Clark Construction Sues Miami Beach Over $90 million It Says It’s Owed for Convention Center Work

Susan Askew
Susan Askew

Clark Construction Sues Miami Beach Over $90 million It Says It’s Owed for Convention Center Work:

Hundreds of Design Changes, Mismanagement Alleged

[Updated Friday, January 31 with further comment from City Manager Jimmy Morales at end of story.]

Clark Construction, the General Contractor for the renovation and expansion of the Miami Beach Convention Center, says in Court documents that the City of Miami Beach owes $90 million for unpaid work completed by Clark and nealry 30 subcontractors on the facility.

In the lawsuit filed with the Miami-Dade 11th Circuit Court’s Complex Business Division, Clark’s attorneys detail “constant design changes” continuing through January of this year and the City’s refusal to pay for those changes or grant time extensions for completion. The suit also alleges the City failed to fully compensate Clark for repairs and delays due to Hurricane Irma despite being reimbursed for the costs themselves.

“Nevertheless, Clark persevered and did its job, such that the City is currently reaping the benefits of this state-of-the-art convention center,” the suit states.

Clark is seeking $20 million it says the City continues “to hold hostage” in contract balance and retainage money for defective and non-conforming work as well as $70 million in costs for extra work and additional time to complete the project as a result of the actions by the City and its owners’ representative, Miami-based Hill International. Clark is seeking $50 million in damages from Hill. 

According to the Court documents, “Clark is one of the most experienced builders of public assembly spaces in the United States, having constructed 17 convention center projects, totaling more than 24,000,000 square feet of public assembly space at a value in excess of $5.5 billion.”

In two RFPs issued by the City, Clark was the only bidder on the project. In May, 2015, Clark and the City entered into a Construction Manager At-Risk contract, making the City responsible for design with Clark acting as Construction Manager for the 1.5 million square foot renovation and expansion of the Convention Center. A guaranteed maximum price (GMP) of $515.5 million was negotiated based on drawings by Fentress Architects that were 65-75% complete at the time. The “Substantial Completion Date” was set for June 30, 2018. (The overall cost of the Convention Center project is $615.4 million.)

Following what Clark claims were “significant changes to the Project design that impacted both cost and schedule,” the City did agree in January 2017 to an additional $57 million, increasing the guaranteed minimum price by approximately $39 million to $554.6 million and agreeing to take another $16.7 million from the project’s contingency. The substantial completion date was moved to August 8, 2018, later extended to August 23 as a result of Hurricane Irma.

That agreement, however, “was premised on the express representation by the City that the ‘Construction Documents are now the approved completed Construction Documents.’” [Emphasis in the court filing.]

“Unfortunately, the City’s representation was not true,” Clark claims, and “the City continued to change the design…” Clark says the total cost of the changes since the January 2017 agreement is $70 million.

In addition to the unpaid work, the other part of the complaint is the City’s refusal to grant extensions to the substantial completion date despite “significant design changes.” The date is important because the City has been assessing Clark liquidated damages of $15,000 per day since August 24, 2018. At the time of a November letter to Commissioners from City Manager Jimmy Morales, those damages totaled $4.8 million.

One of the examples cited was the addition of “a direct connection from the exhibit space to the Grand Ballroom by adding an elevator and escalators.” That request was made by Art Basel representatives after touring the facility while it was under construction and was a key factor in the City’s signing a long-term agreement with the art fair. Clark claims that while the City acknowledged the request “constituted a material change,” it refused to grant a time extension to the Substantial Completion date to accommodate it.

An unusual and challenging aspect of the project was the City’s plan to hold events during construction, especially its desire to keep its commitment to the annual Art Basel fair.

“… the City also demanded that all events the City had booked (without Clark’s consent) go forward as scheduled even while Clark and its subcontractors were performing extra work caused by late design changes,” according to the suit, forcing Clark and its subcontractors “to resequence and accelerate the work, and perform additional work, so that all shows and events occurred as scheduled. The City has not compensated Clark or its subcontractors for those additional efforts that allowed these events to be held or the impact caused by these shows and events.”

“Despite the challenges caused by the actions of the City and Hill, the efforts of Clark and its subcontractors have been successful. Throughout construction, over 92 shows or events have been held in the Convention Center – with more than 52 shows or events” since the revised substantial completion date of August 23, 2018, the suit says. Clark alleges the City has assessed the liquidated damages “even on days that the City would not allow Clark to work in the building because of a show or event.”

