State and HCA were first informed, during the pre-bid stage, of
the UL-P518 design deficiencies, to the time they authorized appropriate correction of the design
flaws:
• On 11/6/98 peer review Comments by RAFI were faxed to Schmidt, which
detailed the following Project plan errors and omissions:2
o Item 335, General Note, "UL Assembly P 518, which is noted throughout
these documents, is for an assembly with a maximum roof joist spacing of
24" o.c. The roof structural system for this project appears to be designed
with framing members spaced at 48" o.c. The roof system as designated
does not comply with the listed assembly. Either an alternative UL listed
design should be selected or revise designs accordingly";
o Item 434, Sheet No. S2.2A-S2.2E, "No beam elevations are called out.
Architectural only calls out some beam elevations, not all";
o Item 440, Sheet No. S4.1, "Structural calls out top of steel at ridge as 116'-
0". Architectural calls it out at 116'-6"";
o Item 449, Sheet No. M2.1-M2.5, "Access to dampers, terminal units and
other plenum mounted devices needs to be coordinated with architectural
where hard ceilings exist";
o Item 473, Sheet No. P2.1-P2.5, "A plumbing roof plan would assist in
coordination of VTR's, RD, OD and other rooftop plumbing equipment
locations. Would also assist in coordination with mechanical and
architectural roof items."
1
2
Proposed Arbitration Exhibit 349 at 16 (emphasis added), 20-22.

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• The only Comment Items regarding UL-P518 that were addressed in the Project
plans and specifications were Items 335, 440 and 449. Bidding parties were never
apprised of the P518 design deficiency prior to bid. The following Addenda were
issued after bid.1
o Addendum 1-22, was issued to address Comment Item 335.
o Addendum 1-58 was issued to address Item 449; however, not all items in
Comment Item 449 were addressed by Addendum 1-58.
o Addendum 2-91, was issued to address Comment Item 440.
o In sum, all that was changed in the Addenda was the design criteria. The
deficiency was not resolved.
• Addison identified the UL-P518 design deficiency to the State in a meeting with
HCA on 9/9/99 with more than 50 items regarding framing.2
• Addison again identified the UL-P518 design deficiency in RFI #117 and
transmitted to the State on 11/10/99.3
• HCA responded on 11/22/99, acknowledged the deficiency but failed to provide
revised design documents.4
• On 2/1/00, Addison directed the subcontractor to prepare an estimate for
corrective costs of UL-P518 design and immediately submit.5
• Change Order Request ("COR") #49 represented the subcontractor's suggestion of
corrective work required and was submitted to the State on 2/13/00.6
• COR #49 was rejected by the State and HCA on 2/25/00 with the understanding
that the State and HCA would provide specific designs to correct the UL-P518
design deficiency for pricing by Addison.
• On 3/8/00 the State, HCA and Addison reviewed the design deficiency and
sketched possible solutions. The State and HCA were to immediately prepare a
proposal request with design corrections.7
• On 3/29/00 the UL-P518 design deficiency was discussed in detail during a
scheduled meeting.
• On 4/21/00, Addison received the Architect's Supplemental Instructions ("ASI")
#55, which addressed only one aspect encompassing the UL-P518 design
deficiency.8
Addison immediately notified the State that ASI #55 was
incomplete.
1
Proposed Arbitration Exhibit 502.33; Proposed Arbitration Exhibits 900-907; Proposed Arbitration Exhibits 227-
229.
2
3
Proposed Arbitration Exhibit 97.01 at 33 (Bates Stamp Nos. ADD09170-72).
4
5
Proposed Arbitration Exhibit 97 at 3 (Bates Stamp No. 09143).
6
Proposed Arbitration Exhibit 97.03 (Bates Stamp Nos. ADD09194-6).
7
Proposed Arbitration Exhibit at 4 (Bates Stamp No. ADD09144).
8

