Battle begins over Venetian cost overruns, construction payments

Gary Thompson

Tuesday, Jan. 11, 2000 | 10:44 a.m.

A Nevada State Contractors Board hearing on complaints filed against the general contractor for the Venetian hotel-casino didn't resolve any issues or please many participants Monday.

But it did give a preview of sorts to what promises to be a long and contentious series of legal battles surrounding the $1.5 billion Strip resort.

The board continued its disciplinary hearing against Lehrer McGovern Bovis Inc., which oversaw construction of the Venetian, until late February after hearing abbreviated testimony from a handful of witnesses.

The New York-based general contractor is facing charges that it failed to pay two subcontractors it had hired for work on the Italian-themed Strip resort. If found guilty, Bovis could face penalties ranging from reprimands to fines to revocation of its license to do business in Nevada.

But if Tuesday's hearings indicated anything, it was that finding fault for the non-payments and cost overruns afflicting the 3,000-suite resort won't be a simple task.

Executives for Bovis and the Venetian traded barbs and blame, while officials of the subcontracting firms caught in the middle of the dispute shared frustration and bafflement over just where they should turn for relief.

The board is trying to determine whether Bovis violated a state law requiring a general contractor to pay subcontractors within 15 days of receiving payment from a property owner.

Complicating the issue are the conflicting arguments by Bovis, which claims it didn't receive reimbursement from the Venetian for the subcontractors' work, and resort executives, who contend they've paid the full amount called for in their contract with Bovis.

Complicating it even further is the Venetian's practice of issuing checks to Bovis that are payable to the subcontractors, rather than issuing checks directly to the subcontractors or to Bovis.

As board Chairman Kim Gregory summed up the dilemma: "This was a screwy arrangement."

Bovis attorney Jennifer Fletcher argued that complaints filed against Bovis by Maui One Excavating Inc. and Recreation Development Corp. should be dismissed because the two subcontractors had signed contracts containing "pay if paid" clauses.

Since the Venetian didn't pay Bovis for some of the work done by Maui One and RDC, she said, Bovis shouldn't be held liable and punished for its action.

Karlene Canepa of Maui One said her company is owed about $1.1 million for work on the Venetian, but that Bovis has made a settlement offer of just $435,000, which includes a $100,000 advance Maui One must pay back if Bovis can't collect money from the hotel-casino in a pending lawsuit.

Jeff Whittle of RDC said his company is owed about $887,000, but that Bovis has refused to negotiate in good faith. Fletcher said the two sides are so far apart their dispute will have to be settled in court. They aren't the only ones far apart.

The Venetian contended that under a "final guaranteed maximum price" contract it had with Bovis, the total cost of building the resort was to be $668.8 million. Anything over that amount was to be the responsibility of Bovis, it argued.

Stuart Mason, the Venetian's vice president of development, said the resort has paid Bovis $653.5 million but is holding back the remaining $15.3 million of the GMP because of work that still hasn't been completed.

But Fletcher said Bovis has been paid only $642 million. She said Mason's figure includes $8.5 million Bovis lent the Venetian for work on Phase II -- a planned 3,000-suite addition called the Lido.

"Do you agree that Lido hasn't (re)paid the money yet," she asked Mason.

"Yes, but it's not due," he said.

"It was due Dec. 31," she said. "Will you pay it?"

"I think so," replied Mason.

Fletcher grilled Mason about a May 31, 1999, bill from Bovis to the Venetian requesting reimbursement of more than $21 million of work done during the month. The amount included more than $14 million due trade contractors.

She then noted that the Venetian had sent a letter to the bank that disbursed construction funds saying Bovis asked for payment of just $6.4 million. Some of the amount cut was owed to Maui One and RDC.

Mason said the smaller amount was due to questions the Venetian had about the Bovis bill.

Fletcher also said Bovis had notified the Venetian that the final GMP should actually be $749 million due to change orders approved by resort officials. Mason testified he hasn't received any formal claim for that amount.

Fletcher and Mark Melson, executive vice president of Bovis, said the two sides were once close to a compromise.

"We were close to resolving this matter -- within $4-$5 million -- in discussions with (Venetian executives) Brad Stone and Bill Weidner in July, but then (resort owner) Sheldon Adelson returned from Israel," Melson testified.

"We thought we were close to an agreement, but we're now in a divorce as opposed to a marriage," Fletcher said.