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Crane vs. Wal-Mart: construction firm, subcontractors mired in standoff over millions in payments.

ON REX CRANE'S DESK is a small plaque from a company that has been one of his best clients. It reads: "Partners in Construction. Wal-Mart Stores Inc. and Crane Construction. Nov. 6, 1992."

But as Crane, president of Crane Construction Co. in Little Rock, has discovered, a lot can change in nine months. After a four-year relationship with the world's largest discount retailer, during which Crane has built about 30 Wal-Mart stores, the general contractor has abruptly and inexplicably fallen from grace.

"I was their hero in November," Crane says with a note of bewilderment in his voice.

A change in top Wal-Mart construction management threatens to bankrupt smaller contractors such as Crane, and family-owned subcontracting operations also could collapse while awaiting payment for work they have completed. The situation is remarkably similar to a series of events that led to the downfall of four contractors working for Wal-Mart in 1986.

Crane contends Wal-Mart is trying to crush him -- a charge Wal-Mart says is absurd. But, unlike other contractors who have fallen from favor with Wal-Mart, Crane vows he won't go gently into that good night. Nor will his company file bankruptcy or accept partial payment for the millions of dollars Wal-Mart owes.

"I will absolutely commit corporate, economic suicide before I will buckle down to Wal-Mart," says Crane, whose company revenues were $68 million in 1992. "I will let them crush me before I run from them."

Why Crane has fallen from favor with the multibillion-dollar retailer remains a source of mystery and headscratching in the construction industry.

Until recently, subcontractors and other general contractors had the impression that all was blissful between the two parties. Numerous local subcontractors who worked with Crane on Wal-Mart jobs say that if there were problems with Crane's work, they never got wind of them while on job sites.

Crane says he doesn't fully grasp what's behind the big chill. But held hostage in the matter is money Crane contends his company is owed from 11 different Wal-Mart projects. That amount is reportedly about $10 million. Crane says that because Wal-Mart hasn't paid in full, he hasn't paid many of the subcontractors who worked for him on those projects.

Wal-Mart says it has paid Crane about $12 million since May for work on some of those 11 projects. But Crane says Wal-Mart owes more, including a final payment of nearly $900,000 for the Wal-Mart store at Base Line Road in southwest Little Rock. Crane has filed a lien against that property.

"If Wal-Mart would pay me in full what I'm due, I'd have sufficient funds to pay all my subcontractors and suppliers in full," says Crane, whose subcontractors are sympathetic toward him -- not Wal-Mart.

Wal-Mart officials issued a statement Aug. 17 saying, "All properly submitted payment applications that are currently due for payment to Crane Construction have been processed and all monies they are currently entitled to receive have been paid in full."

Although that statement suggests Wal-Mart has paid everything it owes, the company later acknowledged that it hasn't paid Crane since May for the Base Line Road job despite telling numerous subcontractors it had.

Trey Baker, public relations coordinator for Wal-Mart, says there's a simple explanation for the delay.

"It's not a matter of Wal-Mart not wanting to pay," Baker says. "It's just a matter of him turning in the payment applications so we can cut a check and send it to him. It's just as simple as that."

"Bull," says Crane, who contends that Wal-Mart is making excuses because it doesn't want to pay. "They know I haven't done anything wrong, but they're going to find something wrong because they're determined not to pay. Technically, they may have found a "T" I didn't cross or an "I" didn't dot," he says of Wal-Mart's claim that some payment requests amounted to "shabby paperwork."

"If they want to find a reason not to pay me, they can lose my pay requests," Crane says.

Other Problems

Baker also says there are problems with the quality and timeliness of some of Crane's projects for Wal-Mart. He mentions some instances of sewer and electrical lines not being laid in the proper place.

Crane says Baker's reference is to "an isolated incident" and something done at Wal-Mart's instruction. "There's no sewer line out of place on the Base Line job," Crane says.

