It is a sign of how little confidence some lenders have in smaller contractors. A bank recently forced a medium-sized general contractor to terminate its work on a new building at Western Kentucky University’s Bowling Green campus even though the project was 95% complete and proceeding on schedule. Planter’s Bank of Hopkinsville, Ky., used a $419,000 deposit by Star Construction to pay off most of that contractor’s $500,000 revolving line of credit.

Bank officials could not be reached for comment, but Star’s financial statement showed a loss. The bank "obviously felt its loan was in jeopardy," says Tracey Durham, the contractor’s bookkeeper, who adds that Star has been trying to convince the bank to release funds so it can pay subcontractors.

YANKED? Contractor on almost-completed building was replaced. (Photo courtesy of Sheryl Hagan-Booth/WKU)

Madisonville, Ky.-based Star had a $14.6-million contract for a media and technology center at the university that included a number of change orders. Formed in 1984, the contractor now employs 16 people and had $10 million in revenue last year. It has built jails, post offices and hospitals.

Acuity, a Sheboygan, Wis., surety bond firm on some Star projects, gives the contractor a vote of confidence. Greg Olsen, Acuity director of surety claims, says Star has a good reputation and has not experienced problems on any jobs for which the surety firm provided bonds. "The work on this particular project has been done extremely well," he says.

Rising bank foreclosures against contractors are a symptom of the tighter economy, Olsen notes. "Unfortunately, this is becoming a more common occurrence in these days. In the go-go 90s, this didn’t happen because the next project was always there," he says.

Although Star lost the project and is now suffering financially, the company’s owners are continuing to search for work and are bidding "to keep the doors open," says Durham. "This is the hardest thing. We’ve never defaulted on a note. We’re going to make it through this. It’s in the Lord’s hands now."

Acuity has hired Merit Construction, a larger contractor based in Knoxville, Tenn., to finish the state-financed job. A punch-list of finish work will be completed by late July.

A state official involved in the project says delays have been minimal.