Skanska Termination Letter, Atlantic Yards B2 Project

SKANSKA
Skanska USA Building Inc.

350 Fifth Avenue
New York, NY 10118
Phone 917-438-4500
Fax 866-597-7889
Web www.skanska.com
Hand Delivery
August 8, 2014
Atlantic Yards B2 Owner, LLC
1 MetroTech Center
Brooklyn, New York 11201
Attention: Robert Sanna, Vice President
The Bank of New York Mellon
One Wall Street, 21st Floor
New York, New York 10286
Attention: Helga Blum
REFERENCE: NOTICE OF TERMINATION OF CONSTRUCTION
MANAGEMENT AND FABRICATION SERVICES AGREEMENT
("CM AGREEMENT") BETWEEN ATLANTIC YARDS B2
OWNER, LLC ("OWNER" OR "B2")) AND
SKANSKA USA BUILDING INC. ("SKANSKA")
FOR THE B2 RESIDENTIAL PROJECT AT
ATLANTIC YARDS LOCATED IN BROOKLYN, NY
("PROJECT"), EFFECTIVE OCTOBER 31, 2012
Dear Mr. Sanna and Ms. Blum:
Pursuant to the terms and conditions of the CM Agreement and the document entitled
Consent and Agreement of Skanska USA Building Inc. ("Consent"), Skanska advises you of its
intent to terminate all Work under the CM Agreement pursuant to the terms and conditions of the
CM Agreement including, but not limited to, 5.4 and 14.7 of the CM Agreement.
This termination shall become effective in the event that the Owner and/or, the
Administrative Agent as defined under the Consent, do not cure the breaches hereinafter
specified to the extent that any cure period is applicable under the CM Agreement and/or the
Consent.
FILED: NEW YORK COUNTY CLERK 09/12/2014 03:08 PM
INDEX NO. 652681/2014
NYSCEF DOC. NO. 11 RECEIVED NYSCEF: 09/12/2014
August 8, 2014
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THE PROJECT HAS BEEN DELAYED FOR A PERIOD OF AT LEAST 180
DAYS BY FORCE MAJEURE AND/OR OWNER CAUSED EVENTS AND A
CHANGE ORDER HAS NOT BEEN EXECUTED TO GRANT SKANSKA AN
AGREEABLE TIME EXTENSION AND INCREASE IN THE CONTRACT PRICE
Section 5.4(g) of the CM Agreement provides: "If one or more Force Majeure Events or
Owner-Caused Events delay the Work for an aggregate period of One Hundred Eighty (180)
days, and a Change Order has not been executed to grant Contractor an agreeable Time
Extension and increase in the Contract Price, Contractor shall be entitled to terminate the
Agreement and such termination shall be treated as a termination for Owner's convenience under
14.5."
The CM Agreement defines Force Majeure and Owner-Caused Events ( 5.4). Among
other things, a Force Majeure Event is any "condition or circumstance either identified in this
Agreement as a Force Majeure Event or otherwise beyond the reasonable control of Contractor."
( 5.4(a)(v)). The definition of Owner-Caused Events includes changes in the work or the "fault,
neglect or other negligent or wrongful act or failure to act by the Owner, Owner's
Representative, Design Professionals, Owner's Other Contractors and others for whom Owner is
responsible.' ( 5.4(b)).
The execution of the CM Agreement flowed from the document entitled Opportunity Brief, NYC Modular Factory
by Bruce Ratner, CEO, Forest City Ratner Companies, LLC ("FC") dated January 6, 2012. This Brief identified the
respective roles of the parties. FC's team brought the modular "solution", a "revolutionary methodology" based on
"innovative Intellectual Property" it had developed with a "world class team of experts" through a multi-year, multi
million dollar investment, and a "built-in local pipeline" of projects that would "ensure both long term sustainability
and success" of the modular business. Skanska, the partner, was to bring the financial capability and ability to use
the "innovative Intellectual Property" and "Modern Methods of Construction" that composed FC's modular solution
to work with FC to "establish and grow a viable, cost competitive modular factory business". The roles led to
agreements with FC and its affiliates. B2 is responsible for FC and the affiliates which filled FC's roles. Due to the
intertwined nature of these agreements and FC's numerous affiliates, unless context requires otherwise, FC and its
affiliates are collectively referred to as "FC".
August 8, 2014
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SKANSKA IS ENTITLED TO A CHANGE ORDER EXTENDING THE
TIME FOR PERFORMANCE AND FOR ADDITIONAL COMPENSATION
Skanska's entitlement to a change order for an extension of time and additional
compensation results from identifiable root causes, including: (a) a delay in the factory fit out,
(b) defective intellectual property, (c) design impacts, (d) failures of the Design Professionals
and others for whom the Owner is responsible, and (e) Changes to the Work.
DELAY ANALYSIS
1. Introduction
Two components of critical delays on this project thus far are: (i) delays to the
establishment of the factory which delayed the start of module fabrication; and (ii) delays
resulting from the extended duration of module fabrication.2 This Delay Analysis identifies
delays experienced from the effective issuance of the Notice-to-Proceed (NTP) on December 21,
2012 through July 28, 2014, the data date cut-off for this analysis, which coincides with the
completion of floor 10 module fabrication. Additional delays after July 28, 2014 are expected but
have not been projected in this analysis.
2. Purpose
The purpose of this Delay Analysis is to identify, quantify and determine responsibility
for critical path delays to the completion of the Project experienced through floor 10. The
analysis is a CPM schedule analysis using the "Contractor's Schedule". The results of this
analysis support a request for an extension of time and additional compensation.
The "Contractor's Schedule" is defined as the schedule attached to the CM Agreement as
Exhibit C. The Contractor's Schedule is a 20-month ordinal schedule. It contains the number of
2 The delays to module fabrication are expected to continue through completion of fabrication of the 34th floor.
August 8, 2014
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months of work, cued off a fixed point. In this case, the 20-month schedule was cued off the
expected NTP. Once the NTP was actually issued, the CM Agreement required Skanska to
convert the ordinal nature of the schedule into a functional schedule based on the actual NTP,
which would then generate dates for each of the activities. This was done by Skanska on or about
February 28, 2013 and is referred to as the "Updated Contractor's Schedule". This schedule was
used as a basis of the Delay Analysis presented herein.
3. Methodology
The methodology utilized for the Delay Analysis is known as an "As-Planned vs. As-
Built" delay analysis, using a "Windows Approach". The As-planned vs. As-built methodology
starts with the establishment of the contractor's plan to accomplish the work as the baseline, to
compare to how the work was actually accomplished. The comparisons result in the
identification and quantification of delays.3
The plan for performing the work is contained in the Updated Contractor's Schedule
(data date 2/28/13). The actual performance of the work was derived from various Project
documents, including, but not limited to: (i) actual dates tracked in the cost-loaded CPM
submissions for payment; (ii) various contemporaneous tracking records maintained by
FC+Skanska Modular, LLC ("FC+S") during the ordinary course of business; and (iii) general
Project records including, but not limited to, meeting minutes, correspondence, submittals,
purchase orders and Requests for Information.
The Windows Approach divides the project into time periods to which the As-planned vs.
As-built delay analysis techniques are applied. Typically, the factors for determining the time
3 Since the calendar for the Contractor's Schedule is based on Workdays (WDs) this analysis is based on Workdays
and later converted to Calendar Days (CDs).
August 8, 2014
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periods (or "Windows") are based on the start and/or finish dates of significant events, either on
a planned or actual basis. On this project, the Windows for the analysis were determined as
follows:
Window Start Finish Reason
1 12/21/12 08/30/13 NTP through actual completion of factory fit-out
sufficient to start module production
2 09/03/13 07/28/14 Actual Start of module production through
completion of floor 10 module production.
4. Delay Analysis
The detailed Delay Analysis Chart entitled B2 Tower Delay Analysis accompanies this letter is
and is broken into five horizontal sections.
I. Updated Contractor's Schedule DD 02/28/13 Critical & Near Critical Path Activities
The critical and near-critical planned activity data from the February 28, 2013 Updated
Contractor's Schedule to be analyzed are shown.
2. As-built Data to Establish Windows DD 07/28/14
The as-built data culled from project records is displayed for factory fit-out and module
production.
3. Window 1 Delayed Start of Module Production
The identification and quantification of delays (Nos. 1-3) during Window 1 are shown.
4. Window 2 Actual Module Fabrication Delays throuh 07/28/14
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The identification and quantification of delays (Nos. 4-12) during Window 2 are shown.
5. Delay Summary WD to CD Conversion
The workday conversion to calendar days is shown for both Windows 1 and 2.
1. Delay Analysis Chart Section 1 Updated Contractor's Schedule
The Exhibit C Schedule was updated on or about February 28, 2013 to establish the
baseline schedule for the work. The planned dates for activities that were on or near the critical
path are shown on the Delay Analysis Chart.
The most critical aspect of the Updated Contractor's Schedule (activity 30) was the
milestone activity entitled Start Factory Module Production. The planned start date was July 8,
2013. Any delay to the commencement of module fabrication would cause a day-for-day delay to
the completion of the Project. In order to start production, the factory needed to be fit-out and the
various component materials for fabrication needed to be procured.
Much of the information regarding planned durations for the work, as depicted in the
original Exhibit C Contractor's Schedule, and made part of the Updated Contractor's Schedule,
was inherited from FC's consultant, XSite. Through FC, XSite provided the IP related to the
operation of the factory and the assembly of the modules for the Project. Two of the most
significant aspects of the XSite IP information were the length of time scheduled for factory fit-
out, and the duration of the module production.
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With regard to the planned duration for the production of modules, the Updated
Contractor's Schedule showed a total of 195 Workdays.4 In its July 2011 Production Plan, XSite
showed module production estimated to take 189 workdays.5 Therefore, the Updated
Contractor's Schedule did not shortchange the planned duration for module production estimated
by XSite in the July 2011 Production Plan.6 The planned module production period was from
July 8, 2013 through April 4, 2014.
2. Delay Analysis Chart Section 2 As-built Data
The as-built data (light blue bars) for the factory fit-out is a summary of numerous
activities representing various scopes of work necessary to make Building 293 a functional
factory for modular production. The individual detailed activities depicting the work can be
found on the Factory Fit-Out & Tenant Improvement Activities Chart. As can be seen from the
data presented, the factory fit-out work was essentially complete7 on Friday, August 30, 2013,
which allowed for the effective start of module production following Labor Day, on Tuesday,
September 3, 2013. This data was used to establish the completion of Window 1 and the start of
Window 2.
4 From Milestone entitled "Start Factory Module Production" on July 8th, 2013 thru the completion of "Achieve
Factory Backlog of Modules to Support Erection" on April 4, 2014 is 195 Workdays (not including holidays).
5 This was based on working on five (5) GTWs at a time, each taking seven (7) Workdays, while working five (5)
days per week.
6
The updated Contractor's Schedule did not count holidays as non-work days. An adjustment to accommodate this
oversight in the schedule is made at the end of the delay analysis.
The reciprocating air turbines were complete and substantial completion of all work was declared on or about
October 7, 2013.
August 8, 2014
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The actual start and finish dates for the module fabrication was tracked by FC+S and was
used in this analysis to establish the start and finish dates for each floor. Below is a summary of
the floor by floor start and finish dates for the critical module production, used in the analysis.8
Activity Start Finish WDs
Fabricate 2nd floor
Modules 09/03/13 11/06/13
9
46
Fabricate 3rd floor
Modules 11/07/13 01/22/14 50
Fabricate 4th floor
Modules 01/23/14 02/27/14 25
Fabricate 5th floor
Modules 02/28/14 04/01/14 23
Fabricate 6th floor
Modules 04/02/14 04/28/14 19
Fabricate 7th floor
Modules 04/29/14 05/21/14 17
Fabricate 8th floor
Modules 05/22/14 06/11/14 14
Fabricate 9th floor
Modules 06/12/14 07/03/14 16
Fabricate 10th floor
Modules 07/07/14 07/28/14 16
3. Delay Analysis Chart Section 3 Window 1:
December 12, 2012 to September 2, 2014
Window 1 starts with the effective date of the NTP and ends the day before the effective
start of module fabrication began. During this Window there was a 40 Workday critical delay to
the start of module production. The two contributing factors to this critical delay were delays to
factory fit-out and factory ramp-up and module material procurement.
8 Since the fabrication of modules for each floor overlapped, for purposes of establishing start and finish dates, the
completion of the last module for a given floor was used as the finish date for that floor. The start date of the next
floor was the next work day.
9 The 2nd floor modules were pulled out of production in order to commence 3rd floor module production. 2nd floor
Modules were worked on during off hours and completed on or about January 3, 2014. The total duration to
complete the 2
nd
floor was 82 WDs.
August 8, 2014
Page 9
Delays to Factory Fit-out
There were two delay components to the factory fit-out work: (i) the delayed start of the
work; and (ii) the extended duration to perform the work. On the Delay Analysis Chart, these
delays are identified as Delay Nos. 1, 2A, 2B and 2C. The combined impact of the delayed
completion of the factory fit-out was a 40 Workday delay to the completion of the Project.
Delay No. 1 March 8, 2013 to May 9, 2013
The planned start of the factory fit-out work was March 8, 2013. It did not start until May
10, 2013, 45 Workdays later. As discussed hereafter, the delay was the responsibility of FC.
Since the planned start for module production was July 8, 2013, the initial delay to the
start of factory fit-out work merely consumed float and did not impact the projected completion
of the project. Therefore, no extension of time is warranted.
Delay No. 2 (A, B, C) May 10, 2013 to October 7, 2013
The planned duration to complete the factory fit-out work was 25 Workdays. Therefore,
based on an actual start of the fit-out work on May 10, 2013, the fit-out work should have
finished on June 14, 2013. Due to the extraordinary amount of extra fit-out work that was done
to the factory, the fit-out work was not completed until October 7, 2013, 79 Workdays later.
The 79 Workday delay is broken into three parts:
(i) Delay 2A 06/15/13 to 07/07/13 14 WDs
(ii) Delay 2B 07/08/13 to 08/30/13 40 WDs
(iii) Delay 2C 09/03/13 to 10/07/13 25 WDs
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Delay No. 2A June 15, 2013 to July 7, 2013
The extended duration to complete the factory fit-out work consumed all remaining float
to start module production on July 8, 2013. Therefore, this portion of extended performance of
factory fit-out work, from June 15, 2013 to July 7, 2013, consumed float and did not delay the
projected completion of the Project. Therefore, no extension of time is warranted.
Delay No. 2B July 8, 2013 to August 30, 2013
The extended duration to complete the factory fit-out work consumed all remaining float
in the schedule as of July 7, 2013. Therefore, each day the start of module production was
further delayed, caused a day-for-day delay to the completion of the Project. The factory fit-out
work was essentially complete on Friday, August 30, 2013. This allowed for the effective start of
module production on the following workday, Tuesday, September 3, 2013. The delay from the
planned start of July 8, 2013 to September 3, 2013 was 40 Workdays. As explained in the
Factory Fit-Out analysis, this critical delay was the responsibility of FC. Therefore, Skanska is
due a time extension and compensation for Delay No. 2B.
Delay No. 2C September 3, 2013 to October 7, 2013
After the start of module production, the remaining factory fit-out work was completed
on October 7, 2013, with the completion of the installation and testing of the Air Rotation Units
(ARUs). The extended duration to complete the ARU work, however, did not affect module
production. Therefore, there was no additional critical Project delay incurred and no further
extension of time for factory fit-out work is warranted.
Delays to Factory Ramp-up and Material Procurement
Delay No. 3 July 8, 2013 to August 30, 2013
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The ramp-up of the factory was dependent upon, and correspondingly impacted by, the
factory fit-out work. Layout of the Group Technology Workcell ("GTW") was not accomplished
until August 9, 2013, long after the planned start date for module production on July 8, 2013.
This delay was the responsibility of FC and was concurrent with the factory fit-out delays.
Therefore, no additional delay to the Project completion date was incurred.
The controlling material procurement items to commence module production was the off-
site fabrication, and delivery to the factory, of the steel frames for the modules, followed by the
faade panels. The fabrication of the steel frames was performed in the June to August 2013 time
frame, with all of the necessary 2
nd
floor steel frames being delivered by August 30, 2013. While
some design impacts affected the fabrication process, the steel frames could have been delivered
earlier if needed. Instead, these deliveries were coordinated to correspond to the expected
completion of the factory fit-out work, and the expected start of the 2nd floor module production.
Therefore, a delay due to design impacts on the steel frames and/or faade panels would be
concurrent with the factory fit-out delays and, therefore, no additional delay to the Project
completion date was incurred.
4. Delay Analysis Chart Section 4 Window 2:
September 3, 2013 to July 28, 2014
Window 2 starts with the effective start date of module production and ends with the
completion of floor 10 module fabrication, the cut-off date for this analysis. During this
Window there were nine (9) separate delays (Nos. 4 thru 12), totaling 164 Workdays. These
delays were experienced during the module production of floors 2 through 10, and were the
responsibility of FC. Therefore, Skanska is entitled to a time extension and compensation for
these delays.
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Delay No. 4 September 12, 2013 to November 6, 2013
The 2" floor module production effectively started on September 3, 2013. Based on a
planned duration of seven (7) Workdays10, the 2" floor modules should have been completed by
September 11, 2013. Due to numerous impacts, the 2" floor modules were still not complete as
of early November 2013, and on November 6, 2013, they were moved off the production line, to
be completed off hours, as design issues were remedied. The 2" floor modules were actually
completed on January 3, 2014.
On November 7, 2013 the 3rd floor modules were moved into production. As a result, the
critical impact of the delays in completing the 2" floor modules ended with the ability to start
production of the 3rd floor modules. For purposes of this analysis, the completion of the 2" floor
modules is shown as November 6, 2013, 39 Workdays later than the floor 2 adjusted completion
date of September 11, 2013.
The 39 Workday delay was caused by a combination of various issues, including: (i) the
failure of XSite to build a learning curve into the planned duration to complete the work of the
early floors. (ii) the unproductive nature of working under the FC implemented, GTW IP
concept; (iii) the generally unskilled and correspondingly unproductive nature of Trades
Associates having a total compensation package averaging $36 per hour, in New York; (iv)
continued impacts due to design errors; (v) the ill-conceived seven (7) Workday planned
duration to complete an entire floor of modules; (vi) the wrong factory; and (vii) the failure in
performance of FC personnel in charge of production and design management.
1 The planned duration in the Updated Contractor's Schedule for module production was 195 Workdays, but the
schedule did not break down the module production work by floor. However, the July 2011 XSite Production Plan,
relied upon by Skanska, shows each GTW estimated to take seven (7) Workdays to fabricate. Correspondingly,
Skanska assumed, for floors 2 through 19, that the module production would take seven (7) Workdays per floor.
This was the planned duration per floor utilized in this analysis.
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The 39 Workday delay in completing the 2nd floor module production through the start of
3rd floor module production represents a day-for-day delay to the critical path of the Project. The
delay days are the responsibility of FC. Therefore, Skanska is entitled to a time extension and
compensation for these delays.
Delay No. 5 November 18, 2013 to January 22, 2014
The actual start date of the 3rd floor module production was November 7, 2013. Based on
the planned duration of seven (7) Workdays, the 3rd floor module production should have been
completed on November 15, 2013. The 3rd floor module production was not complete, allowing
for the start of 4th floor module production, until January 22, 2014, 43 Workdays later than the
adjusted plan date of November 15, 2013.
