The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar’s contractor knew the $3.5 billion project was likely to miss the March 27, 2015, opening just weeks after assuring Prime Minister Perry Christie and the developer, Sarkis Izmirlian, all was well.

China Construction America (CCA), in a confidential memo sent to its Beijing parent on January 20, 2015, warned that the Baha Mar project and its stakeholders faced “irreversible and catastrophic loss” unless drastic action was taken.

The memo, obtained by Tribune Business, shows CCA requesting that China State Construction Engineering Corporation (CSCEC) send it at least another 450 Chinese workers to give it a chance of hitting the March 27 target.

Describing itself as in “a crucial dash” to meet the opening, CCA warns that the construction situation at Baha Mar “is very difficult” and in urgent need of fixing.

It admits that several deadlines for key Baha Mar components had already been missed, endangering the March 27 goal, and blames this on the failure of CSCEC “sub-contractors” to supply an adequate workforce.

“Currently, the project is at a crucial dash to meet the final deadline,” CCA warned CSCEC, its Beijing parent.

“However, because the professional sub-contractors failed to provide a sufficient workforce in time, several deadlines for sub-projects were missed and the target completion for several sections got delayed.

“This will directly impact the target of opening on March 27. The situation is now very difficult which, if it cannot be turned around, will soon cause irreversible and catastrophic loss.”

CCA warned that it would incur a $250,000 daily fine for each day beyond March 27 that the project remained incomplete.

Its memo, addressed to ‘Mr Yi’, a CSCEC director, added that “unmeasureable damages to the brand and reputation of CSCEC will also be caused” should Baha Mar’s target opening date be missed.

“CCA gratefully requests CSCEC to co-ordinate and order the sub-contractors to take emergency measures, organise the labour force in a timely manner and provide extra technical workers and experienced managers to the project by the end of January in order to meet the target of opening by March 27, 2015,” CCA pleads.

It requested the following extra workers:

• “Not less than 200 workers” from CSCEC Decoration

• At least 100 Chinese workers from Bureau One Direction

• Another 100 from CSCEC Industrial Equipment Installation

• And “not less than 50 workers” from CSCEC Electronic

The memo, entitled ‘Report regarding request for extra workforce for the Baha Mar project’, was sent just over two weeks after Prime Minister Perry Christie and a Bahamian ministerial delegation visited China in early January 2015.

Mr Christie and Mr Izmirlian, together with their respective teams, held joint meetings with officials from both CCA and the China Export-Import Bank, Baha Mar’s financier, during which they were assured that March 27 would be hit.

Yet the January 20 memo, written more than two months before the missed opening date, reveals that the Chinese contractor had grave doubts about whether that could be accomplished.

It was also written three weeks BEFORE the Prime Minister’s Office and Baha Mar issued a joint statement on February 10, 2015, in which they said: “Prime Minister Christie and the chairman of Baha Mar, Sarkis Izmirlian, jointly met with officials from China Construction of America (CCA) and the Export-Import Bank in Beijing in January.

“In that meeting, they received the necessary assurances that the resort will be ready for guests on March 27.” Baha Mar’s president, Tom Dunlap, had earlier gone public with that date’s confirmation on January 9, following the meeting in China.

The memo’s contents raise numerous questions, not least whether CCA and its Beijing parent misled both Mr Christie and Mr Izmirlian during their January meetings in China over the project’s construction status.

In particular, those meetings seemingly induced Mr Izmirlian to ‘ramp up’ hirings for Baha Mar’s workforce in anticipation of hitting the March 27 opening.

Had CCA seemingly been more forthright, and informed Mr Izmirlian as soon as it feared missing March, it is possible the 2,000-plus Baha Mar lay-offs last October - and other significant financial losses - could have been avoided.

The nature of the CCA plea also raises the issue of why the Government threw the full weight of its support behind the Chinese after Baha Mar filed for Chapter 11 bankruptcy protection in late June, given that the document admits the contractor was at least partially responsible for the construction delays.

The CCA memo is attached as an exhibit to a February 18, 2016, affidavit sworn by a former Baha Mar executive, who descibed its contents as “particularly striking”.

Whitney Thier, Baha Mar’s ex-general counsel, said it was “all the more extraordinary” that CCA failed to inform the developer that the March 27 target would be missed, given that the two sides’ senior executives had been meeting on a weekly basis.

