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StumbleMGM Mirage says it’s working on CityCenter subcontractor claims
Fireworks explode over the Aria hotel-casino during the official opening Wednesday, Dec. 16, 2009.
Published Friday, May 14, 2010 | 3:24 p.m.
Updated Friday, May 14, 2010 | 5:21 p.m.
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- Gibbons to meet with builder over CityCenter (5-10-10)
- CityCenter contractor critical of MGM Mirage in letter to Gibbons (5-5-10)
- CityCenter slugfest pits owner vs. builder (3-29-10)
- CityCenter contractor says it expects payment from MGM Mirage (3-17-10)
- CityCenter, lead contractor dispute $492 million claim (3-12-10)
There’s now some movement to get CityCenter subcontractors paid at least some of the money they are owed, resort complex co-owner MGM Mirage indicated today.
In a court filing responding to a lawsuit filed by CityCenter builder Perini Building Co., MGM Mirage charged today that Perini has "failed to properly manage the subcontractor close-out process" on the $8.5 billion project and that Perini has failed to pay a number of its subcontractors on the Las Vegas Strip project.
But now that Perini has submitted its final bill to MGM Mirage's CityCenter joint venture, "CityCenter has commenced its own subcontractor close-out process to resolve subcontractor claims."
"CityCenter has undertaken this course of action even though it has no contractual obligation to Perini’s subcontractors," MGM Mirage’s filing in Clark County District Court said.
An MGM Mirage spokesman said the company couldn’t comment further on details about the effort to get subcontractors paid.
MGM Mirage's filing today denied allegations by Perini that MGM Mirage has improperly withheld some $500 million Perini claims is owed to it and its subcontractors.
MGM Mirage’s response today included a counterclaim.
The counterclaim covered what MGM Mirage called "Perini’s highly-compensated but substandard performance." MGM Mirage in the counterclaim blames Perini for construction defects at the Harmon Hotel and other portions of CityCenter.
The court papers indicate MGM Mirage continues to investigate construction defects at the Harmon. It's unknown when, or even if, the building will open.
In its lawsuit against MGM Mirage, Perini charges problems with the project included MGM Mirage delivering completed designs for 12 components of CityCenter between 132 and 520 days late.
"Even after delivering the designs well after the agreed-upon dates, MGM/CityCenter continued to make substantial changes to the designs through the completion of the project, resulting in a price increase of approximately $500 million," Perini charged in the suit.
As for the Harmon, which MGM Mirage says was planned for 47 stories but had to be limited to 26 stories because of defects there, Perini said: "MGM/CityCenter admitted that the upper floors of the Harmon, specifically the condominium portion of the Harmon, were being eliminated due to 'market conditions,' rather than any alleged construction defect."
"MGM/CityCenter’s claim that Harmon is a total loss has no validity and is a recent fabrication by MGM/CityCenter for the sole purpose of improperly withholding amounts due and owing to Perini," Perini’s amended complaint filed May 3 says.
Perini’s lawsuit alleges breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, fraud/intentional misrepresentation and other counts.
But MGM Mirage, in its first legal response to the lawsuit today, said: "After CityCenter paid Perini nearly $6 billion, Perini delivered the project without the Harmon and demanded $490 million in additional compensation."
"Only after launching a scorched-earth legal, media and political attack on CityCenter did Perini get around to submitting its final application for payment. When the application for payment was delivered to CityCenter on May 4, it consisted of 140 bankers’ boxes containing over 300,000 pages of disorganized allegedly supporting documentation that CityCenter must now organize and analyze to determine how much money, if any, is actually owed to Perini," the MGM Mirage filing says.
"CityCenter has begun to review this vast amount of material and believes that the final amount owed to Perini for project work will be far less than Perini’s demand, and in any event, less than CityCenter’s damages and offsets against Perini for Perini’s various breaches of contract – not the least of which is Perini’s abject failure to properly construct the Harmon. CityCenter estimates its damages against Perini for the defective Harmon alone will be in the hundreds of millions of dollars," the filing said.
"In filing this case and taking its media onslaught to the streets, Perini also omitted to tell its audience that Perini consented to pay a fine to the Nevada State Contractors Board last year for its 'substandard workmanship’ at the Harmon," MGM Mirage’s filing said.
Problems at the Harmon listed in the complaint include defectively installed reinforced steel, defects in shear walls, link beams and "critical" beam-to-column and slab-to-column connections, the counterclaim says.
As a result, MGM Mirage’s filing said, CityCenter has suffered damages related to the weakening or deformation of structural components in the Harmon.
Elsewhere at CityCenter, the counterclaim says, examples of "non-conforming work" include uneven floors and ceilings at Veer Towers, defective slab elevations at the Crystals retail center, out-of-tolerance concrete at the Aria Convention Center, defective waterproofing installation resulting in roof leaks at the central plant and defective drywall installation at the Mandarin.
