|On the beam. Interstate�s facilities were modern.|
At least 8,000 tons of steel sit silently on a trailer and on the ground in a yard in central New Jersey. While some of it is raw and some fabricated, each piece is marked with the number 2402 and was set to frame the structure of a soaring new midtown Manhattan headquarters for The New York Times Co., estimated at $350 million. Now, the steel is going nowhere, the subject of a bitter legal contest between project prime contractor AMEC Construction Management Inc., a trustee liquidating the assets of the jobs main fabricator and erector, Interstate Iron Works Corp., and a bank owed lots of money.
Interstate shut down three days before last Christmas, with most of its state-of-the-art fabrication shop and real estate set for auction on March 23 and 24. The Times project steel is unlikely to be included in the sale. In court filings, New York City-based AMEC claims it has paid for and now legally owns 4,259 tons of the fabricated steel. But Valley National Bank is staking its claim to the steel, while Interstate contends it has been under-compensated for the shipment.
Interstates owner claims the steel is worth $280 per ton on the open scrap market, but AMEC contends its worth only $85 to $155. The contractor has offered to post a bond in case a judge determines that it owes more. But Interstates liquidating attorney says that turning the steel over to AMEC would cheat the fabricators many creditors, particularly Valley National, which says it is owed about $15 million.
While Whitehouse, N.J.-based Interstates demise may have other root causes, the unprecedented, unexpected upward spiral in steel prices in late 2003 just as the projects $75-million contract terms were set, pushed it over the brink.
|Fateful. Abramson says he could have finished the Times job and stayed afloat.|
To Robert G. Abramson, 50, Interstates owner and a respected former officer of the American Institute of Steel Construction, the key events that made his company vulnerable hit him like "lightning bolts." These include a failed merger with a competitor, the dramatic price increase and the early 2004 bankruptcy of Havens Steel Co., Interstates joint-venture partner on the Times project (ENR 3/24/04 p. 26).
The Havens event concentrated Interstates resources in one huge project, says Abramson. When the owner delayed its startup and steel prices climbed even higher, the fabricator was especially vulnerable. Interstate eventually submitted a $8.3-million change order for steel cost increases and sought millions more to cover other delays.
The final lightning bolt, which Abramson claims put the company out of businesswas "bad faith" by AMEC, which underpaid Interstate and then suddenly terminated it, he claims. Interstate, whose annual volume peaked several years earlier at about $60 million, lost money for the first time in 2003. Abramson attributes the loss to a sharp drop in volume that hit fabricators and erectors throughout the U.S. But he touted Interstates modern plant, veteran staff, good union relations and ample credit.
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Patrick Muldoon, AMEC senior vice president and its top New York Times project executive, says it would be inappropriate to comment on the controversy while AMECs request for steel ownership awaits a court decision. Judge Kenneth MacKenzie of New Jerseys Superior Court in Morristown, is due to decide the matter within weeks.
In a Feb. 9 court affidavit, Muldoon denies Abramsons accusations that AMEC "strangled" Interstate, claiming the contractor did all it could to help the fabricator finish its work. "Interstate was looking to AMEC to bail [the fabricator] out of its difficulties," says the Muldoon affidavit. The document says AMEC had no obligation to provide Interstate with working capital unrelated to the project and only terminated [the sub] when it appeared unable to finish the job.
Since then, AMEC has been forced to repurchase anchor bolts and steel embeds for which it already had paid Interstate. Failure to obtain the subcontractors steel supply would delay work by 3.5 months, Muldoon charges. The contractor now is seeking a new erector to replace Interstate, which AMEC also had hired to frame the newspapers building.
The dispute is still murky as to whether AMECs termination of Interstate coincided with a rejection by the project owner of the contractors own requests for cost relief because of steel price spikes and owner-caused delays.
