Future of Environmental Innovation Center Uncertain as Contractor Files for Bankruptcy

Contractors working on San Jose’s $11 million Environmental Innovation Center (EIC) walked off the job last month a half-year behind schedule and $1.6 million over budget. A couple weeks later, the company, Modesto-based Applegate Johnston, Inc., filed for bankruptcy. Now it’s unclear if the project will be completed.

Modesto-based Applegate Johnston, Inc. was awarded a contract for San Jose’s EIC in 2011, despite having previously finished two fire stations several months late.

The company in April 2011 submitted the lowest bid out of nine contractors, which, under the city charter, San Jose had to accept or else put the project out to bid again. Well, sort of. The charter technically says “lowest responsible bidder,” so the city arguably could have passed on the guys with an iffy record.

But a looming June 30, 2011, deadline to apply for $4.5 million in “New Markets Tax Credit” financing forced the city to rush into contract to secure those U.S. Treasury Department tax credits.

Here are some meeting minutes from the May 2011 City Council discussion over the project, in which Councilman Sam Liccardo expressed worry over the company’s “compliance issues.”

The center at 1608 Las Plumas Ave. in San Jose, which was supposed to be completed this December and house Habitat for Humanity, a hazardous waste drop-off station and a lab for renewable energy projects, ran into a slew of problems: change-orders, asbestos and contractor delays. The federal financing turned into a complicated tangle, too, pushing the city to hire outside counsel to figure out how to deal with the situation. The EIC is about three-quarters of the way finished.

The tab kept ticking up after the city found out the contractor needed more insurance than originally expected. Plus, Applegate got the city to agree to waive a $282,000 penalty for finishing a fire station late. The city obliged, figuring it would cost about as much to enforce the penalty anyway.

Community watchdog and 2014 mayoral candidate David Wall submitted some correspondence to the Rules and Open Government Committee a couple weeks ago, slamming the city for screwing up and demanding City Manager Debra Figone host a “public apology workshop.”

“One thing is for sure, I am not responsible for the litany of failures that has caused the Environmental Innovation Center to go belly-up,” Wall writes. “I tried to stop this boondoggle, but, no, my warnings were not heeded. Therefore, who is going to step up to the plate and accept responsibility?”

Applegate’s website is down. Its Facebook page, however, is still up, and the target of a pretty angry subcontractor.

“DON’T WORK WITH THIS COMPANY!!! OR DON’T CONTRACT WITH THEM! THEY JUST WALKED AWAY FROM A JOB IN SAN JOSE WITHOUT SAYING ANYTHING!!!
AND DECLARED BANKRUPTCY
I DO NOT RECOMMEND [sic] THIS COMPANY AT ALL!!!!!!”

Jennifer Wadsworth is the news editor for San Jose Inside and Metro Silicon Valley. Email tips to [email protected]. Follow her on Twitter at @jennwadsworth.

13 Comments

  1. The Fault lies with the entire City Council . Strictly “Low Bid” Has not and does not work. In the last 15 yrs , how many projects have been completed on budget or on time ? My Guess its its NONE. All the Fire stations and PD substation have went over budget and (WAY) past deadline date. I have not seen or heard any info on the libraries , but seriously doubt the results are any different . The sheer incompetence of this Mayor and Council is simply Staggering

  2. Why do you think the mayor and city council went with this company so many times, because they were giving back the biggest envelope at the end. Dirty!

    All should be fired and not allowed to run for mayor!

  3. If only Applegate Johnston was a City Department with public employee managers and public employee union workers. Then they never would have gone bankrupt. They’d just keep limping along providing the same shoddy, overpriced level of service and the taxpayers would simply have to keep subsidizing them. And when San Jose ran out of money, the feds would kick some more money in in the form of grants in order to keep funding those big Applegate Johnston pensions.

  4. Thanks for linking to the Minutes –

    Now lets Fact Check in CONTEXT

    TRUE: “Council Member Liccardo expressed concern about issues of compliance.”

    But now for the context: HE WAS GRANDSTANDING as we see here:

    “Motion: Council Member Liccardo moved approval of the Staff recommendations. Council Member Herrera seconded the motion.”