Of the 11 projects for which Crane says he hasn't received full payment, eight of those stores are open for business, including the Base Line Road store, which opened on schedule in mid-April.

Wal-Mart didn't mention dissatisfaction with Crane's work until its second news release dated Aug. 17, which followed a series of reports on KARK-TV, Channel 4, that questioned Wal-Mart's nonpayment of bills it appeared to owe.

The company's first news release, dated Aug. 6, was in response to a Wichita, Kan., newspaper that was trying to find out why subcontractors there who had worked for Crane hadn't been paid.

Wal-Mart said it discovered excessive liens against the Wichita project -- a Sam's Club -- and "decided to temporarily halt payment until assured the subcontractors and liens would be taken care of." The release pointed to the liens as the only reason Wal-Mart was not paying.

Crane calls the situation a "Catch-22."

"Wal-Mart's playing a game with the money," he says. "They're withholding it because liens are filed. Liens are filed because they're withholding money."

"We are all caught up in a vicious circle," says Tom Seay, real estate and construction executive vice president of Wal-Mart. In a news release, Seay says, "Wal-Mart pays Crane for work completed, but the subcontractors are not receiving payments from Crane Construction, who makes it appear Wal-Mart is at fault and victimizes our company name."

Arkansas Business found several local subcontractors who had been paid by Crane. Most of them worked on the Wal-Mart store at Base Line Road in its early stages.

Seay referred questions for this article to Baker.

Asked why Wal-Mart didn't discover quality problems early in its relationship with Crane, Baker says, "We became aware of these issues just because of the excessive lien claims from the subcontractors."

Subcontractors' Story

Numerous local subcontractors who are owed money on the Base Line Road job and other Wal-Mart projects are leaning toward Crane's version of events. Most have worked with Crane on other jobs and say Crane has always paid in a timely manner.

"It's not in Crane's nature to treat their subcontractors this way," says Tracy Irwin, owner of J.T. III Contractors Inc. of Little Rock, who performed finish work on the Wal-Mart at Base Line Road, among other projects. Irwin has filed a lien seeking payment of $1.2 million he says he is owed for six Wal-Mart projects in four states.

As a result, Irwin's family-owned company, founded by his grandfather more than 70 years ago, is teetering on bankruptcy. He's already raided his personal savings account for $60,000 and taken out a $250,000 loan to keep afloat his company of 80 employees.

"We're just a small mom-and-pop business, and we can't afford to stick our neck out this far," Irwin says.

While Crane and Wal-Mart wrangle, Irwin notes that subcontractors are "standing in the middle with our hands out trying to figure out who's going to pay us. We've got children to feed and put shoes on."

C. Ann Fleming, chief operating officer of Fleming Electric Inc. in Mabelvale, says her family business is in the same boat. Fleming has a lien of almost $48,000 against the Base Line project. Even if the company gets the money, it will be too little too late.

"Our profit is gone now because of the amount of the time that we've spent trying to collect this," she says. "The labor and materials were all paid out of our pocket, so what we're waiting to collect is just what we've previously paid on material and labor."

Another subcontractor caught in the dispute is Chuck Middleton, owner of Middleton Inc. of Bryant, a company that installs heating and air conditioning systems. He has filed liens for about $60,000 in connection with two Wal-Mart projects in Arkansas.

Middleton says his predicament has made him reluctant to work on a Wal-Mart job again.

"I think anyone who's been affected by this will give it a second thought before they get involved again," he says.

Middleton says he doesn't think Wal-Mart is concerned about whether small companies such as his go down in flames as a result of the payment dispute. Nor does he believe Wal-Mart cares that many of the affected companies are homegrown.

"They're Arkansas-based," he says, "and here they are slamming Arkansas contractors."

Although Crane says he doesn't fully understand why the schism developed between his company and Wal-Mart, he says he's aware of one thing that hurt his standing with the retailer.

