The City of Kirkland terminated DMSL Construction, Inc. on June 3 after the contractor failed to complete Juanita Beach Park renovations on time. City officials began to see a pattern of project delays and business issues with the company in October of 2010, according to documents obtained by the Kirkland Reporter.

But the $1 million insurance bond for the project is complicating efforts to hire a new contractor and may lead the city to rehire DMSL to finish the park.

The bond insured the city to receive up to $1 million if the original contractor failed to finish the project.

The city is currently negotiating with insurer Pennsylvania-based First Sealord Surety, Inc. to determine whether to hire a new construction company. Kirkland City Manager Kurt Triplett said the city has identified a new contractor for the project, however, if the insurance company doesn’t agree, the city will lose the $1 million.

“The insurance company … has some authority to decide who the contractor is to complete the work. One option they keep bringing out is what if we find a way to ensure DMSL can finish the work,” said Triplett. “We’re certainly willing to look at any option that can get the park done as soon as possible, but only if we felt confident that DMSL could actually complete the job and we’re very skeptical of that. But the reason we’re discussing that is the insurance company keeps pressing the option. Do we abandon our claim with the insurance bond and go out on our own?”

DMSL President Debbie Welch said the company is committed to finishing the Juanita Beach project and is working with the City of Kirkland to resolve any issues that exist.

“If they (the insurance company) want us to keep the option of DMSL alive … We would not agree to that unless we were 110 percent sure that DMSL could complete the project and that would be a pretty high test for them to overcome given their performance to date,” he said.

The pattern of business issues that emerged during Juanita Beach Park renovations not only concerned the city, but also state agencies.

The Washington State Department of Revenue issued an order to the city on May 9 to immediately withhold all wages and other funds concerning a lien against DMSL Construction for a tax debt of $137,432.

Regarding the tax debt, Welch said DMSL is “in the process of getting it removed.”

On June 1, two days before DMSL’s contract was terminated, the city also received a letter from the Washington State Department of Labor and Industries. The letter informed city officials that the department was unable to resolve a dispute between DMSL and 10 employees that it had not paid for work rendered. As a result, the State of Washington filed a lien against DMSL for the wages in the amount of $207,816.

However, Welch said the issue was “filed by a dishonest former employee and is a frivolous claim. The former employee is now being investigated by the Kirkland Police Department.”

KPD spokesperson Sgt. Rob Saloum said detectives have no active investigations concerning DMSL Construction or any of the company’s workers. He said such specific matters would be investigated by the state.

The issues with DMSL during the project also concerned six contract change orders that delayed the completion of portions of the job. Those change orders added up to $146,000, adding $107,000 to the original contract agreement of $1.18 million.

According to the documents, DMSL submitted the first contract change order to the city on June 30, 2010, a little over a month after work began.

But in October the company submitted three contract change orders totaling nearly $90,000 and delayed various jobs in the project more than a month. On one of the change orders, DMSL absorbed the total cost of $39,000, but the change pushed the job back more than a month.

The largest contract change order that the city had to pay for was on Oct. 7 when DMSL requested a change that cost more than $27,000. The change cost DMSL and the city nearly another month.

The final two contract change orders came in December and cost the city more than $39,000 and 84 days of work time for the contractor.

“The weather has played a big factor in the delay of this project,” noted Welch.

Triplett agreed, to an extent.

“It rained for 40 days, so one of things from the city’s perspective that makes it so frustrating is the rain masked the return of their financial problems.”

Michael Cogle, Kirkland Parks interim deputy director, said the amount of change orders the contractor submitted is very common for a project of this magnitude. He added the $2.8 million renovation is the largest project in the city since he has been in his position in 30 years.

“We did identify early on that there are going to be things underground that we don’t know about that we’ll uncover as we start digging,” he said, noting an uncovered septic tank workers discovered and had to remove.

However, he said the number of change orders “is less relevant as to what the changes involved and the cost of the change orders.”In total, the change orders cost 156 days of work for particular jobs within the overall project.

Following the change orders last December, Assistant City Attorney William Evans sent a letter to DMSL on Jan. 20 to notify the company it was in breach of contract. The letter also said the city was considering terminating the contract as it was concerned that the project would not be finished by the completion date of June 1. The city attorney was concerned that Cogle was being ignored in attempts to get the company to comply with a final schedule.

The letter also stated that the city was concerned that some subcontractors were owed money for work completed and that the delinquent payments would slow the progress on the park further, as some of those contractors were still needed for further work.

“The circumstances in January were the contractor was behind schedule and wasn’t showing they were devoting a lot of resources to the project,” said Cogle. “At that point, we had them develop a revised schedule and they assured us that they had the additional financing they needed, that there was a demolition project they were wrapping up in Redmond and they would have additional funds from that project.”

Cogle said the pace of the project began to pick up and the city was “under the full expectation that the contractor had resolved their financial issues fully and were back on track.”

But the company’s financial issues soon resurfaced. The city sent a second letter on April 11 reiterating the same concerns it had in January.

Triplett said at that point the city was focused on getting the park opened by the June 3 annexation celebration. “So we knew the only way to get that to happen is if DMSL stayed on and even up to last three weeks, they were showing us project-wise that they could achieve that,” he said. “What happened was they weren’t executing that.”

The city terminated DMSL on June 3 when it “became clear they hadn’t lived up to their obligations,” said Triplett. “We said third times a charm, we have to move on.”

Cogle said the city could have terminated DMSL sooner, however “we’re still left with an incomplete park and we’d have to go through a several-month process to bring in a new contractor. We did everything we could to work with DMSL and try to avoid that.”

Environmental issues with spawning salmon returning to Juanita Creek in September has also increased the city’s sense of urgency to complete the project.

The city is currently in negotiations with the insurance company and Cogle said the city expects to reach a decision this week on how to proceed.

Editor Carrie Wood contributed to this report.