Set alongside Baha Mar’s repeated complaints about CCA’s workmanship quality, Ms Thier alleged: “The letter is particularly striking when viewed in the context of the evidence.

“At a Board meeting of the company on December 5, 2014, CCA had assured the company that the project would open on March 27, 2015, prompting the company to commence accepting reservations from the public.

“In meetings in Beijing in early January 2015, CCA had assured not only the company, but also the Prime Minister of the Bahamas and the China Export-Import Bank, that the project would open as agreed on March 27, 2015.”

The former Baha Mar executive added that the memo also provided “strong corroboration” of the developer’s complaints against CCA.

Ms Thier continued: “The letter makes it all the more extraordinary that CCA failed to raise with the company its likely inability to complete the project on March 27, 2015, despite weekly meetings at a senior level with the company during early 2015 and - as is clear from this letter - when at least its own parent company was plainly aware of that likelihood as early as mid-January 2015.”

The CCA memo is understood to have been among documents that were part of ‘discovery’ exchanges last year, amid the battle between Baha Mar and the Chinese in the Delaware Bankruptcy Court over the former’s Chapter 11 filing.

Both its original Mandarin version, and the English translation, have now been filed with the Bahamian Supreme Court.

Apart from suggesting that Baha Mar’s main contractor has a case to answer over the missed March 27 deadline, the memo implies that CCA was having a tough time gaining the attention of its Beijing parent.

It also suggests that while CCA and its parent were saying one thing in public to their Baha Mar partners, in private the sentiments were totally different.

Another issue is whether they were keeping their affiliate and fellow Chinese state-owned entity, the China Export-Import Bank, fully in the loop.

The memo’s request for more workers also backs one of Baha Mar’s main complaints, namely that CCA did not provide enough construction workers to ensure the $3.5 billion development would meet its various milestones.

Baha Mar had already been forced to postpone its originally planned December 2014 opening, due to the fact construction was not completed then. The developer’s relationship with CCA, never strong, had already been deteriorating progressively for months before then.

Ms Thier, also a former Baha Mar executive vice-president, in a previous July 16 affidavit disclosed ‘meeting minutes’ and previous agreements intended to settle the deepening dispute between Baha Mar and CCA that resulted in the missed completion deadlines and the Chapter 11 filing.

The November 19, 2014, ‘meeting minutes’ that documented the then-agreement between the two sides committed CCA to “substantially complete” Baha Mar on March 27, plus improve work productivity and project management.

Some observers might interpret that as a tacit admission of ‘guilt’ by CCA. Under the heading of ‘improvement in work productivity’, the minutes state the contractor would ensure on-time completion “by all necessary methods”.

This included “sufficient manpower, both local and international, with a minimum of 200 new Chinese workers” arriving within 30 days and working whatever overtime was necessary.

The January 20 memo sent by CCA to its Beijing parent suggests that these terms had yet to be fulfilled some two months after the November 19, 2014, agreement between the two sides.

Those November 19 ‘minutes’ added: “CCA agrees to take necessary measures to enhance the on-site management to ensure the construction will be conducted in an orderly manner, and the works will be completed on time and in the required quality.”

For its part, Baha Mar was to request the payment of the disputed $54.622 million to CCA. This was to be broken down into $15.103 million (50 per cent of the disputed sum) paid immediately.

Some 70 per cent of the $45.815 million being reviewed by all parties was also to be paid immediately, with a further $15 million eventually due as a final settlement.

CCA, though, ultimately missed the completion date and all the performance milestones and objectives set out in the ‘meeting minutes’, which were witnessed by the China Export-Import Bank (CEXIM).

CCA subsequently blamed Baha Mar for “mismanaging” the $3.5 billion development, suggesting that it was never compensated for - or given adequate time to perform - more than 1,000 construction change orders.

However, Ms Thier’s February 18, 2016, affidavit repeated claims that CCA was submitting “grossly inflated invoices” in the months leading up to Baha Mar’s “final failure”.

She alleged that the China Export-Import Bank’s own project monitor, Ryder, Levitt & Bucknall, “assessed down” CCA’s invoices for February-May 2015 from $343.8 million to $76.1 million.

“In short, CCA failed to complete construction by March 27, 2015, without providing any effective advance notice to the company,” Ms Thier concluded.

“Upon admitting such failure, rather than provide a new construction completion date, CCA demanded to discuss payment and funding issues, and ceased construction.”