The seven causes of delay experienced during the production of the 2nd floor modules
continued during the production of the 3rd floor modules. These included: (i) the failure of XSite
to build a learning curve into the planned duration to complete the work of the early floors; (ii)
the unproductive nature of working under the FC implemented, GTW IP concept; iii) the
generally unskilled and correspondingly unproductive nature of Trades Associates having a total
compensation package averaging of $36 per hour, in New York; (iv) continued impacts due to
design errors; (v) the ill-conceived seven (7) Workday planned duration to complete an entire
floor of modules; (vi) the wrong factory; and (vii) the failure in performance of FC personnel in
charge of production" and design management.
The 43 Workday delay in completing the 3rd floor module production through the start of
4th floor module production represents a day-for-day delay to the critical path of the Project. The
The cause of this delay ceased in December 2013, but the effect lasted thereafter.
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delay days are the responsibility of FC. Therefore, Skanska is entitled to a time extension and
compensation for these delays.
Delay No. 6 February 1, 2014 to February 27, 2014
After experiencing the unacceptably low productivity of the GTW IP concept on the 2"
and 3rd floors, FC+S changed the "IP of module production". The changes are discussed in
greater detail in the Defective IP section of this letter. By way of example, the GTW concept
was changed. Trade associates were assigned specific tasks to best match their specific skill
level. Roger Krulak was relieved of his duties. Design management was supplemented to
address Scott Stutman's failures to perform. While all of these changes greatly improved
production, remaining impacts preventing timely completion of module production which
included: (i) the failure of XSite to build a learning curve into the planned duration to complete
the work of the early floors; (ii) the generally unskilled and correspondingly unproductive nature
of Trades Associates having a total compensation package averaging of $36 per hour, in New
York; (iii) continued impacts due to design errors; (iv) the ill-conceived seven (7) Workday
planned duration to complete an entire floor of modules; and (v) the wrong factory.
The actual start date of the 4th floor module production was January 23, 2014. Based on
the planned duration of seven (7) workdays, the 4th floor module production should have been
completed on January 31, 2014. The 4th floor module production was not complete, allowing
for the start of 5th floor module production, until February 27, 2014, 18 Workdays later than the
adjusted plan date of January 31, 2014.
However, the amount of delay experienced on the 4th floor module production was less
than half that experienced on the 3rd floor. This was due to various factors, including three
distinct differences: (i) Roger Krulak was no longer in charge of production; (ii) the XSite GTW
August 8, 2014
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concept was abandoned in favor of more productive assignment of craft labor; and (iii) the
achievement of the continuing learning curve. However, the impacts still remaining that caused
the extended duration included: (i) not achieving final learning curve production; (ii) not
achieving necessary labor productivity levels due to the nature of the trade associates
compensation package; (iii) continuing impacts due to design error related RFIs; (iv) the ill-
conceived seven (7) Workday planned duration to complete an entire floor of modules; and (v)
the wrong factory.
The 18 Workday delay in completing the 4th floor module production through the start of
delay days are the responsibility of FC for the reasons cited above. Therefore, Skanska is
entitled to a time extension and compensation for these delays.
Delay No. 7 March 11, 2014 to April 1, 2014
The actual start date of the 5th floor module production was February 28, 2014. Based on
the planned duration of seven (7) workdays, the 5th floor module production should have been
completed on March 10, 2014. The 5th floor module production was not complete, allowing for
the start of 6th floor module production, until April 1, 2014, 16 Workdays later than the adjusted
plan date of March 10, 2014.
The amount of delay experienced on the 5th floor module production was further reduced
from that experienced on the 4th floor (19 vs. 16 WDs). This was due to the continued
achievement of the learning curve, and a lessoning of design impacts, as the resolution of some
design errors on lower floors applied to floors above. However, the impacts still remaining that
caused the extended duration included: (i) not achieving final learning curve production; (ii) not
achieving necessary labor productivity levels due to the nature of the trade associates
August 8, 2014
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compensation package; (iii) continuing impacts due to design error related RFIs; (iv) the ill-
conceived seven (7) Workday planned duration to complete an entire floor of modules; and (v)
the wrong factory.
Delay No. 8 April 11, 2014 to April 28, 2014
The actual start date of the 6th floor module production was April 2, 2014. Based on the
planned duration of seven (7) workdays, the 6th floor module production should have been
completed on April 10, 2014. The 6th floor module production was not complete, allowing for
the start of 7th floor module production, until April 28, 2014, 12 Workdays later than the adjusted
plan date of April 10, 2014.
from that experienced on the 5th floor (16 vs. 12 WDs). This was due to the continued
achievement of the learning curve, and a lessoning of design impacts. However, the impacts still
remaining that caused the extended duration included: (i) not achieving final learning curve
production; (ii) not achieving necessary labor productivity levels due to the nature of the trade
associates compensation package; (iii) design deficiencies; (iv) the ill-conceived seven (7)
Workday planned duration to complete an entire floor of modules; and (v) the wrong factory.
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Delay No. 9 May 8, 2014 to May 21, 2014
The actual start date of the 7th floor module production was April 29, 2014. Based on the
completed on May 7, 2014. The 7th floor module production was not complete, allowing for the
start of 8th floor module production, until May 21, 2014, 10 Workdays later than the adjusted
plan date of May 7, 2014.
from that experienced on the 6th floor (12 vs. 10 WDs). This was due to the continuation of
achievement of the learning curve, and a lessoning of design impacts. However, the impacts still
remaining that caused the extended duration included: (i) not achieving final learning curve
production; (ii) not achieving necessary labor productivity levels due to the nature of the trade
associates compensation package; (iii) design deficiencies; (iv) the ill-conceived seven (7)
Workday planned duration to complete an entire floor of modules; and (v) the wrong factory.
Delay No. 10 June 3, 2014 to June 11, 2014
The actual start date of the 8th floor module production was May 22, 2014. Based on the
completed on June 2 10, 2014. The 8th floor module production was not complete, allowing for
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the start of 9th floor module production, until June 11, 2014, 7 Workdays later than the adjusted
plan date of June 2, 2014.
from that experienced on the 7th floor (10 vs. 7 WDs). This was due to the efficiencies of
achievement of the final learning curve, and a continued lessoning of design impacts. However,
the impacts still remaining that caused the extended duration included: (i) not achieving
necessary labor productivity levels due to the nature of the trade associates compensation
package; (ii) design deficiencies; and (iii) the ill-conceived seven (7) Workday planned duration
to complete an entire floor of modules; (iv) the wrong factory.
Delay No. 11 June 21, 2014 to July 3, 2014
The actual start date of the 9th floor module production was June 12, 2014. Based on the
completed on June 20, 2014. The 9th floor module production was not complete, allowing for
the start of 10th floor module production, until July 3, 2014, 9 Workdays later than the adjusted
plan date of June 20, 2014.
As of the 8th and 9th floor module production, the foreseeable learning curve had been
achieved. Therefore, the impacts that caused the extended duration included: (i) design
deficiencies; (ii) not achieving necessary labor productivity levels due to the nature of the trade
August 8, 2014
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associates compensation package; and (iii) the ill-conceived seven (7) Workday planned duration
to complete an entire floor of modules; and (iv) the wrong factory.
10th floor module production represents a day-for-day delay to the critical path of the Project.
The delay days are the responsibility of FC for the reasons cited above. Therefore, Skanska is
entitled to a time extension and compensation for these delays.12
Delay No. 12 July 16, 2014 to July 28, 2014
The actual start date of the 10th floor module production was July 7, 2014. Based on the
completed on July 15, 2014. The 10th floor module production was not complete, delaying the
start of 11
th
floor module production, until July 28, 2014, 9 Workdays later than the adjusted plan
date of July 15, 2014.
The impacts still remaining that caused the extended duration included: (i) design
deficiencies; (ii) not achieving necessary labor productivity levels due to the nature of the trade
associates compensation package; and (iii) the ill-conceived seven (7) Workday planned duration
to complete an entire floor of modules. These impacts are expected to continue on the upper
floors; and (iv) the wrong factory.
1 1 th floor module production represents a day-for-day delay to the critical path of the Project.
12
An accident occurred at FC+S, the cause of which has not been determined with reasonable certainty. It affected
the 9th and 10th floor production. It is immaterial to this analysis. If it were determined to be a Contractor Caused
Event, then a concurrent delay would exist for which Skanska is entitled to a time extension. (CM Agreement,
15.4(c)). Were it not for the cumulative impact of all delays for which FC is responsible, it could affect the
amount due to Skanska.
August 8, 2014
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The delay days are the responsibility of FC for the reasons cited above. Therefore, Skanska is
5. Delay Analysis Chart Section 5 Workday Conversion to Calendar Days &
Delayed Project Completion Date
The planned completion of modular fabrication in the Updated Contractor's Schedule
was April 4, 2014. Adding the delays experienced in Window 1 (40 WDs) and Window 2 (163
WDs) yields a January 15, 2015 delayed completion of modular production.13 These workday
delay totals were converted to calendar days using a five-day work week, resulting in 59 and 227
calendar days, respectively. Therefore, the Window 1 and Window 2 delays extended the project
by 286 calendar days.
The planned substantial completion date in the Updated Contractor's Schedule was July
25, 2014, 80 Workdays after completing the module production. Based on a projected
completion of modular production on January 15, 2015, the impacted substantial completion date
will be May 11, 2015, 80 Workdays later14. Therefore, the overall impact to substantial
completion for delays experienced through July 28, 2014 is 290 Calendar Days (July 25, 2014
vs. May 11, 2015).
6. Delay Analysis Chart Section 6 Overall Delay Summary
The delays to the start of fabrication and the delays experienced in fabrication through
July 28, 2014 have extended the planned completion date to May 11, 2015. This section of the
Delay Chart presents the overall delay to the planned substantial completion date (290 calendar
13
it While is expected that modular production for floors 11 through 34 will continue to experience delays, for
purposes of this analysis the projected completion dates are only based on delays experienced through July 28, 2014.
14
During this 80 WD period, an additional 2 holidays were encountered (MLK Jr. on 1/19/15 and President's Day
2/16/15). As a result, the adjusted planned substantial completion date was pushed from Thursday May 7, to
Monday, May 11, incurring an additional 2 calendar day delay. As a result, an additional 4 calendar days of delay
were incurred due to fabrication delays. The total delay was therefore 290 (286 + 4) calendar days.
August 8, 2014
Page 21
days) and the net delay to the planned substantial completion date (266 calendar days) after
adjustment for the lack of holidays in the planned schedule.
The ordinal schedule provided to Skanska for preparation of the project CPM schedule
did not include holidays. As a result, when the NTP date was issued and Skanska updated the
CPM schedule, the dates generated for planned performance did not account for the existence of
holidays during the period of planned performance. Since holidays are days when no work is
performed, those days should not be counted as workdays. However, in order to use the planned
dates for performance generated by the CPM schedule, an adjustment for the existence of
holidays was made at the end of the delay calculation.
The amount of non-workdays generated by holidays during the planned performance
period has been determined and shown in Sections 1 and 5 of the B2 Delay Analysis Chart. This
figure reflects the number of non-workdays that should have been anticipated in the planned
schedule but were not. This amount is therefore credited against the overall delay days (in
calendars days) between the current projected completion date of May 11, 2015 (as of July 28,
2014) and the July 25, 2014 planned date in the Updated Contractor's Schedule (data date
2/28/13).
Due to the lack of accommodation for holidays in the schedule's calendar, an adjustment
must be made so as not to count planned holiday non-workdays, as delay days. The first
calculation is to add the sixteen (16) planned holiday days to the substantial completion date of
the Updated Contractor's Schedule.15 (July 25, 2014 + 16 WDs = August 18, 2014). There are
24 calendar days between these two dates. Therefore a 24 calendar day adjustment is made to
the overall delay of 290 calendar days. Comparing the projected substantial completion date in
15 See also Delay Chart Section 1
August 8, 2014
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the delay analysis (May 11, 2015), to the substantial completion date in the adjusted Updated
Contractor's Schedule (August 18, 2014) yields a net delay of 266 Calendar days. As a result,
the current request for an extension of time and compensation is limited to the 266 Calendar
Days of actual delay experienced.16
FACTORY FIT OUT
EXECUTIVE SUMMARY
The CM Agreement requires that "Contractor will execute a purchase order with FC+S,
which leases, owns and operates a factory in Brooklyn, NY for the purpose of fabricating
modular units, which purchase order is subject to Owner's reasonable approval as to form and
substance."
Article 5 of the CM Agreement'7, entitled Time for Performance represents that Owner's
Affiliate has conveyed "a fully executed least to FC+S Modular for the Manufacturing Facility."
( 4(g)).
As of October 31, 2012 FC+S did not lease, own or operate a factory in Brooklyn, NY
for the purposes of fabricating modular units. Clearly, all parties knew that a lease had not been
executed and that a factory did not exist. With that knowledge, Skanska and FC understood that
the CM Agreement was based upon the assumption that the lease would be executed and that a
factory would exist and be operating by the time anticipated in the schedule attached to the CM
Agreement for the commencement of production. That did not occur.
16 Rather than changing the dates in the Updated Contractor's Schedule by changing holidays from work days to
non-work days, the analysis presented herein calculated delays on a work day basis, counting holidays as non-work
days, and made the adjustment to the overall computation accordingly.
17
The CM Agreement titles the provisions as Articles. The narratives within the paragraphs of the Articles refer to
sections. These terms are used interchangeably.
August 8, 2014
Page 23
Skanska had no legal control or obligation for the fit out of the factory. It was not a
subject of the CM Agreement, nor an obligation of Skanska under the Limited Liability
Company Agreement ("LLC Agreement") of FC+Skanska Modular, LLC ("FC+S") or any other
agreement executed on October 31, 2012 or referred to in the LLC Agreement.
The factory fit out was under the sole control and direction of FC+S. Its ability to
perform the fit out was impacted by FC's decisions and Force Majeure Events. FC contends that
there was a seven month delay to factory fit out. (Letter of Robert Sanna dated March 24,
2014).18 An analysis performed by Skanska projects the delay to be 59 calendar days. This
delay was beyond the control of Skanska. It is an Owner Caused Event and/or a Force Majeure
Event19 under the CM Agreement. Skanska is, therefore, entitled to a change order increasing
the Contract Price and extending time for performance.
DETAILED DISCUSSION
The factory fit-out work that was performed in the manufacturing facility where the B2
modules were produced had to be substantially completed before module production work could
start. The Delay Analysis shows that the fit-out work was delayed in starting and, once started,
took much longer to perform than originally contemplated at the time the CM Agreement was
signed. As a result of the delayed start and extended duration of the factory fit-out work, it
became critical to the commencement of module fabrication and its late finish delayed the
substantial completion date of the Project by 59 calendar days.
18
If this admission was accurate, it alone would constitute a delay of approximately 210 days and justify a notice of
termination. However, it is not accurate.
19 The fit out work was performed by FC+S. Since the work was not performed by Skanska or FC, it would
constitute a Force Majeure Event. The fact that the delay in the fit out was caused by FC makes the delay an Owner
Caused Event. Since the delay lasted more than five (5) days, the distinction between a Force Majeure Event and
Owner Caused Event is of no consequence to Skanska's entitlement to time and compensation. (CM Agreement
5.4(c) and (e)(i)).
August 8, 2014
Page 24
As explained below, the selection of Building 293 at the Brooklyn Navy Yard for use as
the factory was a root cause of the 59 day critical delay.
The final WHEREAS paragraph in the RECITALS section of the CM Agreement
stipulates that Skanska "will execute a purchase order with FC+Skanska Modular, LLC ("FC+S
Modular"), which leases, owns and operates a factory in Brooklyn, New York, for the purpose of
fabricating modular units, which purchase order is subject to Owner's reasonable approval as to
from and substance."
The final WHEREAS paragraph in the RECITALS section of the CM Agreement makes
no mention of the FC+S factory requiring repairs due to damage caused by Hurricane Sandy
which struck two days prior to the October 31, 2012 effective date of the CM Agreement and
flooded the factory; structural renovations in order to achieve the necessary floor layout;
mechanical, electrical and plumbing renovations, or any other tenant improvements/fit-out work
to be performed on it before the factory will be able to produce modules. Rather, this portion of
the CM Agreement proffers that FC+S has a fully operational factory capable of producing
modular units at a rate capable of supporting the Exhibit C schedule. Notwithstanding the fact
that the CM Agreement identifies that FC+S had an operating factory that was capable of
producing modules, as of the October 31, 2012 effective date of the CM Agreement, both B2 and
Skanska were fully aware of the fact that not only did FC+S not have an operating factory
capable of producing modules, FC+S did not yet have a functional building for use as the factory
under lease. Additionally, FC represented to Skanska and Skanska Modular that the factory
building would require tenant improvements/fit-out work which would, i) cost FC+S $2.5
August 8, 2014
Page 25
million to have performed,2 and ii) take FC+S 60 workdays from the start of design work
through the completion of the fit-out renovations before the factory would be capable of
producing modules.21
Exhibit C CONTRACTOR'S SCHEDULE to the CM Agreement is an ordinal schedule
that contains, among other things, three activities representing: 1) the designing and permitting
of tenant factory improvements with a duration of 25 workdays, 2) the bidding and awarding of a
contract for the performance of tenant factory improvements with a duration of 10 workdays, and
3) the planned performance of the work associated with the tenant factory improvements with a
duration of 25 workdays. The combined durations of these three activities are 60 workdays, and
the first 25 workdays representing the designing and permitting of the tenant improvements/
factory fit-out work were shown in the schedule to be performed prior to the scheduled
December 7, 2012 issuance of the Full Notice to Proceed. Thus, according to the Exhibit C
schedule, the activities related to the factory fit-out would have a remaining duration of 35
workdays when the Full Notice to Proceed was issued (60-25=35); 10 workdays for the bidding
and awarding of the fit-out contract and 25 workdays for the planned performance of the fit-out
work. It is worth noting that although this 60 workdays of tenant improvements/factory fit-out
work is represented in Exhibit C to the CM Agreement, nothing in that document provides or
even indicates that Skanska is responsible for performing it. Additionally, the Exhibit C
schedule contains an activity, "Skanska Pre-Bid activities prior to FCRC NTP" that is a different
color bar than the bars for the tenant improvement activities, thus reinforcing the fact that the
20 Exhibit F to the LLC Agreement.
21 Exhibit C to the CM Agreement.
August 8, 2014
Page 26
tenant improvement/factory fit-out work was not part of the scope of work to be performed by
Skanska under the CM Agreement.
In Robert Sanna's letter of March 24, 2014, FC asserts, among other things: 1) that the
factory fit-out work was delayed by seven months; 2) that whether the fit-out work was the
responsibility of FC+S or Skanska is irrelevant because FC+S is a subcontractor to Skanska and
therefore Skanska is responsible for its performance, or lack thereof, of the fit-out work, and 3)
that as the Managing Member of FC+S it is solely Skanska Modular's responsibility to, among
other things, timely perform the factory fit-out work and maintain the Construction Schedule
agreed to in FC+S' Purchase Order with Skanska to fabricate and deliver the B2 modules, which
is the Exhibit C schedule of the CM Agreement. These assertions are simply wrong and not
supported by any of the agreements between the parties or their affiliates. That notwithstanding,
these bald assertions do not support a contention that delays to the tenant improvements/factory
fit-out work were the responsibility of Skanska, Skanska Modular or FC+S due to the following:
A) The LLC Agreement stipulates that FC will negotiate the lease of the factory;
B) Section 5.1(g) of the CM Agreement provides that FC's affiliate's conveyance of
a fully executed lease to FC+S for the factory is a pre-condition to the issuance of the Notice to
Proceed; and
C) The October 31, 2012 IP Transfer Agreement between FC Modular along with
Forest City Ratner Companies, LLC and Skanska Modular and FC+S provides that FC will
provide FC+S with know-how and techniques for the fabrication and/or assembly
methodologies, factory and factory floor methodologies, equipment, organization, etc., for the
production of modular units for use in the construction of high-rise modular buildings. As such,
August 8, 2014
Page 27
FC is responsible for providing the knowledge and expertise needed to select, layout and equip
(fit-out) the factory.
