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Sarkis: Cca's 'Up Front' Failure Cost Over $50m

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

BAHA Mar's original developer yesterday alleged that the project's main contractor cost it more than $50 million by failing to deliver on its 'up-front' obligations.

Sarkis Izmirlian, in a $2.25 billion damages claim filed against China Construction America (CCA) in the New York Supreme Court, claimed that despite receiving up to $210 million prior to starting work the contractor only delivered on 75 per cent of its commitments. These obligations related to CCA's General Conditions Work Package (GCWP), but Mr Izmirlian and his BML Properties vehicle alleged that it failed to perform by not providing the development with a sufficient Chinese workforce despite receiving $83.172 million to do so.

The lawsuit also cited numerous safety issues with the scaffolding CCA had to provide, resulting in problems with Baha Mar's insurers, and alleged that the Chinese state-owned contractor failed to provide project progress and monitoring reports as required.

"CCA was credited substantial up-front money (early in 2011) against the entire amount of the General Conditions Work Package (GCWP) - some $199 million (plus amendments increasing the GCWP to $210 million)," Mr Izmirlian and BML Properties alleged.

"The GCWP was awarded so that CCA could provide those services necessary for the forward-progress, safety, and ultimate completion of the project, such as timely and properly installed roads and flagmen for those roads as traffic moved around the site; sanitation services; materials and equipment storage; scaffolding; trash chutes and removal; site security and the like.

"Progress on the project was dependent in substantial part on the proper provision of these general conditions, since each separately and all collectively allowed the work to continue in as efficient a manner as possible with a minimum of disruption and a maximum of safety."

Mr Izmirlian alleged that CCA and its ultimate parent, China State Construction Engineering Corporation (CSCES), used the GCWP money as a 'credit' to pay for their $150 million preference share stake in the Baha Mar project.

"While CCA itself also had an investment in the project, namely certain preferred shares in Baha Mar Ltd, those shares were not purchased with cash but via an accounting book entry that 'credited' CCA with certain to-be-performed 'General Conditions' obligations, most of which CCA never performed," the project's original developer claimed.

"It was CCA's larger intent, and in its financial interest, to establish this project as a beachhead in the Caribbean, use its workers and more senior staff to obtain and then construct other projects throughout the Americas and Caribbean, and to be paid hundreds of millions of dollars for its purported work as the contractor and construction manager of the project."

Mr Izmirlian alleged that CCA had pledged to provide construction staff and labour worth $83.172 million, but failed to do so. Baha Mar was also "forced" to assist its contractor in obtaining the necessary work permits, which revealed in late 2014 that the latter had more than 1,800 workers "it claimed were on site" but for whom permits were not renewed.

The lawsuit also detailed numerous alleged safety breaches regarding the project's scaffolding, and how CCA was paid the full $3 million for this despite failing to purportedly live up to the GCWP package.

"These and other general conditions that CCA did not supply cost Baha Mar Ltd over $50 million by March 2015," Mr Izmirlian alleged, while slamming CCA's "hotly-contested and fraudulently inflated" $110 million claim for compensation stemming from construction change directives (CCDs).

The former developer's legal action reveals how trust between Baha Mar and CCA broke down almost immediately with the former's president, Tom Dunlap, believing in mid-2012 that the contractor and its top executives "were in over their collective heads, incapable of correcting their pattern of work and poor to non-existent reporting".

A key flashpoint was the size of CCA's construction workforce, which Mr Izmirlian and Baha Mar claiming their estimates were frequently "50 per cent" below the contractor's own counts.

"On June 18, 2014, during [a] full-site evacuation drill, BML Properties for the first time was able to conduct a complete, simultaneous count of all CCA and sub-contractor workers on-site," the lawsuit alleged.

"CCA's on-site staff totalled 2,402 personnel, of whom 330 were identified as management or support staff, leaving a manual workforce of only 2,072 workers, 26.7 per cent below CCA's own projected/schedule required workforce of 2,827 for June.

"Notably, the CCA manpower report for the week ending June 20, 2014, claimed 3,036 workers on site, or 31.76 per cent above the number observed by Baha Mar Properties during the evacuation drill. Simply put, the fire drill proved that CCA failed to hire and maintain the necessary amount of manpower, then lied to falsely inflate the manpower numbers in its reports to BML Properties."

An independent Disputes Resolution Board ruling confirmed that inadequate manpower was responsible for CCA missing the deadline to complete Baha Mar's convention centre, and that these problems also afflicted the wider project.

This, Mr Izmirlian alleged, ultimately resulted in a "a mismanaged, delayed, over-budget project" that was ultimately forced into Chapter 11 bankruptcy protection, then receivership and liquidation, resulting in his loss of ownership and control of Baha Mar.

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