In response to a barrage of subcontractors complaints over delayed payments, the Virgin Islands Housing and Finance Authority, which oversees Emergency Home Repairs V.I., is rolling out tighter regulations for future contracts, but existing subcontractors are still bearing the brunt of cash flow problems in the massive disaster-recovery project.
“One of my top priorities is getting all our contractors, especially our local businesses, paid for all their approved invoices. I’m also taking steps to make sure contractors who are part of VIHFA programs pay their workers in a timely manner,” said VIHFA Executive Director Daryl Griffith.
Griffith recently sent out notice of new directives within the agency that aims to make prime contractors’ payments to subcontractors more transparent for all new reconstruction and rehabilitation projects.
The announcement came after a stream of complaints from multiple subcontractors working on hurricane recovery projects, particularly the Federal Emergency Management Agency-funded STEP, or Sheltering and Temporary Essential Power program.
With more than $200 million in FEMA funds funneled through the Virgin Islands Territorial Emergency Management Agency, VIHFA hired two prime contractors, AECOM and APTIM, which in turn engaged subcontractors that hired more subcontractors under them.
AECOM and APTIM defending the multi-tiered contracting method in Senate hearings, telling lawmakers their own companies also spent millions of dollars in out-of-pocket expenses. The two prime contractors also blamed the cash flow problems to the slow disbursement of funds from FEMA, which requires multiple levels of reviews and inspections before releasing obligated funding. And because the Virgin Islands lacks the upfront cash on hand to pay its contractors, it relies heavily on the painstaking reimbursement process.
“The labyrinthine invoice approval process, coupled with the many layers of subcontractors under the primes, has gridlocked the payment pipeline,” Griffith explained.
The drawn-out reimbursement process means it could take months to draw down funds to pay home repair work that has already been completed. The situation resulted in long chains of recovery subcontractors alleging months worth of delayed payments – or no payment at all – and a system ripe for abuse, lax agreements between contracting companies and their workers, and the absence of regulations.
Griffith’s response is a push for transparency in the payment process for future contracting work under VIHFA, as well as a reduction of the many layers of contractors in the future, according to
the agency. For all future contracting work, prime contractors directly perform half of the scope-of-work and any second level subcontractor must also perform the same amount of work directly.
VIHFA will also prohibit more than two levels of subcontractors, deviating from the current system that allowed AECOM to have 89 subcontractors working under it, including its six primary subcontractors.
Griffith also said Witt O’Brien’s, the government’s consulting and advisory firm managing the territory’s hurricane reconstruction projects, will review the business licenses of all subcontractors hired by the prime contractors.
Griffith’s directives, however, are forward-looking, which means existing recovery subcontractors may not fall under its protections. Ann Maria Ferrao, chief executive officer and president of Florida-based Scionti Construction Group, LLC, alleges that her company has yet to receive more than $800,000 in payments for hurricane recovery work done in the territory.
Scionti Group is directly under subcontractor Patriot Response Group, which is directly under APTIM.
“We have completed all houses correctly, efficiently and within all guidelines,” Ferrao stated in an email, adding that her company’s work also passed inspections.
To date, however, Ferrao wrote that Patriot has not paid her company $693,259.84 for work done for houses, $81,563.62 in retainage fees, and $27,547 for interior protection. The total amount stands at $802,370.46.
As proof, Ferrao forwarded an email dated April 1, allegedly from James Foster, executive vice president at Patriot Response, stating that Patriot’s client, APTIM Environmental & Infrastructure, is attempting to lower rates in their contract “to be retroactive to the beginning of the project.” In the forwarded email, Foster wrote that Patriot informed APTIM it was not agreeing to any rate change, urging the enforcement of the contract as written.
While the dispute is between Patriot Response and APTIM, Scionti Group appears to be caught in the middle. Foster’s email to Ferrao reminded her that Scionti’s agreement says “Patriot is only obligated to pay subcontractor for work for which it receives payment from prime contractor.” It also essentially states that if the prime contractor does not pay Patriot, or pays it at a reduced rate, that will “result in an equivalent deduction in subcontractor’s final payment and/or any retainage due.”
Foster wrote, “At this time, APTIM is not paying Patriot’s invoices and therefore, while this issue is getting resolved, all advance payments on subcontractor work are hereby suspended.”