Based on the agreements cited above FC was obligated to do three things: A) select a
building suitable for use as the factory; B) negotiate the lease of the factory building with the
landlord; and C) provide the expertise necessary to fit-out the factory in a manner that would
allow manufacturing of modules for the B2 Project. The agreements taken with the CM schedule
and Exhibit F to the LLC Agreement PRE-APPROVED COMPANY EXPENSES represented
to Skanska and Skanska Modular: 1) that FC+S could perform the tenant improvements/factory
fit-out work within the 60 workday timeframe called for in the Exhibit C schedule; and 2) that
FC would select and negotiate the lease on a building that FC+S could fit-out as the factory
within the $2.5 million budget for the work in Exhibit F.
Both the 60 workday time period for the performance of the factory fit-out work shown
in the Exhibit C Schedule and the original $2.5 million budgeted for the fit-out work shown in
Exhibit F to LLC Agreement were set by FC, and FC represented to Skanska and Skanska
Modular that these figures were reasonable estimates of the time and the cost required to
transform Building 293 at the Brooklyn Navy Yard into a factory capable of producing modules
at rates that would maintain the Exhibit C schedule. The actual events clearly show that due to
no fault of Skanska or Skanska Modular neither of these estimates were even close to being
accurate.
As of the October 31, 2012 effective date of the CM Agreement, the building selected by
FC for use as the factory, Building 293 at the Brooklyn Navy Yard, was still the location for the
production of the prototype modules pursuant to the Prototype Agreement. The Prototype
Agreement was entered into by Skanska and FC Modular in order to manufacture and test full-
August 8, 2014
Page 28
sized, fully designed and fully engineered modular units to confirm the methodology intended
for use in the mass-production of modules for the B2 Project. In accordance with the Prototype
Agreement, FC Modular had primary responsibility for the manufacturing and testing of the
prototype modules. The Prototype Agreement work experienced delays, including Hurricane
Sandy which flooded the factory building on October 29, 2012 (two days prior to the effective
date of the CM Agreement), that were not the fault of either Skanska or Skanska Modular.
Additionally the effective date of the factory lease is December 1, 2012 and the work on the
prototype modules concluded in early December 2012. As such, during the entire month of
November following the October 31, 2012 effective date of the CM Agreement, the factory was
not available for the start of the tenant improvement/fit-out work. It is also worth noting that the
Brooklyn Navy Yard was willing to grant rent credits for building repairs performed by FC+S
that were required due to the direct effects of Hurricane Sandy,
22
and obviously these Sandy-
related repairs were unforeseen when the tenant fit-out activities shown in the Exhibit C schedule
and the $2.5 million budgeted for tenant improvements were calculated by FC.
As previously noted, the effective date of FC+S' lease on Building 293 at the Brooklyn
Navy Yard was December 1, 2012. Between mid-December 2012 and mid-January 2013 FC+S
(not as a subcontractor to Skanska) evaluated Building 293 to assess its suitability for use as the
factory. This evaluation determined that the building required structural modifications in order
to achieve a factory layout wide enough to accommodate the production of the B2 modules.
Specifically, portions of 8-foot by 9-foot 'square' concrete blocks which protruded above the
floor slab like pedestals and support the columns which support the factory's roof had to be
22
Burch email RE - Hurricane Sandy Lease Language dated 1/30/2013.
August 8, 2014
Page 29
removed.23 Spacesmith, LLP ("Spacesmith") was contracted in mid-January 2013 to research
and obtain as-built data on the building's foundation system and to provide what was anticipated
to be a simple solution for removing portions of square above-slab concrete footings. However
on or about February 26, 2013 it was determined that there was insufficient as-built data on the
building's foundation system to simply remove portions of the above-slab footing blocks without
running a risk of compromising the building's structure integrity. It was also determined that the
building did not have the structural capacity to support a gantry crane large enough to transport
finished modules so the addition of a reach truck was required for material handling. This
addition of a reach truck resulted in approximately $500,000 of unanticipated scope being added
to the fit-out work in order to enlarge the roll-up doors so the truck could fit through them.24
In late February FC+S engaged Ove Arup & Partners, PC ("Arup") to: (i) perform a
complete survey of Building 293's existing structural elements; (ii) review archives for as-built
data on the building; (iii) verify the accuracy and adequacy of as-built data located during the
archive review; (iv) prepare drawings depicting the building's existing conditions; and (v)
prepare construction documents detailing structural renovations/modifications to be performed
on the building in order to make it suitable for use as the factory. As was the case with
Spacesmith, Amp's efforts also determined that due to the lack of sufficient as-built data on the
foundation system the building would require extensive structural modifications in order to
safely allow for a factory layout wide enough to accommodate the production of the B2 modules.
The lack of sufficient as-built information on the building's foundation resulted in Arup
designing a conservative structural solution which included the installation of piles.
23 2.26.2013 email string RE - Building 293 - Footing Adjustment.
24
5/1/2013 Email String RE - Budget Brooklyn Navy Yard-Structural.
August 8, 2014
Page 30
Unfortunately this conservative solution was also very expensive, so FC+S enlisted the
assistance of Skanska USA Civil to examine the issue. Ultimately, on April 3rd and 4th, 2013 a
geotechnical X-ray subcontractor, Admiral Conservation Services, used ground penetrating radar
to identify the existing piles beneath Building 293's concrete slab and plot their locations.25
Once the existing piles were located, Arup was able to design an alternate and less expensive
way of creating an area wide enough to accommodate the production of the B2 modules. Arup's
alternate design was completed on April 9, 2013 and its construction documents were utilized to
obtain permits for the work as well as for inclusion in bid packages used to solicit contractors to
provide pricing to FC+S for the performance of the work. As such, Arup's work efforts
consisted of the work described by the first of the three (3) tenant improvement activities,
"Factory Tenant Improvement Design & Permits", shown in the Exhibit C schedule. As
previously noted, the Exhibit C schedule shows that this work was to take 25 workdays to
perform and that it was to be completed prior to the issuance of the Full Notice to Proceed. As
discussed, it took much longer than 25 workdays to perform this work and it was not done until
April 9, 2013, which was 109 days after the Notice to Proceed date of December 21, 2012. A
root cause of this 109-day late finish was FC's selection of Building 293 for use as the factory
and as such, FC is responsible for this delay.
The bidding of the tenant improvement/factory fit-out work along with the actual
performance of the fit-out work impacted FC+S' ability to complete the work. As was
previously noted, Exhibit F to the LLC Agreement shows that FC estimated the tenant
improvements/factory fit-out work would cost $2.5 million. As FC's selection of Building 293
for use as the factory resulted in the design portion of the tenant improvements/factory fit-out
25 Admiral's Invoice for Ground Penetration X-Ray Work.
August 8, 2014
Page 31
being much more complex and taking much longer than the 25 workday original duration, this
increase in complexity and scope resulted in an increase in the cost of performing the fit-out
work and an increase in the amount of time needed to perform the fit-out work.
In a Skanska email dated February 4, 2013 from Richard Kennedy to Robert Sanna and
Melissa Burch of FC, Skanska informed FC that the estimated cost of the factory fit-out work
had increased from the $2.5 million estimate to $4,777,584. The minutes to the February 7, 2013
FC+S Board Meeting show that during that meeting the Board was informed that the $2.5
million budget for factory fit-out would be exceeded and the Agenda presentation to the April
30, 2013 Board Meeting shows a revised factory fit-out budget of $4,774,584. In addition, the
April 30 Agenda shows that the then current estimate for the cost of the fit-out work had
increased by over $1.1 million to $5,902,381. The minutes to the April 30 Board Meeting
demonstrate that the Board requested additional details before approving the revised $4.774
million fit-out budget, and this revised budget was approved shortly thereafter.
Due to FC+S' budgetary concerns over the expanded scope of the factory fit-out work,
the approved revised budget of $4.774 million for this work being nearly double the original
budget of $2.5 million and the $1.1 million projected overrun of the approved revised $4.774
million budget, FC+S attempted to lower the overall cost of the fit-out work by trimming down
its scope. To realize more savings, rather than hiring a General Contractor to perform all of the
work, which would include a General Contractor markup on Subcontractors' work, FC+S
awarded the work on a trade-specific basis. Separate contracts were put out to bid and awarded
for the structural work, the carpentry and perimeter wall insulation work, the electrical work,
demolition work, work related to the roll-up overhead doors, HVAC work, and other scopes.
Actual construction related to the factory fit-out commenced on May 10, 2013 with the start of
August 8, 2014
Page 32
concrete demolition and carpentry work. It was previously noted that Arup's alternate factory
fit-out design was completed on April 9, 2013. Therefore it took approximately one month, from
April 9th until May 10th, to bid and award the factory improvement work to the point where the
work actually started. The Exhibit C schedule shows that the bid and award activity had a
planned duration of 10 workdays, or 2 weeks, so the one month actual duration was
approximately double the planned duration. The root cause of this 2-week delay was FC's
selection of Building 293, its attendant inadequacies for use as the factory and its cost impact, all
of which is the responsibility of FC.
The factory fit-out work actually started on May 10, 2013 with the commencement of
demolition and carpentry work. During the week of May 20th work started on the installation of
steel bracing and the installation of the gantry crane, and the following week the electrical work
began. As other trade packages were awarded to contractors for work on the loading dock,
exterior walls, overhead doors, HVAC, locker rooms, etc., those contractors started their work.
As of August 30, 2013 the fit-out work had progressed to the point where module assembly
could begin, and then the fit-out work was no longer the source of critical delay to the Project.
The May 10th through August 30th time period when the factory fit-out work was
performed spans 112 calendar days, which is more than four times the 25 workday duration
shown for it in the Exhibit C schedule. The reason the fit-out work cost double the amount that
was originally budgeted and took over four times longer than the planned duration shown in the
Exhibit C schedule was because the building needed a tremendous amount of work before it
could be used as the factory. Thus, the root cause of this extended duration for performing the
fit-out work was FC's selection of Building 293 for use as the factory and as such, FC is
responsible for this delay.
August 8, 2014
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During the course of the performance of the factory fit-out work, on June 4, 2013 a
gantry crane that was in the process of being erected in the factory collapsed. The crane
collapse, the on-site investigation into the cause of the collapse, the removal of the damaged
crane, remedial work required as a result of the collapse and the erection of the replacement
crane were all completed as of July 12, 2013 with the commissioning of the replacement crane.
As such, all efforts associated with the gantry crane collapse took place concurrently with, but
did not control, the performance of the factory fit-out work.
In Mr. Sanna's letter of March 24, 2014, FC asserts that the late start and finish of the
factory fit-out work extended the Project's critical path, and Mr. Sanna is correct. But the late
start was due to Owner-Caused Events; specifically FC's building selection and its attendant
deficiencies, and not the fault of Skanska, Skanska Modular or FC+S. FC selected Building 293
at the Brooklyn Navy Yard for use as the factory for the manufacture of modules and FC
represented to Skanska that it possessed,the necessary know-how and expertise to lay out a
factory floor suitable for the manufacture of the B2 modules. FC also represented to Skanska
that a 60 workday time period was suitable for designing, bidding and performing the factory fit-
out work and that the fit-out work could be done for $2.5 million. Notwithstanding FC's alleged
expertise in the selection of and operation of factories for manufacturing modular units, FC
selected a building that required extensive, expensive and time consuming modifications to be
performed in order to bring it to a state where it would be suitable for use as the factory that
manufactures modules for the B2 Project. As such, all delays associated with the fit-out work
are Owner-Caused Events and Skanska is entitled to a time extension and additional
compensation.
August 8, 2014
Page 34
DEFECTIVE INTELLECTUAL PROPERTY
EXECUTIVE SUMMARY
The entirety of the "business deal" was predicated upon the Intellectual Property which
was conveyed to FC+S including the Contract Price, the schedule, the labor, the building, and the
manufacturing process. Skanska's role was to carry out the direction provided by the IP and the
complete, detailed and buildable design.26
The excellence of the IP was the subject of explicit representations in the Opportunity
Brief by Bruce Ratner. If the IP is inaccurate, everything fails. The IP was a capital contribution
of FC Modular. It was defective in most every respect. The fact that the IP Transfer Agreement
disclaimed a warranty of quality or fitness for a particular purpose, except as expressly set forth
in "any other agreement by or among Skanska or its related parties and FC or its related parties"
does not relieve FC of liability
First, the LLC Agreement, CM Agreement and IP Transfer Agreement conveyed the
promise that if you performed in accordance with the IP, the contracts can be performed pursuant
to their terms. Indeed, FC+S was required to utilize the IP. (IP Transfer Agreement, 3).27
Hence, it cannot be reasonably argued that FC which was in charge of the development of the IP,
represented its excellence in the Opportunity Brief and has continually claimed credit for its
uniqueness and accuracy in countless public announcements can simply disclaim all
responsibility. It cannot. A warranty and a covenant/promise are not the same. A failure to
fulfill a promise is a breach.
26
The risk that Skanska took in guaranteeing "overruns" under the LLC Agreement was based solely on a failure to
follow FC's IP.
27
Even if FC effectively disclaimed liability for the IP (which it did not), since FC+S was required to use it, any
failures or delay would be beyond Skanska's reasonable control and a Force Majeure Event. Again, the distinction
between an Owner Caused Event or Force Majeure Event is of no consequence since the delay lasted more than five
(5) days. (CM Agreement, 5.4(c) and (e)(i)).
August 8, 2014
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Second, the LLC Agreement contains a covenant of good faith and fair dealing. That
covenant is breached when the central subject of the agreement, the IP, is poorly conceived and
inaccurate. Other agreements which were also part of the LLC Agreement contain
representations regarding the accuracy of the design as well as the accuracy of the IP.
It is not to be forgotten that the full title of the CM Agreement is "Construction
Management and Fabrication Services Agreement. (Emphasis added). The fabrication work had
to use the IP. The CM Agreement carries with it the Spearin Doctrine,that if you build in
accordance with the plans and specifications, the Project can be constructed as designed. This
doctrine is a promise by FC, as the IP was incorporated into the design of the Work and part of
the work Skanska was to perform under the CM Agreement. (See also definition of Work: "all
obligations, duties...for the fabrication, delivery and erection of the B2 modules...including all
labor necessary to produce such construction.") The CM Agreement provides "Whereas,
Contractor desires and agrees to fabricate, deliver and erect the B2 modules and perform
construction and construction management services in connection with the B2 project in
accordance with the B2 design..." The CM Agreement also provides, "Whereas Owner has
requested that Contractor, fabricate, deliver and erect the B2 modules...in accordance with the
B2 design."
The Prototype Agreement provides that Skanska and Developer agree...to "fund the
fabrication and testing of certain prototypes of full sized, and fully designed and engineered
modular units (the Prototype Modules) to confirm the methodology intended to be used to
manufacture modular units for use in high rise modular housing." (Emphasis added). The
Prototype Agreement and procedure were breached by FC. The prototype testing was completed
under the direction of Roger Krulak. The prototype work was not performed pursuant to its
August 8, 2014
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terms. In fact, as explained in greater detail below, the prototype was not designed and
constructed to represent critical conditions in any meaningful way.
Finally, the CM Agreement directed that Skanska "will execute a purchase order with FC
+ Skanska Modular, LLC..." This direction to Skanska constitutes the creation of a sole source
subcontractor. By naming a sole source subcontractor, the Owner warrants the capability of the
subcontractor to perform. Because of the failure of the IP which was furnished to the
subcontractor and which FC+S was to use, it did not have the capability to perform pursuant to
the terms of the Purchase Order with Skanska.
For all of the reasons stated above, Skanska is entitled to receive a change order
extending its time to perform the work and compensation for the extra work and extended period
of time. In short, FC sold the IP to Skanska which FC and its design team had allegedly spent
years developing and refining. As the parties agreed, Skanska had no reason to believe that the
B2 design was insufficient or did not contain the necessary information to complete the work.
(CM Agreement, 1.5). In reality, however, the IP was defective in many critical respects and
Skanska was misled. Ignoring the more severe consequences resulting from misleading Skanska,
FC still breached the CM Agreement.
DETAILED DISCUSSION
The Project's as-built data reflects that as of August 30, 2013 the factory fit-out work had
progressed to the point where the effective production of modular units could start, and the
production of modules for the 2nd floor actually did start on the following workday, September
3, 2013. However the Delay Analysis shows that the production of the 2nd floor modules took
much longer than the seven (7) workdays per floor planned duration that was calculated by XSite
August 8, 2014
Page 37
and used in formulation of the Exhibit C "Contractor's Schedule" in the CM Agreement.28
Additionally, the production of the modules for the 3rd floor took longer than seven (7)
workdays, as did the production of the 4th floor and every other floor which has had modules
assembled for it to date. As will be explained below, the root cause of the delays which were
incurred due to the slower than planned production rate of modules is the fundamentally
defective IP provided by FC.
The Content of the IP Transfer Agreement
The October 31, 2012 IP Transfer Agreement defines the IP and FC's contractual
obligations in regard to the IP. It is particularly important to understand FC's obligations
regarding the modular factory operations because IP drove, and continues to drive, the critical
path of the project. Therefore, the applicable content of the IP Transfer Agreement is discussed
below.
Per the WITNESSETH section of the October 31, 2012 IP Transfer Agreement, the
transfer of the High-Rise Modular IP from FC to FC+S was a condition to the execution of the
October 31, 2012 LLC Agreement between FC and Skanska to form FC+S. Specifically, the
LLC Agreement states that FC shall transfer to FC+S the High-Rise Modular IP (as defined in
the IP Transfer Agreement) in furtherance of FC+S' operation of the Business. The IP Transfer
Agreement provided a detailed definition of the intellectual property that FC was obligated to
provide to FC+S.
In the Definitions section of the IP Transfer Agreement, the term "High-Rise Modular
IP" is defined as follows:
28 See XSite July 1, 2011 Phase One, 16-Week Update Report & Exhibit C of Prime Contract between Skanska and
FC.
August 8, 2014
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""High-Rise Modular IP" shall mean all Intangible Assets
relating to the methodology of designing, manufacturing and
constructing modular high-rise buildings, including without
limitation off-site modular fabrication, modular supply and
subcontracting, modular factory layouts and assembly,
modular unit transportation and delivery, modular unit
permitting and on-site staging, logistics, and/or erection, mate-
line and facade sealing and connections, assembly, and finish
work (individually and collectively, "Modular Activities"),
which Intangible Assets (i) are owned or controlled by FC or its
Related Parties or for which there is an obligation to convey to FC
or its Related Parties, (ii) are assigned, licensed, or granted to
FC or its Related Parties (or otherwise vested in and to FC or
its Related Parties) under the Consulting and Settlement
Agreements, (iii) are developed by FC or its Related Parties, or
(iv) were developed in connection with the performance of Work
(as defined in the Prototyping Agreement) under the Prototyping
Agreement; provided that High-Rise Modular IP shall not include
any obligations or liabilities of FC or its Affiliates arising under
the Consulting and Consulting and Settlement Agreements or any
other agreements or instruments." (Emphasis added).
Item (ii) references Consulting and Settlement Agreements. The Definitions section of
the IP Transfer Agreement defines Consultants and Consulting Agreements as follows:
""Consultants" shall mean Arup, XSite and SHoP." (Emphasis
added).
