The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Sarkis Izmirlian is claiming Baha Mar’s main contractor would have cost him $169 million in “grossly over-valued bids” had he not intervened in its procurement process.

Baha Mar’s original developer, in his $2.25 billion damages claim against China Construction America (CCA) and its affiliates, alleged that the Chinese state-owned contractor “misused” and failed to properly control the $4.2 billion development’s tendering system. Mr Izmirlian, and his family’s BML Properties vehicle, are instead claiming that CCA used the project’s Tender Event Schedule (TES) to “improperly” advance its interests by submitting bids on Baha Mar work ‘packages’ that were “far higher” than the project’s budget and market rates.

“In light of CCA’s failures, Baha Mar was forced to seek its own savings in procurement,” Mr Izmirlian alleged. “Baha Mar had to intervene on certain packages as CCA’s initial recommendations or bids were grossly over-valued or proved to be uncompetitive.

“If Baha Mar had not acted to protect its interests and those of BML Properties, CCA would have placed orders for works approximately $169 million over the amount it should have paid.”

CCA, as Baha Mar’s main contractor, was responsible for breaking the multi-billion dollar project down into work ‘packages’ that would then be awarded to sub-contractors.

This meant CCA was responsible for determining the scope of each ‘work package’, pricing it, putting it out to tender, and then hiring the best bidder. Mr Izmirlian, though, alleged that the Chinese state-owned contractor sought to retain most of the work for itself so as to maximise profits.

“CCA exhibited at all relevant times a lack of willingness to provide non-self perform procurement strategies or bid processes for the project,” Mr Izmirlian and BML Properties alleged.

“Baha Mar was forced to insist that CCA prepare, and continue to provide, a traditional procurement process in line with any self-perform/commercial offer to ensure market value was proven.

“For example, in the case of the Building Envelope, Baha Mar had to perform a bid process of the windows and sliding doors work package to safeguard the project schedule, which resulted in a saving of approximately $2 million against the similar scope within CCA’s self-perform offer.”

Mr Izmirlian alleged that CCA only reduced its bids when confronted by Baha Mar on its price, or threatened that the developer might perform the work itself.

“Evidencing the failures of the bidding system, and as a result of CCA’s plan or inadvertence, CCA continuously submitted bids that were far higher than the budgets and the market,” the original Baha Mar developer alleged.

“Only when challenged by Baha Mar with proven market rates or a threat that Baha Mar might actually perform the works did CCA reduce its bid. By way of example only: On the Envelope Work Package, CCA communicated a bid at $143.105 million.

“When Baha Mar went out to tender on the sliding doors and arranged a ‘Value Engineering’ workshop on EIFS (exterior insulation and finishing system), CCA dropped its bid to $113 million. On Fit-Out, CCA started at over $170 million and made a ‘best and final bid’ of $122 million. Baha Mar went out to tender on the rooms and corridors, and CCA dropped its bid to $114 million.”

Mr Izmirlian claimed that CCA failed to analyse sub-contractor payment claims to ensure they were “fair, reasonable” and had the necessary supporting documents, forcing the developer to incur time, effort and delay in scrutinising them.

“Regarding the key duty as construction manager of controlling the bidding process to bring in the highest quality bids for the lowest responsible price, CCA was obligated to create a Tender Event Schedule (TES),” he alleged.

“However, CCA’s TES was misused and unmanaged by CCA. CCA did not report to BML Properties on its mismanagement of this process, nor did CCA report on the negative consequences of its mismanagement after the project reached the critical stage when such needed to be done, namely starting in early 2012.”

Describing the TES system as vital to an efficient, economic procurement process, Mr Izmirlian claimed: “Either by plan or inadvertence, CCA improperly used the TES to enhance its own interests instead of those of Baha Mar and its investors including, BML Properties, and CCA entirely failed to report on its conduct regarding the TES and the harmful consequences of its abuse of the TES and bidding process.”

He accused Baha Mar’s main contractor of seeking to “drag out” the fitting of guest rooms and corridors via a series of “uncompetitive self-perform offers”, in a bid to ensure there was “no time available to select anyone but CCA for this work”.

And, when it came to the ‘vertical transportation’ tender, Mr Izmirlian claimed CCA produced a bidder list that featured the exact same companies that Baha Mar itself had sought offers from in 2007.

“With respect to the bathroom pods package, CCA elected to progress with a sole bidder until BML Properties insisted that Baha Mar conduct a further interrogation of the market, which further effort produced the ultimate list of seven bidders,” the Lyford Cay resident alleged.

“This eventually produced a more successful outcome than the sole bidder proposed by CCA. CCA also presented a plan to Baha Mar at the end of 2013 to build the majority of SLS hotel bathroom pods in situ - ostensibly because CCA was concerned the pod deliveries would not be complete until January or February 2014.

“CCA assured Baha Mar the ‘in situ’ plan would be quicker. As of July 1, 2015, bathrooms in SLS either remained incomplete or subject to an excessive number of punch list items, meaning CCA’s plan utterly failed.”

Mr Izmirlian also blasted CCA’s alleged failure to deliver Baha Mar’s back-up generator farm ‘on time’, and failure to reduce the construction cost from $25 million to $19 million - something that had to be achieved by the developer itself.

“Notwithstanding CCA’s obligation to assist in ‘Value Engineering’ efforts regarding electrical supply, generators, the ATS equipment, and the building housing elements of this system, with respect to the generator farm CCA utterly failed to render any such services,” he claimed.

“Consequently, in April 2012, Baha Mar, aided by others (not CCA), delivered to CCA plans setting forth a redesign of the generator farm, achieved as a result of Value Engineering. Baha Mar and its consultants had found a way to reduce the size and scope of the building in which the equipment would be housed, retain the quality of the equipment found within, and still save over $6 million on an initial budget of over $25 million.”

Mr Izmirlian also alleged that the ATS switch equipment, which triggers the generators in the event of a power outage, was installed by CCA in a room that had not been weather-proofed.

“In November 2013, CCA installed ATS equipment in an unfinished room that was not waterproof, or even sealed against weather, and wind-driven rain (common for November in the Bahamas) entered the room,” his lawsuit claimed.

“That water intruded into the ATS equipment to such an extent that JBB [Baha Mar’s consultants] recommended that all six of the water-damaged ATSs be returned to the manufacturer for repair. Even after this damage, and as of mid-December 2013, CCA still had not waterproofed the room in which the ATSs were located, and the structure continued to leak.

“These highly complex switches (which include advanced microprocessor controllers) are intended for indoor use only, and must be protected from the elements, especially water. Indeed, this event was so troubling that JBB took photographs of the water intrusion and water-soaked conditions of the ATSs and the surrounding area, and included those photos in a November 27, 2013, letter to CCA.”

Mr Izmirlian also cited two occasions, on May 14, 2014, and June 25, 2014, where CCA dropped generator equipment valued at over $1 million.