"In some instances Perini repaired the non-conforming work and billed CityCenter for the cost of curing its own defective work," the counterclaim said. "In other instances, Perini was unwilling or unable to correct the non-conforming work and CityCenter was forced to hire other contractors to correct Perini’s non-conforming work."
MGM Mirage also complained Perini repeatedly submitted bills for items it was not entitled to be paid for. The counterclaim asserts claims of breach of contract, breach of the implied covenant of good faith and fair dealing, breach of warranty, negligence and other counts.
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MGM/Mirage seem to be making-up excuses for not paying its primary contractor. Perini sounds like it has a legitimate complaint against MGM/Mirage. Perini cannot pay subcontractor until it is paid by MGM/Mirage, you wouldn't be able to pay your bills unless you get paid. MGM/Mirage has a right to ensure the work that was done on City Center was done correctly but it still obligated to pay Perini. If this drags on I beginning to get the feeling MGM/Mirage is trying to get something for nothing.
Not what I would call "honest dealing" for the huge corporation. They are looking for any excuse to hold onto cash as their business is not doing so well.
MGM/Mirage is simply counting their pennies AFTER they have been spent..
I wouldn't pay if someone made my house out of half the parts it needed to place it together then wanting full payment. That is exactly what Perini did when making City Center. They only could construct half the Harmon and 3/4 of the Veer Towers. If I wanted a 4 story house, and you make it that is can be only 2 stories tall. Would I have to pay full price?
I walk in parts of City Center a few months ago. The defects were all over. I just wondered if MGM would let the builder get away with so low quality on a high priced job. Examples were uneven or pitched sidewalks. Broken windows. Chipped / broken tiles marked with 100's of spots of blue painters tape. Bad drywall taping / sanding. Drywall dust still in corners. Large gaps in wood flooring. The things we don't see are the structural defects. After reading about what happened at the Harmon I would not own a condo in any of those buildings.
It's a real shame that this project will have lawyers driving the final bankruptcy nails into City Center's coffin. The scope of the project is truly monumental, but the chance of completing everything ALL AT ONCE in a quality manner was probably a long shot.
The decision to not complete the project in phases was the fatal mistake, IMO.
Murren says he wanted City Center to emulate the Big Apple. Well, one of the hallmarks of Manhattan is seemingly continuous construction. You know the old joke about the out-of-towner who emerges from Penn Station and says, "Wow! This place will really be great when they get it done." Maybe that's the dynamic that City Center should have gone for, continuous change and renewal.
environprotector,
Even you would not pay someone for not finishing the job or until they fixed all of their mistakes.
Perini took on the job and has a lot of work to do. Harmon tower can never be finished and they have tons of things to fix.
Maybe if they did their job right, and the subs did their job they would not be having this problem.
If Perini had a good case they would not be trying this case in the press and begging their buddy the Governor to step in.
Hold back final payment is common practice in ALL construction until things are right.
It's rather ironic to consider, when the hypocrites at MGM first announced their decision to scrap the upper half of the Harmon Tower, they presented it as great news:
"MGM Mirage Chairman and CEO Jim Murren told The Associated Press late Wednesday: "It takes pressure off of selling more condominiums, it takes pressure off of occupying more rooms and, on the increment, it allows us to focus on fewer projects to open . . .
Wall Street thought the move was a good cost-cutting step by MGM Mirage, which announced a deal in December to sell Treasure Island for $775 million to former New Frontier owner Phil Ruffin.
"With the Harmon delay and cancellation and the recent sale of Treasure Island, we believe MGM Mirage has taken a proactive approach towards easing leverage concerns," Stifel Nicolaus gaming analyst Steven Wieczynski said in a note to investors. "The company has proven it can manage through a downturn by cutting costs, securing financing, and improving the customer experience."
http://www.lvrj.com/news/37258774.html
Which version of this story does MGM want us to believe now???
Good to hear that there may be progress towards MGM Mirage paying the subcontractors and materialmen what they are owed on the CityCenter project, even if MGM Mirage's cross-complaint against Perini goes unresolved.
It is important for MGM Mirage and Dubai World's management to understand the consequences of stiffing subcontractors, materialmen and other construction project suppliers who don't have mechanics lien rights, especially when the property owner's development is worth less (on an appraisal basis) than it cost to build it.
When Lehman Brothers decided to stiff the subs, materialmen and service providers on the 30 now-infamous Lehman/SunCal projects in California, valued at $2 Billion in land alone, the unpaid creditors got together and filed involuntary bankruptcy proceedings against just 4 of the 30 land owner entities involved. See: U.S. Bankruptcy Court, Central District of California, Case No. 8:08-bk-15588-ES LBREP/L-SunCal Master I LLC (Involuntary Chapter 11 case filed 09/10/08). That LBREP/L case is a road map for how CityCenter's unpaid construction related creditors can drag the MGM/Dubai entity which owns CityCenter into an involuntary Chapter 11 with very little effort.