""Consulting and Settlement Agreements" shall mean the XSite
Consulting Agreement, the Arup Consulting Agreement, the
SHoP Consulting Agreement and the Kullman Agreement."
(Emphasis added).
The definition of the "High-Rise Modular IP" being transferred from FC to FC+S
includes the term "Intangible Assets", which is defined in the IP Transfer Agreement as follows:
""Intangible Assets" shall mean inventions; patents; patent
applications; trade secrets; systems; processes; technology;
techniques; formulas; drawings; prototypes and models; designs
including without limitation industrial design rights and design
patents; developments; works of authorship; formulas; know-how;
techniques; improvements; discoveries; licenses; fabrication
and/or assembly methodologies; rights of priority or certificates
August 8, 2014
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of invention; confidential and/or proprietary information;
business plans; marketing plans; source and object codes or
computer programs algorithms, extensions, models, schematics,
data and databases; copyrights; visual artist rights and moral rights;
building, municipal, transportation, environmental and other land
use applications, plans and/or permits; labor arrangements and
agreements; calculations, drawings, plans, designs,
specifications and approvals, whether of an engineering,
architectural, construction, trade, shop, field or site, factory or
municipal nature or purpose; information regarding plans for
research, development, new products, marketing and selling;
business plans, budgets, and financial statements, analyses,
projections, prices, bids or costs, including those prepared or
provided by suppliers, vendors, fabricators, contractors or
subcontractors, and lists of such suppliers, vendors,
fabricators, contractors or subcontractors; customers lists;
manufacturing, maintenance, management, installation,
factory and factory floor methodologies, equipment,
organization, management, processes, inventory supply and
control, production and assembly schematics, and designs; and
information regarding the skills, tasks, descriptions and
compensations of employees, contractors and consultants, in
each case howsoever embodied and howsoever manifested, or
stored, recorded, whether in analog or digital form or otherwise,
and regardless of whether or not any of the foregoing materials are
stored or recorded or registered or registrable (in the United States
and/or any other jurisdiction, foreign or domestic, under patent,
copyright or other legal or equitable registration systems), and
regardless of whether registration has been applied for, pending,
exempt, rejected, conditioned, or modified, or whether or not any
such registration will be sought or pursued. For purposes of this IP
Transfer Agreement, Intangibles Assets shall not include
trademarks, tradenames, service marks, or domain registrations, as
no such trademarks, tradenames, service marks, or domain
registrations have been created, registered or utilized by FC for its
Modular Activities businesses." (Emphasis added).
Section 3 of the IP Transfer Agreement provides:
3. Exclusivity
(a) The Parties acknowledge that each of FC and Skanska and
each of their respective Related Parties will conduct all activities
utilizing the Exclusive IP exclusively through the Company and
neither FC, Skanska or their Related Parties shall engage directly
August 8, 2014
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or indirectly in any activities utilizing Exclusive IP other than
through the Company. (Emphasis added).
Based on the IP Transfer Agreement which addresses modular factory operations, FC
was obligated to provide FC+S with the following:
(a) The knowledge and expertise to select and fit-out a building suitable for use as the
factory
(b) The knowledge and expertise to establish the factory layout
(c) A fabrication and/or assembly factory floor methodology for producing the
modules
(d) Budgets, analyses, projections, prices and projected costs for manufacturing
modules
(e) Labor arrangements and agreements related to the production of modules
(f)
Information regarding the skills, tasks, descriptions and compensations of
employees, contractors and consultants
(g)
The knowledge and expertise to establish modular supply and subcontracting (i.e.
- procurement)
(h) A method of transporting and delivering modules along with the necessary
permitting
(i)
The knowledge and expertise to establish on-site staging of modules
(j) The knowledge and expertise to establish inventory supply and control
A simplification of FC's contractual obligations under the IP Transfer Agreement is that
FC was contractually obligated to provide FC+S with all of the expertise and technical know-
how needed:
i. to properly select, lay out and fit out the factory;
ii. to properly staff, supply materials for, organize, manage and operate the
factory; and
iii. to properly estimate pricing and put together a budget for running the
factory.
August 8, 2014
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An even further simplification of the terms of the IP Transfer Agreement is to state that it
contractually obligated FC to provide all of the knowledge and expertise necessary for
successfully selecting, setting up, staffing, supplying and operating the factory where the
modules are produced, and to do all of these things within a budget that FC was responsible for
setting.
Skanska and FC+S relied upon the accuracy of the IP being provided and were entitled to
do so.
Section 4(a)(ix) of the IP Transfer Agreement addresses the validity of the IP that FC
transferred to FC+S as follows:
Disclosure. No representation or warranty made by FC herein
contains any untrue statement of a material fact or omits to state
any material fact that is necessary in order to make the statements
herein not misleading.
In regard to the quality of the IP that FC is to transfer to FC+S, Section 4(a)(iv) of the IP
Transfer Agreement provides:
No Warranties of Quality or Fitness Except as Provided. The High-
Rise Modular IP is transferred and conveyed to the Company
without any representation or warranty of quality, or fitness for a
particular purpose, except as expressly set forth in this IP
Agreement or any other agreement by or among Skanska or its
Related Parties and FC or its Related Parties.
Based on the provisions in the IP Transfer Agreement, the material facts represented by
FC in the IP Transfer Agreement shall not be false or misleading, but FC is not providing a
warranty of the quality and fitness of the IP beyond what is expressly stated in the IP Transfer
Agreement or any other agreement among FC and Skanska and their Related Parties.
Section 6(a)(i) of the IP Transfer Agreement states that if there is a material inaccuracy in
the IP being provided by FC or if FC breaches or fails to perform or comply with any of the
August 8, 2014
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representations contained in the IP Transfer Agreement, then FC will indemnify Skanska
Modular and FC+S against the resultant losses, and provides:
FC shall, and shall cause its Affiliates to, on a joint and several
basis, indemnify, defend, and hold harmless the Company,
Skanska and each of their Related Parties from and against any
and/or all Losses caused by or resulting or arising from, or
otherwise with respect to any material (i) inaccuracy in, (ii) breach
of, or (iii) failure to perform or comply with, any of the
representations, warranties and covenants of FC, its Affiliates and
each of their Related Parties contained in this IP Transfer
Agreement.
To summarize Sections 4(a)(ix), 4(a)(iv) and 6(a)(i) of the IP Transfer Agreement
the material representations and warranties made by FC in the IP Transfer
Agreement are not false or misleading
the warranties and representations that FC is providing as to the quality and
fitness of the IP are limited to the warranties and representations set forth in the IP
Transfer Agreement and the various other agreements among Skanska and FC,
and
if the IP provided by FC under the IP Transfer Agreement contains a material
inaccuracy or if FC fails to perform or comply with any of the representations or
warranties contained in the IP Transfer Agreement or any the various other
agreements among Skanska and FC, then FC will indemnify Skanska Modular
and its Related Parties against any resulting losses. 29
XSite's Role in the IP
The IP Transfer Agreement refers to consultants, and of particular importance is the
reference to XSite Modular (XSite) as XSite was a primary source of the IP that FC transferred
to FC+S. In FC's January 6, 2012 Opportunity Brief, FC describes XSite as being a part of FC's
"world class team of experts" who have developed a revolutionary methodology for building
modular high-rise buildings. The January 6, 2012 Opportunity Brief goes on to state that B2 is
29 The agreements include, among others, the CM Agreement, the Prototype Agreement, and the LLC Agreement,
all of which contained requirements and representations, express and implied, of the sufficiency and accuracy of the
IP. In fact, in a June 28, 2012 email, MaryAnne Gilmartin attempted to shift the design responsibility of the IP to
"Newco" which became FC+S. Skanska declined and this responsibility remained with FC.
August 8, 2014
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to be the first building constructed using this new modular methodology, and that FC and XSite
will provide the "NYC Modular Factory" in which the modules for B2 will be produced with,
among other things:
a Secured NYC Factory Lease with Excellent Terms
a Multi-year NYC Union Labor Agreement (Factory Rate & Work Rules)
Intellectual Property
Factory Operations Expertise, and
a Factory Operations & Management Team
Some of the items in FC's January 6, 2012 Opportunity Brief that are to be provided by
FC and XSite are identical to portions of the High-Rise Modular IP that FC was contractually
obligated to transfer to FC+S under the IP Transfer Agreement. To be more specific, under the
IP Transfer Agreement FC was obligated to provide, among other things, labor arrangements and
expertise in operating the factory as part of FC's IP contribution to FC+S.
XSite was always proffered by FC as being a major source of the IP that FC would
provide to FC+S. As noted above, FC's January 6, 2012 Opportunity Brief refers to XSite as
being a member of FC's team of "world class experts." Additionally, under the July 26, 2012
Prototype Agreement FC was primarily responsible for assembling the prototype modules and
XSite was to play a major role in the prototype program. This is evidenced by the fact that
Exhibit A to the Prototype Agreement contains an Organization Chart identifying which parties
were responsible for which aspects of the prototype program, and this chart indicates that XSite
had responsibility for almost all of the prototype program's management roles as well as
responsibility for the role of production superintendent. When the prototype modules were
August 8, 2014
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actually assembled, XSite ran the factory and, on behalf of FC, was responsible for the
execution of the prototype program.3
The IP which XSite provided to FC and FC transferred to FC+S including addressing the
physical characteristics of the factory building, the equipment the factory requires in order to
operate properly and how the factory's labor force is to be organized and utilized is described in
an XSite Phase One, 16-Week Update Report dated July 2011. Although this July 2011
Production Plan predates the various contract agreements among FC, Skanska, Skanska Modular
and FC+S, this plan accurately reflects the IP that FC conveyed to FC+S. As will be explained
hereafter, this IP is not capable of producing modules under the labor agreement negotiated and
supplied by FC for the dollar amount budgeted, or at a rate capable of maintaining the Exhibit C
schedule in the CM Agreement.
The Faulty Selection of Building 293 as the Factory
Many of the problems that were the direct result FC's selection of Building 293 at the
Brooklyn Navy Yard for use as the factory facility were previously addressed in the Factory Fit-
Out section. This section addresses the characteristics of Building 293 that have contributed to
the actual durations of module production being greater than the seven (7) workday per floor
planned duration calculated by XSite and used in the formulation of the Exhibit C schedule. As
explained below, FC was solely responsible for selecting the building to be used as the factory,
and, therefore, the delays to the actual production of the modules that are related to the
shortcomings of Building 293 are the responsibility of FC.
3 After XSite's departure from the site, Roger Krulak of FC assumed responsibility for completing the prototype
testing with trade associates retained by FC. In fact, however, FC did not complete the testing required under the
Prototype Agreement.
August 8, 2014
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Three agreements establish that FC was solely responsible for selecting the building to be
used as the factory.
A. The October 31, 2012 IP Transfer Agreement between FC and FC+S provides,
among other things, that FC will provide FC+S with the methodology of designing,
manufacturing and constructing modular high-rise buildings, including without limitation off-site
modular fabrication, as well as the know-how and techniques for the fabrication and/or assembly
methodologies, factory and factory floor methodologies, equipment, organization, management,
processes, etc., for the production of modular units for use in the construction of high-rise
modular buildings. As such, FC is responsible for providing the knowledge and expertise needed
to select, layout and fit out the factory.
B. The LLC Agreement stipulates that FC will negotiate the lease of the factory, and
C. Section 5.1(g) of the CM Agreement provides that FC's conveyance of a fully
executed lease to FC+S for the factory is a pre-condition to the issuance of the Notice to Proceed.
Based on the above, FC was obligated to; A) select a building suitable for use as the
factory, B) negotiate the lease of the factory with the landlord, and C) provide the expertise
necessary to fit out the factory in a manner that would allow manufacturing of modules for the
B2 Project. Thus, FC promised that it would select a building for use as the factory that both
Skanska and FC+S could reasonably expect to be capable of producing modules for the B2
Project in accordance with the timeline shown in the Exhibit C schedule.
As explained in the Delay Analysis, the Exhibit C schedule accommodated the estimated
durations for module production, per floor, provided by XSite in XSite's July 2011 Phase One,
August 8, 2014
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16-Week Update Report. The as-planned durations in the Exhlibit C schedule to the CM
Agreement for the modules for the 2nd floor through the 10th floor work out to be seven (7)
workdays per floor. In order to produce modules in accordance with this seven (7) workdays per
floor schedule, FC needed to select a building that would reasonably allow for this production
rate to be maintained. XSite's July 2011 Phase One, 16-Week Update Report set forth a list of
requirements for "an ideal factory". That list provides:
Ideal Factory Requirements
XSite has identified the following requirements for an ideal factory in order to identify an
additional NYC location.
Ceiling Height 40' with crane, 25' without crane
Drive in Doors 3 Min.
Access for trucks to get in and out of the building (turning radius)
Size of Drive in Doors 16' wide by 18' high
Overhead Crane 30 ton
Parking for employees 150 min. without nearby public transportation, less with
access to bus/train
Storage for Material 700 sq. ft.Module Storage 100-200 modules 1.5 3 acres
Bay Size (min. 60' x 30' bays)
Task Lighting required
Ventilation
Surrounding community allows oversized trucking and multiple shifts
Adequate Power
In addition, XSite's 2011 Phase One, 16-Week Update Report also contains a schematic
of a floor plan for an "Ideal Factory w/Crane" and an "Ideal Factory No Crane." These
August 8, 2014
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schematics are shown at the end of this section. Following the two schematics of "ideal factory"
floor plans taken from XSite's 2011 Phase One, 16-Week Update Report is a detailed schematic
of the existing factory located in Building 293 at the Brooklyn Navy Yard. This schematic of the
factory shows its dimensions after the fit-out work was completed.
A comparison of the dimensions of the existing factory located in Building 293 to the
dimensions shown on the two "ideal factory" schematics taken from XSite's 2011 Phase One,
16-Week Update Report demonstrates that the dimensions of the factory in Building 293 exceed
those shown on the two XSite schematics. The ceiling height of the existing factory in Building
293 is 45 feet, which exceeds the 40-foot ceiling height called for in the "ideal factory".
Therefore if Skanska accepts the premise that the dimensions shown on the two XSite schematics
are ideal for a factory to produce modules for the B2 Project, which Skanska does not, then the
physical size and space dimensions of the factory in Building 293 are adequate to optimize the
production of B2 modules.
The process of actually assembling modules in Building 293 has revealed that XSite's
"ideal factory" is, in reality, not ideal at all. Experience with the actual assembly process has
shown that despite the dimensions of Building 293 exceeding those of XSite's "ideal factory",
the following difficulties, problems and inefficiencies have been incurred by the assembly
process.
The overall efficiency of the assembly process is less than optimal due to the lack of
laydown space around the modules. This lack of space forces the operations team to move
material multiple times, which negatively impacts the flow of both workers and physical
materials around the modules. This is not the case in the Bathroom Pod subassembly area where
materials for the Pods are located near their point of use and arranged in a ring around the
August 8, 2014
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assembly area. It is clear that a truly "ideal factory" would be larger and there would be enough
space available to allow materials to be staged in a ring around the module assembly areas. It is
equally clear that this 'ring' arrangement would shorten the amount of time needed to assemble
the modules. This factory resulted in inefficiency due to the constant need for man and materials
to move from the factory floor up to the modules which were sets on pedestals. By not having
the proper size factory nor the allocated time and budget, this practice could not be implemented.
The logistics of moving modules down the single traffic aisle negatively impacts the
ability to move the modules in a safe and timely manner. In order to minimize these impacts
most chassis moves are made during non-work hours when there is no other production activity
in the factory. As a result of these limitations on the safe movement of modules, assembly
operations can lose up to an entire day between floors due to the need to wait until the next off-
shift period to move completed modules out of their assembly areas and move the frames for the
next floor's modules into them. A truly "ideal factory" would be large enough to allow
completed modules to be safely removed and replaced with frames as soon as they are complete.
The insufficient size of the Building 293 factory limits FC+S' ability to perform
additional work on the modules for more than one floor concurrently. The factory can only
accommodate the modules for one floor at a time and the overall work flow within each module
is constrained by the physical size of the module. The average module size is approximately 500
square feet and this limits the number of operations that can be efficiently performed in it at the
same time. Also, the dry time of drywall joint compound and paint impacts the overall cycle
time of each module. A truly "ideal factory" would be large enough to allow for the
performance of more concurrent work. For an example, a truly "ideal factory" would be large
enough so modules could be removed from the assembly pedestals prior to painting and
August 8, 2014
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relocated to a "Finish Area" within the factory building where the finish operations (painting,
flooring and trim) could be performed. This would allow for the earlier commencement of work
on the modules for the subsequent floor.
The ideal factory needed to be able to support the manufacture of the modules and the
supporting activities required to keep the work flowing. It did not. Due to lack of additional
floor space, there was no on-site (indoor) flex space to complete the final work off of the
pedestals. If some small detail inside the module was holding up final completion, then the
entire timelines for all modules that are on that pedestal now and in the future are delayed.
The dimensions of the factory's assembly area do not permit simulation of the assembly
in the field, impacting an ability to "error-proof' the total floor assembly prior to shipment to the
site. The width of the assembly area forces the layout of each GTW to be rotated 90 degrees
relative to their natural position within the layout of the building. Therefore, adjacent GTWs
cannot be positioned next to each other, negatively affecting the assessment of the mate-line
conditions at the intersection of adjacent GTWs. The "ideal factory" would have allowed for all
GTW's to be arranged as a single unified floor of modules identical to the actual position of
modules at the construction site. This would have benefitted the faade installation process so
that modules could be aligned in the factory, as on site. A critical dimension in the facade
placement is the relative distance between adjacent panels (i.e. adjacent panels are required to be
1.5 inches apart +/- 1/8 inches to ensure the proper compression of the faade panel gasket).
There is no accurate way to assess this dimension between GTWs under the current factory
layout. Potential issues with facade installation are compounded as the trade associates are
unable to install match plates at chassis columns that border the edge of each GTW. In addition,
August 8, 2014
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the alignment of plumbing and fire protection system mate-line connections between GTWs are
similarly more difficult to error proof in the factory.
XSite's list of "ideal factory" requirements includes a 30-ton overhead crane, which in
fact is not ideal because the heaviest loads that need to be lifted in the factory exceed 30 tons, so
a 30-ton crane would not be capable of moving these loads. In addition to XSite's erroneous IP
recommendation that a 30-ton gantry crane would be ideal for the factory, Building 293 is not
structurally capable of supporting the misspecified 30-ton or the larger gantry crane that is
actually needed in order for the crane to lift and transport the heaviest loads.
As FC was solely responsible for selecting and leasing the building to be used as the
factory and obligated to provide FC+S with the knowledge and expertise to properly fit-out the
factory, it is responsible for the costs and damages incurred. Skanska is entitled to compensation
and a time extension for the delays associated with the selection of Building 293 as the factory.
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August 8, 2014
Page 53
August 8, 2014
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The Incorrect Factory Group Technology Worked! Production Plan
FC was contractually obligated to transfer to FC+S the technical know-how and expertise
needed to setup, manage and operate a factory floor methodology for assembling modules in a
manner that was: 1) capable of producing modules at a rate which would support the Exhibit C
schedule which was put together using durations from XSite's July 2011 Phase One, 16-Week
Update Report, and 2) within the budgeted cost. Two key components to accomplish this are A)
the selection of the labor force that will produce the modules, and B) the calculation of the
budget for producing the modules. The expertise and knowledge concerning the selection of
labor and the calculation of budgets were portions of the IP that FC was to provide.
