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Las Vegas Stadium Authority Construction Monitor Reveals Cost Overruns, Budget Shortfalls

NFL Sunday Week 2 – Ahead of Monday’s Las Vegas Stadium Authority Meeting, the un-aided eye would show no problems at all, and a project that’s “on schedule” as the Las Vegas Stadium Authority (LVSA) likes to remind everyone.

But a series of paragraphs buried deep in the stadium “Monthly Project Report” or “Construction Monitor’s Report ” document for the month of July 2019 tells a different story: a tale of fear of more expected cost overruns and an organization, the LVSA, that will have to scramble to figure out how to pay for them.

Page 2 of the “Construction Monitor’s Report (Jones Lang LaSalle)” starts the bad news, but it’s better to show the entire section for the proper context. Thus, the segment will be presented as a block quote, with the paragraph pointing to the problem in bold, within it.

The Construction Monitor Presents The Cost Overrun And Budget Problem In the Report

Construction Monitor’s Report (Jones Lang LaSalle)The Construction Monitor submitted Site Observation Report 23 on July 22, 2019; it was subsequently revised and reissued on July 26 , 2019, with selected pages reissued on July 29, 2019. The report supported a draw of $66.9 million and certified that: (1) all design agreements remain in full force and effect and have not been modified; (2) there has been no material deviation in stadium costs; (3) all required permits have been issued and are in effect; (4) all current draws are being used for project costs; (5) the project is proceeding on schedule and will be completed by the scheduled completion date; (6) all funds previously requisitioned have been used for their intended purpose; (7) there have been no material change orders other than those permitted by the Development Agreement or the Design-Build Agreement and (8) the Construction Monitor has no knowledge of any vendors’ liens, mechanics’ liens or security interest that should be satisfied or discharged before the immediate payment request.

The Construction Monitor continued to note that the stadium project is “proceeding in general accordance with the construction documents,” that the “quality of workmanship, appears to be good” and that monthly progress projections are being met.

The Construction Monitor continued to express concern regarding potential misalignment of the project budget given its estimate of the change orders that will ultimately be processed, noting:

Although the Budget’s remaining funds appear adequate at this time to complete the current and approved scope of the project, there are $26,000,000 in pending Change Orders that are being negotiated for inclusion into the Budget, and additional and needed Sources of funding are being considered to address the pending Change Orders. Once approved by Lenders and Stadium Authority, the Budget will be increased as needed.

Similar concerns were cited relative to the off-site infrastructure budget as the Construction Monitor noted most off-site work is currently being priced out, providing some uncertainty relative to the sufficiency of the off-site infrastructure budget. While the Construction Monitor continued to reference schedule delays primarily attributable to structural steel deliveries, it also reported that “work sequences, schedule logic ties and activity durations are being refined and updated as the project progresses” and that “usual and customary schedule contingencies are included and maintained within the current completion timeline, allowing mitigation options for unforeseen schedule challenges.” The Construction Monitor further noted that field level work, including slab-on-grade; masonry; and mechanical, electrical and plumbing installations, are six to eight weeks ahead of schedule.

The reason the work just described is ahead of schedule is that the crews were instructed to turn their attention to other work in an effort to make up for lost time due to the roof truss assembly problem.
But the real issue is the cost problem.

The $278 Million Mechanics Lien Set The Stage For This Problem

On April 17, 2019, Zennie62Media’s Oakland News Now reported on a $278 million mechanics lien that was filed against the Las Vegas Stadium Authority and Motensen McCarthy, the stadium builder. As I wrote then:

The mechanics lien was filed by Merrill Steel and the letter reporting it, and documentation, was presented to the Las Vegas Stadium Authority as part of the agenda for the March 21st meeting. Bradley G. Taylor, a Las Vegas attorney for the law firm of Gordon Rees Scully Mansukhani, submitted the mechanics lien on behalf of Wisconsin-based Merrill Steel.
My real estate lawyer source said that “filing a mechanics lien is no small thing. It means someone is demanding to be paid for material and services rendered, and has not been paid. On normal situations, with a project this large (over $2 billion in total costs), you have deep pockets. And there would be a performance bond to cover those costs (so that contractors like Merrill Steel are paid).”

And Oakland News Now reported:

The documents placed on the website of The Las Vegas Stadium Authority revealed that a performance bond was, indeed, filed, but it’s total value of $105 million, whereas the total value of work done was $172 million, and only $93 million was paid, leaving $70 million due. And that is not counting the $29,232,743 of “approved change orders” and the $69,876,679 of “pending change orders” or $99,109,423 in change orders placed by Merrill Steel during the course of their work in building the stadium to the point its at today. “It looks like someone wasn’t paid all they were owed,” my real estate lawyer source observed.

If we then look at the latest news that “there are $26,000,000 in pending change orders that are being negotiated for inclusion into the Budget,” and $50 million in change orders were already approved, then it’s quite clear the matter of the lien appears to be outstanding.

The $69,876,679 of “pending change orders” would have to include the “$26,000,000 in pending change orders that are being negotiated” in its total – either that, or these are new pending change orders that equal $26,000,000 or more.

And that would be worse news.

In either case, this matter has not been sorted out by the Las Vegas Stadium Authority, Mortenson McCarthy, or the Oakland Raiders. Moreover, the news that “additional and needed sources of funding are being considered to address the pending Change Orders” has this blogger asking “You mean you haven’t identified the money? What happened to the contingencies budget?

The answer in that case is that it’s obvious the $100 million set aside was not enough of a budget contingencies amount of money for the Raiders stadium project. On top of that, Las Vegas Stadium and The Raiders only have six of the needed 11 to 14 base “founding partners”, which translates to a funding hole of about $600 million at this stage of the building of the stadium.

Admitting that “additional and needed sources of funding are being considered to address the pending Change Orders” is a big deal. Put another way, it reads like the project has a money problem.

The other question is how does this news impact the stadium schedule? That question, too, wan’t at all taken up in the report.

And then, there’s this paragraph, which appears after the section of concern from the report:

Similar concerns were cited relative to the off-site infrastructure budget as the Construction Monitor noted most off-site work is currently being priced out, providing some uncertainty relative to the sufficiency of the off-site infrastructure budget

The off-site infrastructure budget, early on, was thought to include the cost for upgrades to the road system, estimated to be around $900 million, according to the Nevada Department of Transportation. It’s surprising that matter, which first arose in late 2017, has not been resolved.

Stay tuned.

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