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• On 5/9/00, Addison received ASI #61, which addressed other UL-P518 issues, but
not all.1
Addison immediately directed the framing subcontractor to prepare a
complete cost proposal to correct all deficiencies, not just those identified in ASI
#55 and #61.
• On 5/23/00, Addison received Request For Proposal ("RFP") #66 and, on the
same day, responded with Proposed Change Order ("PCO") #51.2
PCO #51 was
immediately rejected by the State without review or discussion.
• On 6/5/00, Addison received Construction Change Directive ("CCD") #74
directing Addison to proceed with design deficiency corrections on a time and
material basis.3
Addison distributed Proceed Orders to the subcontractors, and
once materials were received, Addison began the corrections on 6/9/00.
Payne testified that Addendum #1 was not sufficient to address Comment Item 335.4
Ten months after the issue was identified by Addison, the State and/or the design team finally
provided the solution to Addison. However, the State first learned of the design deficiency from
Payne's Comments sent on October 30, 1998, and thus was aware of the design deficiency for
almost two years before any corrections were made to the Project plans.5
The postponement in
correcting the UL-P518 design defect delayed several other critical aspects of the Project and
forced out of sequence construction during that time period.6
The long wait for the design
corrections caused disruption and delay to several trades including mechanical, plumbing,
electrical and sheet rock.
4. Cracking in the Dry Wall.
Yet another example of a design deficiency that caused delays and out of sequence
construction on the Project was the problem encountered with cracking in the Project dry wall.
As with the other design flaws, the State was aware of the potential for problems with cracking
1
Proposed Arbitration Exhibit 97.06 ( Bates Stamp No. ADD09201-6).
2
Proposed Arbitration Exhibit Exhibit 97.05 and 97.07 (Bates Stamp No. ADD09207-13).
3
Proposed Arbitration Exhibit Exhibit 97.08 (Bates Stamp No ADD09214).
4
5
Proposed Arbitration Exhibit 349 at 16.
6
Proposed Arbitration Exhibit Exhibit 97.

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dry wall as early as October 30, 1998, well before the Project was put out to bid. The evidence
reveals the following chronology:
• 10/30/98—In the Structural Comments, DPA stated, "The structural engineer
shall consider using some form of expansion joints in this steel structure. The
overall building lengths of 560' X 500' without joints may create some long term
problems due to expansion/contraction movements."1
• 6/14/00—Addison advised the State there should be concern regarding movement
of the Project building since the drywall was cracking in numerous locations.2
• 6/15/00—Notice of Non Compliance ("NNC") # 17 issued by State inspector
regarding cracking in drywall.
• 8/1/00—Addison wrote letter to Schmidt explaining Addison's observations that
the differences in expansion rates between the exterior and interior structural
elements were accounting for the difference in movement of the Project building
and resultant cracking of the dry wall, and requesting the State provide a timely
solution to correct the design deficiency.3
• 8/2/00—Addison inquired of HCA where added expansion joints should be
located. Upon suggestion of the State that Addison wait until the Project building
be climatized before adding expansion joints, Addison explained that climatizing
the Project building might reduce cracks but not building movement.4
• 12/18/00 email from Charles Fulkerson to Schmidt commenting on "large number
of cracks" and noting, "What concerned me was how a crack would start at the
exterior wall, go thru the room, across the hallway and into the room to the
exterior wall. I know that cement floors in Nevada are subjected to a lot of
movement that causes cracking. But I am concerned that the combination of the
cracked cement floors and the cracking of the walls might be an indication of
much larger structural problems."5
A copy of this email was sent by Schmidt to
HCA.
• 12/27/00 letter from Martin & Peltyn to HCA stating its opinion as to cause of
cracking and HCA's 1/2/01 letter to State transmitting same.1
• 4/24/01, Kersey wrote memo to Tom Johnson, noting which fire rated walls had
cracks in them.
At the time of Addison's termination on August 3, 2001, the State and HCA had not
provided Addison with a design solution to fix the cracking. At the request of Dennis A. Nolan,
1
Proposed Arbitration Exhibit 226 (emphasis added) (Bates Stamp No. SON00015203-07).
2
Proposed Arbitration Exhibit 700.36 (Bates Stamp No. ADD0236).
3
4
5
Proposed Arbitration Exhibit 658 (emphasis added) (Bates Stamp No. SON00019983-84, Bates Stamp No.
SON00019981).