The suit also claims the City has reimbursed only $3.9 million of the $6.8 million in costs for work needed to repair damages caused by Hurricane Irma and the subsequent need for accelerated work to be ready for the 2017 Art Basel fair despite being reimbursed in full by a Miami-Dade County Trust Fund, “effectively converting Clark’s money to line its own pockets,” it says.

As to getting to the Substantial Completion Date, Clark claims, “The City is continually changing what it requires for a Temporary Certificate of Occupancy (“TCO”) and uses the absence of a TCO to assess liquidated damages against Clark, while generating millions of dollars in revenue for multiple high-profile events at the Convention Center without a certificate of occupancy.”

In his November letter, Morales wrote that following a Notice of Default and Opportunity to Cure issued to Clark in July, the City and Clark agreed to a Cure Plan this past summer which included Clark’s achieving a TCO by September 15, 2019, substantial completion by November 15, and final completion by January 17, 2020. As of November 6, Morales said, “Clark has failed to achieve TCO and has further notified the City that Clark will not be able to meet the substantial completion and final completion milestones provided by the Cure Plan. Accordingly, Clark’s default continues to be unabated.” The City, meanwhile, contracted separately with subcontractor Honeywell “to facilitate certain fire alarm work that is critical to obtaining a TCO,” according to Morales' letter. 

The suit claims the problem is that the design changes just kept coming. “From the end of March 2019 to January 2020, the City made over 100 scope changes” in addition to the Fire Marshall’s directive to add nearly 300 additional fire alarms to the building. 

“Those scope changes, as well as some previous scope changes, were not incorporated into the Construction Documents that were provided to Clark on May 23, 2019. As of the filing of this Complaint, the City has failed to provide conformed, permitted Construction Documents that incorporate these changes” and are necessary to receiving a Temporary Certificate of Occupancy, according to the suit. “[T]he City’s failure to provide the conformed, permitted Construction Documents prevented Clark from obtaining a Temporary Certificate of Occupancy (“TCO”) and achieving Substantial Completion of the Project.”

Despite the lack of a TCO since late 2016, the shows have gone on through special events permits. City spokeswoman Melissa Berthier emphasized, “All life safety systems are in place,” however, she added, “In order to obtain full TCO the systems must be tested for a continuous 30 days and the building must be 100% dark. Since the Convention Center has been in such high demand, it’s been challenging to find the time to schedule this.”

Meanwhile, Clark’s attorney Etan Mark, partner at Mark Migdal & Hayden, told RE:MiamiBeach the City continues to assess liquidated damages while the Convention Center is occupied and testing is not able take place. He said the City can’t “assess liquidated damages [yet] claim that the project has been delivered by simultaneously holding events that generate millions of dollars for the City.”

Mark said, “My client is really disappointed that it’s unfortunately come to this point. We have had several meetings with the Mayor, City Manager, and City employees for over a year and they have been completely unwilling to provide any kind of commitment toward resolution of this issue, effectively daring us to file a lawsuit, which here we are.”

“Really so much of the balance that’s remaining to be paid is what’s owed to the subcontractors here,” he noted. “Of these 30 businesses, many are based in South Florida and it’s incredibly damaging to them to not be paid on this project. It’s a significant project, a lot of work, and they’re looking to Clark which is doing everything it can to get the City’s attention and pay these subcontractors what they’re owed.”

Clark noted in the suit that it “remains committed to fully performing all work on the project and fulfilling its remaining obligations under the Agreement.” 

Mark expanded on that in our interview when asked why Clark stayed on the job. “Clark built a beautiful facility… Clark did a great job and I don’t think they want this to be a situation where they didn’t finish what it is that they committed to do. Now they are asking the City to finish what it committed to do. Clark views this as a feather in their cap. Through hurricanes, literally hundreds of design changes, Clark managed to build something pretty special. It doesn’t wish to end this by walking off the job, rather have a court say 'Pay them what they’re owed.'”

He said Clark has completed all the necessary work with a fairly inconsequential punch list that is “typically handled post TCO or CO."

“We have tried to negotiate and at this point we are fully expecting a protracted legal battle and we feel that we have no other choice but to proceed that way,” he said.