In the case of the 30 Lehman/SunCal projects, the filing of those first 4 involuntary Chapter 11's was quickly followed by a voluntary Chapter 11 for the Lehman Brothers Holdings, Inc. parent company as a whole, which in turn triggered 26 more Chapter 11's (many involuntary) for 26 more Lehman/SunCal entities.
MGM Mirage's and Dubai World's management need to understand that in the real world of construction subcontractors, materialmens and service provider claims, it is penny wise but pound foolish to stiff these sorts of people.
Integrity: "Thinking beyond what you can see" words softly spoken yet wielding ultimate sway over the gift of intangible that yields to no man but bows before him.1013
The bottom line is Perini did not "perform and complete" it's obligation to MGM Mirage on the City Center project----Period!
....Again, PERINI did not PERFORM AND COMPLETE it's obligation to MGM Mirage on the City Center Project!
Longtimevegan-
"The bottom line is Perini did not 'perform and complete' it's obligation to MGM Mirage on the City Center project----Period!"
Seconded! It's good to see MGM Mirage taking care of the subcontractor claims, but they have no obligation to pay Perini any more until Perini takes care of its obligation to fix what Perini did wrong at CityCenter!
And vegaslee-
"If Perini had a good case they would not be trying this case in the press and begging their buddy the Governor to step in."
Good point, as well! If Perini really had a strong case, why would they turn to "Luv Guv" Gibbons to call MGM Mirage into arbitration with Gibbons moderating? Since Gibbons is still angry over Jim Murren abandoning him for Rory Reid, he's not exactly an "honest broker" here.
Perini nearly ruined CityCenter. It's a miracle that most of it is now open. Now Perini needs to finish the job as MGM cleans up its mess.
AS A FORMER SUBCONTRACTOR IN LAS VEGAS,PERINI WAS
FAMOUS FOR NOT PAYING IT SUBCONTRACTORS. IN THE
SANDS PROJECT IT BROKE COUNTLESS SUBCONTRACTORS.
IT WANTED A CONTRACT BOND FROM THE SUBCONTRACTORS,
BUT WOULD NOT GIVE THE SUBCONTRACTORS A PAYMENT
BOND. THEY ARE CROOKS.
This is a lot of wasted breath, ink, and time. The only determination to make is whether MGM's owner insurance program covers the Harmon disaster. If so, then MGM is unfairly withholding money from a lot of small subcontractors. If not, then the money owed Perini is fairly offset by the Harmon disaster. [On large jobs, owners hold the insurance policy on construction risk, because it is cheaper than having each contractor purchase their own policy -- google "OCIP" for more information].
As far as Perini paying their subs before they are paid by the subcontractor, every subcontract I have ever seen has a "pay when paid" or a "pay when paid" clause. While Nevada disfavors these clauses, Nevada's courts have upheld them. Furthermore, a General Contractor typically is paid a very small percentage on a project compared to what a sub is paid (e.g. 2-5% compared to 10-15%). It is unlikely that any general contractor could maintain as a viable business model a system where they pay subcontractors out of pocket before they are paid themselves. Payment on big jobs is just too slow due to the high volume of changes and contractors pay applications that all need to go through a few owners' reps.
I did not work on CityCenter, but having visited, I disagree that the workmanship was poor overall. Certainly, the Harmon incident indicates poor supervision and poor workmanship, but I think the Aria casino has beautiful wood and tile work. Any "defect" is nothing more serious than "defects" that can be seen at the Wynn, Bellagio, M, Venetian, or any other high-class resort in town.
I am blown away that MGM and Perini are willing to tarnish their reputations in this silly fight. They should sit down and figure out if their OCIP will cover Harmon, and proceed accordingly. Perini is one of the three companies that can claim that they built Las Vegas, and now an owner would probably not touch them with a ten foot pole. MGM/Mirage is one of the largest companies in Nevada, and now they're in the newspaper every week looking like thieves. That can't help to attract visitors.
Setting aside Perini's oversight or lack thereof, if there is poor workmanship, it was the subcontractors work, Perini didn't self perform the work.
Is MGM paying the very same subs who did not meet their obligations to properly install their work and if so, then who does MGM think is going to correct these supposed defects?
MGM is rediculous. There are 19 individual projects on City Center. Harmon is its own project and the damages are insurable. The need to pay out the money owed to subcontractors. Especially, money owed on other projects not related to Harmon. If there is money coming back to MGM for Harmon, that will need to be taken care of by the bonding companies.
MGM's executives should be locked up for essentially running away from their tab. If I ordered a prime rib medium and it came to me medium well. I still have to pay for it. Anyone who says differently doesn't know the first thing about construction