    “Action: On a call for the question, the motion carried unanimously…”

  5. http://www.mercurynews.com/ci_23937992

    Councilmember Pierluigi Oliverio posted this comment to the above linked article:

    Councilmember Pierluigi Oliverio
    I voted against this project as I thought there was too much risk.
    Reply · 3 · Like
    Follow Post · August 25 at 5:56pm

    I replied that the minutes say otherwise.

    I love the way these mayoral candidates are trying to hide from the record!!!

    • I saw that Luigi had written this comment, and that a couple people responded to him with less than flattering comments. Luigi’s post then disappeared, so he must have erased it after the negative comments were made to his original post.

      • You’ll see a similar response above, but Councilman Oliverio asked me to post this comment on his behalf:

        Hello Josh,

        Hope all is well. If you would be so kind as to post this in response to Meyer Weed and Observation in regards to Environmental Innovation Center.
        Thank you

        5/17/11
        7.1 (9-1-1. Noes: Oliverio. Absent: Nguyen.)
        http://www3.sanjoseca.gov/clerk/Agenda/20110517/20110517min.pdf

        10/25/11
        7.1 (9-1-1. Noes: Oliverio. Absent: Liccardo.)
        http://www3.sanjoseca.gov/clerk/Agenda/20111025/20111025min.pdf

        10/2/12
        2.9 Actions Related to the San José Environmental Innovation Center Project Rebid Project.
        Noes: Oliverio
        http://www3.sanjoseca.gov/clerk/Agenda/20121002/20121002syn.pdf

        4/30/13
        4.4 Actions Related to the San José Environmental Innovation Center Project.
        http://sanjoseca.gov/DocumentCenter/View/16887
        Noes: Oliverio.

        1/10/12
        2.7     Authorize the City Attorney to execute a settlement agreement and release with Applegate Johnston, Inc. waiving the City’s liquidated damage claim on the Fire Station No. 19 project as consideration for Applegate Johnston’s making certain modifications on the Environmental Innovation Center project.  CEQA:  Not a Project; File No. PP10-066(h), Settlement Agreements.  (City Attorney’s Office)

        Documents Filed: Memorandum from City Attorney Richard Doyle, dated December 14, 2011, recommending execution of a settlement agreement and release with Applegate Johnston, Inc.

        Council Member Oliverio pulled Item 2.7 to request further insight from City Attorney Richard Doyle.

        City Attorney Richard Doyle and Director of Public Works David Sykes provided additional information on the City’s liquidated damage claim on Fire Station No. 19.

        Given the updated information, Council Member Chu stated he would not be supporting the recommendation.

        Public Comments: David Wall asked that the Council use the City Charter to investigate the settlement for impropriety and poor judgment.

        Action: Upon motion by Council Member Herrera, seconded by Council Member Liccardo and carried, the City Attorney was authorized to execute a settlement agreement and release with Applegate Johnston, Inc. waiving the City’s liquidated damage claim on the Fire Station No. 19 project as consideration for Applegate Johnston’s making certain modifications on the Environmental Innovation Center project.  (7-4. Noes: Campos, Chu, Kalra, Oliverio.)

        Councilmember Pierluigi Oliverio
        City of San Jose, Council District 6
        200 E. Santa Clara St., 18th Floor
        San Jose, CA 95113
        408 535-4906
        http://www.sanjoseca.gov/district6/

  6. Thank you for posting the Councilmember’s response. None of the “NO” votes cast on any of the issues related to the Environmental Innovation Center (EIC) cancel out the “YES” vote that Councilmember Oliverio cast in favor of awarding the contract to Applegate Johnston – that is the issue here isn’t it?

    (through the magic of cut and paste I have the Councilman’s response in chronological order – makes more sense)

    The fact that Councilman Oliverio voted “NO” on a resolution on 5/17/2011 that authorized the City Manager to establish a Nonprofit corp so as to be able to meet the prereq’s for participation in the New Market Tax Credit Program to obtain outside funding for the EIC is great. It doesn’t change the fact that Councilman Oliverio voted “YES” to award the contract for the EIC to Applegate Johnston two weeks later on May 31, 2011.

