Baha Mar Contractor Knew Timely Opening Was Unlikely

by Brian Major
Last updated: 2:00 PM ET, Tue February 23, 2016

Photo courtesy of Baha Mar

Baha Mar's Chinese contractor realized the $3.5 billion mega resort was significantly behind schedule in January 2015 and likely to miss its opening deadline. However weeks earlier, China Construction America (CCA) officials assured developer Sarkis Izmirlian and Perry Christie, the Bahamas' prime minister, the project would meet its planned March 27 debut.

That stunning scenario emerged this week following the release of a confidential Jan. 20, 2015 memo from Baha Mar's contractor, China Construction America (CCA) to parent firm China State Construction Engineering Corporation (CSCEC).

In the memo, addressed to "Mr. Yi, director of CSEC," a CCA official describes the likelihood of meeting the March deadline as "very difficult," and requests an additional 450 Chinese construction workers to finish the resort in time for the March 27 opening. "If it cannot be turned around, [the delay] will soon cause irreversible and catastrophic loss," the official adds.

Filed in the Bahamas Supreme Court on Friday, CCA's memo was among "discovery" documents from last year's Delaware Bankruptcy Court battle between Izmirlian's Baha Mar Ltd. and CCA following the former's Chapter 11 filing. The memo, written in Mandarin and translated into English, is an exhibit related to an affidavit from a former Baha Mar executive.

The CCA official admits in the memo that "several deadlines for sub-projects were missed and the target completion for several sections got delayed," blaming "[CSEC] subcontractors" who "failed to provide sufficient workforce in time."

The official adds, "Currently, the project is at a crucial dash to meet the final deadline," and warns "Not only will there be a daily delay penalty of $250,000 [but] unmeasurable damage to the brand and reputation of CSEC will also be caused" were the project not completed by the deadline.

The CCA official requests "CSEC to coordinate and order the subcontractors to take emergency measures and organize [a] labor force…by the end of January in order to meet the target opening of 27 March 2015."

CCA sent the memo two weeks after Christie led a Bahamian delegation to China in January 2015 for talks with CCA and officials from China Export-Import Bank (CEXIM), the mega-resort's financier. During that period Izmirlian's team also held joint meetings with the government, the construction firm and the financier. At that time, CCA officials assured both parties that the March 27 opening would be met.

In her affidavit, Whitney Thier, Baha Mar's ex-general counsel, also said Baha Mar and CCA officials met weekly in the months leading up to the March 27 deadline. CCA officials failed to report any difficulties during those gatherings, she said.

"At a Board meeting of the company on Dec. 5, 2014, CCA assured the company that the project would open on March 27, 2015, prompting the company to commence accepting reservations from the public," Their said.

"In meetings in Beijing in early January 2015, CCA had assured not only the company, but also the Prime Minister of the Bahamas and the China Export-Import Bank that the project would open as agreed on March 27, 2015," she added.

In the end, "CCA failed to complete construction by March 27 without providing any effective advance notice to the Company," the affidavit reads. "Upon admitting such failure, rather than provide a new construction completion date CCA demanded to discuss payment and funding issues and ceased construction."

The memo appears to extend a degree of vindication to Sarkis Izmirlian, the project's original developer. As postponements mounted in 2015, Izmirlian pointed to the contractor's repeated delays, saying they created cost overruns that led to a financial collapse and the project's eventual fall into receivership.

"Without knowing about the information in the letter and indeed, misled by assertions to the contrary by CCA to both the developer and the prime minister, the developer ramped up its employee base" in early 2015 said Ross Lovern, a New York-based spokesman for Izmirlian.

Calling the memo a "smoking gun," Lovern said it demonstrated "the absolute deceit of both the developer and the Bahamian government by the CCA and CSCEC." He said the new hires following the January meetings generated "costs which eventually created a liquidity issue."

Lovern also questioned the Bahamas government's support of CCA after Baha Mar filed for Chapter 11 bankruptcy protection in late June, a move Izmirlian said was the best option to preserve the resort's assets. "The government kept touting not only a spring completion for Baha Mar but its confidence in CCA through today," he said.

As the impasse progressed last year, CCA officials blamed Baha Mar Ltd. for mismanaging the $3.5 billion development.

"BML is bankrupt because it repeatedly made mistakes in the development of Baha Mar," said officials in a July 27, 2015 statement. "Their attempts to place blame on CCA are self-serving explanations to deflect attention from their own negligence and mismanagement of the resort's development."

Reached Tuesday, CCA representatives declined to provide a statement regarding the latest memo's emergence.

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