PSJA ISD votes to break contract
By G. Romero Wendorf
How the story of Michael D. Smith and his company Texas Descon L.P. is going to play out is anyone’s guess. But the way it’s currently headed certainly raises concern among both the people for whom he’s currently doing work as well as the sub-contractors who count on him for their own existence.
For approximately 30 to 40 years, Descon was one of the Valley’s construction stalwarts, started by “Doug” Smith’s dad, Mickey Smith and his partner, Wayne Medlin.
According to one general contractor (GC) who asked not to be named in this story, Descon was at least in the top fiveGC’s working Valley construction for all those years. Smith and Medlin, according to several sources who knew them, were old-school. Their handshake was as good as their word; their word was their bond; and they paid people on time; and they paid the subs (sub-contractors) what they promised they’d pay.
Then in January 2005, they sold the company to Mickey Smith’s son, Doug Smith, who soon became known in south Texas as a mover and a shaker. A high-flying guy with red hair and a beard who liked to fly his subs on private jets to Vegas, all expenses paid, spread money around sponsoring events – San Antonio Spurs – foundations, and last but certainly not least, rubbing shoulders with local politicos, taking them on trips to watch the Dallas Cowboys play ball.
For awhile, he was like a miracle man. One source, who also asked that he not be named for this story, said that Smith did a pretty good job weathering the Great Recession of 2007, and then all of a sudden, starting around early 2013, he turned into a whirlwind, turning approximately $60 million worth of construction business into approximately $150 million. Almost overnight.
The reason, of course, is that he was out-bidding the competition.
“At one point,” said another construction source, “we simply quit bidding the jobs that we knew Descon was bidding on because we knew there was no way we were going to compete.”
And by competing, according to this construction source, Descon was coming in lower than the competition by approximately 5 percent, sometimes more. Sometimes a little less. But no one could compete.
He also grew his business out of the RGV, opening a satellite officein San Antonio, where Smith has currently got at least three schools under construction for IDEA Public Schools.
Last week, the PSJA ISD board of trustees voted to approve a termination of contract with Texas Descon L.P. for contractor services on Palmer Elementary; Alamo Middle additions and renovations; San Juan Middle School replacement; and Ramirez Elementary additions and renovations.
The board also voted and approved to submit a request to the bond companies insuring Descon’s work, asking them to step in to complete the work. Those companies include Fidelity & Deposit Company of Maryland; and Colonial American Casualty and Surety Company.
According to several sources, his San Antonio officehas few staff. And last week, his McAllen officeon 10th street showed little activity, other than some construction guys sitting outside in pickup trucks, not looking too happy.
A request for Smith to call for comment for this story has gone unanswered.
Young, still in his early 40s, rumors about the reasons for Smith’s turn of fortune, shall we say, are flying hot and heavy around the world of Valley general contractors and the sub-contractors who are now worried about how the bond companies are going to pay them if indeed they take over the work Descon currently has under contract.
Reportedly, at least four bonding companies have already taken over the financial aspects of Descon’s business and now occupy his McAllen office.
In San Antonio, Descon was, and still is, working on two IDEA schools – IDEA MLK and IDEA Carver – but to get paid, the subs have to get their money from the bonding companies. Descon reportedly already had a contract in hand to build two more IDEA schools, but the charter school has allegedly severed ties amid the current turmoil that’s now being made public.
“And there are four bonding companies,” said one sub, who also asked to speak only on condition of anonymity. “So it’s a real cluster (expletive) if you know what I mean. Why would you have four bonding companies? What’s wrong with just one?”
We’d ask Smith, but he hasn’t yet called for an update.
The Advance News Journal spoke this week with PSJA ISD’s Construction Project Manager James Rodriguez to try and get a handle on what’s going on with the latest news about the school projects, and how concerned should the subs be.
With the regard to some of these construction jobs, from which Descon has been pulled recently, and in some of the previous construction jobs, some of the subs were claiming that they were having a hard time getting a hold of the bonding company. Have any of them called you asking them, ‘Hey, how do I get a hold of the bonding company?’
Rodriguez: “Actually yeah. They've been calling me for the last year since we've been having issues. There's a certain procedure that we go through, typically, if they want any information from the district as far as these construction projects go as to who to contact when they're having issues. They go through our Public Information Office, then they send my department and support service a request, and we send them whatever information they need. Within that information that we send out, it has all the contact information for the bonding company.
“In addition to that, Descon has hired a fund manager, and they asked that if I get any more claims, to either give them that number, that person's number, or have them continue calling the bonding company.
“Just to be clear, we have not released Descon from their projects, yet (as of Monday, Aug. 3). We've given them a notice to cure their projects, which just means to bring them up to speed where they're supposed to. They're more than likely not going to be able to do that, but legally we had to do that. If they don't, then this coming week would be the deadline. Then, that's when the bonding company would take over.”
Have you got any calls in the past about jobs that had been finishedby Descon, and yet some of the subs have not been paid?
Rodriguez: “Not for our district, but I did get calls from other school districts that they've called me on that. Since I don't have contracts with any of the subs, I basically told them the same information that we do for our projects, which is to get a hold of the bonding company.
“If they can't get a hold of the bonding company, usually the school district that they would be working for has contact information (about) the bonding company.
“I know some of the contractors that have contacted me in which we've had them contact this fund manager, and they have been taking care of them as far as claims and so forth. At least the people that have called me so far. This just started in the last two months, maybe, month and a half since this gentleman was in association with our projects now.”
When did problems with Descon first surface?
Rodriguez: “We started noticing back in, maybe ... I guess when I noticed, as far as people calling me, but we get claims all the time. I don't know if you know how construction works, but contractors always pay 30 days because that's how the billing is when they submit to the district. It's always 30 days behind. It’s just the way all school districts work.
“Back in the fall of last year is when we started getting a lot more of those (calls). The bonding company said, ‘Just keep track of them, and when you get the third notice, that's when it becomes an actual, official notice to them where they have to start doing something.
“At the 30-day notice, we would contact them and say, ‘We got this.’ They would either tell us, ‘We took care of them already,’ or ‘They're in process of getting paid.’ Now, if sub-contractors didn't submit a claim, then sometimes these bonding companies will not honor their claim because they took too long to submit. They're supposed to do it within those 60 days or 90 days. There's been a case where there was one where he waited almost eight months, and then they declined his claim so he had to get an attorney to work with the surety company.”
You do try to respond quickly, right? I started thinking about this, but the sad part about it is that these subs are blue-collar, hard-working guys, and when it comes to navigating all the bureaucracy, so to speak, I don't think it's always easy for them, you know?
Rodriguez: “Yes. Whoever called me in the past, I have explained that to them if they needed assistance, we’ll help them. We've always offered that to them if they call us. We have them come in and tell them what the process is and so forth. We've never just said, ‘You need to call (the district’s public information office) to get that.
“We have always tried to assist them as best as we could, and so I'm hoping that these subs know how to go through the process. I don't think we've ever denied anybody (help).
“A lot of them work in our community. They're from our community, so we do not want to do that to (go out of business). They're people that we have to respond to, yes, sir.”
For any sub-contractors seeking more information about the bonding companies overseeing Descon’s work, call the PSJA ISD public information officeat 956-354-2027 and ask for Arianna Vasquez-Hernandez. Or you can visit the website at www.psjaisd.us. Look for the link to the public information office. Or you may call James Rodriguez at 956-354-2075.
Descon is also doing work for the city of San Juan. More on that next week.