Also in his November letter, Morales noted, “The project currently remains on budget and within the guaranteed maximum price as established by the Construction Manager at Risk (CMAR) Agreement."

Mark quipped, “It’s on budget if you don’t pay your contractor and subcontractors.”

For his part, Morales released this statement regarding the litigation: “I find it shocking, given that Clark Construction has delayed this project for nearly 1.5 years, that they have the gall to file a lawsuit against us. Frankly, the City is the one entitled to damages, not Clark. The City is prepared to fully litigate this matter and protect our best interest.”

UPDATE: Friday, January 31, City Manager Jimmy Morales sent a letter to the Mayor and Miami Beach Commissioners expanding on his initial statement to the media.

In his letter, he said the City learned of Clark’s lawsuit through the media on Wednesday. “Despite the fact that City staff and Clark staff communicate regularly, no one from Clark gave any advance notice that a lawsuit would be filed. It was only this morning [Friday] that Clark finally served the complaint on the City,” he wrote.

“While it is normally not our practice to comment on litigation, Clark’s attorneys, and the complaint itself, have made a number of unfounded allegations which were picked up by the media. Fairness requires that I respond to at least some of those falsehoods,” Morales said.

While Clark’s attorney state to RE:MiamiBeach that there were only minor punch list items remainding, Morales refuted that claim. “Though Clark had represented to the City that the Project was substantially completed as of July 2019, the project architect, whose responsibilities include determining when substantial completion is reached, disagreed,” Morales wrote. He attached a letter from the Fentress Architects which stated that “not only was the Project not complete, but that substantial additional work needed to be performed. In short, Clark’s representation that substantial completion was reached was false.” Among the list of requirements not met, the architects noted 12,334 substantial completion inspection items of which only 1,607 had been resolved by Clark.

“As I noted in the only public statement I have made thus far on this litigation, Clark has a lot of nerve to file this lawsuit,” Morales said. “We are eager to demonstrate in Court that Clark’s misfeasance, inaction and delay has cost the city millions of dollars. It is for that, among other reasons, that the city continues to hold retainage – something it is legally entitled to do – in order to protect its financial interest.”

“The City hired Clark because Clark represented itself as a world class construction company that could deliver this kind of large, complex and sophisticated construction project on time,” he said. “From the very beginning, Clark knew that much of its work would have to be performed while the Convention Center was in use, and it assured the City that the Convention Center’s continuing events would not prevent timely completion. Unfortunately, Clark has failed to deliver on the promises and assurances it made, and on which the City relied.”

Morales addressed the ability of the Convention Center to operate with Special Event permits pending its Temporary Certificate of Occupancy (TCO). “While Clark’s delays have caused untold complications and damage to the City, I do want to assure you that the lack of a TCO does not prevent us from holding events in the Center. If you recall, when this project was first approved by the City Commission in 2014, we were given the directive to use our best efforts to keep one half of the building open to host shows and events during the construction and the entire building for Art Basel each year. As such, the Center has been operating without a TCO since 2017, while under construction, and has hosted dozens of events with special event permits.”

While operating with Special Event permits, the building is under “enchanced Fire Watch,” he said. “For example, for the Super Bowl Experience, we have a Fire Watch in the building, where firefighters are stationed throughout the building to act in place of any life safety systems that have not yet received official approvals. Fire Watches also take place at any large-scale event (e.g. Art Basel, Food & Wine, etc.). Of course, the extraordinary steps necessary to obtain special events permits would have been unnecessary after August 23, 2018 had Clark performed as it promised.”

One of the outstanding items to achieving a TCO is the testing of fire alarms for a continuous 30-day period during which the building must be 100% dark. Morales said a 30-day  period has been identified and the City hopes to begin fire alarm testing in the spring.

“The success of that testing and the attainment of the TCO will be contingent on Clark finishing a series of items that remain open. If those items are still not resolved at the time of testing, the City will explore other remedies,” he wrote.

“I will close by pointing out that going forward, we intend to respect the dignity of the judicial process and deal with issues through our attorneys in the Courtroom. We are confident in our position that Clark has failed in their role as construction manager at risk, and that said failure has prejudiced the City, thereby entitling the City to damages.”

The full Letter to Commission along with attached Notice of Default and architects letter here.


 

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