Judge reduces Perini’s lien against CityCenter

By Steve Green

Tuesday, Oct. 5, 2010 | 1:35 p.m.

Overruling the objection of CityCenter general contractor Perini Building Co., a state judge has reduced Perini’s lien against the Las Vegas Strip casino resort complex by $67.7 million -- but with conditions.

The 13.8 percent reduction in Perini’s $490.3 million lien -- revised downward in August from the $491.2 million lien initially filed in March -- was approved Sept. 30 by Clark County District Court Judge Elizabeth Gonzalez at the request of attorneys for MGM Resorts International’s $8.5 billion CityCenter joint venture that opened in December.

The lien updated in August included $354.6 million Perini claimed in behalf of subcontractors and $135.7 million in allegedly unpaid fees and costs due to Perini, a unit of Sylmar, Calif., construction giant Tutor Perini Corp.

The lien-reduction ruling was significant in that Gonzalez established a procedure for further lien reductions. Lien reductions are important so CityCenter can stay in compliance with debt covenants.

"CityCenter Holdings has been actively pursuing settlements with subcontractors," MGM Resorts said in a Securities and Exchange Commission filing Monday in which it reported receiving an amendment to a $1.8 billion credit facility that allows for existing liens to remain against CityCenter.

The amount that can remain subject to liens is set to decline on Dec. 31 by an undisclosed amount -- but liens above that level can remain if they are covered by bonds or other security.

After disputes erupted between CityCenter and Perini over construction closeout costs and alleged construction defects, particularly at the Harmon Hotel portion of CityCenter, Perini sued CityCenter in March.

Perini claimed in the lawsuit it and its subcontractors were owed the $491.2 million, but CityCenter fired back, charging that anything it owed Perini was offset by CityCenter’s claims for defects at the Harmon.

“After CityCenter paid Perini nearly $6 billion, Perini delivered the project without the Harmon and demanded $490 million in additional compensation,” CityCenter attorneys said in a May court filing.

After the lawsuit was filed, CityCenter started working directly with Perini’s subcontractors in hopes of getting them paid -- an important goal considering some needed payments to survive given the lack of construction work due to the economic decline in Las Vegas.

Through Sept. 22, CityCenter had paid 79 of the settling contractors $55.7 million -- a discount from the $67.7 million Perini had claimed for that work in its lien.

Attorneys for Perini objected to the lien adjustment, charging that in settling with the subcontractors, CityCenter included in the settlements provisions that benefited CityCenter at the expense of Perini.

"We’ve seen a few of the settlements and they appear to be allocating things to their advantage," Perini attorney Robert Martin told Gonzalez. "We’d be thrilled to reduce our lien once we know. It’s all about transparency and that’s all we’re seeking.

"Until we know how they’ve allocated things, until we know what Perini’s risk is” -- the liens should remain in place, he said.

In court papers, Perini said it was imperative that payments to settling subcontractors be correctly allocated to determine if the settlements are attributable to extra work or change orders, or are attributable to "in-scope" work included in Perini’s guaranteed maximum price contracts.

Complicating the issue is that CityCenter is investigating construction defects at the still-unopened Harmon and on top of that has claimed $63.2 million in "non-conforming work" at CityCenter.

Perini attorneys argued that if any of the settling subcontractors’ work is included in CityCenter’s claim, then CityCenter’s claim must be reduced by that amount.

CityCenter attorneys, however, argued in court papers: "Because Perini’s lien includes Perini’s total claimed costs above and beyond the GMPs (guaranteed maximum prices for CityCenter components) the impact that the subcontractor settlements may have on the GMPs is irrelevant to determining the value of Perini’s lien."

Acknowledging the arguments of both sides, Gonzalez approved the lien reductions but ordered conditions:

"CityCenter will not pursue any recovery from Perini for any of the assignments received in the settlements with the subcontractors," she said during the hearing.

"Perini also is not going to try and recover the amounts the subcontractors have released.

"If there is an issue about a fee calculation under the GMP (guaranteed maximum price) contract, we will deal with that at some later point," she said.

"The second condition is that within 30 days CityCenter will produce and provide the breakdown it used for the allocation of settlement amounts with respect to work that was ‘in scope,’ ‘out of scope’ and change orders," she said.

"The court is not at this time making any approval of the allocations made by CityCenter, but is ordering the production for purposes of ensuring that those subcontractors can be removed from this case and that lien reductions can occur on a regular basis," she said.