Owner blames construction contractor for delays
The Baha Mar Resort, the $3.5 billion six-hotel casino mega-resort project in Nassau, the Bahamas, that is hoped will revive the Caribbean nation’s tourism industry, has filed for U.S. Bankruptcy Court protection in Delaware. As a result, Baha Mar has filed suit against its contractor, China State Construction Engineering Corp. Ltd., seeking more than $192 million in damages.
The project, which will add four new hotels to two existing hotels along with the largest casino in the Caribbean, 40 restaurants and bars, a golf complex, retail and residential elements and other amenities, has seen its grand opening delayed twice. It was originally slated to open last December, to take advantage of the 2014-15 high season. The owner delayed that to March 27, saying its contractor had not achieved the quality desired.
This spring, the grand opening was delayed indefinitely, as Baha Mar CEO Sarkis Izmirlian publicly blamed the project’s construction contractor, the Chinese state-owned China Construction America, for delays, and blamed the Bahamian government for lagging behind in providing training for Bahamian workers.
Construction subsequently halted as Izmirlian refused to pay the contractor the rate demanded, which was four times what the operator claims was due.
The use of China Construction America as lead contractor was a prerequisite for obtaining the main loan financing for the project, from the state-owned China Export-Import Bank. At the time the agreement was forged in 2010, financing for a project this size was extremely hard to come by, thanks to the worldwide recession.
Bahamas Prime Minister Perry Christie has commented twice on the project, saying two weeks ago that completion of the project has taken on “national urgency” for the Bahamas, not only to preserve the expected influx of 5,000 jobs, but to protect the jobs of the nearly 2,000 employees already working at Baha Mar, many of whom have been given busy-work tasks as the project sits idle.
The completed project’s annual payroll is projected at $130 million, which would represent 12 percent of the Bahamas’ gross domestic product.
According to court papers, the Baha Mar project is 97 percent complete. Izmirlian, after the bankruptcy petition was filed, took new aim at his contractor. “The general contractor repeatedly has missed construction deadlines,” he said in a statement. “Unable to open, the resort has been left without a sufficient source of revenue to continue our existing business.”
Court papers included with the bankruptcy petition state that when the March opening date became untenable, the operator was “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.”
Izmirlian said the bankruptcy protection will provide the time needed to complete the project. The petition listed unaudited assets of $3.1 billion and debts of around $2.7 billion. The company is seeking court approval of $80 million in new financing to be arranged by Izmirlian to enable Baha Mar to operate during the Chapter 11 process. The petition says the company will use $30 million for operations over the next 30 days.
Baha Mar’s lawsuit against China State Construction Engineering Corp. Ltd., the parent company of contractor China Construction America, seeks “damages for delay, currently estimated to be at least US$50 million, and damages as a result of failures to perform or provide professional construction management services, currently estimated to be at least US$55 million.”
The documents include an affidavit from Baha Mar President Thomas Dunlap blaming construction delays, contract breaches and performance failures on the “inexperienced” contractor.
“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,” Dunlap wrote. “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 materialized.
“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.”
Dunlap’s affidavit also detailed the impasse that led to the halt of construction, saying that China Construction America sought $343.8 million in payment for work carried out between February and May this year, when the project’s main financier countersigned to approve only $76.1 million for the work.
In a letter to the workers at Baha Mar, Izmirlian says the bankruptcy will allow the company to survive and possibly operate the property while it addresses the issues with the China Construction America.
“The people of the Bahamas should no longer have to endure the adverse effects of the general contractor not fulfilling assurances regarding the completion of Baha Mar’s construction, forcing in turn embarrassing delays of Baha Mar’s opening,” Izmirlian wrote. “Nor should members of the travel industry and guests continue to face understandable frustration and disappointment caused by the failure to complete construction.
“All of this now stops with and can be remedied through the chapter 11 process.”
Several rumors have surfaced that Genting would buy the project from Baha Mar for pennies on the dollars. The rumor was given new fuel when Christie and the country’s tourism minister attended the groundbreaking of Genting’s newest resort in Las Vegas in April. While Genting does operate a small resort on the Bahamas island of Bimini, the company has been long seeking greater penetration into the U.S. market, which would be accomplished by operating the Baha Mar project that would depend largely on a U.S. clientele.
