Detroit demolition contractors owed millions

The state agency reimburses the Land Bank for invoices paid to contractors. About $258 million in federal Hardest Hit Funds have been earmarked for Detroit’s blight demolition program. Of that, about $144 million has been spent, city officials said recently.
“While delays are to be expected, a year is not typical, which is why we are actively working with the DLB to assist them in remedying the problem,” MSHDA said in the statement. “We watch the pipeline of activity and when we have questions or concerns, we communicate with DLB management to determine what is the cause and what we can do to assist, which is what we have done in this current situation. We have been aware of the concern for many months.” Land Bank officials said the delay is for a variety of reasons, including incorrect invoices submitted by the contractors, an arduous process that involves a voluminous amount of paperwork and requirements that hazardous waste abatement be verified on the properties demolished before payment. “I think to say that we should be measured on the time it takes us to pay on an invoice when they are not submitting accurate information and we are prohibited from being reimbursed on that property is extremely disingenuous,” Land Bank Executive Director Saskia Thompson said. “… I am sympathetic to the fact this is a very complex process. These are businesspeople, they need to get paid and we will do everything in our power to pay them quickly, but I am not going to pay them when the information is wrong.” The issue surfaced publicly in a Detroit City Council committee meeting in late February, when council members and Ombudsman Bruce Simpson questioned Land Bank officials about the reported payment issues, after being notified by contractors. The ombudsman is an independent government official appointed by the council to investigate complaints against city government departments and agencies.

“At some point, it can’t all be on the contractors,” Simpson said to Land Bank officials during the Feb. 22 meeting. “I think a lot of these contractors … have done millions of dollars in work and have been paid for that work with invoices that they have submitted that have been approved. So the notion that, all of a sudden, they can’t fill out the proper paperwork just doesn’t make much sense to me.” The $8.7 million, which is tied to 2,180 properties torn down within the past year, is owed to 10 contractors, according to documents reviewed by the Free Press. The contractors are each waiting for varying sums of money, with the largest amount — $1.7 million — being owed to DMC Consultants, as of Feb. 4, which is the most recent breakdown of data available from the city. It’s likely the amount owed has changed, Land Bank officials said, because checks are continuously being pushed out.

Other outstanding balances as of Feb. 4:

Able Demolition: $1.3 million
Adamo Group, Inc. : $1 million
Blue Star: $229,500
Direct Construction Services, LLC.: $256,966
Esso Wrecking Co.: $24,400 (as of March 15)
Gayanga Co.: $407,790
Homrich: $792,577
Rickman Enterprise Group: $1.6 million
Salenbien Trucking & Excavating Inc.: $1.2 million

Since that date, Land Bank officials said they have disbursed at least $5.7 million in payments but admitted that amount includes invoices for other vendors and environmental contractors, in addition to the 10 demolition contractors. The $5.7-million figure also includes invoices that were submitted after Feb. 4, officials confirmed, so it’s unclear how much of the outstanding money has actually been paid. “Because new invoices come in all the time, we cannot identify which invoices in the $8.7 million were paid out as a part of the $5.6 million that we have issued checks for over the last four weeks,” Interim Demolition Director Tammy Daniels said in response to an email seeking clarification on who received the money. Until last October, the Land Bank would, at times, pay contractors prior to receiving approval from MSHDA, which created reimbursement issues, Daniels said. Now, the agency requires contractors to reach a certain threshold of approval before paying on the invoices. Daniels said contractors have submitted invoices with a range of issues, including improper photos of the demolition site and incomplete documentation. Employees of Adamo Demolition work on the final grading of a lot next to an abandoned house after another house was demolished on Elmdale Street in Detroit in December 2014. (Photo: Ryan Garza, Detroit Free Press)

Several contractors contacted by the Free Press did not return calls or declined to comment on the record, but Christian Hauser, a Troy attorney who represents or consults with demolition contractors who have done work for the city, confirmed via e-mail late last month that one of his clients, Esso Wrecking Co., was awaiting $98,950, stemming from a lawsuit that was filed and settled last year in regard to nonpayment.
Hauser on Thursday said his client had received a $74,550 payment on Feb. 23, knocking the balance down to $24,400. Hauser said last month he believes the Land Bank is trying to work with contractors to resolve the issue and has been very responsive but, “until the invoicing process becomes more consistent and uniform, my worry is that the delays in payment for the work performed will continue.” “I have represented several demolition contractors over the past 18 months in their efforts to collect money for work performed on various DLBA contracts,” Hauser said Thursday. “In some instances we were able to resolve the issue of nonpayment informally. However, there were two situations where we filed lawsuits in the Wayne County Circuit Court to compel payment from the DLBA.”