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inspector for the State, Rolf Jensen & Associates ("Rolf Jensen"), fire and security engineering
consultants, examined the exterior and interior walls of the Project. In a letter dated November
9, 2001, Rolf Jensen concluded that "The shear walls associated with the one-hour corridors
appear to be moving with the building. This is consistent with a dynamic wall system, in that
movement is present." Rolf Jensen provided instructions for a dynamic sealant to maintain the
required one hour fire rating that would provide flexibility for movement of the walls of the
Project.2
The design solution provided by Rolf Jensen was subsequently implemented by MBI.
5. Requests For Information.
The State's expert, CCMC, concludes, "In addition to the numerous impacts this project
incurred resulting from HCA's failure to provide accurate and complete drawings and
specifications, HCA's responsiveness in correcting its own deficiencies often proved untimely
thereby increasing the extent of damages caused by each related defect."3
The State admits the
Project plans and specifications contained numerous errors and omissions,4
and its expert
acknowledges and affirmatively states that the plans and specifications provided by HCA for the
Project were grossly deficient, and that HCA failed to timely respond to many RFIs.5
Addison's expert, Roel Consulting Group ("Roel"), agrees with CCMC's assessment of
the inadequacies of HCA's plans and specifications.6
Additionally, Mojave, Quality and
1
Proposed Arbitration Exhibit 276 (Bates Stamp No. MOJ-HCA00190).
2
Proposed Arbitration Exhibit 364 (Bates Stamp Nos. MOJ-HCA00204-206).
3
Proposed Arbitration Exhibit 504 (Bates Stamp No. SON-X000004); see also Proposed Arbitration Exhibit 648 at
2 (wherein Schmidt complained to Hobaica that, "Your office has been working on this project for over four years
and you still do not have final approval for your design solution for [the living and dining room] areas from the State
Fire Marshal's office.") (Bates Stamp Nos. SON00020521-23).
4
January 5, 2000 Memo from Schmidt (stating most items noted by HCA as "regulatory" and "unforeseen," the
State would characterize as "omissions" (Bates Stamp No. SON19957); Handwritten note by Schmidt on HCA's
March 16, 2001 Letter demanding payment for additional architectural support services, stating that Schmidt finds it
"quite interesting that HCA feels that the State should pay HCA extra fees to correct an omission in the structural
design on this project," (Bates Stamp No. SON00020290).
5
Proposed Arbitration Exhibit 500.5 (Bates Stamp No. ADDX00152-158); Proposed Arbitration Exhibit 504 (Bates
Stamp Nos. ADDX00152-58; SONX000001-4).
6
Proposed Arbitration Exhibit 500 at 4 (Bates Stamp No. ADDX00004).

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Jetstream's experts also conclude that HCA's plans and specifications were inadequate.1
Simply
put, all the evidence shows, and it is undisputed by the parties to this arbitration, that the State's
architect, HCA, was grossly negligent not only in its preparation of the Project plans and
specifications on which Addison was contractually obligated to rely, but also in its provision of
corrections, information and guidance throughout the construction of the Project.
Pat Larsen, former Superintendent for Addison, testified that the RFIs and clarifications
that were necessary on the Project were excessive.2
Because of the errors and omissions in the
Project plans and specifications "it was day to day issues with design. There wasn't a day that
didn't go by that you didn't try to get ahold [sic] of the structural engineer or the architect to
clarify or get some additional information on particular areas."3
Larsen also testified that the
Project plans and specifications were "the worst set of contract drawings I have ever had to deal
with. The building was unbuildable with the information given."4
Addison hired James Andrews from HCA just to keep up with the large volume of
paperwork that was generated because of numerous changes and corrections to the Project and
the large number of RFIs that were necessary because of design deficiencies. In addition to the
excessive paperwork, Addison continually had to remind the State and HCA about RFIs critical
to the progress of construction that were outstanding for more than the 14 days called for in the
Contract. For example, on January 12, 2001, Addison sent a memo to HCA advising of all
outstanding RFIs that were still pending and requesting responses.5
1
See Proposed Arbitration Exhibits 509-517.
2
Deposition of Pat Larsen ("Larsen Depo.") at 131:18-20.
3
Larsen Depo. at 145:2-5.
4
Larsen Depo. at 34:8-11, 131:7-13 (emphasis added).
5

