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Florida Construction Law Update

Massive Cost Overruns at World Trade Center Project – Unfortunate Situation for Contractors on a Meaningful Project

Posted in Bids, Change Orders, Construction, Construction Contracts, Contractors, Delays, Subcontractors

Thousands gathered on September 11, 2012 at the World Trade Center site in New York, which marked the 11th anniversary of the September 11th terrorist attacks.  Although the construction of the World Trade Center project is not nearly complete, the construction of the One World Trade Center, a 104-story building, has begun to fill the gap left by the Twin Towers in the New York City Skyline.

The World Trade Center project is a monumental project that has created numerous job opportunities for many of New York and New Jersey’s finest construction companies.  The World Trade Center, which is currently planned to be completed 5 years behind schedule in 2015, is expected to contain 5 new skyscrapers, totaling over 10 million square feet of office space, according to its developers.  This massive construction project, which once began as a project estimated to cost 11 billion dollars, has now ballooned into a construction project with a hefty price tag of nearly 14.8 billion dollars.   Approximately one year ago, construction work being conducted on the job site was nearly non-existent due to the Port Authority alleging it was owed billions of dollars in cost overruns.  Today, although hundreds of construction workers are currently on site daily at the 16-acre job site, it is difficult not to see and feel the impact of the continuous construction delays due to years of disputes, politics, lack of tenants and financial restrictions.

Additionally, looming in the background of the construction development are the numerous lawsuits which have been filed or may be filed in the near future dependent upon how the project develops moving forward.  This is partially due to the billions of dollars of cost overruns that have unnecessarily exposed numerous third parties consisting of public and private institutions to liability as these entities may never pay for the construction work performed by the Port of Authority.  Although many of the key parties involved have been at the verge of litigation several times throughout the construction of this project, the parties are trying to move forward towards the completion of the project with the hopes that litigation can be avoided.

The impact of these repeated construction delays have had a huge ripple effect as they not only have affected the thousands of companies and individuals involved in the construction, but also numerous other New York and New Jersey transportation projects that have been placed on the back burner until the completion of the World Trade Center project.  While the Port Authorities of New York and New Jersey have blamed the sky rocketing costs on the agency’s commitment to complete the September 11th Memorial Plaza in time for the 10th anniversary of the terrorist attacks, an audit of the project conducted at the direction of Governor Chris Christie and Governor Andrew Cuomo indicated that the cost overruns were a direct outcome of “poor management.”  Specifically, the billions of dollars in cost overruns have been deemed to be a direct result of “a lack of consistent leadership, a siloed underlying bureaucracy, poorly coordinated capital planning processes, insufficient cost controls and a lack of transparent and effective oversight of the World Trade Center program that has obscured full awareness of billions of dollars in exposure to the Port Authority.”

Ultimately, it is clear that the auditors recommendation for a “top-to-bottom overhaul” of the project is necessary in order for this development to stay solvent.  It is critical that moving forward, every dollar be maximized to the fullest as the Port Authority receives no tax money so its $19.5 billion dollar debt must be paid off through bridge and tunnel tolls, airport surcharges, port fees and rent from the agency’s properties.  It is also very apparent that the Port Authority is at a crossroads and must take a step back and focus on the development of the project from a cost standpoint before the entire project fails and numerous lawsuits ensue.

The World Trade Center project, like many large scale construction projects, has multiple moving parties that make critical decisions which directly impact all those involved on a daily basis.  Throughout all phases of the project, from bidding through closeout, contractors must ensure that they are properly monitoring and controlling costs to stay within the initial budget and maintaining the schedule. Contractors must also be mindful and realistic on whether they have sufficient workforce to handle such large projects during the bidding phase.  Although the profit margins are attractive for any contractor bidding a job, these profits turn into negatives on the balance sheet when the project goes south as the costs and schedule spin out of control.  It will certainly be interesting to follow the litigation that stems from this project, and we can also expect to see at least some of the contractors lose hundreds of thousands of dollars in legal expenses stemming from poor planning and management – an unfortunate ending to an exceptional and sentimental project.