Some contractors have also disputed the length of time the invoices have actually been outstanding and have expressed frustration about how the clock essentially starts over every time a revised invoice is submitted. Daniels said it takes the Land Bank 58 days on average to process payments through its Salesforce software system and that more than $14 million has been paid out to demolition contractors since July 1 of last year.
In a presentation to the City Council on Feb. 22, Daniels and Thompson said that 30% of the invoices have been outstanding for less than 30 days and 22% for 60 days or less. One percent of the invoices have been outstanding for more than a year. The longest outstanding invoice, according to the Land Bank, was for Able Demolition, which was owed $13,623.89. The invoice covered one property, Daniels said, and has been outstanding since March 2, 2017. “This invoice remains unpaid because the incorrect structure was demolished,” Daniels said via e-mail. “We are working to try and resolve this issue.” Salesforce records obtained and reviewed by the Free Press show some of the outstanding invoices were initially submitted last year, not within the past 30 days, as the Land Bank said before council. Daniels acknowledged the Land Bank calculates the outstanding days based off when those initial invoices were resubmitted, but doesn’t believe it’s misleading.

“I have to track from what is most recent in my system,” Daniels said, adding the Land Bank has more than 2,000 properties currently in its system. “This could be the fourth time they’ve resubmitted an invoice and the other three have been rejected out of the system. So now, I’m dealing with this particular invoice in front of me and that invoice has been in my hands for 30 days or less” She said the delayed payments, “are driven primarily by inaccurate information, but it’s also a function of the (size of the) program. It’s a huge program with a lot of properties. Things are going to take time. And let’s be clear, we are in constant communication with them so it is not as if those properties are sitting out there and they don’t know. … They’re not in the dark.” Regardless of the cause of the delay, Councilman Scott Benson said in the committee meeting last month he believes 58 days is a long time for a small contractor, or any contractor, to await payment. “I can understand the frustration,” Benson said. “To have to wait 58 days after you’ve done the work puts a tremendous strain. We have to be reaching out to people and providing assistance. We cannot be the reason people aren’t eating … (We have to make sure) they’re getting their money in a timely fashion.”

MSHDA said a backlog typically occurs when large volumes of invoices are submitted and the demolition process can take months to complete. MSHDA said it only has 15 invoices in its queue for processing. “Streamlining this process requires effort on the part of the demolition contractors and DLB,” MSHDA said. “The delay could be caused by many factors, such as the contractors not submitting invoices in a timely manner, DLB not submitting invoices to us for review, incomplete or inaccurate documentation that causes it to be pushed back to the contractor to complete and resubmit. MHA (the Michigan Homeowner Assistance Nonprofit Housing Corporation) does not have a backlog of files waiting for review.” MHA is the entity created by MSHDA to administer funds from the U.S. Department of the Treasury under its Hardest Hit Funds program. Duggan made waves shortly after he was elected in 2013 by embarking on an effort to tear down 40,000 blighted buildings in neighborhoods. City officials said nearly 14,000 homes have been demolished so far.

But the city’s demolition program has been mired by a federal investigation that has centered on rising demolition costs. No one has been charged in connection with the investigation. “We still have two staff members embedded into the Detroit offices a minimum of three days a week, one at DLB and one at DBA (Detroit Building Authority,)” MSHDA said. “They have been aware of the backlog and are working with DLB staff to assist them in remedying this problem.” Some delays are attributable to a protracted verification process pertaining to abatement work done on the demolition site. For instance, demolition contractors can’t be paid, regardless of whether their paperwork was submitted correctly, until a contractor retained by the Land Bank, verifies that the abatement of all hazardous materials has been done properly. Contractors have told some city officials that delay has also impacted payment “We can’t pay until we get verification that it was done right because we won’t get reimbursed,” Daniels said. “They’re right, they don’t hire that contractor but that contractor has been retained to verify that their work was done properly so to the extent, if there is a question of whether the work was done properly, yes, their payments are held up and they don’t have any control over that. But our team is constantly on the phone, communicating with these contractors to clear up any discrepancies.”

Detroit City Councilman Roy McCalister said Wednesday he’s looking into the contractors’ concerns after he was contacted by several of them who have questioned how the Land Bank processes payments. “It’s something that I’m looking into because if they’re not being paid, then they can’t pay their workers and it causes them to go out of business,” McCalister said. “It’s kind of at an early stage right now but it’s something that has caught my attention because enough minority contractors have contacted me and there are even some nonminority contractors that I have even found out about.” Thompson said since being the executive director last summer, the Land Bank has been transparent in its effort to improve internal processes. Thompson said she agrees contractors need to be paid and that it’s in the best interest of the Land Bank to disburse the funds before they expire but the authority and contractors must continue to work together. “To the extent, does the Land Bank need to change? I’d say we have and we will continue to for every process that we find there’s a better way to do it,” Thompson told the Free Press. “We want these folks to be paid, too. We have a limited amount of time that we can run this program. We want to spend every penny of it ,but we need the contractors’ participation, we need to work with them to get that money spent.” Thompson said she’s cognizant of worries raised regarding contractors potentially dropping out of the program. “We can’t manage the program without the demo contractors,” Thompson said. “We are concerned that people are dropping out of this process because it’s so cumbersome and that’s exactly why we want to work with them because I think we all benefit by (having) diversity (among) the contractor pool, people who can pick up the amount of work that we’re going to push out into the demo queue. We need the contractors at the table to do that.”
Detroit (MI) Free Press