The assembly methodology called for in FC's IP was implemented and utilized during
the assembly of the modules for the 2nd and 3rd floors. As was explained in the Delay Analysis,
the assembly of the modules for the 2nd and 3rd floors took much longer than their planned
durations of seven (7) workdays each, and these longer than planned durations resulted in
significant delays to the project completion date. FC was responsible for the assembly
methodology used during production of the 2nd and 3rd floor modules and this methodology was
wrong as it was incapable of producing modules within the planned duration of seven (7)
workdays. Therefore, FC is responsible for the delays that were the result of the implementation
of FC's incorrect assembly methodology.
The assembly methodology used during the production of the modules for the 2nd and
3rd floors is known as the GTW methodology. FC transferred this GTW methodology to FC+S.
The methodology is described in XSite's July 2011 Phase One, 16-Week Update Report as
follows:
August 8, 2014
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In Group Technology Workcells the Foreman and team specialize
in the production of one family of work. The cross functional team
works to complete the whole product...
In Group Technology Workcells there are circular workloops
where workers can correct problems [when] they are detected.
Operations tend to be more balanced and utilization of each worker
to a great extent. The takt time31 is predictable and the quality
output is better as workers have more ownership in the finished
product. Using GTW the volume can be flexible, and better yet,
more scalable. This methodology exposes problems as they are
identified and workers take initiative and try to solve problems on
their own as they feel they have more accountability.
GTW takes up much less floor space, and is more flexible in space
requirements. You can utilize multiple smaller factories, factories
that are squarer in shape which allows for more factory option
locations. Ultimately, GTW provides for better "command and
control", fosters teams, incentives and competition amongst
workers in the factory."
To summarize, the GTW methodology differs drastically from the standard construction
practice employed on "stick-built" projects. In standard construction practice, groups of
specialized workers perform one narrow set of tasks such as electrical work, plumbing work,
carpentry work, the installation of flooring or carpeting, painting and wall treatments, etc. The
groups of specialized workers used on conventional "stick built" projects are typically provided
by local construction trade unions such as the electrical workers union, carpenters union,
plumbers union, etc. The GTW methodology uses a "team concept" where instead of groups of
specialized workers performing a narrow set of tasks, every worker in the GTW team contributes
to the performance of all of the tasks involved in assembling the modules. The GTW
methodology has each worker doing various different tasks including, but not limited to: the
installation of wall studs; the installation of windows; the roughing in of plumbing and electrical
31 "Takt Time" is the rate at which completed products must be produced in order to meet the customer's demand.
In this case the takt time is the rate at which modules must be produced in order to support the Exhibit C schedule in
the CM Agreement.
August 8, 2014
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work; the installation, taping, spackling and sanding of drywall; the installation of the fire
suppression/sprinkler system; the installation of finished cabinetry and countertops; the
installation of HVAC components; installation of plumbing finishes such as sinks, showers and
toilets; installing flooring finishes; painting, and the installation of the exterior facade. In effect,
the GTW methodology employs the use of "Jacks-of-all-Trades" who can do any and all of the
tasks associated with the assembly of modules. The factory workers who are assembling the
modules are from a new union, the Building and Construction Trades Council of Greater New
York, Maintenance and Modular Construction Division.
According to the GTW methodology, the B2 building was to be subdivided into five (5)
"defined families", or areas/wings of the building consisting of the Dean Street area, the East
Wing area, the Core area, the West Wing area, and the Triangle/Wedge area. The GTW teams
are then to be assigned to a specific defined family and they are responsible for assembling the
sets of 'columns of modules' going up the building, one floor on top of the other, within their
defined family. The standardization of the floor plans and similarities of the modules between
adjacent floors directly above and below each other "enable for ease of fabrication in the
modular process." The subdivision of B2 into the five (5) defined families is shown in the
graphic below, which was taken from XSite's July 2011 Phase One, 16-Week Update Report.
it
Phase 4. Module
Factory Finish Work
Phase 2 Integration
of Subassemblies
Phase I Manufactured
Modular Steel Frame
Phase 3 Factory
Module MEP Work
August 8, 2014
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XSite further describes its plan for the production of the modules as follows:
"The Production Plan is to have the frames fabricated by a subcontractor and sent to the
assembly factory in the five boroughs. Once the frame is delivered to the factory, subassemblies
will be integrated into the frame, e.g. Bathroom PODS. The next step is to install the
mechanical, electrical and plumbing work inside the module. After the MEP work is complete,
all interior and exterior finishes are installed on the module."
XSite's Report also included the following graphic depicting the steps in the process of
assembling a module.
According to the IP, the production workcell sequence includes six (6) days of production
work and one (1) day of workcell changeover during which the complete modules will be
August 8, 2014
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relocated outside of the assembly area and new steel frames will replace them so the entire six-
day assembly process can start over again. The graphic below pictorially shows XSite's seven
(7) workday per floor planned duration.
The GTW methodology was used to assemble the modules for the 2nd and 3rd floors, and
the seven (7) workday per floor planned duration provided by XSite was the basis of the planned
duration for assembling modules shown in the Exhibit C schedule in the CM Agreement and
FC+S Agreement. Furthermore, as a result of XSite's departure and at FC's insistence, Roger
Krulak, an FC employee, was supplied to FC+S and placed in charge of the assembly of the
modules and it was Roger Krulak who implemented the GTW methodology. Robert Sanna
represented that Mr. Krulak had "the deepest historical knowledge of the modular program from
R&D thru prototyping." As it turns out, he was simply not capable of performing his role. As
both the GTW methodology and the seven (7) workdays per floor planned duration for the
assembly of the modules were parts of the IP provided by FC, they are responsible for the
accuracy of the information.
August 8, 2014
Page 59
As previously noted, the Delay Analysis demonstrates that it took much longer than
planned to assemble the modules for the 2nd and 3rd floors. More specifically, the extended
duration for the assembly of the 2nd floor modules delayed the project by 39 workdays and the
extended duration for the assembly of the 3rd floor modules delayed the project by 43 workdays.
A fundamental further root cause of the 82-workday delay (39 + 43 = 82) incurred during the
assembly of the 2nd and 3rd floor modules was that it was, and still is, completely unrealistic to
expect the factory workers32 that assembled these modules, to possess the skills necessary to
perform all of the various tasks involved in the production of the modules such that the finished
products would meet acceptable industry standards for all of the different categories of work, and
to do it within the seven (7) workday planned duration of each floor as well as within the budget.
During the assembly of the 2nd and 3rd floor modules it became evident that the GTW
methodology provided by FC and implemented by Krulak was inaccurate. Accordingly, at the
instance of Skanska Modular, the GTW methodology was abandoned and Mr. Krulak was
replaced and no longer in charge of module production. The modules for the 4th floor were
assembled using a different methodology which resembled a more traditional deployment of
labor on conventional "stick built" construction projects in that it had the more skilled workers
performing a narrow set of the more difficult tasks in all of the modules regardless of whether
the modules go in the East Wing, West Wing, Core, Wedge, etc., and the less skilled workers
performing the easier tasks in all of the modules. The implementation of this new methodology
resulted in the 4th floor modules being delayed by only 19 workdays compared to the 39
workdays and 43 workdays incurred during the assembly of the 2nd and 3rd floors, respectively.
32
The labor agreement was a capital contribution of FC under the LLC Agreement and a representation of FC under
Article 5, Time of Performance, of the CM Agreement.
August 8, 2014
Page 60
With the new methodology the workers performed fewer tasks on a more frequent basis, so a
learning curve developed and they became more efficient workers. This learning curve resulted
in the modules for each subsequent floor taking fewer and fewer days to assemble, as evidenced
by the Delay Analysis showing that the assembly of the 5th floor modules was only delayed by
16 workdays and the 6th floor modules were only delayed 12 workdays.
In accordance with the IP Transfer Agreement FC was contractually obligated to provide
"fabrication and/or assembly methodologies" and "factory and factory floor methodologies" for
producing the modules as well as "labor arrangements and agreements", "information regarding
the skills, tasks, descriptions and compensation of employees" and "budgets, and financial
statements, analyses, projections, prices, bids or costs, including those prepared or provided by
suppliers, vendors, fabricators, contractors or subcontractors". FC addressed this obligation by
providing the GTW methodology, which, in conjunction with the seven (7) workday per floor
planned duration, was fundamentally defective as the GTW methodology was not, and is not,
capable of assembling modules in accordance with the Exhibit C schedule and in accordance
with the budget.
Section 6(a)(i) of the IP Transfer Agreement indemnifies Skanska Modular and FC+S
from any and all losses resulting from FC's failure to perform or comply with the
representations, warranties and covenants in the IP Transfer Agreement. FC failed to comply
with the representation that it would provide viable "fabrication and/or assembly methodologies"
and "factory and factory floor methodologies" for producing the modules, and as such, FC is
responsible for any and all delays resulting from the its imposed GTW methodology and Skanska
is entitled to a time extension and compensation for these delays. Relief is also supported and
provided by the CM Agreement's obligation that Skanska perform the work in accordance with
August 8, 2014
Page 61
the design, which included the IP, as well as its directive to use a sole source subcontractor
whose capability to perform was dependent on the IP. Otherwise, the LLC Agreement provides
relief because of FC's grossly negligent, if not intentionally misleading, conduct of selling the
incorrect IP, described as "world class" in the false "Opportunity Brief."
Factory Labor Availability and Quality
In the May 10, 2012 Letter of Intent between Skanska and FC, a $36.00 an hour blended
labor rate for the workers employed by the factory is listed as one of FC's "Initial
Contributions".33 Under the IP Transfer Agreement, FC was contractually obligated to provide
FC+S with "labor arrangements and agreements" and "information regarding the skills, tasks,
descriptions and compensation of employees." Additionally, in the LLC Agreement, FC agreed
"to negotiate a collective bargaining agreement with the Building and Construction Trades
Council of New York, Modular Division, with respect to labor at the Factory" to be used by
FC+S, the sole source subcontractor and the Purchase Order was subject to FC's approval as to
form and substance. FC's obligation was also addressed in the CM Agreement in Article 5,
Time of Performance. The collective bargaining agreement for the factory labor provided by FC
was fundamentally defective in that it made it impossible for FC+S to attract and retain skilled
workers capable of producing modules within the planned duration of seven (7) workdays per
floor. Therefore, FC is responsible for the project delays that were the result of FC+S' inability
to attract and retain skilled workers.
The collective bargaining agreement for the factory workers negotiated by FC provided,
among other things, that depending on their labor classifications the factory workers assembling
the B2 modules would receive the following pay rates:
33 See May 10, 2012 Letter of Intent.
August 8, 2014
Page 62
Classification
Helper:
Technician 1:
Technician 2:
Senior
Technician:
Foreman:
Base
Hourly
Rate
$16.66
$20.82
$27.76
$32.48
$36.65
Fringes
$6.52
$6.52
$6.52
$6.52
$6.52
Total
Compensation
$23.18
$27.34
$34.28
$39.00
$43.17
A Union Wage Rate Analysis worksheet dated April 10, 2012 shown below
demonstrates, among other things, the exact same hourly rates for factory workers that are
contained in the collective bargaining agreement with the exception that it classifies workers as
Laborer, Apprentice, Journeyman, Master and Foreman, whereas the collective bargaining
agreement classifies them as shown in the table above. The April 10, 2012 spreadsheet also lists
the quantity of each classification of worker and shows an average hourly wage and benefit rate
per worker of $36.00 per hour.34 Based on the wage rates in the collective bargaining agreement
and the wage rates along with the quantity of each classification of worker shown in the April 10,
2012 Union Wage Rate Analysis worksheet, the actual 'blended', or average hourly wage and
benefit, rate being paid to the factory workers is $36.00 per hour.
34 See April 10, 2012 Union Wage Rate Analysis worksheet.
August 8, 2014
Page 63
Union Levels & Wage Bands Assumptions
As of: 4/10/2012
1. AVERAGE HOURLY WAGES & BENEFITS PER TRADE ASSOCIATE:
Wage Rate Level Qty % tir_purTv H..tie
Laborer 16 60% $ 16.66
!Apprentice 20 75% $ 20.82
Base !Journeyman 54 100% $ 27.76
Master 29 117% $ 32.48
'Foreman 6 132% $ 36.65
Total Factory Union Employees 125
$ 26.75,
Wage rate based on % of Journeyman
Benefits Cost/Hr
PTO

10.64% Days per Year
Health

4.65
Retirement

1.75
25 $ 2.85
4.65
1.75
Total

6.40
$

9.25
Average Hourly Wage & Benefit per Trade Associate

1
36.00
The wage rates from the collective bargaining agreement shown above may appear to be
advantageous to FC+S in that they are very low for the New York City area, but in reality that is
not the case. FC+S simply used these low labor rates to estimate FC+S' production costs for
assembling the modules. These production costs were marked up by FC+S for overhead and
profit and factored into the value of FC+S' agreement with Skanska.
In reality the lower wage rates for factory labor actually work against FC+S because they
result in a lower estimate of labor costs being marked up for overhead and profit, which in turn
results in lower dollar amounts designated for FC+S' overhead and profit. Skanska took FC+S'
contract value and marked it up for overhead and profit and then incorporated it into the value of
Skanska's CM Agreement with FC. Therefore, the lower the wage rates for the factory workers
are, the lower FC+S' and Skanska's contract values are, and the lower FC's total costs for the B2
project are. So in actuality the only party that benefits from these low labor rates is FC, which is
the party that negotiated them.
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August 8, 2014
Page 64
The New York City area has a high cost of living and the wage rates that FC+S are
paying factory workers are low for the New York City area. The table below, which was taken
from XSite's July 2011 Phase One, 16-Week Update Report, shows side-by-side comparisons of
the wage rates for factory workers depending on whether or not unions have jurisdiction, and/or
which union has jurisdiction.35 Scenario A, "NY Union - No Jurisdiction" shows the $36.00 per
hour blended rate that is actually being paid to factory workers. This table shows that if the
factory workers were subject to "NY Union Shop Rates" (Scenario B) their hourly wages would
be $7.10 to $19.00 higher (20% to 53% higher). If they were subject to "NY Union Field Rate
(PLA)" (Scenario C) their hourly rates would be approximately $31.00 or 86% higher, and if
they were subject to "NY Union Field Rates" their hourly wages would be approximately 130%
higher than the actual $36.00 average rate being included by FC+S, which is the basis of the CM
Agreement and FC+S' agreement.
XSite Modular
Factory Labor Rate Sensitisity
6/30/2011
Baseline Scenario A Scenario B Scenario C Scenario D
NJ Etnion - No
Jurisdiction
NY Union - No
Jurisdiction NY Union Shop Rate
NY Union Field Rate
(PLA) NY Union Field Rate
I nouny 'Nsui iy mutiny MOW iy "111511 rry
Trade Hours Rate Extended Rate Extended Rate Extended Rate Extended Rate Extended
Steel $ - $ - $ 36_00 $ '.. $ 43.10 $ - $ 43.10 9 - 5 43.10 5 -
Carpentry 86,045 5 34.67 $ 2,983,271 $ 36,00 $ 3,097,634 $ 43.10 5 3,708,556 $ 66,32 $ 5,706,530 $ 82.90 $ 7,133,162
Interior Finishes 39,925 5 34,93 $ 1,394,508 $ 36.00 $ 1,437,318 5 43.10 5 1,720,789 $ 66.32 $ 2,647,859 $ 82.90 $ 3,309,823
Cabinets 3,192 $ 34,67 $ 110;679 $ 35,00 5 114,925 5 43,10 $ 137,591 $ 66.32 5 211,717 $ 82.90 $ 264,647
Exterior Enclosure 66, 460 $ 43.72 S 2,905,609 $ 43,72 $ 2,905,631 5 43.10 5 2,864,426 $ 66.32 $ 4,407,527 $ 82-90 S 5,509,534
Plumbing 20,926 $ 34.67 $ 725,504 5 35,00 $ 753,336 5 55.00 9 1,150,930 $ 57,46 $ 1,411,584 S 84.32 $ 1,754,480
HVAC 8,229 5 34.67 5 285,299 S 36,00 $ 296,244 $ 55.00 9 452,595 $ 67,46 $ 555.095 S 84.32 $ 693,869
Electric 11,411 5 34 67 9 395,600 $ 36.00 $ 410,785 $ 55,00 $ 627,589 $ 68.00 $ 775,928 5 85.00 $ 969,910
Total 236,189 $ 37.26 5 8,800.470 $ 38-17 $ 9,015,873 $ 45,14 $ 10,662,475 $ 66.54 $ 15,716,340 $ 83.18 $ 19,645,425
Total 236,189 S 8,800,470 5 9,015,873 $ 10,662,475 $ 15,716,340 $ 19,645,425
Variance $ 215,402 $ 1,862,004 $ 6,915,870 $ 10,844,955
Varlanc $ 1 SF $ 0.61 S 5.31 $ 19.71 S 30.91
% Variance 2%. 21% 79% 123%
PIAkler per armed try Subcontractor
A direct result of the high cost of living and the low wage rates being paid to factory
workers is that it is impossible for FC+S to attract and retain the number of quality workers
35 See XSite's July 2011Phase One, 16-Week Update Report.
August 8, 2014
Page 65
needed to assemble the B2 modules in accordance with the seven (7) workday per floor planned
duration.36 Therefore the lack of a quality workforce has contributed to the delays and labor cost
overruns experienced in the assembly of the modules.
Under the IP Transfer Agreement FC was contractually obligated to provide FC+S with
"labor arrangements and agreements" and "information regarding the skills, tasks, descriptions
and compensation of employees." FC did provide FC+S with a labor agreement for the factory
workers. However the labor agreement provided by FC contains wage rates that are so low they
have made it impossible for FC+S to attract and retain quality factory workers who have the
skills necessary to perform the various tasks involved in assembling the modules within the
seven (7) workday per floor planned duration and within budgeted manhours. It's worth noting
that the seven (7) workdays duration per floor was provided to FC+S by FC as part of FC's IP.
As such, the labor agreement for the factory workers provided by FC under the IP Transfer
Agreement is fundamentally defective in that this agreement has made it impossible for FC+S to
staff the factory with workers possessing the skills necessary to produce modules in accordance
with the seven (7) workday per floor planned duration. Therefore, FC is responsible for the
delays incurred due to FC+S' inability to attract and retain quality factory workers and Skanska is
The Labor Budget for Producing the B2 Modules
Under the IP Transfer Agreement, FC was obligated to provide:
(a) Labor arrangements and agreements related to the production of modules
(b) Information regarding the skills, tasks, descriptions and compensations of
employees, contractors and consultants
36
As noted throughout the Delay Analysis portion and otherwise, there was a complete lack of reality to the ill-
conceived seven (7) workday per floor duration. The fact that the workers were unskilled simply exacerbated the
delay and damage.
August 8, 2014
Page 66
(c) A fabrication and/or assembly factory floor methodology for producing the
modules
(d) The knowledge and expertise to establish modular supply and subcontracting (i.e.
- procurement), and
(e) Budgets, analyses, projections, prices and projected costs for manufacturing
modules
The items listed above along with the seven (7) workday per floor planned duration for
assembling modules reflect that the IP which FC was obligated to transfer to FC+S included all
of the tools necessary to calculate a budget for FC+S to assemble and supply the modules for the
B2 Project.
In regard to the factory labor needed to assemble the modules for the B2 Project, XSite's
July 2011 Phase One, 16-Week Update Report contained a detailed breakdown of the labor
needed, by trade, along with estimated total hourly rates for each trade. XSite's detailed labor
breakdown is shown below, and it has columns for various scenarios depending on where the
factory is located (New York or New Jersey) and whether or not construction trade unions will
have jurisdiction over the workers. Particular attention should be given to the Scenario A
column because in that column, for all but one trade (Exterior Closure), it uses an hourly labor
rate of $36.00 which, as discussed previously, is the average hourly rate of the various
classifications of workers in the collective bargaining agreement that FC provided to FC+S as
part of the IP. It is also worth noting that $36.00 an hour is also the blended labor rate listed as
one of FC's "Initial Contributions" in the May 10, 2012 Letter of Intent between Skanska and
FC.