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6. Addison's Delay Claims.
The State demonstrated bad faith in its dilatory, and at times, even deceptive responses to
Addison's claims for compensation for delay and requests for extensions. On June 13, 2000,
Addison submitted a formal delay analysis and claim to the State requesting an extension of time
and compensation for the delays associated with the UL-P518 issues.1
On June 16, 2000, a
meeting was held where Addison made a presentation to the State of its UL-P518 delay claim
with supporting documentation.2
As a result of the June 16, 2000 meeting, the State granted
Addison an interim time extension of 30 days for the UL-P518 delay, and held an additional 6
days in consideration pending further review by the State.3
Another 127 days requested by
Addison for the UL-P518 delay were never denied, approved, or awarded as "days held in
abeyance." To date, the State has never made a decision regarding the 127 days.
In July 2000, during the regularly scheduled Project Meeting, the State reported to
Addison that Hainline & Associates, a scheduling consulting firm, would be reviewing Addison's
P518 delay claim and providing a report evaluating whether Addison was entitled to any
additional contract time and/or compensation.4
In August 2000, the State reported to Addison
that Hainline & Associates had "no recommendation" as to whether Addison was entitled to
additional time extensions. The State assured Addison that as soon as Hainline & Associates'
written report and reasoning was received, it would be forwarded to Addison.5
Despite these
assurances, on August 30, 2000, in an open meeting of State Public Works Board, Patrick stated
to the Board that the State was looking to hire a claims analysis person.6
1
Proposed Arbitration Exhibit 97 (Bates Stamp Nos. ADD09141-9214).
2
3
Proposed Arbitration Exhibit 700.37 at 2 (Bates Stamp No. ADD02381); Foster Depo. at 98-104; Proposed
Arbitration Exhibit 63.11 at 5 (Bates Stamp No. ADD00726).
4
5
6

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The State continued to imply to Addison that Hainline and Associates was already
working on a written report throughout meetings held in September, October, November and
December. The State promised to forward the written report to Addison so that Addison could
address the areas Hainline & Associates felt Addison needed to augment its documentation for
its UL-P518 delay claim.1
In an email to Daniel O'Brien2
dated January 12, 2001, Schmidt
referred to his anticipation that Hainline & Associates would assist the State in evaluating
Addison's claims for the delay caused by the UL-P518 issues.3
On January 26, 2001, the State
had scheduled a “Claims Kick-Off” meeting between HCA, Hainline & Associates and the
State’s principals, with the apparent intent of building a claim against Addison.4
However, on
February 5, 2001, in a letter to O'Brien, Jerry Hainline, owner of Hainline & Associates,
informed O'Brien that Hainline & Associates was withdrawing as the State’s claim review and
analysis consultant, and stated that “it is my feeling that your needs would be better served with
another firm.”5
In fact, the State's expert has admitted that Hainline & Associates never
performed a claims review or analysis.6
On February 14, 2001, the State announced at the Project Meeting that PinnacleOne was
being "tentatively tasked with schedule claims."7
It was not until March 7, 2001, that the State
announced at the Project meeting that Hainline & Associates had withdrawn and that
1
Proposed Arbitration Exhibit 700.47 (9/6/00— "no further word on Hainline & Associates findings"), Proposed
Arbitration Exhibit 700.49-50, Proposed Arbitration Exhibit 700.51 (9/27/00—"SPWB indicated a response to P518
delay claim from Hainline & Associates by next week"), Proposed Arbitration Exhibit 700.52-53, Proposed
Arbitration Exhibit 700.55-57, Proposed Arbitration Exhibit 700.60-62, Proposed Arbitration Exhibit 700.64-65
(1/24/01—"Hainline & Associates to provide written response"), Proposed Arbitration Exhibit 700.66-67.
2
O'Brien succeeded Raecke as Manager of the Public Works Department.
3
Proposed Arbitration Exhibit 181 (Bates Stamp No. SON00019937).
4
Proposed Aribtration Exhibit 254 (Bates Stamp No. SON00026158-166).
5
6
Deposition of Gregory Frehner ("Frehner Depo.") at 442:13 – 443:2.
7
Proposed Arbitration Exhibit 700.68 (Bates Stamp No. ADD03279-80).