In December 1992 -- almost exactly a month after Wal-Mart gave Crane the plaque celebrating their working relationship -- Crane Construction was the subject of a cover story in Arkansas Business. The story focused on the rapid growth of the 5-year-old company and emphasized Crane's flashy corporate image.

The article detailed the company's intentional efforts to convey a professional image that contradicts stereotypes of contractors. It mentioned the suited-up style of Crane executives and the BMW's with vanity plates driven by Crane and Mike Hill, Crane's vice president of marketing. Crane, Hill and a third executive, Ken Davenport, were photographed with one of the company's logo-emblazoned trailers in the background.

"Wal-Mart managers let me know in no uncertain terms that they were absolutely displeased with the article that Arkansas Business ran about Crane Construction," he says. "They didn't like the image I projected. They're probably not alone in that."

Baker says he is not aware of any such reaction by Wal-Mart officials. He says Wal-Mart doesn't tell business associates how to conduct themselves.

Internal Shake-Up

Sources in the construction industry say Wal-Mart recently had a change of management in the construction area that may have some bearing on Crane's problems. A vice president of construction who had been working closely with Crane was demoted and replaced.

Since then, industry insiders have noticed some changes. They say Wal-Mart wants bigger construction companies to build for the retailer and that the company plans to do more negotiated bid work rather than strictly competitive bidding.

In Arkansas, large companies such as Nabholz Construction Corp. of Conway and CDI Contractors Inc. and Hensel Phelps Construction Co., both of Little Rock, have recently been solicited to bid on future Wal-Mart projects. Because of those companies' size, they had passed on Wal-Mart jobs in recent years because they would have been required to bid too low.

But, with Wal-Mart's projects increasing in value -- some are in the $7 million range -- big companies are becoming more interested in working for Wal-Mart. Conventional wisdom is that small- to medium-size companies such as Crane, Progressive Constructors Inc. of Little Rock and SSI Inc. of Fort Smith, who have built a lot for Wal-Mart in recent years, will get less work.

Some observers see history repeating itself in these changes. Many recall that around 1986, Wal-Mart's construction department had a similar management change. That led to Wal-Mart's abruptly dropping at least four contractors that it had been using extensively. Three of those companies were doing so much work for Wal-Mart that they went bankrupt.

A fourth company, B.G. Coney Co. of Little Rock, didn't go bankrupt, but the sudden change of fortune drove Coney out of business. Coney's name is frequently invoked in construction circles when contractors talk about the perils of putting too many eggs in the Wal-Mart basket.

Coney likens what happened to him and what may be happening to Crane as "kind of like a new |presidential~ administration, taking over. There's a purging of the troops." After building about 80 stores for Wal-Mart, Coney says he was abruptly taken off the bid list.

"Without cause, they absolutely jerked the rug out," Coney says. "But, of course, that's nothing new for them. They think they're the big bear in the woods. They just step on anything."

Coney is of the opinion that Wal-Mart doesn't like to see anyone who's doing business with the company become too successful, nor does Wal-Mart like showiness.

Crane's situation is eerily reminiscent of Coney's, observers say.

And, with Wal-Mart not clearly or consistently articulating its problems with Crane, these questions remain:

* Why, after four years of working with Wal-Mart, would Crane not properly submit paperwork if it meant the release of millions of dollars?

* Why, after building so extensively for Wal-Mart, did the company decide it didn't like Crane's work?

* What bearing do management changes in Wal-Mart's construction department have on recent developments?

* How has Crane's corporate style figured into the turn of events?

Customers have come to expect the lowest prices and the largest selection from Wal-Mart, but someone must pay the cost. Who is being sacrificed on the altar of price control?

Many contractors would say it is them.
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Title Annotation:Wal-Mart Stores Inc.; Crane Construction Co.
Author:Walters, Dixie
Publication:Arkansas Business
Date:Aug 23, 1993
Previous Article:Major money.
Next Article:A common thread: a look at the state's top executives proves many paths converge.

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