August 8, 2014
Page 67
XSite Modular
Factory Labor Rate Sensitivity
6/30/2011
Baseline
1
Scenario A Scenario B Scenario C Scenario D
NJ Union - No
Jurisdiction
NY-Union - No
Jurisdiction NY Union Shop Rate
NY Union Field Rate
(PLA) NY Union Field Rate
Hourly Hourly Hourly Hourly Hourly
Trade Hours Rate Extended Rate Extended Rate Extended Rate Extended Rate Extended
Steel 5 - $ - $ 36.00 $ $ 43.10 $ - 5 43.10 $ - $ 43.10 $ -
Carpentry 86,045 5 34.67 $ 2,983,271 $ 36.00 $ 3,097,634 $ 43.10 5 3,708,556 $ 66.32 $ 5,706,530 5 82.90 $ 7,133,162
Interior Finishes 39,925 $ 34.93 $ 1,394,508 $ 36.00 $ 1,437,318 $ 43,10 $ 1,720,789 $ 66.32 $ 2,647,859 $ 82,90 $ 3,309,823
Cabinets 3,192 $ 34.67 $ 110,679 $ 36.00 5 114,925 $ 43,10 $ 137,591 $ 66.32 $ 211,717 $ 82.90 $ 264,647
Exterior Enclosure 66,460 $ 43.72 $ 2,905,609 9 43.72 $ 2,905,631 $ 43.10 $ 2,864,426 $ 66.32 $ 4,407,627 $ 82.90 $ 5,509,534
Plumbing 20,926 5 34.67 $ 725,504 $ 36.00 $ 753,336 $ 55.00 $ 1,150,930 $ 67.46 $ 1,411,584 $ 8432 $ 1,764,480
1-1VAC 8,229 $ 34.67 $ 285,299 $ 36,00 5 296,244 $ 55.00 $ 452,595 $ 67.46 $ 555,095 5 84.32 $ 693,869
Electric 11,411 $ 34.67 $ 395,600 $ 36.00 $ 410,785 S 55.00 $ 627,589 $ 68.00 $ 775,928 $ 85,00 $ 969,910
Total 236,189 5 37.26 5 8.800.470 5 38.17 $ 9.015,873 S 45.14 S 10,662,475 $ 66.54 5 15,716,340 $ 83.18 $ 19,645,425
Total 236,189 $ 8,800,470 $ 9,015,873 S 10,662,475 5 15,716,340 $ 19,645,425
Variance $ 215,402 S 1,862,004 $ 6,915,870 $ 10,844,955
Varianc SI SF S 0.61 $ 5.31 $ 19.71 $ 30.91
% Variance 2% 21% 79% 123%
Sprinkler performed by Subr_cmractor
The Scenario A column shows that using a labor rate of $36.00 for the majority of the
trades, in the Summer of 2011 XSite calculated that the total labor cost for assembling the B2
modules would be $9,015,873. If a blended rate of $36.00 an hour is used for all 236,189 labor
hours shown in the first column of the chart then the calculated cost of assembling the modules
drops by over $500,00 to $8,502,804 (236,189 x $36 = $8,502,804).
Using the IP provided to it, Skanska made an estimate for labor costs, which was
$8,291,255. As is evidenced by the fact that in June of 2012 Skanska calculated a labor cost of
$8,291,255 for assembling the modules which differs from the $8,502,804 amount calculated in
the paragraph above by only 2.5%, it is clear that Skanska and FC+S relied upon the following
parts of the IP provided by FC: 1) the $36.00 blended hourly rate to be provided by FC and the
budget analyses; 2) XSite's breakdown of labor hours for assembling the modules, and 3) the
labor skill information provided by XSite to calculate its labor costs.
In the IP Transfer Agreement, FC was contractually obligated to provide FC+S with all
of the tools necessary to calculate a budget for FC+S to assemble and supply the modules for the
B2 Project. Skanska and FC+S relied upon XSite's estimated labor hours when the labor budget
August 8, 2014
Page 68
was prepared for assembling the B2 modules. As previously noted in the Delay Analysis section
it took much longer than the seven (7) workdays per floor planned duration to assemble the
modules. It is clear that the planned duration of seven (7) workdays to assemble the modules for
each floor as well as the labor hours that were budgeted for the assembly of each floor were parts
of the IP that were provided by FC.
It is not possible to assemble the modules in accordance with the Exhibit C schedule
using workers being paid fully burdened labor rates of $36.00 per hour and do it within the
budgeted labor costs. The labor budget for assembling the modules is part of the IP that was to
be provided to FC+S by FC and it is taking upwards of three times the budgeted labor hours to
actually perform the work. Section 6(a)(i) of the IP Transfer Agreement states that if there is a
material inaccuracy in the IP provided by FC or if FC breaches or fails to perform or comply
with any of the representations contained in the IP Transfer Agreement, then FC will indemnify
Skanska Modular, its "Related Parties" and FC+S against the resultant losses. Therefore, FC is
responsible for the labor budget cost overruns that have been experienced, and that will continue
to be experienced until the assembly of all of the B2 modules have been completed. As stated
previously, this responsibility also arises from FC's breach of the CM Agreement, the Prototype
Agreement, and the LLC Agreement.
The Material Procurement and Inventory Process
The definition of "Intangible Assets" which FC transferred includes, among other things,
providing the processes, technology, techniques and know-how concerning material inventory
supply and control in support of the factory operations. As such, FC was responsible for
providing FC+S with a materials procurement system that would ensure that the factory had an
inventory of materials on hand capable of supporting the assembly of the B2 modules.
August 8, 2014
Page 69
In Robert Sanna's letter of March 24, 2014, FC asserts, among other things, that FC+S'
management failed to timely execute a material procurement process that was necessary to
support the assembly of the modules. FC's March 24th letter further alleges: 1) that as of August
8, 2013 the factory modular procurement process had caused at least three (3) months of delay to
the Project's critical path, and 2) the three (3) month delay "was solely and completely caused by
Skanska Modular's ineffectiveness in running the factory and its inability to execute and meet its
contractual obligations to Skanska and, ultimately, to Owner."
These allegations have no factual merit. Regardless, under the IP Transfer Agreement it
was FC which was contractually obligated to supply Skanska and FC+S with the expertise and
know-how required to manage material inventory and supply in support of the modular assembly
process. They did not. Therefore all Project delays, if any, experienced due to any lack of
materials needed to support the module assembly process are the responsibility of FC and as
such, Skanska is entitled to compensation and a time extension.
CHANGES MADE TO THE IP DEMONSTRATE IMPROVEMENTS
AND REINFORCE THE FACT THAT THE IP WAS DEFECTIVE
Roger Krulak was removed from his position in December 2013. At Skanska Modular's
insistence, changes were made in the manufacturing process.
I. Revisions Since 12/2/2013
On December 4, 2013 plant leadership presented recommendations for a new path
forward to the Board of Directors of FC+S. These recommendations replaced much of the GTW
August 8, 2014
Page 70
approach with one, which is consistent with best practices for complex, multi-skill
manufacturing. The following is a summary of these recommendations37:
People
Organizational Changes
Add Foreman to provide front line supervision
Process
Organize trade associates around work requiring high/medium skill level- create
Hybrid Specialty Teams
Add a full time scheduler to drive expectations
Require daily reporting of schedule performance and labor efficiency
Provide additional oversight to ensure execution of the quality plan
Tools and Training
Develop an off-line basic construction skills training program
Skills assessment of all current trade associates
Institute Day 1 Skills Testing for all new hires
Evaluate tools and methodology by operation
From this list, a few examples are worth expanding on in detail:
(a) Assess skill level for current trade associates, then organize around work
requiring high/medium skill level
The following matrix was developed to determine the skill set of each trade associate.38
37 Board of Directors Production Update Dec 4, 2013.
38
Employee skills Assessment 02-19-2014 tab 'Skills Matrix.'
August 8, 2014
Page 71
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and to highlight the remaining deficiencies39
Trade Associate Skills Assessment (1/9/2014)
Production Skills
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(b) Changed from GTW divisions to workload-based divisions.
39 Employee skills Assessment 02-19-2014 tab 'Skill Summary.'
August 8, 2014
Page 72
Rather than use the original GTW layout that was based on geometric sections that
loosely match exterior breakpoints, the layout was aligned into segments that matched the effort
required to complete each segment. Specifically, since kitchens (and to a lesser extent,
bathrooms) required a disproportionate amount of time and effort to complete compared to other
living spaces, each segment now contained a more equal number of kitchens and bathrooms.
The figure below shows the building layout based on this new approach:
(c) Improved process flow
The changes above altered the workflow to be more representative of a typical
manufacturing facility. Doing so allowed the team of supervisors to see where steps could be
consolidated, eliminated, or worked on in parallel in a much more obvious way.
Evidence of Improvements
a. Staffing
The interaction that demonstrates the value of this skill-based staffing is simple. For
example, now the question is how many plumbers do we need to hire? In the previous GTW
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approach, the question would have been "How many people do we need to hire", which is much
more challenging due to the vague correlation between a single worker and the expected output
and their ability to resolve local bottlenecks.
b. Improved process flow
"Pull Meetings" were established in which teams collaboratively improved upon the
current process flow and using visual, Lean Manufacturing techniques, shrunk the expected cycle
time for a floor considerably. This is accomplished by identifying opportunities to perform tasks
in parallel, by prioritizing critical path items, and by consolidating or eliminating unnecessary
steps.
c. Improved Cycle Time per mod
The best measure of success for these improvements is that the time required for a
module (or entire floor) to be completed, improved remarkably after making these changes.
These times (referred to here as the 'cycle time' for each module) are discussed hereafter.
For a single data point, we return to the decision to take floor 2 off of the factory floor
and begin improving the flow with floor 3. Despite the fact that production on floor 3 began
almost four calendar months after production began on floor 2, floor 3 was completed just two
weeks after the floor 2 was finally completed.
Recent Improvements Have Followed the Expected Learning Curve
I. Mathematical Prediction of Learning Curve
In general, the production of any good or services sees a decrease in cost and effort as the
cumulative size of the production run increases. This phenomenon is known as the learning (or
experience) curve. The schedule to the CM Agreement was the direct result of the IP and the
FC's express representation that the "world class group of experts in their field including XSite
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Modular, Arup Engineering and SHoP Architect," actually did "develope(d) a methodology to
revolutionize" a way to build. However, they overlooked the most fundamental of all concepts,
the "learning curve" which was not accounted for in the schedule.
It is possible to mathematically model this behavior. One common approach is to use
"The Power Law", sometimes referred to as "Henderson's Law". The equation for this law is4:
Cn = Cl n-a Where:
Cl is the cost of the first unit of production
Cn is the cost of the n-th unit of production
n is the cumulative volume of production
a is the elasticity of cost with regard to output
With this formula, once the first unit of production has been completed, one needs only to
determine the value to use for a to make some predictions about the ability to improve over time.
NASA has provided the following values of a that they use for a given sample of industries:41
Elasticities by industry (source: NASA)
Aerospace 85%
Shipbuilding 80-85%
Complex mac hine tools for new models 75-85%
Repetitive electronics manufacturing 90-95%
Repetitive machining or punch-press operations 90-95%
Repetitive electrical operations 75-85%
Repetitive welding operations 90%
Raw materials 93-96%
Purchased Parts 85-88%
Not surprisingly, the 'modular high rise construction' industry is not listed here, but it is
very reasonable to use 'Shipbuilding' as a good proxy for the type of work being performed in
4 Grant, Robert M. (2004), Contemporary strategy analysis, U.S., UK, Australia, Germany: Blackwell
publishing, ISBN 1-4051-1999-3.
: http://www.j sc .nas a.gov/bu2/learn.html.
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the Brooklyn Naval Yard FC-S factory. With this as the basis, a mathematical prediction of
expected improvements by floor for the B2 project is created.42 :
Predicted Learning Curve
2000
1600
1
1600
1400
1200
1000
800
600
400
209
0
Floor 2 Floor 3 Floor 4 Floor 5 Floor 6
Shipbuilding Learning Curve
To clarify this graph:
The y-axis is in units of Man-hours per mod. This is because different floors
require a differing number of mods. These units normalize the effort per floor in
the clearest way possible
The actual value of elasticity of cost (a) used here was 82.5% (the middle of the
Shipbuilding range)
The first floor (floor 2) required 1798 Man-hours/mod. This value (Cn from our
equation) drives the subsequent predictions.
Improvements Implemented by Team
Beginning with floor 2's 1798 Man-hour/mod rate, the new production team began
implementing an impressively wide array of process, personnel, and tool improvements to each
subsequent floor. A handful of improvements are indicative of the types of impactful
42
Experience Curve Calculations.xlsx.
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improvements needed to achieve the type of learning curve results shown in the prediction graph
above. A partial list is:
floor 2
Organized and binned materials
Began use of Hot List trade associates receive/manage inventory
Laser leveling / faade installation process
Began "Clear to build" status: all materials available on site for each phase of
each floor, over 400 part #'s/kits
floor 3
Use of laser leveling and improved faade installation process
Realigned management
Daily meetings restructured
Use part It's to more easily identify parts for reordering
Use of 60 day probation period
Drywall saw
Handed out The Goal
JDE used for PO, 3-way match, blanket order releases, & consumption
floor 4
First shop schedule
Digital Resource Center createdVMl for tools
Skills assessment
Reorganize / Realign with activities
Improve trade associates interviewing/screening
Embedded electricians with framers
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Use of plasma cutters
Additional coring machines
Bathroom pod rollers Relocated and Pre-staged stone for kitchens and bathrooms
floor 5
Sequencing of interior wall installation (plumbing items first)
Fully fitting out bathroom pods (prior to this they were just stubbing and framing
with tub)Pre-install MEP (mechanical, electrical, and plumbers) hangers and
supports
Re-sequence to finish core last (because it has less living space and no kitchens to
install)
Added stronger trade associates
Pre-painted door frames
Logistics trade associates start at 5am
Refined "Clear to Build" by part#, over 1600 part #'s/kits
floor 6
Installed door hardware offline
Reorganized pod plumbing material from warehouse to point of use, with locked
copper storage
Electrical stock organized visually
floor 7
New column wrap detail to eliminate metal band
Use of attendance metric for progressive discipline
Additional reach truck
Leased additional space across the street for storing more chassis and mods
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floor 8
Leased additional reach truck
Lean training for team
Pull plan (post-its). "Last Planner"
a. Creation of an improved schedule which added flow into the process.
At the start of the B2 project, the GTW approach dictated that (in general) the same crew
would be bustling around each mod at a given time working on the various required tasks. This
approach made it difficult to visualize the progress and the required steps needed to complete. It
also made it difficult to sequence tasks in a way that highlighted flow throughout the various
mods (as well as within each).
Most importantly, the factory was never provided with a shop floor schedule. A shop
floor schedule is a detailed schedule as to which operations would be performed on each module
(when and where). A shop floor schedule is an essential item required. FC and its consultants
did not create this needed shop floor schedule nor did early plant leadership create this schedule
when running the factory. A first draft of this type of schedule should have been part of the
prototyping process. Moreover, the prototypes themselves were insufficient in that they were
just mock-ups of the modules. There was no thought given to prototyping the entire factory
process to see how those modules would in fact be produced in the factory.
To remedy this omission, current plant leadership developed a detailed production
schedule that made things much easier for the production team to plan and schedule resources in
a logical manner. An excerpt of this new production schedule is shown below43
43 Work Team Alignment 05-07-2014.xlsx.
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b. Improved Procurement and Inventory Management
A host of improvements were made to the procurement and inventory management
processes. The first was to simply organize all inventories into racks and bins:
After this, important steps included setting up Vendor Managed Inventory (VMI) cages
which removed the burden of procuring repeated tooling from the inventory group and moved it
to the supplier. An added benefit is the organization and accountability that comes with this
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cage-style approach (trade associates now need to sign for all tooling, which leads to less waste
and less likelihood of theft or other abuses):
The team then expanded its use of the in-house ERP system JD Edwards to better
manage inventory receiving and ordering.
Similarly, standard approaches for inventory management and receiving such as three-
way matching were implemented with much success.
Improvements in management continue, as Fastenal vending machines were installed on
May 27th, 2014. The machines further facilitate the material distribution of high volume/high
cost items.
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C Incremental Improvements
A common characteristic seen in organizations that effectively move down the learning
curve is a culture of continuous incremental improvement. These small solutions make
incremental improvements in the effort required for a given task, reduce waste, and reduce the
variability in the processes.
Numerous examples of these types of improvements exist. An example of this can be
seen in the pictures below showing the processes required for moving a bathroom pod into final
position. A before picture shows that the process required a large team of trade associates
dragging the pod using a combination of straps and manual force. Aside from being an
ergonomic risk, this was a time, and manpower consuming task. In the after picture, heavy duty
casters have been temporarily attached to the pod chassis. Installing the pods to the mods is now
a simple matter of a small number of trade associates pushing the pod into place, then removing
the casters. Less trade associates labor is needed, less time is required, and the risk for injury
drastically reduced.
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A second example is the organization and installation of tile into the kitchen and
bathrooms. In order to save time and cost, the tile used in each area are large sheets- some of
which are almost 7 feet long and weighing 300 pounds each. Complicating matters is the fact
that slight variations in the manufacturing processes of these tiles result in different batches
having slight color differences. Therefore, it is critical that each bathroom use sheets from the
same batch throughout. With the various sheet sizes being so heavy, yet fragile, finding the
correct sheets to use proved very time consuming, with significant ergonomic challenges, and a
high rate of breakage.
Improvements in the process include the creation of multiple staging racks that allow the
sheets to be sorted in sequence of batch numbers. In other words, each rack has batch A sheets
on the top, then batch B, etc. So, trade associates no longer need to sort for matching sheets.
This requires pre-sorting the sheets upon receipt, but the ultimate time savings have proved well
worth it. In addition, a specialized tool was found that allows the trade associates to lift the
sheets much more ergonomically (also reducing the risk of breakage).
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d.

Skills assessment
Improvements were instrumental in bringing productivity down the learning curve.
Placing better skilled trade associates into the appropriate roles impacts the overall performance
and improvement rate of the team.
I. Actual Results vs. Predicted Results
As the graph below shows, the net result of all of the improvements and learning from the
team is a learning curve that is strikingly similar to what was mathematically predicted.
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Actual Results vs Predicted Learning Curve
2000
1800
1600
1400
1200
1000
800
600
400
200
0
Floor 2 Floor 3 Floor 4 Floor 5 Floor 6
o Man Hours/Mod - Shipbuitcling Leaning Curve
It is conclusive that the team's performance has met expected benchmarks for a high-
performing group. This learning curve trend will continue through the life of the B2 Project and
would continue to B3 absent the improper repudiation of the LLC Agreement by FC.
As a result, Skanska is entitled to an extension of time and additional compensation.
FC HAS MATERIALLY BREACHED THE CM AGREEMENT AND
CAUSED DELAY TO THE PROJECT BECAUSE THE DESIGN FOR THE
B2 PROJECT, INCLUDING THE MODULES TO BE FABRICATED AND
INSTALLED, WERE NOT COMPLETE, DETAILED AND SUFFICIENT
FOR THE COMPLETION OF WORK AS OF THE EFFECTIVE
DATE OF THE CM AGREEMENT
EXECUTIVE SUMMARY
FC represented in the CM Agreement that it "engaged professional engineer/design firms
to develop a complete and detailed design for the B2 Project, including but not limited to, the
modules to be fabricated and installed by Contractor at the Site and the balance of the Work,
which Owner represents is sufficient for the completion of the Work as of the Effective Date."