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PinnacleOne would replace it.1
In April 2001, Addison informed the State that Addison was still
awaiting a response from the State's claims consultant with regard to Addison's delay claim.2
However, the evidence shows, and the State's expert Gregory Frehner of CCMC
acknowledges, that PinnacleOne never prepared a report analyzing Addison's delay claims for
the UL-P518 design deficiency.3
Despite PinnacleOne's June 12, 2001 Letter, PinnacleOne
never produced the report long promised Addison by the State. There is no evidence that
PinnacleOne ever conducted any analysis of Addison's UL-P518 delay claim or prepared a
report.4
Despite the fact that PinnacleOne's treatment of the P518 delay was cursory and without
any analysis whatsoever, the State reported to Addison that Addison's delay claim had "no
merit."5
Thus, the State not only misrepresented PinnacleOne's conclusions, but also reneged on
its promise to provide a copy of any report on the UL-P518 delay claims to Addison, thereby
precluding Addison from addressing concerns.
7. Addison's Progress Payment Applications.
For the first two years of construction of the Project, the State never took issue with the
quality or quantity of the work Addison claimed for payment. Addison submitted and received
payments for Progress Payment Application ("PPA") Nos. 1 through 22, in accordance with the
Contract terms and NRS chapter 338, Nevada's Public Works Prompt Payment Statutes.6
On or about April 4, 2001, Addison submitted PPA No. 22 to the State for payment. PPA
No. 22 indicated that the entire Project was at 98.712% completion.1
Martin Kersey, the State
Inspector on the Project, testified that he physically walked the Project to check that the
1
2
3
Frehner Depo. at 442:13 – 443:2.
4
5
Proposed Arbitration Exhibit 700.79 (Bates Stamp No. SON00020813); see also Proposed Arbitration Exhibit 650
at 2 (Bates Stamp No. ADD39505)
6
Proposed Arbitration Exhibits 800.1 – 800.22.

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completion claimed on the PPA was correct. Kersey testified that he is "very picky" about
signing off on a PPA.2
Kersey approved and signed off on PPA 22 without comment.3
Pursuant
to an oral agreement between Schmidt and Addison, Addison reduced the 10% retention amount
on the Contract to 5% in PPA No. 22. Despite Schmidt's agreement to reduce the retention from
10% to 5%, O'Brien informed Addison that the retention amount would remain at 10%.4
The
State and HCA signed and approved PPA No. 22 with the 10% retention intact, and Addison was
paid the remainder of the amount requested in PPA No. 22.5
Other than not reducing the
retention amount from 10% to 5%, neither the State nor HCA made any comment about or issue
of the quantity of the amount requested by Addison or the quality of the work completed under
PPA No. 22. After the State paid Addison for 98.712% completion of the Project under PPA No.
22, all that remained to be performed by Addison on the Contract was work amounting to
$203,552.89 and representing less than 1.3% of the entire Project.6
On May 4, 2001, Addison submitted PPA No. 23 to the State for payment in the amount
of $1,041,940.45.7
The $1,041,940.45 requested by Addison was comprised of: $72,270 for
work performed pursuant to Change Order 208
less 10% retention, plus the $203,552.89 less
10% retention for the 1.288% of work remaining on the Contract to complete the Project, plus
$793,699.85 representing a reduction of the total retention on the Project from 10% to 5%.1
Addison's Progress Payment Application ("PPA") No. 23 for $1,041,940.45 due for work
1
2
Deposition of Martin Kersey ("Kersey Depo.") at 64:5-23.
3
4
In early 2001, Addison requested that the State reduce the Contract retention amount from 10% to 5%. Schmidt
orally agreed to Addison's request; however, subsequently, O'Brien rescinded the State's agreement and kept the
retention amount at 10%. Proposed Arbitration Exhibit 103 (Bates Stamp No. ADD11859); O'Brien Depo. at 28:18-
30:16.
5
6
7
8

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performed by Addison was rejected by the State. For the first time in the two years of
construction on the Project, the State contended, without specifying as required by the Contract
and NRS 338.525(2), that the work performed by Addison was deficient. Even though both the
Contract and NRS 338.525(2) require claimed deficiencies to be specified, the State failed to so
specify. Instead, the State merely responded to PPA No. 23 by requesting that Addison revise
and resubmit PPA No. 23 "in accordance with the general conditions sections 7.2.6 (A), (B), (F)
and (G)."2
However, reference to Section 7.2.6 provides no insight as to the claimed
deficiencies, as it only provides a general overview of the reasons the State may decline approval
of a PPA. The sections expressly referenced by the State, Sections 7.2.6 (A), (B), (F) and (G) of
the General Conditions of the Contract do no illuminate any claimed deficienies, as those
subsections state only:
The Owner or the Architect may decline to approve any Request for Payment, or, because
of subsequently discovered evidence or subsequent inspections, may nullify the whole or any
part of a Request for Payment previously issued to such extent as may be necessary to protect the
Owner from loss because of:
A. defective work not remedied;
B. claims filed or reasonable evidence indicating probable filing of
claims;
. . .
F. reasonable indication that the Work will not be completed within
the Contract Time; or,
G. unsatisfactory execution of the Work by the Contractor.
When the above grounds are removed, payment shall be approved for amounts
withheld because of them.3
1
2
3
Proposed Arbitration Exhibit 102 at § 7.2.6 (Bates Stamp No. ADD03615).