Since the steel cost surge surfaced early last year, fabricators across the U.S. have been wrangling with public and private owners to share the pain, with mixed results. One attorney who represents a number of steel fabricators says there is clear legal basis for recovering losses but it has been tested very few times in state courts. Kansas City-based Havens, which still is trying to emerge from Chapter 11 bankruptcy, was the biggest failure so far.
Industry observers say that price spike-inflicted losses are more painful now because 2003 and 2004 were bad market years for firms and many were tempted to bid work at low prices. But observers believe that the price spikes alone would not bring down a well-managed fabricator-erector. Abramson cites a failed merger with another fabricator-erector, but other factors may include the loss of a multi-million dollar arbitration of a dispute with a sub and Abramsons borrowing to buy out a family member.
The complex saga dates back to spring 2003, when Interstate was on the verge of landing the large New York Times contract with Havens. The two subcontractors would split the fabrication work and Interstate would perform the erection. Havens was set to fabricate some steel in China, but project circumstances stopped that plan. In August, the joint venture partners agreed to reduce their bid by $4 million to $75.5 million. "The price was low, too low," claims one contracting executive familiar with the New York City building market. But Interstate and Havens executives were comfortable enough with the terms to agree to a handshake deal.
The project then "lay dormant for the next two-and-a-half months," says Abramson, while the owner was securing its portion of financing. The group includes developers Forest City Ratner Cos., Cleveland, and ING Real Estate and The New York Times Co. Officials could not be reached for comment. Based on the owners desired completion date for the project, "it was imperative we receive official authorization to proceed with work," says Abramson.
Steel mills began sending surcharge notices to customers by November, but the full brunt of the price-spike crisis was not yet clear. That same month, the owners authorized contractors to order steel. On Jan. 9, 2004, Muldoon and Abramson met to confirm the project price and subcontract documents, even though they were not yet executed. At that time, AMEC reconfirmed to the owners its guaranteed maximum price, in excess of $350 million. But start dates for both the buildings podium and its tower steel had been pushed back 2.5 months, and 4.5 months, respectively.
Interstate then reached a deal to combine its operations with a competitor, Metropolitan Steel Industries Inc. (Steelco), a fabricator-erector in Sinking Springs, Pa., that was founded and controlled by Leslie A. Hynes. The firms planned to shrink administrative staffs and bid together, shopping a prospectus for new loans to various banks.
Valley National Banks Wayne, N.J., office made the most aggressive pitch to the firms, eventually extending them a $15-million line of credit, says Abramson. At the same time, two other companies controlled by Abramson, Bramco and Bramco Equipment, obtained $9.9 million in loans from the bank. Abramson used $5 million of those funds to buy out his older cousin, Stephen J. Abramson, with whom Robert had operated their businesses.
At the time, the coming year looked promising. The only potential setback was a claim against Interstate by Pittsburgh-based Engineered Products Inc., a truss subcontractor on an American Airlines terminal project at Kennedy International Airport in New York City. The firm made the claim to Atlantic Mutual, Interstates surety. Abramson says Hynes expressed concern about the claim, for which the combined firms were responsible under the terms of their deal. "It was fully disclosed," says Abramson.
|Portfolio. Interstate worked on big projects, including a terminal at New York�s JFK airport.|
But trouble soon arrived. On Jan. 23, 2004, Abramson informed AMEC that there would be a steel surcharge, forcing Interstate and Havens to assert claims for increases in their base price. On Jan. 26, Abramson told AMEC that he wanted to resolve his claim for the new surcharges before executing subcontract documents. In February, an arbitrator ruled in favor of Engineered Products, awarding it $3.3 million sought from Atlantic Mutual.
The steel price turbulence was becoming clearer. The primary suppliers of structural steel shapes to the project, Nucor-Yamato Steel Co. and Chaparral Steel, had announced the first of a series of $10-to $20-per-ton increases on wide-flange...
(Photo top and bottom courtesy of Interstate Iron Works, middle by by Guy Lawrence for ENR)