City Commissioners this week approved a settlement agreement with Clark Construction over fees due and remaining scope of work to complete renovations on the Miami Beach Convention Center. In a joint memo to the Mayor and Commission, City Manager Alina Hudak and Acting City Attorney Rafael Paz recommended the settlement which, they say, “eliminates the risk of a potentially adverse judgment in an amount far in excess of the settlement sum” and the costs associated with a trial and lengthy appellate process while getting the City what it needs – final completion of the project.
The agreement involves the City releasing $6.4M withheld in retainage for work previously performed by Clark as well as payments totaling $27.1M – $9.09M that the City withheld from Clark as liquidated damages for project delays as payment for work performed on the project and “an additional total amount of $18,010,000 in full satisfaction of all Project related claims asserted by Clark in the litigation, including, without limitation, extra work and change orders, Clark's claims for additional general conditions, and subcontractor claims,” according to the memo from Hudak and Paz. Payments will be phased over time between between October 15, 2021 and December 31, 2022.
The City is seeking County approval to use funds from Miami Beach Redevelopment Agency (RDA) bonds through its Interlocal Agreement with Miami-Dade County to pay Clark.
The settlement brings the total cost of the Convention Center project to $642.8M. [An earlier version of this story stated the cost was $677.8M. That number included a double counting of the contingency. We regret the error.]
There are also $1.6M in performance-based payments for Clark to complete work on unfinished items, the largest of which is completion of the cooling tower. A neutral third party will determine when the remaining projects are complete.
“The monetary terms of this settlement are fair and reasonable, and consistent with the reasonable range of possible outcomes at trial should the litigation proceed,” according to Hudak and Paz.
Clark filed suit against the City in January 2020 saying it was owed more than $90M for work completed by them and nearly 30 subcontractors on the facility. The City countersued saying Clark didn’t deliver on its contract. The Hudak and Paz memo says Clark's claims were $100M.
The City signed agreements with Fentress Architects and Clark Construction in 2014. As "Construction Manager at Risk," Clark began work in December 2015 with designs at 65% prepared by Fentress. In that capacity, Clark assumed certain responsibilities "including scopes of work that are 'reasonably inferable' from the construction documents," Hudak and Paz wrote. "Under those terms, the City assumed certain risks, such as those relating to concealed conditions on the site, as well as changes driven by the Authorities having Jurisdiction (AHJ) (i.e., Building and Fire Departments, franchise utilities such as FP&L and AT&T, and Miami-Dade County Departments such as DEMR, DEP, and Miami-Dade-County Traffic, among others)."
The expansion and renovation of the Convention Center totaled 1,435,000 sq. ft. and was to be accomplished while the facility continued to host events including the annual Art Basel fair. It entailed a new 60,000 sq. ft. ballroom, new 10,000 sq. ft. kitchen, 127,000 sq. ft. of new meeting spaces, 500,000 sq. ft. of renovated exhibit space, and a 796 space rooftop parking deck. The initial completion date was August 23, 2018.
The complexity of managing construction and events as well as unforeseen circumstances that included hurricanes and COVID-19 along with an insufficient contingency contributed to the delays, dispute over costs, and need for additional funding, according to the memo from Hudak and Paz.
“The phasing and scheduling of the work was among the most complex in the construction industry, as it required continued operations in and around an active construction site, similar to the complex construction undertaken with large airport projects,” they wrote.
“From inception the project was met with a unique set of challenges which increased both the owner’s and the construction manager’s risk,” they state. “The catalyst of that risk was the decision by the City Commission in 2014 to keep the building operational by hosting events during the entire construction period. This included hosting half-hall events at all times, and full-hall Art Basel events every year, regardless of the condition of the building.”
“To accomplish that goal,” the memo continues, “the public had to be protected by the construction of two-hour separation walls that had to be installed and demolished twice during the construction period. Over ninety events took place during construction including the NFL experience (LIV) and the “Fanfest” for major league baseball. These events brought tens of thousands of visitors to the facility and required a substantial and unforeseen amount of life-safety requirements, including fire watch and additional show support, which were grossly underestimated.”
Unforeseen circumstances including Hurricane Matthew in 2016 and Irma in 2017 which required demobilization of the site and labor force, discovery of lead-based paint in older portions of the building and missing fire walls depicted in drawings but not actually there, further added to the work.
