Venetian files lawsuit, builder to retaliate

Gary Thompson and David Strow

Monday, Aug. 2, 1999 | 11:41 a.m.

The battle between the Venetian hotel-casino and its construction manager boiled over today after negotiations broke down Friday over who is responsible for delays and cost overruns at the Las Vegas Strip resort.

Lehrer McGovern Bovis Inc., the New York-based company that has overseen construction of the $1.5 billion resort, was sued by the Venetian and responded by saying that it would file a "substantial" lien against the Venetian by midafternoon today.

While the amount wasn't disclosed, it could bring the total of liens filed against the sprawling Strip resort to above $100 million.

As of Wednesday liens totaling nearly $55 million had been filed against the Venetian by local subcontractors who haven't been paid for their work. The total has since climbed above $64 million.

Bovis and Venetian executives had been negotiating all last week over a compromise plan to pay the subcontractors. But Bovis executives in New York were stunned when they received a call from Venetian officials shortly after 7 p.m. EDT Friday saying the Venetian had filed a lawsuit in federal court in Las Vegas.

The lawsuit claimed Bovis "severely damaged" the Venetian' reputation by delaying the resort's opening until May 4, forcing it to "walk" customers to other hotels and costing it "substantial income and patronage from its hotel, retail, restaurant and bar, and casino operations."

"This suit is intended to ask the courts to require Bovis to pay its contractors, and to compensate the Venetian for Bovis' failure to perform its other duties," the Venetian said.

The suit claimed Bovis failed to manage and coordinate subcontractors' work, submitted false and misleading schedules and failed to provide monthly progress reports.

Bovis "completely lost control of the project" and allowed "defective, deficient and uncoordinated or incomplete work" to be done by failing to properly supervise subcontractors, the Venetian said.

A Bovis spokesman said the company hasn't seen the suit yet, "so we cannot comment specifically about its contents."

However, said Sam Singer, "We have negotiated in good faith with the Venetian over the past several months to settle our disagreements. Negotiations continued through Friday with no indication from the Venetian that a lawsuit was to be filed.

"Bovis is surprised and disappointed that the Venetian has taken this action," Singer continued.

"We notified the Venetian last Wednesday of our plans to file a lien against the hotel today for monies owed to Lehrer McGovern Bovis and its trade contractors for work performed and completed. It will be for a substantial amount.

"Bovis plans to continue negotiations with the Venetian to settle its differences.

"However, and I say this in the strongest possible way, we are prepared to take whatever action is necessary to protect Bovis and to cooperate with the trade contractors should our negotiations with the Venetian break down," he said.

While the Venetian has consistently denied there were cost overruns on the project, it claimed damages "in excess of $50 million" because it allegedly will have to complete the project at its own cost to "correct Bovis' defective work."

The lawsuit noted that, by mutual agreement, the original $547.4 million "guaranteed maximum price" for construction of the hotel-casino shell has climbed to $652 million.

Venetian is also seeking damages for losses from operations and for "harm to its image and reputation," saying it "relied on unrealistic projections to its considerable embarrassment and financial detriment."

The suit alleged Bovis failed to demand subcontractors waive the right to file mechanics liens, and "provided false written and oral representations" about the date construction on the Venetian was supposed to be completed.

The agreement between Bovis and the Venetian "requires Bovis to cause each trade contractor performing work on the project to execute a form of trade contract which expressly prohibits the filing of mechanics liens," the suit said.

"In the end, Bovis virtually abdicated its responsibilities as construction manager for the project and abrogated the fiduciary relations of trust and confidence with the owner," the suit claimed.

The lawsuit and the liens have spread unease among Venetian bond holders and put downward pressure on the resort's publicly traded debt, issued in the name of Las Vegas Sands Inc.

The LVSI's $425 million of 12.25 percent first mortgage notes, which traded as high as 106 on May 3, slid to just over 92.4 today. The $97 million of 14.25 percent senior subordinated notes were quoted at 87 as of last Thursday.

Scores of subcontractors who haven't been paid for their work on the Venetian could face financial ruin, according to Gene Newton, chief financial officer of Saffles Construction Co. Saffles has filed $1.2 million of liens against the Venetian.

"We estimate this could wipe out between 40 to 50 Las Vegas subcontractors," Newton said.