The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

SARKIS Izmirlian has accused Baha Mar's main contractor of causing an $84 million funding "squeeze" due to its desire to eliminate the "project watchdog".

Baha Mar's original developer, in his $2.25 billion damages claim filed on Boxing Day, alleged that China Construction America (CCA) caused a six-month financing "cut-off" from May 2012 by deliberately "misleading" the project's financier about Mace International.

The lawsuit against CCA and its affiliates, filed in the New York State Supreme Court, claims that it "persuaded" the China Export-Import Bank to delay/suspend Baha Mar's construction financing until Mace was fired as Mr Izmirlian's 'representative'.

Mr Izmirlian and his BML Properties vehicle are alleging that CCA was unhappy about the "heightened scrutiny" it faced from Mace, along with design changes that the contractor feared would reduce its earnings from Baha Mar.

Unable to resist the "financial pressure" caused by the funding cut-off, and wary of causing further delays by taking CCA to a Dispute Resolution Board (DRB), Mr Izmirlian alleged that Baha Mar was forced into a May 17, 2013, Memorandum of Understanding (MoU) that the Chinese state-owned contractor failed to comply with.

Detailing what turned out to be a 'preview' of events prior to his Chapter 11 bankruptcy protection filing, Mr Izmirlian said Mace was ordered to "more directly scrutinise the productivity and completeness" of CCA's work in mid-2012, after Baha Mar's president, Tom Dunlap, started to believe the contractor and its executives were "in over their collective heads".

Mace's directions came following a 'value for money' review of Baha Mar's design, which sought to extract cost savings while maintaining the project's quality. The savings identified were to be shifted to the development's 'soft' costs budget, where - among multiple uses - they would provide "sufficient funds" to continue financing Mace's work.

Mr Izmirlian, though, alleged that CCA resisted the 'value for money' savings exercise "in order to keep its overall contract amount as high as possible to retain its profit.... and maximise its fee" as Baha Mar's main contractor.

"CCA also resisted this effort to prevent an increase in the 'soft costs' budget and a concurrent increase in the funds available for Mace's work," he claimed. "CCA even came to a meeting and directly told BML Properties and Baha Mar Ltd to 'get rid' of Mace.

"CCA was fully informed of this [value for money] process, knew from numerous Board and other meetings that it was underway, but never once objected formally before the Board of Baha Mar Ltd (on which it held one seat) regarding the changes to the budget that would result from this process."

Mr Izmirlian alleged that CCA's determination to maximise its profits, at the expense of Baha Mar, resulted in the contractor "misleading" the China Export-Import Bank by alleging that its $2.45 billion loan proceeds would be financing "a less valuable project" rather than improving the development's overall value.

Baha Mar then began to "fully utilise" Mace to oversee all aspects of the contractor's work. "CCA executives did not react well to this heightened scrutiny from Mace, and did not like the outcome of the [value for money] process," Mr Izmirlian alleged.

"BML Properties is informed and believes, and thereupon alleges, that CCA concurrently began misrepresenting the role of Mace to China Export-Import Bank, an entity with which CCA had no contractual relationship regarding this project, and set about intending to and actually interfering with the relationship between BML Properties and Baha Mar, on the one hand, and China Export-Import Bank on the other."

Mr Izmirlian said Mace "placed CCA under considerable pressure" to properly perform and live up to its commitments in the Baha Mar Investors' Agreement and main construction contract, but the "numerous conflicts" between the two parties "came to a head in June 2012".

He alleged that Baha Mar's main contractor lied about Mace to the China Export-Import Bank, claiming: "CCA falsely stated to China Export-Import Bank that Baha Mar was using loan proceeds intended to pay Mace to instead make payments to Mr Izmirlian or to other entities controlled by Mr Izmirlian.

"In response to that false accusation by CCA, China Export-Import Bank demanded that Baha Mar sever its ties with Mace in its then-role, [and] held up payment on Utilisation Requests (the formal document by which Baha Mar, as the borrower, requested that funds be advanced under the credit facility to pay CCA, Baha Mar's direct contractors, Baha Mar's consultants and engineers, and Baha Mar's internal and administrative costs), resulting in a lack of funds to pay consultants and sub-contractors other than CCA Bahamas."

China Export-Import Bank also hired the PricewaterhouseCoopers (PwC) accounting firm to conduct a three-month forensic audit of all payments to Mace, with a six-member team unable to find anything to support CCA's allegations.

Mr Izmirlian said CCA's complaints about Mace were designed to distract from its "own failures", but resulted in influencing the China Export-Import Bank to act against the interests of Baha Mar and the project. However, given that both CCA and the bank share the same owner, the Chinese government, the latter's decision to accept the contractor's word should not be surprising.

Accusing CCA of "creating a wedge" between developer and borrower, Mr Izmirlian alleged that the contractor upped the pressure when it found out its bid for a 'work package' on Baha Mar's convention centre had not been successful.

He claimed CCA "directed and encouraged" the China Export-Import Bank, its affiliate, "to force Baha Mar to terminate Mace" as his representative by falsely claiming the latter was hired as a 'construction manager' - something that would have breached the project's construction contract.

"CCA's interference caused China Export-Import Bank to withhold vital funding between May 2012 and early 2013, including more than 20 Utilisation Request funding delays (some lasting up to 55 days and implicating $83.8 million)," Mr Izmirlian alleged.

"CCA's role in these developments was especially noticeable, since throughout 2011 and early 2012, any funding delays had been few in number and short in duration. As Baha Mar and Mace began notifying CCA of its early and repeated failures in 2012 and after, the funding delays became more disruptive and prolonged.

"Faced with this financial pressure in 2012, Baha Mar Ltd. had no choice but to suspend certain needed Mace personnel (needed because Baha Mar required as many on the site as possible to observe and direct remedies for CCA's failures), and second certain Mace personnel to Baha Mar as owner's representatives or Baha Mar's consultants (such as Davis Langdon, AECOM).

"Once Baha Mar notified CCA that it would terminate Mace in large part, CCA immediately persuaded China Export-Import Bank to resume funding the project, and thus the bank recommenced funding after lengthy delays brought about by CCA's lies to China Export-Import Bank."

Mr Izmirlian alleged that the financing squeeze forced him into the May 17, 2013, MoU with CCA that was witnessed by the then-Chinese ambassador to the Bahamas.

"Squeezed by the cut-off of funding caused by CCA's lies to China Export-Import Bank, and with a choice to pursue mid-project litigation before the Disputes Resolution Board (or other remedies) that might result in delay to the work, or to instead attempt on an interim basis to resolve certain disputes with CCA, Baha Mar and CCA entered into a Memorandum of Understanding (MoU) setting out agreed items," Mr Izmirlian alleged.

"Those items included CCA representations that it would dramatically increase the workforce on the project in specific increments by specific dates; the award by Baha Mar to CCA of certain work packages; Baha Mar's award to CCA of the Convention Center MEP (mechanical, electrical, plumbing) work package, and completion dates.

"These completion dates included a commitment by CCA that Baha Mar would receive 100 per cent access to, at a minimum, the key ballrooms and meeting rooms of the Convention Centre on or before March 31, 2014." Mr Izmirlian claimed the contractor lived up to none of its commitments