!!CityStink.net Exclusive!!
In a
very heated Augusta Richmond County Commission meeting last evening, February
21, 2012, a proposed change order totaling $836,288 for modifications to the
Tee Center Contract with RW Allen was disapproved (See The Change Order 2 document here).The substantial price increase was
really the aggregate of 13 different change orders combined for the purpose of
gaining Commission approval, usually a rubber stamp. This time the commission
balked because of a stench boiling out of the unfinished Tee/Convention Center
Kitchen. $399,823 of the increase was an HVAC upgrade to the kitchen area at
the insistence of the city's partner in this public-private partnership,
Augusta Riverfront LLC, operator of the Marriott hotel.
Neither
side of the vote on the commission was wrong. Augusta's entire project
management team had signed off on the change order four months ago, so
disapproving it now was a moot point. Some commissioners accurately
saw it that way and voted for approval, yet they all have serious questions.
The rest missed the point about construction contract law and jumped to the
real issue – are the Augusta Riverfront partners in this project controlling
and expanding the scope to their benefit, yet totally at public expense?
The
change order is a “done deal.” A war
appears imminent between the partners over financial responsibility for various
areas of the project.
There
is a powerful ODOR coming from the kitchen.
The
parties jumped into this agreement based upon a document entitled Management
Agreement Term Sheet – Trade Center, Version 6 dated June 29,2007, which the
Commission approved on August 21, 2007 (See TEE Center Term Sheet Document here). The purpose of
the term sheet was to set forth that the “City of Augusta (“Augusta”) and
Augusta Riverfront LLC (“LLC”) are interested in entering into a joint venture
to own, build and operate a Trade, Exhibit and Event Center (“Trade Center”).”
This
controlling document failed to establish effective dates or define WHEN
operations start and construction ends. It would appear to embrace start of
operations before project completion because it requires the Convention and
Visitors Bureau to expend city funds 18 months before the project is complete.
Aside from this, the project itself was scheduled to accommodate ongoing
operations.
Let's
see what the Term Sheet says about cost responsibility. “LLC has total
responsibility to provide all operating cost of the Convention Center,
including, but not limited to, labor cost, supply cost, insurance and all
repair, maintenance, and replacement of equipment. These replacement costs
include replacing kitchen equipment, laundry equipment, HVAC equipment, outside
walls and roof.”
Then
there is this section:
AUGUSTA AND LLC AGREE
TO THE FOLLOWING TERMS TO OWN, BUILD AND
OPERATE THE TRADE
CENTER
5. OPERATIONAL & CAPITAL FUNDING: It
is anticipated that the new Trade Center's rental revenues may not be sufficient
to cover its operating expenses, particularly in the early years. The Trade
Center will have capital needs for addition and replacement of various fixed
assets. Augusta and LLC will participate in these Operational and Capital
Funding needs as follows:.......
d…......Augusta's Capital Funds shall
specifically not be used for items related to Kitchen Equipment, Laundry
Equipment, and any Convention Center or Hotel capital cost.
Remember
there are no dates given to establish when operations start because operations
were ongoing and overlap construction activities. Even more confusing is what
is “Convention Center” versus “Tee Center.” Indeed, by actions of Augusta
Riverfront LLC publicly acknowledging that
BOTH are the "Convention Center" hasn't that partner effectively agreed that its
financial responsibilities for the combined total include those that previously
existed for the Convention Center?
Interestingly,
the Term Sheet provided that the kitchen for which Augusta Riverfront had
equipment repair and replacement responsibilities would be consolidated with
the Tee Center kitchen.
7.
KITCHEN AND BACK-OF-HOUSE: LLC and Augusta will allow the
necessary modifications to the Convention Center to provide for the combined
use of the kitchen, laundry and back of the house areas. The modified kitchen
and back of the house space will be designed for use for both the Convention
Center and the Trade Center.
In so
combining the “Convention Center” with the “Tee Center” did Augusta
Riverfront's existing financial responsibility for kitchen equipment
disappear? Or did it carry over?
4. TERM OF
AGREEMENT: Augusta and LLC agree to modify their agreement for the
operation of the Convention Center
to include the Trade Center.
