Liens pile up against Venetian, builder

Gary Thompson

Friday, July 30, 1999 | 11:44 a.m.

Numerous Nevada construction companies are lining up to file liens against the $1.5 billion Venetian resort and its construction manager.

County records show that since March 9, 47 separate construction companies have filed liens totaling $54.9 million against the Venetian, Lehrer McGovern Bovis Inc. and others.

The liens range from as low as $1,563 up to almost $13 million. And the number has risen sharply in recent days.

"That list you've got is nothing compared to what it will be," said Gene Newton, chief financial officer of Saffles Construction Co. Saffles has filed $1.2 million of liens for work done on the project.

"There will be more than $100 million of liens filed against Bovis and the Venetian, all by local subcontractors employing and paying local people," Newton said Thursday.

"We estimate this could wipe out between 40 to 50 Las Vegas subcontractors," he said. "I had a guy come into my office today and tell me he took a $60,000 hit, and he can't afford a $60,000 hit. He's going to lose his business and his home."

Fearful that a lack of payment could leave them financially destroyed, many of the local subcontractors plan to meet today to discuss a possible foreclosure action against the Venetian, Newton said. Saffles itself could go under unless it's reimbursed for the money it spent paying workers at the site.

He said some subcontractors had crews working 24 hour days to get the Venetian open, relying on promises from Lehrer McGovern Bovis and Venetian officials they'd be paid for their work.

"But they stopped making payments about 30 days ago, after we'd gotten the first section of the place open," he said. "We continued working to help them out because they kept promising to wire money into our accounts.

"We paid cash out of our pockets, using time sheets they signed and approved, to pay union workers time and a half and double time. We were pouring cement at 2 o'clock in the morning so they could get open, and now they say they won't pay.

"When you cut through all the crap, it's Bovis and (Venetian owner Sheldon) Adelson. They built the building, they're making the profits, and they're doing it by not paying people. Anybody can build a billion-dollar building and only pay for half of it."

Venetian officials could not be reached for comment. But Adelson told a columnist for the Las Vegas Review-Journal that the issue is between subcontractors and Bovis, not him.

"Whatever claims they have, they have against them," Adelson said, according to the newspaper. "They don't have any against us."

Bovis spokesman Sam Singer acknowledged today that subcontractors aren't being paid, but he said that's because Bovis and the Venetian are negotiating over who is responsible.

"Lehrer McGovern Bovis has been involved in negotiations with Mr. Adelson for the better part of a month to conclude the financial issues surrounding completion of the project," Singer said.

"We have meetings scheduled with senior executives at the Venetian all this week and next and hope there is a resolution of the outstanding monies due to us.

"The negotiations involve a substantial number of change orders that would affect the final cost of the project," Singer said.

"There are serious discussions over both the money due Bovis and the subcontractors, as well as the final cost of the project, and they are discussing that with Mr. Adelson now," he said.

Singer declined to disclose the amount in dispute. But he denied subcontractor contentions that Bovis is leaving town, saying the company is merely moving out of its temporary office buildings at the Venetian this weekend and into office space a short distance away.

"Bovis will maintain a construction and marketing office here because it will continue to market its services to other property owners in Nevada," he said.

The potential financial damage to members of the local construction industry overshadows an acknowledgement earlier this week by a Bovis executive that the cost of the resort's basic construction could top $715 million -- at least $71.5 million over the $643.3 million maximum price Adelson agreed to pay Bovis to build the Venetian.

In describing the Venetian as a $1.5 billion resort, Adelson has said the cost of building the casino-hotel would run $643 million, while land, furnishings and infrastructure costs would add another $557 million or so. The remaining $300 million would come from spending by restaurants, shops and other tenants that lease space in the complex, he said.

Adelson and other Venetian officials have consistently denied the resort has suffered from cost overruns in the $643 million construction phase.

However, the latest Securities & Exchange commission filing by Adelson's Las Vegas Sands Inc. disclosed that Bovis had submitted bills for $27 million of "scope changes" to the project and might assert additional claims in the future. The SEC filing didn't indicate the potential size of the additional claims.

But Bovis Chief Executive Luther Cochrane sent a letter to a construction industry trade publication this week saying, "The value of the (Venetian) project is, we anticipate, 450 million (British pounds) ... "

The day the letter was sent, 450 million pounds equated to $714.7 million.

Cochrane sent the letter to Construction News, a London-based trade paper, which reported the Venetian "is over budget and swamped by legal actions from irate contractors."

The publication said 89 liens had been filed against the Venetian through mid-July, though some of the earlier ones had been released through payment or settlement.

The number of new filings has accelerated recently as payment to subcontractors slowed to a trickle.

By comparison, a search of the Clark County Recorders Office records revealed a total of 13 liens had been filed against the Bellagio, the $1.6 billion hotel-casino built a short distance away from the Venetian by Mirage Resorts Inc.

A Bovis spokesman told Construction News that, "In reality, there is nothing unreal about this number of liens for a guaranteed maximum price contract on a major contract. It's nothing we would not have expected."

"Liens are a standard procedure that get filed in Nevada, but they get paid or settled," Newton said.

"There's never been a project here that's had this many liens that just haven't been paid. Bovis told us, 'We haven't been paid, so we're not paying you.' "

As Cochrane noted in his letter, subcontractors are required to file liens within 90 days after they last furnished labor or materials to a project to protect their right to payment.

With most of the work at the resort now complete, the clock is ticking for such filings.

Tony Illia, managing editor of the local Construction Connection trade paper, agreed with Newton and Cochrane that lien filings are a standard practice, though he said the number and amount on the Venetian were surprising.

Illia also said that liens are more common against contractors based elsewhere who are brought in to manage big jobs. Bovis is headquartered in London.

"Sometimes an out-of-town contractor comes here and builds and then flakes out," Illia said.

When that happens, local contractors stuck with unpaid bills are forced to change their liens into lawsuits, hoping to get the contractor or building owner to pay.

"Now we have to sue them, which means we have to spend more money to try to get our money," Newton said.

"What we're trying to do right now is put a group of about 40 of us together to fight this. Our objective is to take this to the governor and the county. The Venetian has temporary occupancy certificates, and we don't think they should get permanent ones until they pay us.

"We want to know how the state and county can keep this place we built open so they can make money while we go out of business. They raped local contractors, and we are going to fight this."

If the negotiations between Bovis and Adelson prove fruitless, contractors may try to foreclose on the Venetian, Newton said.

Adelson is already facing a liquidity crunch because the resort isn't generating enough revenue to make interest payments on its $930 million of debt.

A recent analysis by a Credit Suisse First Boston bond specialist concluded that the Venetian will be at least $16 million short of the money it needs to pay interest on bank and bond debt through November. And CS First Boston termed that its "best-case scenario."

Meanwhile, Adelson's insistence he won't pay for the overtime and other costs Bovis and its subcontractors incurred to get the resort open in May has Newton fuming.

That's because the Venetian may be the only source for local subcontractors to get paid without suing Bovis. The bond Bovis posted with the State Contractors Board -- which could normally be used to offset such disputed costs -- was only $50,000.

"We have to put up a million-dollar bond on a million-dollar job, but they put up a $50,000 bond on a billion-dollar job," Newton said.

Contractors Board officials were out of town Thursday and couldn't be reached for comment.

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