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This is a representation that the design has considered the IP and incorporated the IP into it.
Stated otherwise, this is a modular project and a complete, detailed and buildable modular design
was to be provided. This representation was inaccurate and constitutes a material breach of the
CM Agreement.
As confirmed by the numerous publications and public comments made by any SHoP
Architects, Arup and FC, the design of modular building is a "Swiss watch" which must be fully
frozen before building commences if the work is to be productively performed in the factory. A
complete design is needed for production drawings and changing the design impacts
procurement and production. Simply put, you cannot manufacture without approved production
drawings. It is an undisputed fact that the design was not complete as of the CM Agreement's
effective date.
Over 600 RFIs were generated in the factory and field. Unless the RFI was answered by
a reference to an existing drawing, the design is not complete. Assertions of means and methods
cannot and do not constitute excuses for a failure to design.
Additionally, numerous changes were made in the factory and field which were not
discretionary, but rather the result of incomplete and incorrect design.
All of this impacted performance. It is an Owner Caused Event for which Skanska is
entitled to a Change Order providing compensation and time extension relief.
DETAILED DISCUSSION
The IP for the production of modules for each floor was required in five (5) phases. Each
phase had multiple activities, with each activity having multiple tasks. A summary of the
activities, listed by phase, is.
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Phase I Activities:
Layout Modules
Install Fire-Rated Ceilings
Install Column Wraps
Install Exterior End-Purlin Wraps
Install Fire-Rated Partitions
Core MEP Penetrations
Phase II Activities:
Set PODs44
Install Corridor MEP Hangers & Cartridges
Install Interior Partitions
Install Soffit MEP Hangers & Cartridges
Rough-in HVAC Duct
Rough-in Sprinkler Piping
Rough-in Plumbing Piping
Rough-in Electrical
Complete all MEP Mini-Matelines
Install Architectural Soffits
Phase III Activities:
Drywall Finish & Paint
Load and Stage Finish/Trim Materials
Install Exterior Wall Panels
Phase IV Activities:
44
For the initial floor in production (2nd Floor), the plan was to install the PODs on the first day of production, as
part of Phase I. It was later changed to Phase II by FC+S.
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Construct Kitchens
Finish Closets
Install MEP Trim
Install Door Frames
Install Flooring
Phase V Activities:
Install PTACs
Install Wood trim
Install Doors
Install Appliances
Final QA/QC Walk-Thru
The successful production of modules starts with the 100% complete design of the
Project, prepared by SHoP Architects, FC's project architect, and the acquisition and delivery of
materials to the factory. To implement an efficient procurement process, FC+S hired Fulcro to
perform 3D Modeling of the SHoP design. The 3D modeling, among other things,45 generated
Bills of Materials (BOM), allowing FC+S to solicit quotes from vendors, resulting in making
proper material submittals to SHoP for approval, which culminated in the fabrication and/or
delivery of materials to the factory to be used in the production of the modules. The efficient
implementation of this "procurement process" is dependent on a complete and accurate design.
On this Project, the design was contractually required to be 100% complete as of Notice
to Proceed. It was not. After the effective Notice to Proceed date of December 21, 2012, nine
(9) bulletins were issued by FC's project architect which added, deleted and revised various
45 3D Modeling also results in identifying some, not all, conflicts in the design.
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components of the Project. These changes impacted the timely execution of the procurement
process.
Bulletin
No. Issued
1 01/24/13
1(IFC)46 03/20/13
2 04/11/13
3 06/10/13
4 06/29/13
5 07/01/13
6 08/05/13
7 09/03/13
8 10/21/13
9 02/14/14
In addition to being incomplete, the design contained numerous errors and omissions.
Some of the design defects were uncovered while the modules were actually in production on the
factory floor, causing immediate and time consuming delays. While some of the design defects
were discovered in advance of actually assembling the modules in the factory, a significant
portion of them still resulted in impacts to the procurement process, which in turn impacted the
timely completion of module production.
Due to the nature of essentially working on one floor's worth of modules before being
able to work on the next floor's set of modules, the delays experienced due to design conflicts,
errors and omissions were cumulative e.g. Impacts to Floor 2 necessarily impacted Floor 3.
I. Specific Impacts
The Delay Analysis prepared by Skanska covers the time period from the December 21,
2012 effective Notice to Proceed through July 28, 2014. The first portion of the Delay Analysis
46
IFC is an acronym for Issued For Construction
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covers critical path delays to the establishment of a functional factory for producing modules
(Factory Fit-out). The second portion of the Delay Analysis covered the identification and
quantification of critical path delays experienced during the actual production of modules.
Through July 28, 2014, delays to module production of Floors 2 through 10 were as follows.
Floor
No.
Actual
Start
Actual
Finish
Delay
Days
Delay
No.
2 09/3/13 11/06/1347
39
WDs 4
3 11/7/13 01/22/14
43
WDs 5
4 01/23/14 02/27/14
18
WDs 6
5 02/28/14 04/01/14
16
WDs 7
6 04/2/14 04/28/14
12
WDs 8
7 04/29/14 05/21/14
10
WDs 9
8 05/22/14 06/11/14 7 WDs 10
9 06/12/14 07/03/14 9 WDs 11
10 07/7/14 07/28/14 9 WDs 12
Totals
163
WDs
CD Conversion
227
CDs
There were generally two origins of design impacts to the production of modules;1) there
were design changes implemented by FC/SHoP48 via Bulletins, and 2) there were changes that
47
The 2nd Floor Modules were pulled off the production line on November 6, 2013 to allow the 3rd Floor Module
production to commence. The Defective Intellectual Property portion of this letter addresses impacts to the rate of
module production due to the fundamentally erroneous nature of the GTW concept, conceptualized and
implemented by FC. It also discusses delay impacts due to the lack of acceptable labor productivity which resulted
from FC's establishment of the Modular Trade Associates Union, and the low wage rates provided in its negotiated
Collective Bargaining Agreement. Both of these issues severely impacted the timely completion of module
production. In addition, there were specific delays caused by design impacts.
48 References to SHoP are inclusive of its engineering subconsultant, Amp. Arup was also hired directly by FCRC.
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resulted from answers to RFIs. The RFIs generated by FC+S resulted from two conditions: (i)
when, during 3D modeling, design errors were discovered and brought to the attention of SHoP
for resolution; and (ii) when during the course of module production, design errors and conflicts
were encountered by factory workers and supervisory staff. Both of these conditions had the
potential to impact the procurement process and/or the actual module assembly process.
2nd Floor Design Impacts
The 2nd Floor module production essentially started on September 3, 2013. During
production numerous design impacts were encountered which caused extensive delays. On or
about November 6, 2013, due in part to the fact that many design related impacts were
preventing the completion of the 2nd Floor modules; FC+S moved the 2nd Floor modules out of
the factory and started on the production of the 3rd Floor modules.49 Therefore, the critical
delays to the completion of 2nd Floor modules were encountered between September 3rd and
November 6th, 2013. Below is a compilation of documented design related impacts.
1. Sanitary Waste and Vent Re-Design
The design of the sanitary and waste vent did not meet code and needed to be re-
designed. This was initially discovered to be applicable to Floors 4 and 5. Upon receiving the
particulars of the design change, on September 23, 2013 FC+S issued RFI #302 notifying Arup
that the same conditions for Floors 4 and 5, existed for Floor 2 and wanted confirmation that the
revised design for Floors 4 and 5 was applicable to Floor 2. On September 26, 2013 Arup
confirmed direction to revise the 2nd Floor accordingly.
49
It was the intent of FC+S to complete the 2nd Floor Modules at night and on weekends, as the resolution of design
impacts was achieved. Ultimately, production of the 2nd Floor Modules was completed on or about January 3, 2014.
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The re-design of the 2nd Floor was finalized and submittals were made to Arup, which
were approved on or about October 4, 2013. This required FC+S to re-procure materials to
implement the changes required.
This change delayed the completion of the bathroom PODs, which were originally
scheduled to be installed into the Modules on the first day of production. Instead, the bathroom
PODs were not set until October 8, 2013. This delay encompassed at least sixteen (16) calendar
days (9/23/13 to 10/8/13).
2. DT-09 Column Wrap
On August 23, 2013 FC+S submitted RFI #258 and re-submitted as RFI #269 on
September 4, 2013. The Vendor submittal reflecting the new material (Deep F-Channel with
Intumescent) was received on September 16, 2013 and approved by SHoP on September 19,
2013. After receipt of the approval FC+S then proceeded with the procurement process of
performing a quantity take-off (QTO), preparing a Bill of Material (BOM), placing an order for
the material, and receiving the materials in order to continue with the work. On or about
September 24, 2013 FC+S was forced to suspend working on the column wraps on eight
columns of 2nd Floor Modules, waiting for materials. The materials were received on October
18, 2013. This delay encompassed at least twenty-five (25) calendar days (9/24/13 to 10/18/13).
3. Added Cantilevered Wing Walls to both Sides of Mateline Braceframe to
Extend Fire Protection
Per detail 05 on drawing A002 there was no subfloor where the fire rated exterior wall
assembly was supposed to be installed. In the answer to RFI-269, the designer provided FC+S
with sketch SKC-26 and a prototypical detail to add intumescent tape and cantilevered wing
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walls in order to achieve the necessary fire rating. FC+S estimated there was 5,120 linear feet of
assembly required to be installed and would take 512 TA hours to implement the added work.
RFI 269 was written on August 29, 2013, prior to the effective start of Floor 2 module
production and was answered on September 4, 2013, the same day Floor 2 effectively started.
Subsequent to the receipt of the answer, the vendor's submittals were received by FC+S and
submitted to SHoP on September 16, 2013 and approved by SHoP on September 19, 2013. The
materials, which included studs, channel, angle and intumescent tape, were a six-week lead time.
Materials were received on or about October 31, 2013. Therefore, the critical path delay for
floor 2 due to the timing of the resolution of the design error was 57 days (September 4 to
October 31, 2013)
4. HVAC Ductwork
The Arup ductwork design per the contract documents was not developed to a level that
allowed a shop drawing to be generated. The design lacked critical items including location of
faade connections, microwave connections, and other necessary penetrations. United Air
Conditioning (the ductwork vendor from inception) used the inadequate contract documents as
the basis for the shop drawings submitted to Arup on July 31, 2013. There was no formal written
response from Arup to these shop drawings. To mitigate critical path delays to Floor 2 due to
Arup's failure to address the submittal, FC+S was forced to order materials shortly after this
submission was made, prior to a formal approval of shop drawings.
Those original pieces of duct work were delivered on or about August 5, 2013. Then,
FC+S encountered ductwork that would not connect to the facades and was not coordinated with
other MEP that was being installed.
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To date, Arup has never provided a detail of what the faade connection should look like,
but has, instead, stated that FC+S was responsible for submitting that detail on its shop drawings.
In other words, FC+S was directed to complete Arup's incomplete design.
In light of the problems encountered and Arup's stated position, FC+S asked United in
early October 2013 to fabricate the needed pieces to conform to the conditions seen on the
factory floor and to provide updated shop drawings to reflect all the modifications needed to be
done including the faade connection. The updated shop drawings were submitted on October
23, 2013 and Amp approved them on October 24, 2013.
Some of the new ductwork pieces arrived on or about October 28, 2013. Additional
pieces arrived after November 4th. The impact in procuring proper ductwork affected every
GTW for the 2nd Floor, delaying their completion on a day-for-day basis from at least October 1,
2013 to the receipt of ductwork on October 28, 2013, or 28 calendar days.
5. 12" Storm Drain Riser Support
Due to a design omission (there was no detail provided in the contract documents for any
support to the 12" storm drain), a support for the 12" storm drain had to be added. From October
1, 2013 when FC+S discovered the omission, through October 10, 2013, when Amp approved
the proposed remedy, ten (10) calendar days of delay to Phase II of the 2nd Floor Modules was
incurred.
6. Gas Pipe/Riser
As early as October 1, 2013, FC+S identified that the design did not specify the proper
hangers/supports for the gas pipe/riser. On or about October 9, 2013 FC+S submitted JPR
(vendor) submittal to Arup for approval. Although this work was necessary to complete Phase 5
of the 2nd Floor modules, as of November 14, 2013 Amp had not yet approved the submittal for
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this work. The delay in rectifying this design omission extended beyond the November 6, 2013
date when FC+S transferred the 2nd Floor modules out of the factory. This work was performed
during the time when the 2nd Floor modules were not in the factory, so the delay to the critical
path ended on November 6, 2013, even though the overall delay to the 2nd Floor continued. The
total critical path delay for this issue was therefore limited to only thirty-seven (37) calendar
days (10/1/13 to 11/6/13).
7. Added Intumescent Tape between Floor and Ceiling Decks
The fire rated assembly as specified in the original design documents did not meet fire
rating code as described on Drawing G-004, Code Summary 0 Column Protection. In
answering RFI-360, the designer provided FC+S with direction to proceed to add intumescent
tape to achieve the necessary fire rating.
FC+S estimated there was 14,880 linear feet of intumescent tape required to be installed
and would take 880 TA hours to implement the added work. This affected 3,520 columns,
requiring .25 hours of TA labor per column.
RFI 360 was written on October 21, 2013 while Floor 2 module production was in
progress, and answered on December 10, 2013, long after Floor 2 modules were set aside in
order to start Floor 3 module production.
Floor 2 impact was 50 calendar days (October 21 to December 10, 2013), of which 16
days were critical (October 21, 2013 through November 6, 2013) when Floor 2 was moved aside
in favor of starting Floor 3.
This also impacted Floor 3. The delay to Floor 3 is captured in the section below under
Floor 3 Delays.
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2nd Floor Summary
In summary, aside from the labor productivity issues discussed in the IP section causing
the work to take longer even when otherwise not delayed by design problems, there were
numerous design deficiencies which caused delays to the POD fabrication process, as well as
module production. The cut-off for the impact to Project completion was November 6, 2013
because FC+S made a strategic, and correct, decision to move the 2nd Floor modules off the
production line on that date in order to start the 3rd Floor production. While there are numerous
other instances of design deficiencies causing stoppages of work during the module production
process, below is a summary of the significant impacts discussed above. The number of delay
days noted are not cumulative, as many of the delays overlapped.
2nd Floor Impact Summary
Impact
No.
Impact Description Start Finish CDs
1 Sanitary and Waste Vent Re-
Design
09/23/13 10/08/13 16
2 DT-09 Column Wrap 09/24/13 10/18/13 25
3 Added Cantilevered Wing Walls 09/04/13 10/31/13 57
4 HVAC Ductwork 10/01/13 10/28/13 28
5 12" Storm Drain Riser Support 10/01/13 10/10/13 10
6 Gas Pipe/Riser 10/01/13 11/06/13 37
7 Added Intumescent Tape 10/21/13 11/06/13 16
3rd Floor Design Impacts
The 3rd Floor module production started on November 7, 2013, the day after FC+S re-
staged the 2nd Floor modules outside of the assembly area. The 3rd Floor modules were
completed on or about January 22, 2014. During this 2 1/2 month period, design deficiencies
continued to impact module production.
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1. Core Design Issues
Multiple design issues surrounding the support of walls, continuity of fire ratings from
floor to floor, and a lack of details to complete the design of the walls inside the core resulted in
RFIs and field walk-throughs to resolve. The material could not be ordered until the design
questions were answered. This resulted in multiple causes of delay affecting the core work. To
segregate the delays is problematic as they are intertwined and continuing along with other
delays caused by the issues previously mentioned. The core design issues were primarily related
to framing conditions that were not picked up on the contract drawings. Below is a compilation
of the relevant RFIs affecting the Core Design, grouped by affected work.
(a) Shaft ways and the trash chute contained a number of issues with respect to
framing and support (RFIs 357, 365, 457)
(b) Issues with framing of shaft walls throughout the core where continuity of
sheetrock could not be maintained (RFIs 352, 352a, 366, 373)\
(c) Ceilings inside the stairs were also a design element not included with the
contract drawings (RFI 352 and 352a)
(d) Impact resistant sheetrock needed clarifications as the plans did not explain to
what extent they needed to be installed (RFI 379)
The referenced RFIs impacted production of the core modules by date answered:
RFI 352 (10/18/13) Ceiling for Emergency Stair - Answered 10/25/13
RFI 357 (10/21/13) Trash Chute Clearances - Answered 10/27/13
RFI 366 (10/28/13) Issues with Shaft Wall - Answered 11/1/13
RFI 365 (10/28/13) Stair Pressurization Shaft Detail - Answered on 11/4/13
RFI 379 (11/1/13) Impact resistant Gypsum - Answered on 11/4/13
RFI 373 (10/29/13) Shaft Wall Detail - Answered on 12/19/13
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RFI 457 (12/19/13) Stair Pressurization Shaft - Answered on 12/20/13
These design issues were resolved by SHoP by December 20, 2013. This represents 63
days of delay in the core module production (10/18/13 to 12/20/13) simply to get the design
issues resolved. Critical path delay to Floor 3 was therefore 43 days (November 7, 2013 when
Floor 3 was moved into place through December 20, 2013 when the design issues were finally
resolved). Additional delays were incurred in procuring materials, plus the additional labor it
took to implement the design changes.
2. Added Intumescent Tape between Floor and Ceiling Decks
The fire rated assembly as specified in the original design documents did not meet fire
rating code as described on Drawing G-004, Code Summary 0 Column Protection. In the
answer to RFI-360, the designer provided FC+S with direction to proceed to add intumescent
tape to achieve the necessary fire rating.
FC+S estimated there was 14,880 linear feet of intumescent tape required to be installed
and would take 880 TA hours to implement the added work. This affected 3,520 columns,
requiring .25 hours of trade associates labor per column.
RFI 360 was written on October 21, 2013 while Floor 2 module production was in
progress, and answered on December 10, 2013, long after Floor 2 modules were set aside in
order to start Floor 3 module production.
FC+S received approval to proceed and immediately ordered material for the short term,
so it could perform the remedial work on modules already in production, while it prepared a
quantity take off for the long-term purchase of the materials necessary for future module
production. The materials for the 2nd and 3rd Floor modules arrived on or about January 10,
2013.
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Floor 3 experienced a critical path delay of 64 calendar days (November 7, 2013 when
Floor 3 was moved into place through January 10, 2014 when material arrived to implement the
change).
3. Temporary Roofing Protection EPDM
The contract documents did not contain any design details for terminating the temporary
EPDM roofing at the exterior wall system.
In answering RFI-206, SHoP required FC+S to provide a fully adhered roofing system,
not previously provided in the contract documents. This required FC+S to implement the
installation of the EPDM cover board immediately after the module frames were placed onto the
production line so the fasteners (screws) were not installed after the above-ceiling electrical
rough-in which would risk damaging the electrical installation. The remaining work was
installed after the modules were fabricated and removed from the production.
FC+S estimated would take 4.878 trade associate hours to implement the added work
while the modules were on the production line, and 9,756 trade associate hours while the
modules were in the weatherproofing area of the factory.
RFI 206 was written on July 23, 2013 and answered on August 12, 2013, before Floor 2
module production was in production.
The submittal (308-075323-0) for the EPDM roofing installation was submitted on
October 9, 2013 and was reviewed and approved by SHoP on October 16, 2013 (marked
"Provide as Corrected").