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Despite repeated communications with the State through counsel, Addison has never been told
what the State contended was deficient.
8. The State's Internal Memos, Emails and Meetings, Evidencing an Intent to
Fund the Project Through Claims Against Addison.
Long before the State refused payment to Addison for allegedly deficient work
performed, the State planned to fund this Project by assessing liquidated damages against
Addison. The State admits that the Project was under funded from the beginning.1
In a June 6,
2000 email to Raecke, the subject line of which stated "thinking ahead on the Southern Nevada
Veteran's Home budget. 97-C16," Schmidt stated that "the unknown nature of what it will take
to complete this project in change orders and the additional fees from consultants" would cause a
shortfall of funds on the Project. Schmidt predicted that Change Orders on the Project would
total in excess of $1,000,000. Schmidt listed in his email the possible sources of funding to
complete the project and then stated that the "only other source of possible funds could be by
way of liquidated damages from the Contractor."2
Thus, the State anticipated assessing
liquidated damages against Addison as a means of providing funding for the Project.
Schmidt testified that when he became involved with the Project, his "initial thought was
that it was under funded."3
Despite his preparing a more accurate budget, a larger budget was
never approved for the Project. Moreover, in a memo dated January 11, 2001, the State admitted
"funding for the original project was insufficient to complete the total needs for this new
facility," and that subsequent monies transferred to the Project were "insufficient to complete the
1
Schmidt Depo. at 27:8-13, 26:10-11.
2
Proposed Arbitration Exhibit 163 at 1 (emphasis added) (Bates Stamp Nos. SON00018120-21).
33
Schmidt Depo. at 26:9.

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total project."1
Mr Schmidt also acknowledged the need to fund additional anticipated Change
Orders.2
In the August 30, 2000 open meeting of the State Public Works Board, Patrick stated that
the State was looking to hire a claims analysis person "so we have a concrete position on
liquidated damages."3
On October 12, 2000, Schmidt wrote a memorandum to Sias that was
cc:'d to Patrick that outlined the "Known Potential cost liabilities" to complete the Project. In the
October 12, 2000 memorandum, Schmidt acknowledged that one of the known estimated
potential cost liabilities was $150,000 for "extended direct daily costs to Addison."4
Thus,
although the State was trying to wrongfully assess liquidated damages against Addison, it still
acknowledged that Addison was owed extended direct daily costs for delays.
Schmidt stated in a memo to O'Brien and Patrick dated March 2, 2001, that "since there is
also the possibility of contractor claims being filed before the current project is finalized, I feel
that all monies intended to complete the landscaping needs to be protected from any liability of
claims from 97-C16."5
On March 6, 2001, in an open meeting of the State Public Works Board,
O'Brien acknowledged that "the change orders that have occurred have basically exhausted the
funds that were available."6
In the same meeting, O'Brien also stated, "Basically the amounts on
our liquidated damages are an amount to get your attention on almost every project once you get
over 30 days."7
On October 18, 2001, in an open meeting of the State Public Works Board, the
1
Proposed Arbitration Exhibit 663 (emphasis added) (Bates Stamp Nos. SON00019940-42); see also Proposed
Arbitration Exhibit 664 (Bates Stamp No. SON0020039-50); Proposed Arbitration Exhibit 665 (Schmidt stating in
letter, "there is not enough construction contingency . . . to complete the project") (Bates Stamp No. SON0020077);
2
3
Proposed Arbitration Exhibit 636 at 3 (emphasis added) (Bates Stamp No. SON0054209).
4
Proposed Arbitration Exhibit 178 (emphasis added) (Bates Stamp No. SON00019015).
5
Proposed Arbitration Exhibit 668 (emphasis added) (Bates Stamp No. SON00020441-42).
6
Proposed Arbitration Exhibit 637 at 5 (emphasis added) (Bates Stamp No. SOM0054199); Proposed Arbitration
Exhibit 334 (Bates Stamp No. SON0002435) (showing a remaining contingency in the Project budget of
$99,969.54).
7