“Finally, and as everyone is aware, a COVID-19 acute care temporary hospital was built by the Army Corp. of Engineers for the Florida Department of Emergency Management with their own contractor soon after the project received its temporary certificate of occupancy (TCO). The possession of the building by the Army Corp. lasted for six months and stalled the final completion of the building,” the memo states.
In addition to the complexity of the project, Hudak and Paz note, “The Project Contingency, while significant in dollar amount, represented a contingency of only six percent (6%) over the overall Project budget, significantly less than the standard ten percent (10%) contingency applicable to nearly all other City capital projects.”
Though the City was able to get a Temporary Certificate of Occupancy in April 2020 allowing the building to open, a final Certificate of Occupancy has not yet been issued and, in the meantime, the City is required to take extra measures to protect public safety.
Who is responsible for the unanticipated costs – whether due to unforeseen circumstances or change orders – was at the heart of the lawsuit.
The extent of the legal back and forth is staggering ("extensive” according to Hudak and Paz). “Given the magnitude of the Project and the enormous amount of Clark’s initial claim ($100 million), the litigation has been hard fought and required exhaustive discovery on an expedited timeframe,” they stated. “There were over six million pages of documents produced during the litigation. The parties conducted in excess of sixty depositions, and collectively engaged in excess of twenty experts in multiple fields of expertise, including construction scheduling, delays, design, and construction management standard of care. The parties collectively filed over forty substantive motions in advance of trial, and countless other motions directed to procedural matters.”
Again, after mediation attempts failed, the trial began at the beginning of this month. “Following opening statements and several days of testimony by fact witnesses, the Court ordered the parties back to mediation with a stern direction that they should make a concerted effort to resolve the dispute,” according to the memo. “Despite some meaningful progress, the parties were not able to agree on a final settlement during the mediation session, but the Court agreed to a brief recess of the trial so that the parties could resume negotiations.”
An agreement was reached on September 13 and the Court extended the recess until September 30 pending Thursday night’s Commission meeting at which the 32-page settlement agreement was approved.
Hudak and Paz say the settlement “equates to 4% of the original project budget, which, along with the six percent (6%) contingency originally established for the Project… would bring all Project-related contingencies to ten percent (10%), the industry standard for construction-related contingencies and the City’s long-established budgeting standard for contingencies on capital projects.”
|Original Project Budget||$615,722,930|
|Original Contingency||$ 35,000,000 (6%)|
|Settlement||$ 27,100,000 (4%)|
|Total Amount for Project Contingencies||10%|
There is an indemnity obligation for Fentress Architects in the settlement. “A substantial portion of Clark’s claim is based on allegations that portions of the design were either deficient, incomplete or uncoordinated,” according to Hudak and Paz. “The design for the project was provided by Fentress Architects and a number of consulting engineers that were hired by Fentress. The agreement between the City and Fentress includes an indemnity provision which requires Fentress to indemnify the City against any losses it sustains as a result of deficient work by Fentress or its consulting engineers. The City will look to Fentress to indemnify it for losses it sustained, and intends to pursue its claims to recover the portions of the settlement payments, plus fees and costs of defense, resulting from design issues.”
As to the funding sources, the Miami Beach Convention Center project “was largely funded with Miami Beach Redevelopment Agency (RDA) bonds approved by Miami-Dade County pursuant to an RDA Interlocal Agreement. The City’s portion of the settlement is $27.1 million and is anticipated to ultimately be covered by the excess funds in the City Center RDA of approximately $28.1 million. Of the $28.1 million, the City portion is estimated at $15.5 million and the County portion is estimated at $12.6 million. Under the Interlocal Agreement, the excess Miami Beach RDA Trust Fund revenues can only be used for the early prepayment of RDA bonds or, with Miami-Dade County and City approval, to defray the costs of an RDA capital project like the MBCC Renovation and Expansion Project,” the memo states.
Discussions are underway with the County but those could take several months, Hudak and Paz say. To cover the initial payments due in October and December of this year, Commissioners voted to “realign” funds from the Transportation Initiatives capital project. If the County approves the RDA funds for the Convention Center project, the Transportation project funds would be returned.
The memo and complete settlement agreement can be found here.