By NEIL HARTNELL
Tribune Business Editor
Baha Mar's main contractor is raising the alarm that it will again miss the $4.2 billion project's completion deadline, following the eruption of a legal dispute with a key supplier.
China Construction America's (CCA) Bahamian subsidiary, in legal filings obtained by Tribune Business, warns that itself - and Baha Mar - will "suffer incalculable and irreparable damage" if a Florida-based supplier continues to withhold 50 per cent of the project's lounge chairs.
CCA, in a lawsuit filed with the south Florida federal court last Thursday, alleges that these chairs are "essential to the timely completion" of the Cable Beach development.
It warns that it will be unable to meet the October 15, 2017, 'substantial completion' deadline for finishing Baha Mar's construction unless Source Outdoor is compelled to deliver the 1,420 chairs it is holding.
Failure to hit that date, CCA alleges, will expose it to penalty fees of $150,000 per day - rising to $250,000 per day after one month - under the terms of its construction contract with the China Export-Import Bank.
However, the reason why Source Outdoor is allegedly withholding the shipment suggests that 'shorting' Baha Mar's foreign creditors may have produced unintended consequences that are now coming back to bite.
In what some observers may see as a case of 'what goes around, comes around', CCA claims its Florida supplier is using the chairs as 'leverage' to force payment of pre-Chapter 11 debts owed to it by Baha Mar.
CCA is alleging that it has no responsibility for these debts, and that these have no connection to the $390,500 chairs shipment, which it has already fully paid for. Yet the Chinese contractor's lawsuit makes no mention of its role in the Baha Mar creditor payout process.
Instead, CCA is alleging that Source Outdoor is now selling Baha Mar's lounge chairs "on the open market" in a bid to recover debts owed by original developer, Sarkis Izmirlian, prior to the ill-fated bankruptcy protection filing in the US courts.
"This conduct would allow Source to sell the same chairs twice and, more to the point, would foreclose permanently the ability of CCA to obtain the items for which they have already paid in full, and which are essential to the timely completion of the project," Baha Mar's main contractor blasted in its legal filings.
"Even if CCA were to immediately endeavour to purchase replacement chairs, the time required for the negotiation of a new purchase order, for the manufacture of the replacement items and for their shipment to the Bahamas would result in non-compliance by CCA with the 'substantial completion' date, and would subject it to the extraordinarily large liquidated damages provided for in CCA's agreement with Perfect Luck Assets, the owner of the project.
"Aside from the unmanageable financial burden that would be visited upon CCA were it unable to obtain immediate receipt of the chairs, because of the extremely high level of publicity and governmental attention being paid to this particular project, CCA's reputation would suffer widespread, incalculable and irreparable damage."
Raising the stakes, CCA then filed for an emergency injunction and quick hearing of its case, urging the south Florida district court to order that the 1,420 chairs be "delivered immediately" to its Miami-based freight forwarder for onward shipping to Miami.
"The project for which these chairs are intended is the most significant tourist development in recent years in the Bahamas," the Chinese state-owned contractor said in its Friday legal filings.
"Its completion has been carefully calibrated to coincide with the start of the 'high season' for tourism in the islands. Because of the significance of this project, and the overriding importance of the completion date, CCA is contractually obligated to complete its activities by October 15, 2017.
"Failure to deliver the project, including this element of the project, by this substantial completion deadline will expose CCA to extraordinary liquidated damages. The liquidated damages begin at $150,000 per day for up to 31 days after the 'substantial completion' date. Thereafter, the liquidated damage amount increases to $250,000 per day.
CCA added that it faced "overwhelming additional harm" beyond these fines should the October 15 completion be missed, especially reputational damage with both the Bahamian government and wider construction/tourism industries.
"For a variety of reasons, this project has been the subject of an extraordinarily high level of publicity and intense governmental attention," the contractor added.
"CCA assumed responsibility for the procurement and delivery of furniture, fixtures and equipment after the commencement of the project, the completion of which has been determined to be a national priority by the Government of the Bahamas.
"Any failure to meet this contractual deadline would result in immediate, irreparable and incalculable damage to CCA's reputation in the construction industry worldwide and within the Government of the Bahamas," CCA continued.
"It would result in unprecedented derogatory publicity at the peak of the tourism season, and the resulting harm to CCA's good name would be irreparable and virtually impossible to overcome."
This was further backed by a June 28, 2017, affidavit from Natalia Dwornik, CCA's Bahamas-based contract manager, who warned that the consequences of missing the October 15 completion date would be "catastrophic" for all concerned. All legal papers from Nassau were notarised by attorney Obie Pindling.
