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Construction & Design Featured

Builder row not necessarily the final nail in coffin

By Konrad Putzier

In real estate as in personal relationships, a divorce can be the best solution for all involved.

The glass is half full for Ratner's modular tower.
The glass is half full for Ratner’s modular tower.

A week after Skanska canceled its contract to build Forest City Ratner’s Pacific Park modular tower in Brooklyn, it seems less and less likely that the sides will come back together.

This means Forest City Ratner may be forced to find a new contractor for the half-finished residential project — once hailed the future of construction but now mired in delays and cost overruns.

While switching contractors halfway through a project is unusual, it can end up being the lesser evil.

“It is always a headache when you switch forces mid-stream. It costs time and it inevitably costs money,” said a construction attorney, who spoke to Real Estate Weekly under the condition of anonymity because he may still be involved in litigation between Skanska and Forest City Ratner. “But it may cost less than continuing with the same contractor.”

“Schedule, cost and quality are the three main drivers of any project. Developers may switch contractors if any of these three become a problem,” the attorney added. Or, in the case of Skanska and Forest City Ratner, all three. Skanska USA

Building and Forest City Ratner have been at odds over the project for weeks, but the conflict only became public when the contractor stopped work on the site on August 26.

The firms’ quarrel is over who gets to foot the bill for delays, cost overruns and alleged quality concerns.

RICHARD KENNEDY
RICHARD KENNEDY

In a recent interview, Skanska USA Building’s COO Richard Kennedy said “no one knows if the building is going to leak.” Skanska estimates cost overruns for the 32-story building could amount to tens of millions of dollars.

The two firms have since exchanged lawsuits, accusing each other of breach of contract, and last week Skanska terminated its contract as the building’s construction manager.

In theory, this leaves Forest City Ratner free to find a different contractor, although the two firms’ joint ownership of the modular factory where the apartment units are being produced complicates matters.

If Forest City Ratner manages to untangle the factory’s ownership, it could join the small club of developers that switched contractors halfway through a major project.

A recent example is the Patricia and Philip Frost Museum of Science in Miami. In May it fired the Boston-based firm Suffolk Construction as construction manager after more than two years of work on its new $275 million home, citing serious design flaws that led to delays.

The museum then signed a deal with a new contractor to finish the project: Skanska USA.

In Iowa, the construction firm CPMI recently took over the work on a $6.7 million courthouse after the General Services Administration fired the original contractor.

According to its website, CPMI “assisted the GSA in developing a recovery process which would complete the project in a reasonable time.”

Other divorces went less smoothly.

In 2013, Wayne County in Michigan canceled its deal with construction firm AECOM Technical Services halfway through construction of a jail after it learned of a $47 million cost overrun.

The county then sued the contractor to recover the $154 million it had already spent on the half-finished project.

According to recent news reports, the two sides are currently negotiating over a deal that would complete a smaller and cheaper version of the jail. Work on the site has been stalled for more than a year. микрокредит

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