The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar yesterday rejected China Construction America’s claim that it cannot be removed from the $3.5 billion project, as it unveiled a $400 million proposal seeking approval to ‘divorce’ its main contractor.

The developer, in a statement sent to Tribune Business, said the contract with China Construction America (CCA) and its Bahamian subsidiary allowed it to hire replacement contractors to perform the work it “fails or neglects” - and bill them for the costs.

“The terms of the construction agreement between Baha Mar and CCA Bahamas, terms that China Ex-Im Bank approved, allow Baha Mar Ltd the right to ‘carry out the work’ that the Contract requires CCA to do but CCA fails or neglects to do,” Baha Mar said.

“After carrying out that work, Baha Mar is entitled to bill CCA Bahamas for the cost of doing the work – again, a term to which CCA Bahamas and China Ex-Im Bank agreed many years ago.

“CCA has failed and neglected to complete the project on time as the contract required, and CCA has created errors in the work, all of which, after notices were given to CCA Bahamas over many months, Baha Mar is entitled to complete and correct in order to bring the project to completion.”

Baha Mar’s statement, and interpretation of the two parties’ contract, contrasts sharply with China Construction America’s, which on Friday effectively said it was ‘immovable’ due to the conditions set by the China Export-Import Bank as the project’s $2.45 billion debt financier.

“CCA Bahamas has a firm, binding contract in place with Baha Mar to serve as the construction manager/general contractor for the Baha Mar project,” the contractor said on Friday.

“This is a condition of the $2.5 billion senior bond issued by China Ex-Im Bank to finance the construction of the Baha Mar project, and the terms cannot be voided by any parties.”

The two sides’ respective positions highlight the huge gulf between them, one which has made resolution of the disputes surrounding the $3.5 billion development’s completion and opening increasingly difficult.

Sarkis Izmirlian, Baha Mar’s chairman and chief executive, in a letter sent to the China Export-Import Bank’s president last Thursday, has effectively moved to break the deadlock by seeking its permission to ‘divorce’ China Construction America and replace it with a group of Bahamian and other contractors.

The move is part of a $400 million proposal by Mr Izmirlian to ensure Baha Mar’s completion, in which he describes further negotiations with China Construction America as fruitless.

In his July 23 letter, he accuses the contractor and its parent, China State Construction Engineering Corporation, of “backtracking” on the October 31, 2015, completion date, it had seemingly agreed to last week.

“Despite all our efforts, we still are no closer to a solution with China Construction America/China State Construction Engineering Corporation,” Mr Izmirlian told Liu Liange, the bank’s president.

“We want to work with all parties to achieve a consensual resolution and have been vigorously attempting to do so, including through the meetings in Beijing last and this week. However, we cannot do so alone.

“Even today, we have received further comments from CCA’s attorneys backtracking on issues agreed last week,” Mr Izmirlian added.

“They now refer to a temporary certificate of occupancy at October 31 with ‘substantially all’ of the resort complete, as opposed to a certificate of occupancy and 100 per cent complete as agreed.

“They now want their retainage funds released early in contravention of the construction contract and the approval process contained therein, including sign-off from the Architect of Record and the bank’s project monitor.”

Both issues cited by Mr Izmirlian have been central to the dispute. Getting a firm completion date from China Construction America, following three missed opening dates, has been a core Baha Mar demand, especially since it sees the contractor’s failure to complete the project on time, and on budget, as the key factor that drove its Chapter 11 filing.

China Construction America’s demands that Baha Mar release early the funds typically retained by developers until construction is completed has been another sticking point.

“In light of all these facts, we do not believe that continuing the discussion with China Construction America/China State Construction Engineering Corporation (CSCEC) is a prudent path,” Mr Izmirlian wrote, asking for the China Export-Import Bank’s permission to cut the contractor loose.

That may prove a request the China Export-Import Bank finds impossible to grant, given that both itself and China Construction America share common ownership in the form of the Beijing government.

Still, Mr Izmirlian pointed out that even China Export-Import Bank executives had conceded during a Beijing meeting that Baha Mar would not need extra financing if it had opened on time, and on budget.

“We have offered confidential independent binding arbitration to determine who is correct in our claims against China State and their claim against Baha Mar. CCA/CSCEC have repeatedly declined our offer,” he added.

“CCA walked off the project in April in breach of its obligations, and due to that breach and others by CCA, Baha Mar intends to mitigate its damage, and work toward an opening, in accordance with the provisions in the Main Construction Contract.”

China Construction America has countered by saying it suspended work on Baha Mar after the developer failed to pay it the $75 million owed for work between February and May 2015.

In his ‘divorce’ proposal, Mr Izmirlian urged the China Export-Import Bank to kick-in $200 million, or 50 per cent, of the $400 million necessary to finance Baha Mar’s construction completion. His family, headed by his father, Dikran, would inject the $200 million balance.

China Construction America would be replaced by a combination of Bahamian and foreign contractors, and engineers and consultants.

“We have a plan in place ready to present to the bank. We have also begun conversations with Chinese general contractors to assist if needed,” Mr Izmirlian said.

He added that Baha Mar’s $192 million claim against China State Construction Engineering Corporation in the UK high court, and the Disputes Resolution Board, should be allowed to resolve the differences between the developer and contractor.

“We are not asking China Export-Import Bank to take sides, only to allow us enforce our contractual rights, and for CCA/CSCEC to assert theirs,” Mr Izmirlian said.

“After careful consideration, we believe this is the only way to complete Baha Mar and find a compromise with China Export-Import Bank......

“Although we have been unable, despite significant effort on our part, to find a solution with CCA/CSCEC, we can find a solution amongst the two of us. Why allow the contractor to continue to hold Baha Mar hostage?”

Baha Mar wants a reply to Mr Izmirlian’s proposal by today.