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State acknowledged that the monies owed for construction of the Project exceeded the amounts
retained from Addison. The meeting minutes report that O'Brien stated that "[t]he State retained
$1.8M, monies still owed total over $2M."1
Evan Dale, accountant for the State, testified that the money that was retained from
Addison's Contract for work already performed on the Project was used to finish construction on
the Project after Addison was terminated, and that furthermore, in order to finish construction
of the Project, it was necessary for the State to deny payment to subcontractors for work already
performed on the Project for which the State failed to pay Addison. Dale also testified that the
money authorized to the State Public Works Department for the Project was insufficient to finish
construction on the Project.2
In an April 27, 2001 email to O'Brien and Ward, Schmidt acknowledged that in the event
the State terminated Addison, Addison's bonding company would likely select its own general
contractor, possibly Addison, in "an effort to minimize costly exposure to themselves. . . . In
such a scenario, the state would need to demand that Addison not be reemployed to complete the
work . . ."3
On May 11, 2001, Schmidt wrote an email to O'Brien and Ward expressing concern that
occupancy of the Project would jeopardize the State's continued accrual of liquidated damages,
as had been previously contemplated. Schmidt wrote, "We could not continue to accrue
liquidated damages as we were previously contemplating." Schmidt suggested that the State re-
evaluate its legal strategy.4
1
2
Deposition of Evan Dale ("Dale Depo.") at 37-39; see also Proposed Arbitration Exhibit 198 at 27 (Bates Stamp
No. SON0027829).
3
4
Proposed Arbitration Exhibit 256 (Bates Stamp No. HCA026088).

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On May 31, 2001, O'Brien stated in an open meeting of SPWB, "We're hoping to get a
certificate of substantial completion, final certificate of occupancy as quick as possible, but there
are still some outstanding issues. If we issue a certificate of substantial completion and there are
still a lot of things that have to be done, we don't want to give up our liquidated damages and
we also don't want to give up retention if there are things out there."1
.
Dave Johnson of Santoro Driggs stated at the same open meeting, "At this point we have
boxed them into a corner and that is what we wanted to have happen before we start pulling them
off the job. That is from the purely legal standpoint we did not want to find ourselves in a 'finger
pointing contest.' In this position we now have a place we box them into a corner. That was
very important to us to have that happen from a practical perspective. To bring on another
contractor, and don't think we didn't talk about that, that was the first thing we thought about. At
this point since they immediately responded to our demands, we needed to give them that
opportunity to fail. Once they do that, if they do it, we are obviously in a good legal position."2
O'Brien then added, "That has been our goal and our job is to ride "herd" on these
people getting into a position where the sides are solidified and then we are in a great position
to restore claims; if they be defects; if they be liquidated damage issues. Wee have then boxed
theminto a corner from a legal standpoint."3
Then, during the same meeting, the following dialogue took place: "Sean Carnahan,
Member: That is what I was getting at. What constructive steps will be taken to get the
building occupied, without waiving any of our rights or recovering damages in problems that
come up, but to get on with delivering the building to the agency and then sorting the cracks and
all of this stuff out later, who is responsible? . . . Brett Kandt, Sr. Deputy Attorney General: To
1
2
3
Proposed Arbitration Exhibit 669 at 4-5 (emphasis added) (Bates Stamp No. SON0054172-73).

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answer your question, one of the ways we avoid that is refusing to issue a certificate of
substantial completion."1
Thus, the State's goal was never to finish the Project, but to set up a
reason to terminate Addison and make claims against Addison to supplement funding on the
Project.
Rightly so, Kirk Williams then acknowledged and stated, "I will say this, under the case
law, if they get a certificate of occupancy to occupy the building, courts are going to look very
closely at our refusal to not issue a notice of substantial completion." Kirk Williams continued,
"But, if a certificate of occupancy for the entire building is issued . . . I think we have
problems with withholding a notice of substantial completion at that point in time. There are
legal issues involved because of the case law that I have looked at, the case law has said that is
evidence that the building is substantially complete.1
Thus, the State recognized that it was not
in its best interest to provide Addison with the designs and information necessary to obtaining
a certificate of occupancy, so that the State could, instead, attempt to collect damages from
Addison to further fund the Project.
On July 19, 2001, in an open meeting of the SPWB, discussions were had regarding the
progress of the Project, including the status of the wall cracking. A motion was made by
Member Paulk to retain Addison on the Project until August "to see if the punch list items could
be cleaned up." Bates Stamp No. SON0054168. At no point was the SPWB ever informed that
HCA had not yet provided Addison with a punch list.
9. Addison's Attempts to Settle Its Differences with the State.
Throughout construction of the Project, VanMeetran had several meetings with Schmidt
in an attempt to resolve the differences between the State and Addison. Sometime in the summer
of 2000, Schmidt and VanMeetran entered into an oral agreement (the "Oral Agreement") over
1
Proposed Arbitration Exhibit 669 at 10-11 (emphasis added) (Bates Stamp No. SON0054178-79).