    The fact that Councilman Oliverio voted “NO” on 10/25/2011 on a resolution authorizing … “City Manager to execute a Ground Lease, Master Lease, Development Agreement, One-Day Loan Agreement, Investment Fund Leverage Loan Agreement, Put/Call Agreement, Environmental Indemnification in the form proposed, …” whatever all those things are and for what ever reason they were needed to close the New Market Tax Credit Funding for the EIC is tremendous! It doesn’t change the fact that Councilman Oliverio voted”YES”  to award the contract for the EIC to Applegate Johnston 5 months earlier on May 31, 2011.

    The fact that on 10/25/2011 Councilman Oliverio also voted “NO” on part “b” of the resolution to …”(b) Adopt the following 2011-2012 Appropriation Ordinance and Funding Source Resolution amendments in the Integrated Waste Management Fund:  Items 1-9 (amendment to budgets and accounts and other Internal budget accounting financial matters….  Is highly commendable.  However, it doesn’t change the fact that Councilman Oliverio voted “YES” to award the contract for the EIC to Applegate Johnston 5 months earlier on May 31, 2011.

    The fact that Councilman Oliverio voted “NO” on 1/10/2012 in opposition to a resolution that waived a claim the City had against Applegate Johnston in exchange for Applegate Johnson making “modifications” to the EIC project is interesting!  By this time, there were several red flags regarding AJ and their ability to perform. Maybe someone at City Hall even had wind that AJ was in financial trouble. Maybe the best thing to do was amend the “contract” the City had with AJ to get some changes made at AJ’s expense rather than the City’s expense. Again… what ever the reason for the “NO” vote, it doesn’t change the fact that Councilman Oliverio voted “YES” to award the contract for the EIC to Applegate Johnston 7 months earlier on May 31, 2011.

    The fact that Councilman Oliverio voted “NO” on 10/2/2012 on a resolution that authorized the Department of Public Works to execute a $250k work order with a contractor for HazMat…  not sure why he voted “no” was it not the low-bid? Was there no HazMat to cleanup??? No matter…  it doesn’t change the fact that Councilman Oliverio voted “YES” to award the contract for the EIC to Applegate Johnston 14-15 months earlier on May 31, 2011.

    The fact that Councilman Oliverio voted “NO” on 4/30/2013 on a resolution that amended Master Consultant Agreements to increase compensation to two consulting entities (neither of which are named Applegate Johnston) and increasing a construction contingency fund amount certainly may be one of the most courageous and most fiscally responsible votes a politician in San Jose has ever cast!!!! Still, it doesn’t change the fact that Councilman Oliverio voted “YES” to award the contract for the EIC to Applegate Johnston nearly 2 years earlier on May 31, 2011.

    You can’t spin the truth and the truth is that on May 31, 2011, Councilman Oliverio voted “YES” along with every other member of the City Council to Councilman Liccardo’s motion to award the EIC contract to Applegate Johnston.

    (also published on the MWfb page for the heck of it)

    • So what Im getting out of this is , That Councilman Oliverio can not be counted on to tell the truth or even stand up and take responsibility ??

      • This shocks you somehow? He has walked in lock-step with Mayor Reed on virtually every disgusting manipulative lie Reed has told.

        Oliverio has repeated the lie about the extent of the pension shortfall.

        Oliverio has advocated an effective reduction in Fire services couched as an expansion by perpetuating the lie that having three firefighters on a truck would keep more fire stations open. While this is true, he fails to acknowledge that the surrounding cities which do this have far more firefighters per capita than does San Jose and that’s the only reason it works.

        Oliverio advertised Measures V,W and B as means of controlling costs and expanding services. When questioned, he repeatedly failed to explain how these measures would enable the City to compete with other cities – particularly in the public safety professions but also with WPCP staffing. To date, he has failed to acknowledge that Measure B’s passage has, in fact, made the city LESS competitive and not more. He’s also failed to acknowledge that these measures are directly responsible for the mass exodus that has occurred in Public Safety and particularly the Police Department.

        It’s quite a damning resume, and about the only good thing about Oliverio’s tenure is that he has failed enact any of his more radical (read very very bad) ideas and that his tenure will, shortly, be up and he’ll have virtually no chance of achieving political office elsewhere.

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