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August 23, 2014

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CityCenter slugfest pits owner vs. builder

Have gone to court over work done on CityCenter, and with hundreds of millions at stake, it could get ugly

CityCenter grand opening

Guests enter the Aria hotel-casino for the first time Wednesday, Dec. 16, 2009. Launch slideshow »

MGM Mirage properties have seen their fair share of main event fights. Now the gaming giant’s massive flagship, CityCenter, will be at the center of an owner vs. builder battle with nearly a half-billion dollars at stake.

Moves last week, culminating with Perini Building Co. leapfrogging to a lawsuit, indicate its already bare-knuckle.

At the beginning of last week, Perini officials were still saying they intended to file $491.2 million in mechanics’ liens against CityCenter by today. Mechanics’ liens preserve the rights of contractors, subcontractors and material suppliers to seek foreclosure against the project owner as leverage to get paid for work.

MGM, which co-owns CityCenter with Dubai World, warned it was prepared to file a counterclaim to seek hundreds of millions of dollars from Perini and that the construction contract mandated binding arbitration.

But come Tuesday, MGM security was escorting Perini’s workers off CityCenter’s Harmon hotel construction site, and Thursday Perini hit back by going straight to court rather than waiting for arbitration.

MGM Mirage has been arguing that its 2005 contract with Perini included a provision that disagreements would be settled by a retired Las Vegas judge. Alan Feldman, spokesman for the gaming giant, wouldn’t disclose the name of the arbitrator, but said the company had submitted material to him. MGM now will have to persuade a full-time judge to kick Perini’s lawsuit over to the arbitrator.

Perini laid out the basics of its case in its Thursday filing: a slew of design changes and project modifications, submitted as much as a year-plus late by MGM, ratcheted up Perini’s $3.5 billion contract to $6.8 billion. The massive project was subject to tens of thousands of changes requested by the owner, including a half-billion dollars worth that came after agreed-upon deadlines.

MGM plans to pursue its argument that Perini is responsible for construction-related problems at the Harmon hotel, where work had been suspended by local building inspectors, Feldman said.

The problems at the Harmon apparently have proven too expensive to solve so far. It’s unknown when it will be completed, but it is to have only 26 floors instead of the 49 originally planned. Each side is blaming the other for stubby Harmon.

For CityCenter as whole, the perilous pace and complexity of the project will be a key issue.

The Sun won the 2009 Pulitzer Prize for Public Service for exposing the reasons behind a high death rate among construction workers along the Strip, mainly at CityCenter. Those reasons included unsafe working conditions, weak regulation and lax attitudes among contractors, labor unions and state safety officials.

“It was well documented that MGM was trying to get this project done quickly,” Las Vegas attorney Shane Clayton of Marquis & Aurbach said. His firm represents a material supplier who is seeking payment for work on CityCenter. “Contractors certainly can say that when you’re pushing them faster, it is possible that mistakes will be made.”

But MGM’s easy comeback to that, Clayton added, is “whether the contractor does the work fast or does it slow, the contractor is obligated to do it right.”

Ronald Tutor, chairman and CEO of Tutor Perini, the builder’s parent in Sylmar, Calif., summarized his company’s position this way: “We’re owed a lot of money, and we want to get paid for ourselves and our subcontractors. We finished the job in December, and CityCenter told us many times that we did a good job.”

MGM’s statement, through Feldman on Sunday: “Obviously, we’ve reached an impasse on settlement of the final bills. It’s time for an impartial third party to look at this.”

Experts told the Sun that the amount of money in dispute is not off the charts given CityCenter’s total cost. But the slugfest between Perini and MGM Mirage, in terms of raw numbers, would dwarf the previous heavyweight confrontation, between London contractor Lehrer McGovern Bovis and the Venetian. That $1.6 billion resort, which opened in 1999, was hit with $300 million in mechanics’ liens.

After the longest civil trial in state history, one that lasted 10 months, a District Court jury in Clark County in June 2003 awarded Bovis $44.2 million and the Venetian $2.3 million for contract breaches. Those amounts were only fractions of what both sides sought, but they settled the remaining litigation in December 2005 without disclosing terms.

As with the Venetian case, construction subcontractors and material suppliers are upset that they haven’t been paid what they think they are owed for their work at CityCenter. CityCenter has been slapped with dozens of liens from these businesses.

The situation at CityCenter includes a domino effect for Perini, too.

“Perini isn’t getting paid by MGM so Perini can’t pay its subcontractors, and the subcontractors can’t pay their material suppliers,” Clayton said.

Perini and MGM have both been sued by at least two CityCenter subcontractors.

Show Canada Industries US said it was hired in October 2008 to fabricate and install stage lifts and other equipment for the Cirque du Soleil showroom. But Show Canada said it incurred increased costs and unnecessary delays because of numerous design changes ordered by Perini and because the builder failed to obtain the building permit soon enough.

In the other case, Mechanical Insulation Specialists accuses Perini of nonpayment for work related to material and equipment designed to stop fires. Mechanical Insulation also claims Perini hindered the subcontractor’s work through delays and other disruptions.

Perini had not filed its response to either lawsuit as of Friday.

Clayton said this is just the beginning, that at least a dozen Las Vegas and out-of-state law firms will soon be involved.

He said it’s easy to already see that “this whole thing is going to be a big mess.”

The Associated Press contributed to this report.

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