Opinion ID: 1810729
Heading Depth: 3
Heading Rank: 2

Heading: Capital Expenditure/Cost per Square Foot

Text: ¶ 34. The Board contends that Hughes cannot build the Kennington for $39.16 per square foot. Hughes has been a contractor and developer since 1963. Hughes stated that he can be cost efficient when building because of his years of experience. The Board argues that its expert, Gasaway, testified that Hughes's figure is contrary to the R/S Means data which sets the minimum cost per square foot at $66.00 for a compared projection in the South. ¶ 35. Hughes testified that he built his nursing home, Willow Creek, in Byram, Mississippi, for the actual cost $41.33 per square foot. Hughes noted that the cost of Willow Creek was higher than the Kennington because Willow Creek's exterior was brick rather than vinyl siding, the rooms were larger, the commercial area was larger and the bathrooms, kitchen areas and commercial areas all contained concrete blocks. Hughes also identified other areas that would save money on the project by doing their own work rather than subcontracting: finish carpentry, roofing, drywall, earth work and landscaping. Hughes said that these savings, as well as, the variance in construction fees in different parts of the State are not taken into account in the R/S Means data. ¶ 36. The hearing officer stated: On cross-examination, however, Mr. Gasaway admitted that the R/S Means Index is only a reference guide and that it has no legal effect. (Gasaway 156). He further testified he had no personal knowledge of Willow Creek and Mr. Hughes's ability to construct that facility for $41.13 per square foot. (Gasaway 162, 169). He could not identify anything wrong with the Willow Creek construction. (Gasaway 162). Mr. Hughes adequately explained why his projected cost of $39.16 is less than the figures shown in the R/S Means Index. Because he is the owner and contractor, Mr. Hughes will not be paying himself a profit. (Hughes 154). According to Mr. Hughes, on this particular project, the contractor's profit would be approximately $71,000. (Hughes 155). He also explained he would be only operating at about 4% overhead, which would result in another $28,000 in savings. (Hughes 155). Because he will be on the job every day, he will not have to pay a superintendent's salary. (Hughes 156). This salary would be about $32,000. (Hughes 156). He estimates saving $20,000 on the concrete work because he has his own equipment for the job and therefore will not be required to hire a subcontractor. (Hughes 156). He projects a savings of $15,000 on the rough carpentry. (Hughes 156). For finish carpentry, Mr. Hughes stated that he would hang his own doors, do his own base and run his own handrails. (Hughes 157). This would result in a savings of approximately $10,800. (Hughes 157). He also projects savings on roofing and drywall due to the fact he will not have to hire subcontractors for this work. (Hughes 157). In all, Mr. Hughes projects he will save about $206,000 on the Kennington construction as a result of having his own equipment and manpower. (Hughes 157). If this figure is added to the $623,388 figure, the total would be $829,388. At 15,919 square fee, the cost per square foot would be approximately $52.10 per square foot, a figure that is in line with the data supplied by the R/S Means Index. With respect to the numbers submitted for the Kennington's new construction, this Hearing Officer finds that Mr. Hughes's testimony is more reliable and a more accurate indicator of what the Kennington's actual cost will be. It is undisputed that he has already built a nursing home in Byram, Mississippi, and that he used the numbers from this construction as a reference guild for projecting his costs to build the Kennington. While the R/S Means Index may as a useful resource for builders, the Willow Creek numbers shown in Exhibit 30 and the backup documentation for those numbers provide a much more reliable source for projecting the Kennington's new construction costs. Moreover, even if the Kennington is required to modify its preliminary plans to provide, for example, 16,500 square feet as opposed to the 15,919 it has projected, such an adjustment would not have the type of impact on new construction costs that would result in the Kennington not receiving one point for the capital expenditure factor. ¶ 37. The Board also argues that Hughes's capital expenditure figures are inaccurate because the facility will actually be larger than the 15,919 square feet projected in the application. As previously discussed, the facility's projected square footage failed to include 500 additional square feet of non-heated space. Hughes testified that 500 square feet of non-heated space would only be a minor adjustment in the total capital expenditure. Hughes further stated that the application contained $30,000 in contingency costs that probably would cover any additional space. ¶ 38. Hughes offered competing testimony to that provided by the Board's expert, Gasaway. The hearing officer heard the testimony of both Hughes and Gasaway, and he determined that substantial evidence existed to support Hughes's position. In Cain, 767 So.2d at 213, this Court stated: A review of the testimony and evidence in the record supports the conclusion that the present case is largely one of competing testimony, and it is apparent the Health Officer is in a better position than this Court to evaluate this evidence. ¶ 39. As to the capital expenditure issue raised by the Board, the chancery court did not find that the MSDH's decision should be altered as to Hughes's ranking in this category. The chancery court stated: [The Board] challenges Kennington's [Hughes's] figures. The evidence reveals that [t]he Kennington had erroneously stated its total square footage and that its facility would, clearly, have to be larger that the 15,919 square feet its application indicates. There was also evidence that its site preparation costs would be more than indicated in its application. However, if its capital expenditures went up 25%, it would still be over 25% lower than Attala's [the Board's]. Since it is, apparently, the Department's policy to allow modifications in applications, the Court finds that even with a 25% increase in this category, it would not change the rankings assigned, for its costs would still be way below Attala Care Center [the Board] and Attala Healthcare. The next item is costs per square foot, and though its costs will go up if its square footage goes up, this should not affect its costs per square foot much since there would be a larger square footage to spread the costs over. In addition, Attala Care Center's [the Board's] costs per square foot is about 30% more than [t]he Kennington's, so the change should not affect the ranking in this category. The Court recognizes that there is not a great deal of difference between [t]he Kennington figure and the Attala Healthcare figure in this category, but from the data available, the Court cannot find that any change in square foot costs would move Kennington from a one ranking to a two in this category. With extreme difference in costs per bed between Kennington and Attala Care Center [the Board] and Attala Healthcare, even a 25% increase in costs in order to give Kennington the required square footage should not change the ratings in this category either. ¶ 40. We find that there is no evidence to support the Board's position that the MSDH's decision was either arbitrary or capricious. Substantial evidence was presented by Hughes as to his plans for the Kennington. The chancery court did not err in finding that Hughes's ranking for this category should not be altered.