Enough isn’t said about general contractors on rocky, out-of-control projects who take the lead in solving problems they didn’t create. That’s what I found troubleshooting projects for a Chicago bank. A good example is a $200-million Florida apartment complex being built in 2007, when labor was as tight as it is now and in some places even tighter.
I was new to the bank’s commercial lending unit when the boss called me into his office. He instructed me to find out if the developer of a 700-unit condominium development on Florida’s Gulf Coast—our borrower—was missing. The bank had been unable to reach the company by phone, and work was going poorly. He also told me to report on the status of the project and assess the bank’s exposure.
When I arrived at the jobsite a few days later, I was amazed. The two-phase project was massive. It had everything that a condominium-resort could possibly offer: garage, swimming pool, health club and putting greens. The building’s concrete frame, roof and walls had been erected; the fixtures and finish work were barely started. The project could easily have employed 500 workers, but I saw only a couple dozen.
The few discouraged foremen I found told me of rumors of expected lawsuits. The pipes leaked, elevators didn’t work, and several subcontractors had walked away. Most of the subs, the foremen said, had disappeared in a mass exodus to pursue big money in New Orleans after Hurricane Katrina. Insurance settlements were paying for a lot of work there. One foreman said the available manpower situation was so bad that the only available workers were from a labor contractor they had nicknamed “Rent a Bum.”
I still had not answered the main question: Where was the man who owned the project, our borrower? The on-site staff either didn’t know or were directed not to talk. The best guess I received from one talkative staff member was that he had fled to the Bahamas to avoid the general contractor’s demands.
High Pile of Change Requests
Although he had a 2-ft-high pile of rejected change requests on his desk, the general contractor and his staff were taking all the blame from subs. The subs and others involved accused the general contractor, a middle-size company that had operated for more than a decade, of using the cover of the change requests to try to recover losses it anticipated from a very low bid.
While the developer was AWOL and the project was falling further behind schedule, hundreds of condo buyers waited to close on their completed units. That’s what mattered the most.
The general contractor eventually tracked down the developer—I’m not sure where he really was—and presented the owner with a plan of action. That plan was to finish the Phase 1 units for immediate occupancy while holding off on Phase 2 and finishing those units later. If enough Phase 2 buyers who had signed contracts but had not yet closed agreed to temporary occupancy in unsold and unoccupied Phase 1 units, it could avoid alienating them before closing, while allowing the project to continue. To hold up his end, the general contractor would have to bring in subs and workers from as far away as Atlanta, at his own expense.
That still left the unresolved change requests for more payments. Until that happened, my bank could not release tens of millions of dollars in loan funds that were available.
Based on what I relayed to the office in Chicago, the bank tactfully communicated to both the developer and contractor that it would consider immediate funding when they resolved their backlog of disputed change orders. The nudge worked—the next day, the developer and contractor came to terms on their stack of change orders.
That left it to the general contractor to scrape together new subs and crews in the post-Katrina labor shortage. Exactly how the firm did it, I don’t know. I suspect it involved bids that were much higher than the original subcontracts, or bonuses to workers.
Those crews built the electrical and mechanical systems, fixed leaks, finished walls and walkways. What could have ended up as a loss for the developer turned into a success.
The contractor, who also made money, became known to developers as a stand-up guy and enjoyed profitable work on many projects in the following years.
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