Home > Manufacturing, News > Beef plant trial will lay bare the inner workings of complete institutional failure

Beef plant trial will lay bare the inner workings of complete institutional failure

Trial set to begin on Dec. 5

Another layer of the beef plant collapse will be peeled back starting Dec. 5 in Hinds County Circuit Court.

The state of Mississippi, its now-defunct Land, Water and Timber Board and the Mississippi Development Authority are suing Facility Construction Management Inc. in effort to recoup some or all of the $54 million the state lost when the cull cattle plant in Oakland closed shortly after it opened in 2004.

Construction of the beef plant started in summer 2002, with Mississippi Beef Processors and its president Richard Hall in charge of the project. Community Bank loaned MBP $21 million, plus a $6.5 million line of credit for operating costs, to build the facility. The state guaranteed the loan through the Mississippi Development Authority.

In December 2002, Hall told the state, before the bank had issued the first loan advance, that the available funds would not cover the cost of construction. Unwilling to bear the risk of the increased cost, Community Bank suspended construction funding, and the state and the bank hired Georgia-based Facility Construction Management Inc. (FCMI) to evaluate the project’s design and its financing structure.

FCMI said then that the construction and budgeting process was deeply flawed and offered to oversee the project build-out for a total compensation package of $2.59 million. The state and the bank accepted that proposal, and contracts were signed in early 2003. This agreement increased the loan amount the state had guaranteed from $21 million to $35 million, according to the complaint.

“It was obvious that Facility Group had wanted to get involved in this project,” said Dorsey Carson, attorney for the plaintiffs. “Facility Group was chosen because they came in and put on a dog-and-pony show and showed how much experience they had in this area. But instead of doing what a design professional should do, they just took over every portion of the project, including renegotiating the contracts. They were the state’s insurance policy. Everybody wanted to make sure this thing succeeded.”

In a project management agreement submitted in July, 2003, the complaint says, FCMI’s total fees rose nearly $4 million, to $6.57 million. The complaint says that figure was the “guaranteed maximum price” FCMI would charge to build and deliver a fully operational beef plant, and that the company would cover any cost over-runs. The guaranteed maximum price to build the plant in its entirety under that agreement was $43 million.

The complaint alleges that FCMI failed to cover the eventual cost overages, did not pay $1.7 million to subcontractors, and pushed the project toward completion even though it knew it was flawed — the complaint accuses the company of hiding an internal memo that pegged the plant as a “money pit” — in order to enrich the company at the expense of Mississippi taxpayers. The complaint also accuses FCMI’s executives of using fraudulent billing practices to receive compensation for work that was never done, money the complaint says was partly used to defray improper contributions to the campaigns of Mississippi politicians.

“Internally they had their own questions about the viability of the plant,” Carson said. “I consider that memo to be a smoking gun. That memo went to the No. 2 guy in the company. It may not have killed the project, but it certainly would have made everybody take a hard, hard second look at it.”

The state is seeking a declaration that FCMI, its subsidiaries, and executives Robert Moultrie, Nixon Cawood and Charles Morehead were in breach of their contract with the state; an order that they pay any outstanding debts to contractors and subcontractors; and punitive damages resulting of the failure of the project. Cawood and Moultrie eventually pleaded guilty to making an illegal contribution to then-Gov. Ronnie Musgrove, and Morehead pleaded guilty to withholding information in a federal investigation of the plant. All have been released from federal prison. Hall pleaded guilty to mail fraud and money laundering. His original sentence of 96 months was reduced to 64 months because of his cooperation with investigators. Hall is scheduled for release in May 2012, according to the federal Bureau of Prisons website.

Attorney General Jim Hood’s spokesperson Jan Schaefer said Hood’s request for federal grand jury records from the investigation of Moultrie, Cawood, Morehead and Hall had not yet been turned over to Hood’s office. Hood requested the records in October, with plans to use them for trial preparation.

The complaint says total loss to the state is in excess of $54 million, not including loss of revenue from the beef plant’s operation.

“They turned it over (when it opened) and they walked away from it,” Carson said, referring to the plant’s short operating time before closure.

“Facility Group, to cover themselves, puts out press releases blaming Richard Hall for everything. Richard Hall became the scapegoat for all this. He did commit fraud, but he committed small-time fraud. These guys are big-time crooks.

“(The agreement) essentially was one where they were acting as the owner and they were acting as the construction manager and the designer, and they had the checkbook. You couldn’t have a situation where the fox was guarding the henhouse any better than the way they set it up.”

Carson said he expects FCMI and its attorneys at Ridgeland-based Butler Snow to use a similar defense once the trial gets underway. Judge Winston Kidd will preside when jury selection starts Dec. 5.

“They’re going to blame it on Richard Hall, they’re going to blame it on the Legislature,” Carson said. Carson added that FCMI’s witness list could potentially include a who’s who of state political and economic development officials, if the presiding judge allows it.

“I’m sure they’re going to try to turn it into a political circus. This thing didn’t fail because there was no product. It failed because of design and construction errors. Everything else has complicated it, but at its core, this is a design and construction negligence case.”

Attorneys for FCMI declined comment.

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