...beams starting in August, with overall cost increases reaching $65 per ton on about 10,000 tons of structural shapes for the project by January. International Steel Group Inc., the only remaining U.S. producer of heavy plate product, enacted similar increases that drove up the price for plate steel by $130 per ton for about 10,000 tons for the project. The base price increase to the project amounted to $1.95 million.

Abramson and Havens’ former CEO Kenneth McCullough wrote to Muldoon on Feb. 2, requesting a change order for past and future material price surcharges and a schedule extension, citing fairness and New York state law. They also noted owner delays in "applying for Liberty Bonds" for financing in the letter. Abramson later said that the total owner delay would reach eight months.

Hynes and Steelco then pulled out of the planned merger deal, which closed but was never consummated operationally. The two sued Interstate in state Superior Court in Somerville, N.J. Steelco asked the court to compel Interstate to dissolve the merger, accusing it and Abramson of improperly diverting steel from one job to another and of committing a tax fraud in compensating workers.

Abramson claims the suit was frivolous and a smoke screen. "Hynes got cold feet" after the arbitration loss and the steel price escalation on the Times project, he says. Hynes "never expected Interstate to get the $8.3-million price escalation on the Times project so he got buyer’s remorse and created a lawsuit," Abramson contends. In its counterclaim, Interstate accuses Steelco of fraud. Hynes could not be reached for comment.

Instead of combining with a competitor into a single, more efficient business, Interstate now was paying expensive legal bills, untangling complications with its insurance and, according to Interstate’s reply to Steelco’s lawsuit, losing out on new projects it could have bid for.

Without Hynes’ funding, the merged companies defaulted on the terms of its bank loan. Interstate had to tie up more capital to partially satisfy the debt obligations, says its cross-complaint.

More bad news hit on March 18, 2004. Havens Steel filed for bankruptcy protection and transferred its interest in the joint venture to Interstate. Abramson arranged for W&W Steel, Oklahoma City, and Owen Steel, Columbia, S.C., to fill in for Havens. But sureties for the Times project withdrew and Abramson was unable to replace them.

"Could I have walked away at that point?" asks Abramson. "Yes. But we had never defaulted on a contract and we had done several projects for Forest City Ratner and the New York Times."

As 2004 reached its midpoint, the price of steel continued to climb, and AMEC and Interstate still had not executed contracts. On July 29, AMEC and Interstate finally signed papers for a $75.6-million base price and a change order for steel cost increases of up to $8.35 million. Muldoon indicated that AMEC would seek relief from the project owner, says Abramson.

A cooperative relationship between AMEC and Interstate was supposed to unfold. Abramson believed that AMEC would extend special consideration to Interstate during the job. Without proceeds exceeding payments to vendors, Interstate could not support its overhead or meet payroll, Interstate accountant Jack A. Callahan stated in an affidavit.

Auction? AMEC says the New York Times project needs steel, as bank advertises auction on its Website. (Photo top by John J. Kosowatz for ENR; bottom by Guy Lawrence for ENR)

Relationships

The relationship developed nagging problems. AMEC never reissued an accounting schedule to match changes in the project calendar schedule. As a result, Interstate could not invoice for the actual value of work it performed, pinning it with "costs far in excess" of what the accounting schedule allowed the sub to invoice, Abramson says. Meanwhile, Interstate kept buying, detailing and fabricating steel.

After receiving payment requisitions from Interstate, AMEC would "selectively pay Interstate’s vendors [and] accelerate payment of certain vendors so as not to lose the ‘goodwill’ that Interstate had established," according to one of Abramson’s affidavits. In particular, AMEC accelerated payments to Nucor-Yamato, Chapparal and ISG but did not do that for "value added" by Interstate in procuring, detailing and fabricating the steel, he claims.

According to Abramson, AMEC was conducting a well-known predatory practice under which a prime contractor cuts the invoices of a subcontractor, "strangling" the firm by delivering it a slow financial death. He says that from late summer to early fall 2004, AMEC treated Interstate invoices in different ways.

Sometimes the contractor made partial payment to Interstate vendors and then directed those firms to collect the balance from Interstate. At other times, AMEC...