Collapse of Contractor Lakeshore TolTest Corp. Leaves a Messy Trail
The city of Detroit next month has to rebid two multiyear water and wastewater inspection and repair contracts, worth a total of $60 million, after Lakeshore TolTest Corp. filed for Chapter 7 bankruptcy liquidation days after receiving the work on April 23.
The contracting mishap is just one result of the puzzling collapse of the firm, which had been grown through acquisition into a half-billion-dollar-plus global contracting enterprise, including federal contracts in Afghanistan.
Lakeshore TolTest was ranked at No. 110 on ENR's list of the Top 400 Contractors in 2013, reporting $537.5 million in 2012 revenue.
The Detroit rebidding, set to start in early August, comes after another contender for the three-year contracts, locally based Inland Waters Pollution Controls Inc., protested the city's award to runner-up bidder Lanzo Cos. Inc., Roseville, Mich., after Lakeshore TolTest's bankruptcy.
Inland claimed the move was “flawed” and “unfair.” City officials scaled back Lanzo’s award to $900,000 as a stopgap measure but now will rebid the contracts in full.
“Lakeshore ToltTest was unable to perform the work,” Bill Johnson, a spokesman for Detroit’s Water and Sewerage Dept., told ENR. “We had awarded it to the next-lowest bidder, but it hasn’t gone as smoothly as anticipated.”
Other Lakeshore TolTest clients soon could face similar dilemmas.
The firm's demise has left behind $50 million to $100 million in liabilities and nearly 10,000 creditors—ranging from subcontractors, lenders, and suppliers to trade groups, engineers and union-pension trust funds—according to bankruptcy documents.
The firm was formed in 2010, when Detroit-based Lakeshore Engineering Services Inc. acquired 79-year-old Maumee, Ohio-based specialty contractor TolTest Inc. to form Lakeshore TolTest, a company with 40 offices in more than 12 countries.
The company earlier this year relocated its longtime Detroit headquarters to Chicago. Lakeshore TolTest no longer has an active website and calls to its office went answered.
Lakeshore TolTest reportedly fired 79 overseas employees and 135 subcontractors by email, days before filing for bankruptcy on May 2 in Delaware, where its parent company is incorporated.
Workers were left to find their own transportation home, using petty cash and credit cards to catch flights from Kabul airfield to Dubai, say former company consultants.
Staff reportedly hadn't been paid for a month or longer, in some cases, but was still instructed to package and return Lakeshore TolTest equipment, such as mobile phones, laptops and tablets, according to a termination letter obtained by ENR.
Shareholder oppression, unjust enrichment and breaches of contract, fiduciary duty, good faith and fair dealing could explain the company’s implosion, says former Lakeshore TolTest CEO Avinash Rachmale in court documents.
Rachmale now is now suing current company executives and board members for “wrongful actions and illegality” as well as “financial frauds and mismanagement.”
Rachmale's civil lawsuit, filed in Wayne County, Mich., Circuit Court on April 25, names Lakeshore TolTest CEO Grant McCullagh, CFO and Treasurer Jeff Miller, and private equity firms Gridiron Capital LLC and Starboard Capital Partners LLC as defendants, among others.
Rachmale, who still owns 27% of the company, has not been in a management position or had day-to-day control over operations since July 2012 and resigned from its board of directors on April 2, court papers say.
The lawsuit, seeking $100 million in damages, is the latest in a series of stinging setbacks for Lakeshore TolTest, which last year defaulted on at least three military contracts in Afghanistan worth $125 million while facing vendor complaints of non-payment.
The U.S. Justice Dept. currently is “exploring various wrongdoings” by the company, according to legal papers.
In December 2011, Lakeshore TolTest was suspended from contracting with the Detroit wastewater agency due to its involvement in an alleged corruption and kickback scheme that landed former city Mayor Kwame Kilpatrick in federal prison.
Rachmale was a prosecution witness in that federal court case.
Lakeshore TolTest agreed to withdraw from bidding on department projects for one year. It eventually reached a 2013 settlement that entailed relinquishing a 25-acre company-owned property adjacent to a city wastewater treatment plant.
