CHELSEA — Irregularities in municipal contracting may cost the town as much as $318,401 in legal fees, a Kennebec Journal review has found.

The fees include money earmarked for lawsuits and settlements, for temporary staff assistance in the absence of salaried employees, and potential future payments to end ongoing infractions caused by a town-funded contractor.

All of the legal fees have one thing in common: The arrest of former selectman Carole Swan, who is accused of soliciting as much as $20,000 in kickbacks from plow contractor Frank Monroe, of Whitefield, this year and in 2010.

Swan, set to appear for a status conference at 10 a.m. today in Kennebec County Superior Court, was arrested Feb. 10 and charged with aggravated forgery and criminal attempt, both felonies; and two counts of improper compensation for services, a misdemeanor.

Chelsea faces legal liabilities connected to the Swan arrest that could include:

* $125,000 to former town clerk Flavia “Cookie” Kelley, who claims she holds a valid three-year employment contract;

* $114,000 to Monroe, who claims he continues to hold a valid three-year plow contract;

* $50,000 in legal fees approved by voters at a special town meeting in March;

* $27,301 to fix errors in no-bid “emergency” work by contractor Marshall Swan that harmed a wetland in 2009; and

* $2,100 to operate the Town Office in the absence of salaried staff.

Other costs could include increased insurance premiums and legal fees that may arise if the town must further defend itself in either Swan’s prosecution or the defenses of its disputed contracts with Kelley and Monroe.

The town has already used $44,082 of the $50,000 voters earmarked at a special town meeting in March for legal expenses and an audit of town records.

Town attorney Stephen Langsdorf, hired in February after Swan’s arrest, said the $50,000 includes his defense of the town in the Swan case.

“I’ve dealt with allegations in the Town Office; the status of the snow plowing contract; the cost for me to meet and deal with the FBI and U.S. Attorney’s Office; drafting the new Procurement Ordinance and Board of Assessment Review ordinance; all the research relating to when the town only had one functioning selectman; dealing with personnel issues including negotiating the town meetings and Cookie’s settlement, and meeting with attorneys for both her and Angie Gordon before she quit; plus dealing with numerous inquiries from citizens and selectmen,” Langsdorf said. “It’s about $50,000, but there was a heck of an amount of work done.”

An official audit was not done. Langsdorf said one was made moot by the FBI’s involvement.

“FBI is handling that,” Langsdorf said. “The U.S. Attorney’s Office has hired a special accountant to go over these books, Galina Hanson. She’s a consultant and she’s attended meetings I’ve gone to. She’s looking very closely at all the books and financial records.”

FBI forensic computer specialists seized Town Office computers in March as part of the Swan investigation.

The FBI became interested in the case because an elected official is involved and there may be a violation of federal law or a misuse of federal funds.

Title 41, Chapter 1 of the U.S. Criminal Code says “it is prohibited for any person to provide, attempt to provide, or offer to provide any kickback; to solicit, accept, or attempt to accept any kickback; or to include the amount of any kickback in the contract price charged by a subcontractor to a prime contractor or a higher-tier subcontractor.”

Instead of conducting a full audit, the town paid its auditor an extra $7,500 after Swan’s arrest to ensure all the books were in order.

Residents last week rejected a proposed $25,000 settlement with Kelley, who may sue to collect $72,000 plus benefits she says she is owed on a disputed three-year contract.

Attorneys for Kelley have claimed her contract is valid. If Kelley sues and wins, it could cost the town $125,000.

Kelley’s attorney, Clifford Goodall, could not be reached for comment Monday, but he has said he would hold off from filing Kelley’s court case while the town negotiates with the Maine Municipal Association.

Chelsea is a member of the Maine Municipal Risk pool for its insurance coverage. Langsdorf said MMA is obligated to provide legal counsel and cover the cost of any potential judgment.

The town also may have to contend with a suit from Monroe, the Whitefield plow contractor who admitted to police he paid kickbacks to Swan.

Monroe is threatening legal action to retain his plowing contract, which selectmen apparently never signed.

His breach-of-contract lawsuit, if filed, would seek $114,000. Monroe’s attorney, Sean Farris, said Monday he would file the suit within a month.

“It’s going to be a breach-of-contract lawsuit and we’ll be looking for the lost profits from the (winter) plowing contract which the town signed but is not following through with,” Farris said.

After Kelley was terminated and Town Manager Angela Gordon quit June 8 over scrutiny of her awarding a $2,900 road contract to Marshall Swan, the town has had to pay extra staff to conduct its business.

The town owes $2,100 to the city of Augusta for a clerk and part-time assistant on loan while selectmen searched for a replacement for Gordon. Ralph St. Pierre, Augusta’s assistant city manager, said they were on loan for five weeks, but the city only charged Chelsea for the last two weeks.

In all, St. Pierre said Augusta provided 179.5 hours in personnel services. If fully billed, Chelsea would have owed $4,480.

Also, the state Department of Environmental Protection issued a notice of violation in December 2009 to the town and Marshall Swan for draining “a wetland of special significance” and a “significant waterfowl and wading bird habitat” on Windsor Road; and for doing the work without proper state permits.

That $53,000 contract was awarded to Marshall Swan, the husband of Carole Swan, on an emergency basis — a claim widely disputed by former town officials — and touched off scrutiny regarding preferential treatment in Chelsea’s municipal road contracting.

Chelsea Town Manager Scott Tilton said the cost to repair the wetlands is about $10,000. Chelsea taxpayers also will pay a compensation fee of $17,301 to the state. And one engineer — E.S. Coffin Engineering & Surveying Inc. Coffin — was paid $6,854 to help find a fix for the problem.

“There’s not a fine, but we need to make a payment to the (In Lieu Fee Compensation Program),” Tilton said of the $17,301 payment due. “As far as the money is concerned, it hasn’t been appropriated. But it will come out of the summer roads account.”

Voters appropriated only $149,500 for that account at Town Meeting last month — down from $287,000 the prior year.

Mechele Cooper — 621-5663

[email protected]