Different Parties Apprehend Reality Differently

After the economic collapse of 2008, Las Vegas' CityCenter's continued construction seemed almost to defy reality. Then reality struck back:

The country's largest private development, MGM Mirage's CityCenter, was sued by its general contractor for $490 million in unpaid construction bills.

On March 25, Perini Building Co., a unit of Tutor Perini Corp., Sylmar, Calif., sued several entities controlled by property owners MGM Mirage Inc. and Infinity World Development Corp., a unit of Dubai World, the investment arm of the Persian Gulf state. Las Vegas law firms McDonald Carano Wilson LLP and Martin & Allison Ltd. filed the lawsuit in Clark County District Court.

"We are doing whatever we have to do to protect ourselves and our subcontractors," Tutor Perini Chairman and CEO Ronald Tutor said. "They simply stopped making payments and started offering excuses. Their position is absurd."

The 13-page complaint says the construction contract grew from $3.5 billion to $6.8 billion because of "numerous design changes and substantial project modifications" that added more than 3 million square feet to the development. MGM/CityCenter delivered those changes between 132 and 520 days late, the lawsuit says, and continued making changes "well after the agreed-upon dates" that added another $500 million to the project tab.

...On March 23, MGM/Infinity demanded "that Perini cease all construction activities at the Harmon," and directed security to escort the contractor off site and change the locks, the lawsuit alleges. The oval-shaped glass tower was scheduled to open later this year. A timely completion now seems unlikely since "MGM/CityCenter is delaying the ability of Perini to complete its work under construction agreement," the lawsuit alleges.

The Harmon was scaled back from 48 stories to 26 stories in January 2009. MGM Mirage eliminated 200 high-end condominium residences, of which only 44 percent had sold, but retained the 400-room hotel component. The building reduction also stems from expensive repairs needed to fix botched construction work stemming from "certain issues relating to the lack of constructability of the design, as well as negligent third-party inspection," the lawsuit says.

The move saves an estimated $600 million in construction costs, and defers another $200 million for interior finishes.

"By canceling the Harmon condominium component, we will be able to avoid the need for substantial redesign of the Harmon resulting from contractor construction errors," CityCenter President and CEO Bobby Baldwin said in a previous statement. It also keeps the project focused on "maximizing" sales at CityCenter's other condo towers, he added.

But the lawsuit claims the owner admitted the condominium portion was being "eliminated due to market conditions and cash flow considerations, rather than any alleged construction defect."