Summer fading for bay resort

Hyatt Shore project's debut delayed again by contract dispute

Mechanic's lien sought

Contractor blames $20 million in cost overruns on MEDCO

March 16, 2002|By June Arney | June Arney,SUN STAFF

The opening of the Hyatt Regency Chesapeake Bay Resort has been delayed for a third time because a dispute over cost overruns has, among other things, left subcontractors unpaid and furniture for rooms undelivered.

Clark Construction Group Inc., the resort's general contractor, is blaming about $20 million in cost overruns on the Maryland Economic Development Corp. and has filed papers in Dorchester County Circuit Court to obtain a mechanic's lien. But MEDCO, the quasi-public nonprofit agency that owns the hotel, said that the contractor signed a maximum-price contract and then exceeded it. State officials are trying to mediate the dispute.

Now, the $74.4 million resort, at the edge of the Choptank River in Cambridge, may not open until summer's end - months after the June 1 opening projected in January. The resort previously had scheduled opening dates of Dec. 1 last year and March 1.

"The state continues to work with the private partners involved in the Hyatt project to settle the disputes over the construction costs and to ensure that the resort opens," said Michelle Byrnie, a spokeswoman for Gov. Parris N. Glendening.

She characterized it as unlikely that the state would bail out the project.

The three partners in the project are Clark Enterprises Inc. of Bethesda, - parent company of Clark Construction - Quadrangle Development Corp. of Washington and Hyatt Hotels and Resorts of Chicago.

Clark Construction alleges that MEDCO did not meet its contractual obligation to ensure that the project was designed to meet its approximate $70 million budget, which is reflected in the contract price.

"In our view, a more expensive project was designed and subsequently built by Clark Construction and its contractors," R. Steven Holt, senior vice president and general counsel for Clark Construction, said in a written statement. "Those additional costs must be addressed. Clark Construction's subcontractors have worked hard on this project and deserve to be fairly compensated for that work in a prompt manner."

But Clark Construction signed a contract that spelled out a guaranteed maximum price of $70.8 million, said Hans F. Mayer, executive director of MEDCO. Approved change orders brought the cost to $74.4 million, he said. The project was supposed to be completed in November.

"We have a project that's late to begin with," Mayer said. "The builder hasn't finished the job. The parties have not put up the money for furniture. So Clark goes to Dorchester County and says MEDCO is at fault - they're not paying anyone."

Clark agreed to a postponement of a hearing scheduled for yesterday on the lien matter, Mayer said.

"Because they exceeded the contract amount, a lot of subcontractors and suppliers or material men are not being paid," Mayer said. "And that is an attempt we believe to pressure MEDCO and the state into putting money into the project."

Quadrangle officials declined to comment yesterday.

Said Michael T. Walsh, general manager of the 400-room Hyatt: "You run into glitches. This will be resolved relatively quickly I hope, and you move on. As Hyatt, we're ready. We're eager to get the doors open."

The Hyatt project was announced in January 1998, but the three partners could not get private financing and approached MEDCO for help.

The state sold the former Eastern Shore Hospital Center property to the partners for $5 million. The partners then leased the resort and golf course portion of the property back to MEDCO. The remainder of the property is still owned by the three partners and is to be developed into private homes.

By placing official ownership with a nonprofit and by locating the resort in a tax-favored enterprise zone, Hyatt and its corporate partners were able to ensure that bonds used to finance the project would be tax-exempt.

MEDCO hired Solomon Smith Barney to sell about $134 million in bonds to cover construction, interest, a year of debt service and a variety of other costs, Mayer said. The financing was completed in November 1999 with all the bonds in private hands of mutual fund companies.

But bonds for furniture and fixtures didn't sell because of the struggling economy, Mayer said. The three partners agreed that, if all else failed, they would split that cost evenly, he said. Clark is refusing to pay its third of the needed $14 million, citing the cost overruns, Mayer said.

Lawmakers and tourism officials are among those who hope that the contract disputes will be resolved quickly.

"If they had just broken ground, it would be one thing, but the project is nearly 95 percent complete," said Sen. Richard F. Colburn, a Dorchester Republican. "It's certainly a setback, but it's a temporary setback. We're hopeful that we can at least capture one half of the tourist season."

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