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Contract Dispute Delaying Intercontinental Cayo Largo Resort

Doubtful Whether Fajardo Resort Will Open In Time For High Tourism Season


June 26, 2003
Copyright © 2003 CARIBBEAN BUSINESS. All Rights Reserved.

Heated disputes allegedly continue between the local partners of InterContinental Cayo Largo Resort in Fajardo over whether to waive a guaranteed-maximum price (Gmax) contract on the project, an inside source told CARIBBEAN BUSINESS.

A Gmax stipulates a contractor’s plans, costs, timeframe, and profit for a construction project.

"There are a lot of collateral issues involved in the Cayo Largo project, but the primary reason for the delay is a dispute between the owners [Cayo Largo Hotel Associates] and the project’s contractor [Bird Construction] regarding a Gmax contract," said the source.

The owners and partners include Puerto del Rey Inc. President Dan Shelley, Jorge Fuentes of Fuentes Construction Co., Diego Suarez Jr. of V. Suarez, and Manuel H. Dubon.

According to the project’s bond document, there allegedly existed a Gmax contract worth $57.3 million. However, the owners approved some change orders to the resort, boosting the total Gmax contract price to an estimated $62.3 million, all of which the project’s contractor is said to have been paid.

The problem is that the resort is still unfinished. How can the disputevbe resolved?

The owners will have to come up with another $36 million to finish the job or an arbitrator must be called in to resolve the situation. Of the $36 million, $28 million is for hard costs (physical items that must either be built or shipped) and $8 million is for distressed costs (to make bond payments, pay interest, and deposit into a working-capital reserve).

Sources say InterContinental will ride out the problem for as long as it can. It is unlikely, however, to pour more money into the project since the agreement with the local owners began as a management contract.

"The partners haven’t got to the arbitration stage yet," said the source. "They are still trying to figure out if they should pay the contractor more money. But at the end of the day, that’s an even bigger discussion. After all, who wants to pay more?"

There is no doubt that the Cayo Largo Resort will open eventually. The question is whether it will open in time for the coming winter "high tourism" season, which begins Dec. 15.

"I’m skeptical that it will open by December because the fundamental issue hasn’t been resolved," the source said. "If they [the partners] turn to the legal system for a resolution, it won’t be a fast process. Let me put it this way, if an agreement were reached today, they would barely be able to get the hotel open for Christmas because it isn’t a small job."

This Caribbean Business article appears courtesy of Casiano Communications.
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