$60M 4-Star Hotel
Working as the Owner’s construction damages and liability expert, Steve Holloway analyzed the contractor’s cost overruns and their causes. He exposed the indefensible and flawed nature of the contractor’s case and claims. Based on Steve Holloway’s one-year examination of the file, Holloway testified that the Owner’s personality and likability were irrelevant issues. The actual cause of the contractor’s extra costs was that the contractor negotiated poorly and needed to include more price in the GMP Contract to cover all the risks it had accepted. Therefore, in Steve’s construction damages and liability expert opinion, the $14M in inexcusable cost overruns, the vast majority of which resulted from bid/buyout busts, were the Contractor’s responsibility.
The Contractor’s Case
The Contractor’s case-in-chief was that the Owner was the villain, that he acted horribly and unprofessionally during the project, thereby hurting certain people’s feelings and miraculously causing the Contractor’s $14M in extra costs. (This is reasonably accurate and only a slightly dramatic exaggeration made for entertainment purposes. Stories about civil litigation don’t always have to be boring.)
On the other hand, Steve Holloway, working as the Owner’s construction damages and liability expert, performed an expert analysis of the contractor’s cost overruns and their causes, and exposed the indefensible and flawed nature of the Contractor’s case and claims. Based on Steve Holloway‘s one year examination of the file, Holloway testified that the Owner’s personality and likability were irrelevant issues. Primary causes of the Contractor’s extra costs were that the Contractor negotiated poorly and simply did not include sufficient price in the GMP Contract to fully cover all of the risks it had accepted. The $14M in inexcusable cost overruns, the vast majority of which resulted from bid/buyout busts, were the Contractor’s responsibility.
Owner’s Case
The Contractor’s (self inflicted) $14M in inexcusable cost overruns essentially arose during its 3+ years of evaluations and negotiations with Steve Holloway‘s Client, the Owner, and culminated when it executed the GMP Agreement and guaranteed it would build the 4-Star hotel according to the Contract Documents and charge the Owner no more than the $56.3M GMP. The Contractor made the risky decision to guarantee its maximum or ceiling price without first having secured corresponding price guarantees and subcontracts from its various trade vendors and suppliers.
Subsequently, the Contractor was unable to secure subcontracts for the terms and prices in its GMP, but likely did not appreciate the full severity of its impending financial problems until bids came back millions of dollars over budget. The Contractor internally accepted responsibility for these mistakes and chose to self-perform as much of the work as possible in an attempt to mitigate its pending inexcusable cost overruns. To accommodate this decision, the Contractor transferred about $12M in budget from subcontractor accounts to self-performed accounts.
The Contractor pushed work downstream and cut corners but was ultimately unable to overcome its continuously mounting and inexcusable cost overruns. Although it did not tell the Owner, the Contractor internally reported a net reduction of approximately $15M in profits from +$3M to -$12M.
Job Completion
Near the end of the job, the Contractor had incurred approximately $72M in costs and commitments. Rather than informing the Owner that it intended to file claims for its extra costs (thereby putting The Owner on notice so it could retain payments per the terms of the CSA to cover these costs), the Contractor executed unconditional lien waivers and accepted a total of approximately $58M in payments from the Owner.
When the Owner informed the Contractor it had not shown a valid reason for the Owner to pay more than its share of the contract amount ($59M), the Contractor ceased work, refused to complete the work the Owner had paid for, and filed claims and the Demand for Arbitration.
Arbitration
Surprisingly, the Contractor did an about-face in the Arbitration by dodging its contractual requirements and denying responsibility for the numerous inexcusable cost overruns it caused. The Contractor’s experts also ignored the Contract’s key provisions barring their claims and submitted far-fetched, unsupportable claims alleging late and changing design and cost impacts with little or no valid basis or analysis. The Contractor’s experts contradicted the Contractor’s own numerous internal assessments of the project and were not credible because they did not identify the contractual basis of their claims, lacked analysis and causation, grossly overstated the Contractor’s costs and damages, and omitted the Contractor’s self-reported noncompensable costs.
In addition, other inexcusable/noncompensable costs that offset the Contractor’s cost overruns and claims (and those of its subcontractors) included approximately $11M in PCOs that both the Owner and Holloway found invalid or otherwise un-approvable during the project. Of this $11M, Holloway concluded that approx. $9.5M remained inexcusable and un-approvable. The approvable PCOs served as a credit against the Owner’s damages claims.
Panel’s Ruling
Thus, when the Contractor abandoned the project late and filed for arbitration, it did so wrongfully and in breach of Contract, given that almost all of its cost overruns and negative profits were caused by the Contractor and not the Owner.