By NEIL HARTNELL
Tribune Business Editor
Baha Mar yesterday accused its Chinese construction partner of demanding financial compensation that was more than four times’ greater than the sum verified by its financier’s project monitor.
Thomas Dunlap, Baha Mar’s president, alleged that China Construction America sought a collective $343.8 million for work carried out at Cable Beach between February to May 2015.
Yet he claimed that the independent project monitor employed by Baha Mar’s main debt financier, China Export-Import Bank, “countersigned” that its fellow Chinese state-owned company should only be paid $76.1 million - a sum almost 78 per cent less.
This saga is among the highlights, contained in Mr Dunlap’s affidavit supporting Baha Mar’s Chapter 11 bankruptcy application, which disclose the strained four-year relationship between the developer and its contractor partner over the latter’s alleged “repeated construction delays and breaches”.
Baha Mar appears to have doubted China Construction America’s abilities from the start, having been forced to employ it as main contractor as a consequence of having to seek Chinese financing to complete the $3.5 billion Cable Beach redevelopment as a result of Harrah’s Entertainment’s pull-out.
Referring to its contractor’s ultimate parent, Mr Dunlap alleged: “Although China State Construction and Engineering (operating through its various subsidiaries) is one of the world’s largest contractors, it had little experience in constructing single-phase resort projects of the size and complexity of the project.
“In June 2011, to address this concern, China Construction America agreed that it would partner with one or more experienced contractors on the project. No such partnerships ever materialised.
“In response to the debtors’ [Baha Mar’s] subsequent inquiries, China Construction America instead agreed to hire more than two dozen top-level personnel from Las Vegas with experience constructing projects similar to the project.
“Less than a dozen such people were ultimately hired, however, and all but a few of them had left the project within a year. Moreover, although China Construction America required the debtors to obtain approval from the Government of the Bahamas for 5,000 worker permits, China Construction America’s workforce never reached that level, even at peak staffing, and on average was substantially lower.”
Mr Dunlap alleged that China Construction America “often failed” to comply with its procurement and reporting requirements from the start of construction in 2011, impacting Baha Mar’s planning, quality control and insurance coverage.
He alleged that Baha Mar “had to dispatch their own personnel at a significant unplanned cost over the life of the project to monitor construction, perform spot inspections, and ensure the safety of the worksite, among numerous other tasks”.
Mr Dunlap added that despite China Construction America’s assurances, it was clear by early 2013 that the contractor would not meet agreed construction schedules “absent corrective measures”.
Baha Mar demanded that it increase worker numbers to “accelerate” construction work, leading to the two sides signing a Memorandum of Understanding (MOU) on May 17, 2013, in the presence of the Chinese Ambassador.
One of the conditions was that Baha Mar would gain access to the ballrooms and meeting rooms by March 31, 2014.
“Within a short period after it was executed, however, China Construction America breached the MOU by, among other things, failing to increase staffing and management,” Mr Dunlap alleged.
“China Construction America further failed to provide [Baha Mar] with access to any part of the convention centre by March 31, 2014, as the MOU had required. Beginning shortly thereafter, [Baha Mar] attempted to negotiate a resolution with China Construction America and its parent company China State Construction and Engineering, but ultimately were unsuccessful.”
Baha Mar ultimately took the issue to arbitration via a Disputes Resolution Board, which on August 13, 2014, found that China Construction America “had been proceeding in breach of the main construction contract ‘with respect to the timing and content of the construction schedules’, and by ‘failing to proceed expeditiously with adequate forces sufficient to comply with the [main construction] contract’.”
Baha Mar and its contractor still have claims pending before that Board.
Mr Dunlap alleged that “by September 2014, following months of increasingly contentious relations with China Construction America and China Construction America’s blatant disregard for the Board ruling, it became clear that China Construction America would not complete the project in time to open by its December 2014 target date”.
Baha Mar was able to cope with this, by reducing staff and postponing new hires, plus slashing advertising and marketing expenses, but it was left exposed to $25 million payments every three months to the China Export-Import Bank.
Ultimately, the parties thrashed out a new agreement on November 19, 2014, where Baha Mar agreed to ‘buy’ opening dates for the project’s completion to “mitigate” China Construction America’s contract breaches.
In return for Baha Mar paying it $54 million to resolve disputed claims, China Construction America agreed that the convention centre would be “substantially complete” by January 19, 2015, and the rest of the project finished by March 27, 2015.
This, Mr Dunlap alleged, resulted in Baha Mar’s Board - including the contractor’s representative - voting unanimously on December 5, 2014, to start taking reservations for the new hotel from March 27, 2015.
The contractor was said to have repeatedly assured that Baha Mar would open on March 27 during Prime Minister Perry Christie’s trip to January 2015.
“Following these assurances and already having made advanced payments to China Construction America totalling $54 million in accordance with the [November 19 agreement], the debtors began to prepare for their new targeted opening dates,” Mr Dunlap alleged.
“Between January 1, 2015, and March 27, 2015, the debtors [Baha Mar] hired an additional 2,070 employees and staff needed to operate the project at an aggregate additional cost of more than $4 million per month.
“These new hires included over 1,700 employees, for whom the debtors spent significant time and money training for positions in the project’s new hotels and casino,” he added.
“In addition, the debtors spent substantial funds on their pre-opening marketing and advertising campaigns, fully stocking their facilities with food and beverage supplies and other inventories, and stocking their vault with the $4.5 million in cash necessary to open the casino.”
However, the contractor still continued to miss completion dates, despite its president assuring Mr Dunlap at multiple weekly meetings that it would be ready for March 27.
He alleged that China Construction America seemed to be more interested in receiving payment than completing the work it was tasked with doing, and started to demand Baha Mar release the $70 million retained for when the project was ‘substantially complete’, as well as submitting the “inflated invoices”.
After the March 27 date was missed, Mr Dunlap alleged: “Upon admitting such failure, rather than provide a new construction completion date, China Construction America preferred to discuss payment and funding issues. Shortly thereafter, China Construction America ceased all material work on the project.
“As a result, the debtors [Baha Mar] were forced to cancel months’ worth of room reservations and group meeting events, and provide numerous customers with vouchers, refunds and, in certain cases, were required to find customers suitable accommodations elsewhere, all at a cost in excess of $6 million.
“The debtors suffered many other damages as well, including significant harm to the Baha Mar name and reputation. The debtors also incurred substantial sunk costs that they must expend once again to open the project. In short, the missed opening date of March 27, 2015 was devastating for the debtors.”
Given the details contained in Mr Dunlap’s affidavit, their publication alone will likely make a resolution of Baha Mar’s differences with China extremely difficult, if not impossible.