Construction Projects In Default

1
Construction Projects In Default

• ABA Annual Real Property, Estate Planning
  Symposia
• Waldorf-Astoria Hotel
• New York, New York
• 2-4 April 2003
• Robert C. McCue, President, P.E.
• Shelly Gowen, Vice President
• MDCSystems

2
Surety

• Why is Surety and Suretys Expert Attending this
  Meeting?
• There is no formal termination of default.
• There is no letter from owner
  threatening default.

3
Good Faith Effort

• Our Contractor has Informed us that there are
  Project Rumors that the Contractor will be
  Defaulted.
• We have also heard that the Owner may Abandon the
  Project Due to Lack of Funding.

4
Stand Behind Our Contractor

• Contractor has been a Good Client of the Surety
  for Over 20 Years.
• Never has received a Default Termination before.
• Never has received a Threat of Termination Before.

5
Accuracy of Evidence

• Retained Expert to Listen and Evaluate Evidence
  Giving Rise to Potential Termination of Our
  Contractor.
• We need to Realistically Determine Whether
  Project can be Completed Given the Funding
  Issues.
• Identify Alternatives if Possible for Completing
  the Project.

6
Expert

• Given the project status, surety has hired a
  forensic project management group to determine
  what is the status of construction.
• Evaluate the performance of our contractor.
• Make a construction and engineering
  recommendation as to whether the project can be
  completed.

7
Experts Analysis of Scope

• Is Original Scope of the Project Practical?
• If yes, what is it going to take to manage the
  project?
• If no, is it possible to reduce scope and
  complete a different project than originally
  intended?
• Will funding stay in place if scope is reduce?

8
Experts Analysis of Schedule

• What was the planned schedule?
• Analysis of as-built schedule.
• Is it possible given the as-built conditions to
  complete project on time?
• Can schedule be modified to a scaled back
  project?
• What will it take in scheduling resources to
  bring project or reduced project to completion.

9
Experts Analysis of Cost

• How has the project been funded so far?
• What is the percent complete of the project?
• What are the funding issues as of this date?
• Do funding entities want to complete original
  project?
• Do funding entities want to complete a modified
  project?
• Are the costs for the construction reasonable?

10
Completion Depends On.

• Willingness of funding parties to participate at
  a specific level.
• Willingness of contractor and architect-engineer
  to continue working.
• Willingness of the owner/developer to pay
  contractor and architect-engineer.
• Willingness of the owner/developer not to make
  more changes but scale back the project.

11
Surety Initial Analysis

• Contractor is not on the road to bankruptcy,
  however owner/ developer may be.
• Contractor has not abandon the job.
• Contractor continues to perform despite waiting
  inordinate amount of time for change orders and
  responses to claims.
• Contractor is not using any unauthorized
  subcontractors.

12
Surety Initial Analysis

• Project is delayed Not because of the
  contractor!
• Massive design changes by owner
• Delay in receiving RFIs and shop drawing
  approval
• Owner supplied equipment is delivered late
• Site not ready

13
Surety Initial Analysis

• Some subcontractors not paid due to delay in
  receiving progress payments from owner.
• No insurmountable design or technical problems
  just late.
• No reported violations of the law.
• No failure to secure insurance.
• No substantive safety violations.

14
Surety SolutionsExperts Recommendation

• Scale back the project.
• Focus on construction of earliest revenue
  portions of the project only.
• Retail Shop Space
• Restaurants
• Common area
• Construct condominiums in groups.

15
Contact Us!

• MDCSystems
• 1-888-MDC-9977
• www.mdcsystems.com
• Mccue_at_mdcsystems.com
• Gowen_at_mdcsystems.com