Apple Repurposes Arizona Plant Left by Failed Supplier
The factory in Mesa, Ariz., is supposed to be a symbol of Apple's commitment to bring manufacturing jobs back to America after years of building products in Asia, and that may happen in several more years. Arizona Gov. Doug Ducey (R) on Feb. 2 announced Apple will spend $2 billion to reconfigure and re-equip the site into a data command center for the company's global networks. The project represents "one of the company's largest investments in history," a statement from Ducey's office said. For a second try, it isn't bad.
The first try has turned into a financial mess for many involved, with contractors and engineering firms claiming they still are owed millions of dollars. The trouble also apparently provides a glimpse of how a business giant, Apple, handles risk allocation, with a supplier preparing to operate from an Apple building. In December, a federal judge in Manchester, N.H., approved a settlement between Apple Inc. and bankrupt GT Advanced Technologies, which had intended to use the plant to make sapphire glass for Apple products. GTAT will sell off plant equipment to raise about $400 million owed to Apple.
Dean Wine, vice president of the Arizona Building Trades Council, says GTAT, which is based in Merrimack, N.H., once looked solid. With Apple Inc. backing its project and negotiating construction contracts on the renovation and refitting project, the contractors began work on the $500-million overhaul last year.
Construction posed many challenges, says Wine, requiring the activities to be isolated and sequenced to avoid interfering with manufacturing operations still taking place. Mishaps and delays slowed progress, too, GTAT's top executives claim in public statements.
The first phase of the Mesa facility was not operational until December 2013, only six months before GTAT was expected to be operating at full capacity. Additional unplanned delays associated with retrofitting the Mesa facility, including the "reconstruction" of concrete floors the size of two football fields, also surfaced. Construction also ruined some inventory, the GTAT executives claim.
In an affidavit filed in the bankruptcy, a top GTAT executive claimed Apple selected the Mesa facility and negotiated all power and third-party construction contracts for the design and build-out of the facility. By leasing the facility to GTAT and keeping design and construction contracts in the supplier's name, Apple was able to unload its construction risk unfairly, the executive claimed. And while GTAT apparently accepted the risk, neither GTAT nor Apple officials could be reached for clarification. But bankruptcy court Judge Henry J. Boroff said he viewed the case as a construction confict that involved an owner, a contractor and changing specifications.
Creditors filing claims against GTAT include CH2M Hill, which filed a claim for $1.3 million on Dec. 30. Massachusetts' Green Leaf Construction says it is owed $544,000; Rosendin Electric has a claim of $177,000; McCarthy Building Co. says its claim is between $100,000 and $200,000. Many other subs and suppliers filed claims, too.