Monday, June 11, 2018
By NEIL HARTNELL
Tribune Business Editor
Baha Mar's main contractor refused to turn over completed rooms to the original developer in early 2015 as it sought leverage to claim an extra $119m in their growing payment dispute.
A senior China Construction America (CCA) official, in a February 16, 2015, e-mail to then-Baha Mar president, Tom Dunlap, revealed that the handing over of finished hotel rooms to Sarkis Izmirlian's team had been "suspended" until the "big commercial issue" between the two sides was resolved.
The document, never previously disclosed, has been filed with the New York State Supreme Court as part of Mr Izmirlian's $2.25 billion damages claim against CCA and its affiliates. It shows that, just three months after the original developer agreed to release $54 million in advances on disputed claims, the Chinese state-owned contractor remained dissatisfied with its compensation.
The e-mail, from CCA director Dawei Wang, was in response to a missive from Mr Dunlap three days' previously, in which Baha Mar's president asked whether he was aware of more work stoppages related to building inspections.
Mr Wang told Mr Dunlap that all ceiling, life safety and TCO (temporary occupancy certifcates) were proceeding according to schedule. Yet he then added: "The only [thing] suspended is rooms handing over, which we could not proceed [with] because there is still a big commercial issue for pending resolution.
"And the reality is, once we hand over the rooms, Baha Mar's team will change the locks and [make it] hard for CCA to revisit." Mr Wang's letter then cited $119 million in extra costs that CCA had incurred to "accelerate the project and meet the target date" following the November 2014 meetings that had sought to resolve the growing financial and completion-related differences between contractor and developer.
The CCA executive alleged that the contractor had added 600 management and line staff; handed more work to Bahamian contractors; paid "extra premium" for carpet installation and exterior works; and incurred overtime and bonus payments to boost "productivity and working time".
He alleged that this resulted in $36 million of "out-of-pocket spending not paid by Baha Mar", and accused Mr Izmirlian and his team of cutting the $54 million that was supposed to be released by almost 40 per cent.
The $54 million was part of a November 17-18, 2014, agreement which committed CCA to "substantially complete" Baha Mar on March 27, plus improve work productivity and project management.
For its part, Baha Mar was to request the payment of the disputed $54.622 million to CCA from the project's financier, China Export-Import Bank. This was to be broken down into $15.103 million (50 per cent of the disputed sum) paid immediately.
Some 70 per cent of the $45.815 million being reviewed by all parties was also to be paid immediately, with a further $15 million eventually due as a final settlement.
Mr Wang's letter said Baha Mar's "reviewing" had further cut these payments, and added: "CCA has the sincerity to reach agreement with Baha Mar to resolve the commercial issues, and did make significant compromising during the Beijing meeting to accept the $54 million as the settlement of previous commercial issues and move the project forward, but we could not accept the further deduction of the post-review and the opinion that this $54 million is the final total additional payment to cover CCA until the project finishes."
The Wang e-mail shows that CCA's compensation remained uppermost in the contractor's thoughts amid the final, doomed rush to Baha Mar's missed March 27, 2015, completion that ultimately led to the Chapter 11 bankruptcy protection filing and some 18 months of legal wrangling before the property finally enjoyed a first-phase opening two years later.
Just three months after the November 2014 agreement, CCA was already seeking more money, including some $36 million to cover additional construction changes (CCDs). Mr Wang alleged that 95 per cent of these changes were made without a price being approved, or payment, from Baha Mar, and forecast that a further $11.7 million in CCDs would be incurred before completion.
The executive also claimed that the contractor's monthly payments were "much less than what CCA has to spend to maintain the momentum if the project progress to approach the completion", and said Baha Mar's withholding of $63 million in retainage was also causing a "big cash flow impact".
"Counting all these impacts together, the deficit in terms of cash flow to CCA is around $36 million (CCA not expecting to be fully paid by owner for this additional cost, just for your reference about how much money was spent by CCA to accelerate the project and meet the target date) plus $36 million and 70 per cent of $58 million = $119 million," Mr Wang said.
"This is not including the impact from monthly progress payment cutting. Tom, we are so close to success and we believe we will succeed. I hope you can understand the difficulty being faced by CCA now and help us to resolve it in a reasonable way.
"My suggestion is to include the releasing of retainages and partial approval of outstanding CCDs, assuming 70 per cent release, in the payment of February.... Please let me know your suggestions for resolving this issue; we need your leadership to come over the last hurdle, make the last push and march to the final destination."
February 2015 was an especially controversial month for CCA and its payments. Baha Mar and Mr Izmirlian previously alleged that China Export-Import Bank's own project monitor, Ryder, Levitt & Bucknall, "assessed down" CCA's invoices for February-May 2015 from $343.8 million to $76.1 million - less than one-quarter of what it claimed to be owed.