The
Term Sheet also clearly stated that catering revenues produced by the kitchen
equipment do not result in any benefit for Augusta.
APPENDIX A: Definitions
For purposes of calculating the “Trade Center Operational
Funding” described in Section 5., the Operating Revenues shall not include the
following:.....
m. Trade Center Catering Revenues
2.
Trade Center Catering Revenues: shall consist of those food and
beverage revenues generated on formal, catered meal functions held in the Trade
Center.
City
Stink and Augusta
Today contributor Lori Davis obtained the December 31, 2012 project
billing from Construction Manager at Risk RW Allen to the city (See Document here: Attn to Kitchen Equipment Line Item Item 19 on Page 3). This billing
includes a line item of $1,376,987 for Kitchen Equipment, $275,946 of which has
already been billed and presumably paid, less the retainage. Examination of the
supporting subcontractor invoice shows thousands of dollars to repair and clean
existing equipment that would have apparently been the responsibility of the
LLC under the previous agreement. The controversial HVAC change order to meet
Marriott standards can be added to the total.
It is
clear that the infrastructure and building costs for the kitchen are the
responsibility of Augusta. These costs are included in the building mechanical,
electrical, HVAC and other contracts. No potential issues are apparent there,
other than cost issues that might be unearthed in the future by a construction
auditor.
Adding
the $1,376,987 of kitchen equipment to the Marriott-directed kitchen HVAC
upgrade $399,083 means a total of $1,776,070 of kitchen equipment capital costs
that are potentially disputable by the City of Augusta as costs to be born by
Augusta Riverfront LLC.
Questions
abound. Has the City backcharged the LLC for any of the $275,946 paid to date
for kitchen equipment and repair or cleaning of existing equipment the LLC
seems responsible for? Isn't the full $1,776,070 capital expenditures for which
the LLC is responsible under the existing agreement and the Term sheet? Was an intent to treat the capital
expenditures for new kitchen equipment as an Augusta cost adequately stated in
the term sheet? Are the provisions for the LLC to be a partner in the project
mean it can claim one start date for its project start date, yet another as the
start date of 'operations' under the same agreement when no dates are stated in
that agreement? Hasn't the LLC by announcing that the whole is now the
“Convention Center” legally shot itself in the foot by in doing so embracing
responsibility for kitchen capital expenditures? How many other costs of the
Tee Center construction supplant existing LLC responsibilities for operating
and capital costs from the existing Convention Center agreements? Where are
the backcharges to the LLC?
Summary
To
summarize, the Term Sheet establishing the relationship between the City of
Augusta and the LLC for the Tee Center Project seems to be flawed in terms of
effective dates; makes repeated statements that capital costs of kitchen
equipment, which cost more than $1.7 million, and other capital costs are LLC
responsibility; combines the existing “Convention Center” agreement with
provisions making the LLC responsible for kitchen equipment with the new Tee
Center construction and operations; and excludes Augusta from any apparent
benefit from use of this capital equipment.
Somebody
has a grand mess in their kitchen.
This writer would be hard-pressed to decipher financial responsibilities under
this informal, rushed, and incomplete Term Sheet “agreement.”
The
lawyers are salivating because dividing this baby is going to take more than
the wisdom and judgment of Solomon. The opinion from this quarter would be that
it could be split 50-50. Given the size of these costs, that won't be an easy
pill to swallow.
The
commission is, yet again, in an impossible position with respect to this
project. Can they get any more Tee'd off?
Stay
tuned for more cost recovery analysis as
the Tee Center documents are dissected while the project nears completion.***
Editor's
note: City Stink contributor Al Gray is President of Cost Recovery Works, Inc.,
a Lincoln County, Georgia-based firm focused on construction, public
administration, policy and cost recovery reviews on a guaranteed results basis.
** Below are pdf files of the documents referenced in the above article:Related Stories:
TEE Update: Did Fred Fix the Kitchen But Fail to Execute?
RWA December Pay App. (Atten to Page 3. Line Item 19 "Kitchen Equipment")
RWA December 2011 Pay App
TEE center Term Sheet Document:
TEE Term Sheet (1)
TEE Center Change Order 2 Document:
Tee Center Change Order 2 R W Allen
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