The contents of CCA's lawsuit are likely to set-off alarm bells within the Minnis administration, and both the China Export-Import Bank and Baha Mar's prospective new owner, Chow Tai Fook Enterprises (CTFE).
Given that Baha Mar's 300-room SLS Lux resort is due to open in October 2017, it is likely that any construction delays would force this - and, possibly, the Rosewood's April 2018 opening - to be postponed.
This, in turn, could delay employment for hundreds of Bahamians, and hold up economic activity crucial to expanding Bahamian GDP at a time when Baha Mar remains virtually the only investment project capable of delivering this.
If the 'worst case scenario' outlined by CCA comes to fruition, it will also potentially complicate the closing of Baha Mar's purchase by CTFE.
The latter's deal with the China Export-Import Bank and its Perfect Luck vehicle only closes when the $4.2 billion project's construction is completed, and this deadline was extended in the 'Heads of Terms' with the former Christie administration until December 1, 2017.
Any suggestion that CCA is likely to miss another construction completion deadline, in addition to the three that were missed under Mr Izmirlian, is also especially badly timed given that Baha Mar's former developer just last week called for the Government to place a "moratorium" on completing Baha Mar's sale to CTFE.
Mr Izmirlian now has further evidence he can use to support these demands and his previous allegations against CCA, where he blamed "shoddy workmanship" - and its failure to complete Baha Mar on time, and on budget - as the main reasons for the project's fall into Chapter 11 bankruptcy protection.
CCA, meanwhile, accused Source Outdoor of "commercial extortion" through its withholding of the final 1,420 lounge chairs.
"Source is apparently trying to collect money owed to it by the original owner of the project, Baha Mar Ltd, which became insolvent," CCA alleged. "Baha Mar Ltd's secured creditor liquidated its assets and then sold the project to owner [Perfect Luck].
"In order to coerce CCA to pay the debts of Baha Mar Ltd, which if anything are owed by a third party and demonstrably unrelated to the contract, Source is calculatedly and unjustifiably interfering with CCA's relationship with [Perfect Luck] by withholding delivery of the chairs, thus making it impossible for CCA to achieve key construction deadlines and in this manner undermining CCA's own contractual commitments.
"Not only is this malicious and insupportable conduct interfering with the existing contract between CCA and [Perfect Luck], it is obviously interfering with CCA's long-term advantageous business relationship with [Perfect Luck......
"Among other forms of damages, CCA is being exposed to the dramatically severe liquidated damage provision of its agreement with [Perfect Luck], and is at risk of the loss of its valuable and lucrative relationship with [Perfect Luck], the marketing and development opportunities related to the successful grand opening of the Baha Mar resort, and subsequent construction delays stemming from Source's breach."
CCA alleged that Source Outdoor has ignored its May 3, 2017, demand letter for the delivery of the lounge chairs and to stop selling them to third parties.
"The deadline for Source's response has since passed, and Source has refused to deliver any of the 1,420 chairs for which it has been paid in full," the contractor alleged. "Contacted by counsel for CCA, Source's lawyer advised that Source would be taking no affirmative action to provide the chairs and that CCA should 'do what it has to do'."
CCA's lawsuit is less than forthcoming on its relationship to the "secured creditor" and the "owner", who are the China Export-Import Bank and Perfect Luck. The latter is a vehicle of the bank, and all three entities are ultimately owned and directed by the Beijing government.
Nor is there any mention of CCA's role in the $101.5 million creditor payout process, which discriminated against foreigners and in favour of Bahamians, despite one of the contractor's executives sitting on the five-person committee determining who received something, and how much.
The document, though, makes numerous references to CCA's "advantageous business relationship" with the China Export-Import Bank and Perfect Luck, and how it "has profited - and is profiting - both financially and commercially" from this tie-up.
CCA's warnings and pleas also recall the confidential January 20, 2015, memo to its Beijing parent in which it warned that the critical March 27, 2015 opening date was likely to be missed despite assurances to the contrary that were given to then-prime minister, Perry Christie, and Mr Izmirlian just two weeks earlier.
The contractor warned then that the Baha Mar project and its stakeholders faced "irreversible and catastrophic loss" unless drastic action was taken.
"Currently, the project is at a crucial dash to meet the final deadline," CCA warned CSCEC, its Beijing parent, in January 2015.
"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, also added that "unmeasureable damages to the brand and reputation of CSCEC will also be caused" should Baha Mar's target opening date be missed.