Firms that did Navy work may lose $1 million Bonding agent failed to pass on money

December 20, 1991|By Ted Shelsby

About 20 small local contractors involved in the renovation of a Navy Reserve training center at Fort McHenry stand to lose up to a $1 million among them because a Florida bonding agent failed to live up to his obligation to guarantee a government contract.

The complicated business transaction threatens the on-going survival of several area construction companies. It stems from a $4.3 million Navy contract let in 1988 to upgrade a 53,000-square-foot building adjacent to the national historic site for use to train reservists in shipboard operations.

The Navy awarded the original contract through the Small Business Administration to Sheppard's Interior Construction Co. Inc., a local, minority-owned company. To guarantee that the project would be finished, Sheppard's provided, and the Navy accepted, as surety a payment bond from Jack Berman of Bay Harbor Island, Fla.

According to interviews with nearly a dozen people, including contractors, the Navy, a lawyer and Representative Helen Delich Bentley, R-Md.-2nd, the problem began when Sheppard's failed to make payments to its subcontractors and eventually filed for bankruptcy.

Last April, the Navy turned the renovation contract over to Berman through a takeover agreement. Berman, in turn, contacted Dave Gemmell Inc., an Arbutus construction company, to serve as the general contractor.

Things worked well for a few weeks, David Gemmell, president of Gemmell, said yesterday. The Navy was sending payments to Berman, and he was passing the money on to the Baltimore County company. But then checks stopped showing up.

Mr. Gemmell said his company continued to work on the renovation under the assumption that payments would be resumed. "We were working for the U.S. government and there was a bonding company," he said yesterday. "We thought we were in pretty good hands."

Today, Gemmell is out about $412,000, a sum that places the 40-year-old company in danger of going out of business, Mr. Gemmell says. His concern is that the subcontractors he owes will sue for their money -- money he says he never received from the Navy.

Frederick Reed, president of Reed & Reed Inc., a mechanical contracting company in Elkridge, claims his company lost about $250,000, a setback that forced the company to borrow money to meet its payroll.

Vincent Rossi is president of American Asphalt Paving Co. Inc. in Edgemere, which is still owed $30,500 for paving the center's parking lot. He said the loss has been "devastating" to the company. "It may not put us out of business, but it has us in a position of having to rob Peter to pay Paul," he said.

"I'd like to go down there and strangle this guy," Mr. Rossi said of Berman. "He has cheated a lot of people out of a lot of money."

A common complaint among the companies involved in the contract is that the Navy should have checked Jack Berman before accepting him as a bonding agent.

"If I were one of these outfits," Mrs. Bentley said of the local contractors, "I would sue the Navy. They are supposed to review the bonds or check these people out, and apparently they didn't. He's a fraud."

After meeting with Navy officials last week to discuss the Fort McHenry contract, Mrs. Bentley concluded that there was nothing she could do to help the contractors recover their losses. The Navy's position, she said, is that they have already paid for the work.

She said the Navy plans to seek bids for a new contract to complete the renovation.

"This is no help to us," Mr. Gemmell said. "We've lost so much money and we're now in such bad financial shape that we could never be awarded the contract."

According to the U.S. attorney's office in Dade County, Fla., Berman, 71, was sentenced to a six-month prison term last week after he was found guilty of bribing a bank officer.

Repeated phones calls to Berman's home went unanswered.

In his affidavit of individual surety filed with the government, Berman listed assets of $11.5 million, including a medical building, a shopping center and land.

None of this is true, according to Michael T. Wyatt, a lawyer with William F. C. Marlow Jr. in Towson, which is representing Gemmell Inc. "We hired a private investigator to look into him, and we found out that he was not who he said he was. He doesn't own any of these properties."

Mr. Wyatt said he is preparing a lawsuit charging the Navy with "simple negligence."

A spokesman for the Navy declined to comment.

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