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lunch in Boulder City. Schmidt and VanMeetran agreed that the time extensions Addison
requested that the State questioned would be "held in abeyance" and then granted at the end of
the project. Schmidt also agreed that the State would pay Addison for their daily costs only for
the days held in abeyance that were granted at the end of construction of the Project.
VanMeetran testified that Schmidt "was worried about potential claims on the project and
granting additional days and that [Addison] would want to be compensated for those additional
days, and so we agreed that the days that were in question would be held in abeyance and that at
the end of the project, he would grant the number of days we actually needed, and we would be
reimbursed for only the cost for those days."2
Change Order 10, dated May 19, 2000, indicated that a five-day extension requested by
Addison was "under consideration" by the State and "will be addressed (either accepted or
rejected) in a future Change Order."3
Change Order 11, dated June 20, 2000, stated "The five (5)
days requested in Item #12 of Change Order #10 and the one (1) day requested in Item #8 above
[in Change Order 11] are still under review."4
Change Order 12, dated July 27, 2000, reflects
the award of days in abeyance agreed to by Schmidt and VanMeetran. Change Order 12
employed for the first time during the Project terminology awarding days "held in abeyance."
Change Order 12 stated, "Acceptance of two (2) of the (five) days requested as full settlement for
Item #12 of Change Order #10. The only remaining time extension requested in items of
previous change orders (# 1-11) is the one (1) day requested for Item #8 of Change Order #11.
This one day request is held in abeyance pending schedule review by SPWB Consultant."5
Change Order 12 went on to state, "A total of fifty-two (52) days this Change Order plus one (1)
1
2
Deposition of Steve VanMeetran ("VanMeetran Depo.") at 10:13-20.
3
4
Proposed Arbitration Exhibit 63.11 at 5 (emphasis added) (Bates Stamp No. ADD00726).
5
Proposed Arbitration Exhibit 63.12 at 1 (emphasis added) (Bates Stamp No. ADD00818).

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day in Change Order #11, Item #8 are being held in abeyance pending review of revised
completion schedule."1
HCA's Project Meeting Minutes for June 21, 2000, indicate, "The overall schedule has
been submitted [by Addison] (including diskettes) to the State for review and comment by Art
Rounds [of Hainline & Associates]."2
In fact, HCA's Project Meeting Minutes for August 2,
2000, show the State acknowledged receipt of the revised schedule where the Project Meeting
Minutes indicate the State represented that "Hainline stated that the revised schedule did not
support a time extension,"3
despite the fact the evidence now shows that Hainline & Associates
never reviewed or performed any analysis of the schedule Addison provided to the State.4
The
August 2, 2000 HCA Project Meeting Minutes also indicate that Addison provided a "[l]arge
scale overall revised schedule" to the State.5
HCA's Project Meeting Minutes for August 30,
2000, reflect that the State "did receive large bar chart revised fragmented [sic] schedules from
Addison last week and distributed to needed parties."6
The October 12, 2000 memorandum that Schmidt wrote to Sias also corroborates
VanMeetran's testimony. In the October 12, 2000 memorandum, Schmidt outlines the
anticipated costs of completing the Project and acknowledged the State, at that point in time,
potentially owed Addison $150,000 for extended direct daily costs to Addison.7
In an email dated March 13, 2001, Chuck Abbott, Services Management Analyst for the
Nevada Office of Veterans Services, acknowledged that the substantial completion date for the
1
Proposed Arbitration Exhibit 63.12 at 7 (emphasis in original) (Bates Stamp No. ADD00824).
2
Proposed Arbitration Exhibit700.37 at 2 (Bates Stamp No. ADD02381).
3
4
Frehner Depo. at 442:13 – 443:2.
5
6
7

AAA_Arbitration_Brief-Addison[1]

AAA_Arbitration_Brief-Addison[1]

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