FC+S estimated it would take 4,878 trade associate hours to complete the extra work
when the modules were put onto the production line. This equates to one full day of work per
floor to accomplish the work, in advance of performing the rest of the critical work in the
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modules. This delay would apply to floors 3 through 33/34, and would be linear; meaning none
of the extra work was concurrent with other delays. This equals 31 workdays of critical path
delay.
For the current request for an extension of time (data date 07/28/14), 8 workdays of total
delay on Floors 3 through 10 are accounted for in the delay analysis (one workday per floor).
The projected delay to the project going forward is 23 work days (approximately one month).
Solely for Floor 3, one day of critical path delay was experienced.
3rd Floor Summary
In summary, the labor productivity issues discussed in the IP section continued during the
production of 3rd floor modules. However, since numerous design deficiencies were resolved
during the 2nd floor module production, there were less design impacts experienced during the
3rd floor module production. Nonetheless, there still were design deficiencies encountered
which caused delays to the 3rd floor modules. While there are other instances of design
deficiencies causing stoppages of work during the module production process, below is a
summary of the significant impacts discussed above. The number of delay days noted are not
cumulative, as many of the delays overlapped.
3rd Floor Impact Summary
Impact
No.
Impact Description Start Finish CDs
1 CORE Design Issues 11/07/13 12/20/13 43
2 Intumescent Tape 11/07/13 01/10/14 64
3 Temp. Roof Protection
EPDM
11/07/13 11/07/13 1
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4th Floor Design Impacts
The 4th floor module production started on January 23, 2014 and was completed on or
about February 27, 2014, a significantly shorter period of time than that taken to produce the 2nd
and 3rd floor modules. The 4th floor module production was the first floor performed after
eliminating the GTW labor concept discussed in the IP section, and instead assigning trade
associates to perform narrower sets of tasks based on their skill level. This resulted in increased
productivity, but labor productivity still remained at unacceptable levels due to the other factors
noted in the IP section.
The 4th floor experienced significantly less impacts due to design deficiencies due to the
fact that the solutions to design errors encountered on the 2nd and 3rd floors often times applied
to the 4th floor. Nonetheless, some design deficiencies did indeed cause delays.
Floors 5-10
Given the continuing changes, the issues arising from floors 5 and above are not
independently quantified. They are part of the cumulative impact on the Project. A sampling of
these issues are:
Above the floor rough for shower pans at floor 5: (Delays, new added work, poor design
coordination):
(a) Approved shower pan would not allow for code required plumbing system as
designed by engineer to fit above the floor and below the pan. Arup had no details
to show how to complete this work. SHoP picked a shower pan product that did
not interface with the rest of the designed plumbing (wouldn't fit with pipes)
(b) 1/21/14 the approved Shower pans were at factory
(c) Between the date above and below the factory was reviewing the pan and
attempting to find a solution using the shower pan in place and working on how to
install it without having to send the entire pod to the field for construction
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(d) 3/10/14 - After multiple reviews, it was settled that the solution was to use a p-
trap and cut into the fire rated floor
(e) 3/17/14 sequencing of work was required to install p-trap and go under module
to apply required fire rated caulkirg at hole due to cutting into the floor
Faade Connections Not Detailed at Cantilevered 6th Floor
The 6th Floor presents a unique and atypical construction element in building in that the
floor is to cantilever out by 5 or 6 feet on the north and south sides. The design issue which
arose centered around the details provided by SHoP Architects as to how the faade panels were
to be connected to the underside of the cantilever. The failure of SHoP to provide clear and
workable details in the first instance (or after multiple later failed attempts), delayed production
and caused re-work to occur to these modules after they were off the pedestals.
The history is as follows:
3/6/14: RFI #539 was written to question some of the details on the contract drawings as to the
faade connections;
3/10/14: RFI was answered by SHoP but the confirmed details did not actually work/were not
buildable;
4/8/14: This and other related issues were noted by Kristopher St Claire (of FCS) during
construction while trying to utilize SHoP's RFI response;
4/25/14: New details were produced by SHoP to depict the new approach to connecting the
facade panels;
5/19/14: A new problem arose and RFI #636 was issued asking how to sequence the work and
still be able to move the modules;
5/19/14: SHoP answered this RFI the same day;
5/20/14: An email was issued directing the installation to be completed per the latest SHoP
issued design/RFI answers.
It is obvious that SHoP did not fully consider or design the faade connections for the
unique cantilevered portions of Floor 6 as it should have. This issue was discovered by FCS
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while the modules were on the pedestals and the original designed approach proved unworkable.
This caused delay. SHoP then failed in its many attempts to provide a better design and
workable solution. This caused further delay. Once the final design was provided by SHoP, this
work had to be performed by trade associates while the modules were off pedestal. The majority
of this work was actually performed in the parking lot. Re-work was also involved in order to
accommodate the final design solution. This error and omission affected the 6th Floor.
G.6 Unit Coordination and delays for enlarged steel and fire rating continuity at door (4 guys
needed for 1 day to complete all newly-noted work) 6th Floor:
(a) Architectural drawings did not contain details to account for modified steel
columns inside unit G.6, resulting in redesigning the closet and adjacent door for
this unit and additional labor on the factory floor (designer beefed up columns and
this conflicted with door)
(b)
4/4/14 Architect sent a sketch addressing the issue the new detail required a
field walk with the Architect as it did not address all door and closet issues.
Enlarged Steel at Facades and 2 hour wrapping (6th Floor)
(a) Architectural design documents did not account for the enlarged steel at the
faade and thus a new detail was required that modified the ceiling inside
modules 0617 and 0621
(b) 10/2/13 RFI #319 Section Through Faade at 17/21 Answered on 10/7/13 At
(2) coordination meetings prior to 10/2/13. The detail was to wrap the enlarged
steel at the noted condition was discussed and the RFI and detail were generated.
Until this RFI was approved the work was not able to be completed.
EMR Room (Service Elevator Mechanical Room) on 7th Floor (coordination of trades and
delays):
(a) This room had to be re-laid out multiple times on account of poorly located
electric panels, ductwork and sprinkler heads by designers [poor design
coordination].
(b) Contract ductwork was not coordinated with equipment inside room and
additional FSDs were added, requiring multiple coordination attempts with
sprinkler and adjacent trades.
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(c) Ductwork was completed by subcontractors on 4/4/14, requiring re-work of
production drawings for factory construction and delaying the release of the
ductwork to the factory due to the errors and omissions that were discovered
(d) Duct delivery actually occurred on 4/18/14; installation began 4/22/14;
(e) Normally, the wall frames are prepared 1 week prior to construction, start. Here,
there was insufficient time to have all of the wall frames prefabricated for this
module since there was only 2 days from when coordination was done and the
duct had to be installed.;
(f)
Another issue arose on 5/12/14 RFI #634 Sprinkler Head in Doorway
Answered 5/14/14 - Sprinkler head inside space was installed per approved shop
drawings. However, the location put it under a large duct at an elevation that was
not accepted by the engineer on a walk-through of the space. The moving of the
sprinkler resulted in re-work inside the module after completion;
(g)
There was additional movement of the electric panel for the elevator multiple
times which impacted FCS' work. The fact that design coordination for the layout
ofthe electrical panel in the EMR continued well into the trade coordination of
the mechanicals for the same space (chiefly mechanical ducting and fire
suppression piping) resulted in a schedule delay and additional direct costs (extra
sprinkler piping / sprinkler heads along with additional labor to effect changes).
LT-07D EM Fixture that required re-design (affects floors 8, 9 and 1 1):
(a) Original Submission 8/2/13
(b) Final Approval 5/2/14
(c) Numerous emails between Rachel Janzen (FCS) and architect / lighting consultant
(d) Approximately 2 lost days of Rachel's time
(e)
Designer changed this fixture multiple times and took well beyond the contractual
timeframe to respond to submittals
10th Floor Mechanical Space (at least 9 days of delay to complete)
(a) Height Clearance
i. Coordination for the 10th Floor Mechanical Space was delayed due to a
late-issued requirement by the Architect calling for a height clearance
throughout the space of 3' x 6'-6". This meant that ductwork, mechanical
piping and electric lines previously coordinated on drawings had to be re-
drawn and moved so as to meet the clearance requirement.
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ii. This requirement was not called out in a design detail or drawing note, as
required by a complete and detailed design. Instead, SHoP noted this as a
code requirement during a coordination meeting on 5/29/14.
iii. At that time, all the subcontractors and vendors had completed their
respective work [models were done by the 5/29/14 meeting]. The result
was that FCS had to direct vendors to adjust their scope to accommodate
this new requirement, when the requirement should have been noted
clearly in the original design. This issue affected floor 10 only.
iv. 5/29/14 all models complete by subcontractors / vendors
v. 5/29/14 - issue mentioned by Architect in coordination meeting
vi. 6/11/14 - Updated models reflecting the change were completed so work
could be released
(b) Fan Coil Unit Relocation (Floor 10)
i. When attempting to coordinate FCUs per contract documents, numerous
conflicts with ductwork, equipment, equipment clear space, head
clearance and other trades were encountered.
ii. The MEP trades had already laid out their work per the design when it
became apparent that the MEP runs would have to be re-routed in order to
maintain the required clearances around the FCUs. Following a
discussion of this design error at a coordination meeting on 5/29/14, Amp
provided a revised layout of equipment so as to afford the needed
clearance that FCS and subcontractors were previously prevented from
developing by following to the original design.
iii. FCS lost time, at a minimum, between 5/29 and 6/12/14 due to this design
error and omission. This issue affected the 10th Floor.
iv. 5/29/14 all models complete by subcontractors / vendors
v. 5/29/14 - issue mentioned at coordination meeting
vi. 6/11/14 - Updated models reflecting the change were completed so work
could be released
vii. 6/12/14 coordination of the 10th Floor MEP space completed
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Changes required for Amenity Bathroom Pod 9 (multiple floors affected)
(a) Multiple changes to BR POD 9 were required which either delayed development
of Surround Stone Panels or forced modification to them or required additional
coordination and construction delays which would not have occurred had the
design been locked in at an earlier date, as it should have been.
(b) 1/27/14 RFI #495 Pod 0927 and 1127 Fixture Swap Answered 2/11/14
Resulted in Delay of production drawings and stone shop drawings since the toilet
and sink needed to be swapped as a result of the unachievable MEP design
originally specified by Designers;
(c) 3/21/14 RFI #571 Level 07 BR Pod 9 Fixture Clash Answered 3/27/14
Resulted in changing what should have been a typical plumbing system inside the
wall of the pod to a modified system requiring additional coordination and
delayed production drawings
3/24/14 RFI #572 Unspecified Door types for POD 0927 and 1127 Answered
3/28/14 Failure to specify the proper door type for module resulted in delays to
order proper door and coordinate same on production drawings
4/17/14 RFI #593 All BR Pod Type 9 Answered 4/23/14 Missing electrical
outlets from architectural plans resulted in requiring additional coordination and
modifying production drawings
4/22/14 RFI 598 (3) Pod Type 9 Answered 4/22/14 Box out added to BR
pod as a result of incomplete plumbing design. This resulted in modifying
surround stone that was to come from China as well as delaying production
drawings
(g)
4/29/14 RFI 611 Pod Type 9BS Answered 5/2/14 Shower Assembly never
specified Not having the assembly of the shower specified resulted in
production drawing delays due to re-work when the proper items were specified
by SHoP
(h) 5/21/14 RFI 643 Not enough space for control valve at POD 9BS Answered
5/24/14 Pod construction was underway when it was noticed the approved
control valve was too large for the wall that was to contain it This resulted in
additional work on the factory floor, approximately 1 day
11th Floor Amenity Area Lounge Millwork and piping modifications
(a) Missing Architectural Design for Level 11 Lounge to conceal bathroom drainage
piping in a finished area. The architectural finishes for these areas was provided
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by SHoP without recognition that this pipes would be present. Consequently,
SHoP had to redesign the finishes and account for how to conceal the pipes.
(b) 2/6/14 - RFI #506 Answered 3/13/14 Back and forth at coordination meetings
for over a month with the designers to provide details and drawings for the
required architectural finish work for the amenity space. This resulted in delaying
the completion of the Fulcro production drawings (since the architectural design
of the space was incomplete) and SHoP asked FCS to change the contract piping
layout and provide a drawing showing the limits of the space the piping would
occupy. This impacted the completion of coordination for the area as well as the
sprinkler vendor since no ceiling in this area could be finalized.
THE FAILURE OF B2'S DESIGN PROFESSIONALS
CONSTITUTES A MATERIAL BREACH OF THE CM AGREEMENT
AND CONSTITUTES A CAUSE OF CONTINUING DAMAGE
EXECUTIVE SUMMARY
Implicit both in the presence of a unique design and in the contractual structures forming
the B2 Project are concepts of partnership and cooperation among the parties, principles that are
inherent to the special circumstances of this Project and necessary to its success. As work began
and problems were being encountered in the factory and on site, Skanska sought out the
assistance of FC and its design team, with the expectation they would recognize that success in
this Project depended upon joint efforts at every step. Consistently, however, Skanska's
overtures were rebuffed, frequently with extreme antagonism and an outright refusal to engage in
a mutual effort to solve problems. One consequence of the total absence of cooperation by FC
and of its adversary stance on all matters has been the necessity for Skanska to obtain assistance
in its effort to resolve the many fabrication, assembly and financial issues now outstanding on
the Project. Any such resolution must take into account the contractual and claim information
set forth in this letter, and it must take into account also the serious design failures, errors and
omissions identified as a result of the independent design review as set forth below.
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The design brought to this Project by FC and its design team contains substantial errors
and omissions directly causing the cost and schedule overruns experienced to date and projected
to be experienced through Project completion. The most fundamental error of the FC design
team was its failure to recognize the B2 modular building as essentially different from a
conventional high-rise steel structure and its consequent failure to address the entire process
from an integrated design perspective in which the designer examined not only the
characteristics of the completed building but also the process and actions that would make it
possible to achieve the completed structure envisioned by the design. In particular, although not
to the exclusion of other omissions, the FC design wholly ignores the consequences of changes
in the characteristics of the modules as they progressed from bare frames at the Banker Steel
Company ("Banker") plant in Virginia to fully fitted out modules assembled at the Project site in
Atlantic Yards, Brooklyn, changes and consequences of which the design team and its modular-
experienced advisors could and should have been aware but which were plainly beyond the
knowledge of any construction manager or contractor. This defective design was produced by
FC and its consultants long before any Skanska entity had any contact with this Project, and
apart from already severe financial results, it is producing a building for which there can be no
certainty as to whether it will experience leaking at the thousands of joints between module
faade elements, both now and for the foreseeable future. Further, the FC design team also
provided a prototyping process apparently intended to demonstrate whether the modules as
designed in fact could be fabricated in the factory and assembled at the site on the planned
schedules and at the anticipated costs. Because the prototyping process itself was radically
deficient, it is not surprising to discover, after the fact, that it failed to reveal the design
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deficiencies that underlie much of the fabrication, assembly, structural, schedule and cost issues
that together constitute the catastrophic state of the Project today.
The principal specific design failures identified to date include:
(a) Failure to recognize essential differences between conventional bare steel
("stick") construction and assembly of prefabricated modules.
(b) Failure to recognize that inevitably some number of modules will arrive on site
out of alignment.
(c) Absence of any design solution for the need to adjust modules in elevation to
achieve required vertical alignment of module columns
(d) Having designed the curtain wall to be assembled in the factory as part of each
individual module, the absence of any design to permit adjustment of the facade
panels in the field.
(e) Failing to resolve issues raised in the Thornton Tomasetti peer review report,
particularly as to adjustability of raked modules.
(f)
Providing a prototyping process that was insufficient to identify structural issues
that could arise during actual field erection of the building.
(g)
The absence of a designer's response to the prototyping report's finding that joints
between modules were more than 100% out of tolerance
(h) Providing a prototyping process incapable of testing the reality of proposed
scheduling or of cost estimates for factory work.
(i)
The absence of design criteria for achieving and maintaining alignment tolerances
in the factory, including for the use of match plates.
DETAILED DISCUSSION
1. Failure of Design Team to Provide Means of Adjusting Modules for Proper Assembly on Site
Because it was experiencing difficulty in setting and aligning the modules from the
beginning of assembly on site, the first structural issue Skanska had examined was whether the
distortions to the frames occurring during assembly could lead to structural distress. A
deformation analysis was performed on several representative frames, and it demonstrated that
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distortions to the frames experienced in the assembly process are not a concern structurally. This
conclusion is consistent with a fundamental assumption on which the AISC Code of Standard
Practice is based: small residual stresses are expected and tolerated during steel fabrication and
erection, provided the work is completed according to Standard Practice. Structural integrity
notwithstanding, however, it was apparent from this study that the bare steel frames are relatively
flexible prior to fit-out in the factory, especially in their tendency to warp and rack in out of
vertical alignment. Thus, when a support is slightly off dead level, the frame will also rack
horizontally. This is especially true in the transverse direction which relies on rigidity through
frame action. As bare steel, the longitudinal direction is somewhat stiffer because of the
diagonal strap bracing, a characteristic that should have been clear to the design team from the
outset and should have alerted them of the necessity of dealing with such flexibility in the
factory.
(a) Original Design Did Not Allow for Stiffness of Modules
As erection progressed on the Project, it became apparent that although many of the steel
frames forming the modules have been assembled within tolerance, not all of the modules have
stacked with the level of precision required to maintain system tolerances as specified by the
design team. The most critical details with respect to system tolerance are the seals between each
module's individual factory installed faade panels. If these joints do not properly seal, the
building envelope will be compromised.
If the modules were erected as bare steel frames without prior fit-out, some warping of
the module's steel skeleton after release from the fabrication jig would not adversely affect their
erection on site, because the flexible modules could be warped back into place during erection
without compromising their structural integrity. Within the limits of the AISC Code of Standard
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Practice, which is the reference standard in the Project specifications and New York City
Building Code, maneuvers such as this constitute a fundamental principle of steel design and
construction. In the case of this modular Project, however, the ability to warp/rack modules back
into place for final assembly is compromised by the stiffening of the finished modules when they
are fit out at the factory. The recognition that the modules would become stiffer during the
factory fit-out process, the consequences of that circumstance for the assembly of modules in the
field, and the need to deal with those consequences are a prime example both of design issues
peculiarly within the competence of the FC design team and of the failure of the design team to
treat this Project holistically and design an entire modular process. The absence of any means to
maneuver in the finished condition shows that no attention was paid to the fact that the modules
would be made rigid in the factory. For instance, exposed hard points could have been provided
in the design for attaching temporary bracing, jacks, come-alongs or other devices typically used
during steel erection to true members and systems into their final vertical alignment on site.
The modular system employed was represented as a ready-to-build, efficient system.
While the design provided some adjustability during final erection on site with respect to the
horizontal location of units in plan, it failed to include any adjustability in elevation (i.e.
plumbness of the columns). This is a clear design error, for without the ability to warp/rack the
units into place and plumb the columns, the only corrective measure available to the erector is to
slide the units horizontally. Such adjustments may move the module's column top closer to its
theoretical location but does not correct an out of plumb condition and on a cumulative basis,
depending on the tolerances in the modules immediately above, could result in an overall out of
tolerance condition. Because the design team mandated the Project to conform to tolerances in
three dimensions, but provided adjustment measures for only two dimensions at each floor level,
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the erection team has been confronted repeatedly with situations in which the ability to adjust for
required tolerances is excessively constrained in comparison to the industry standards of steel
construction. While these design tolerances should be achievable in a conventional high-risc
design, the documents specifying the unique design for this building did not disclose to the
contractor that the tools normally used to align elements in the field would not be available, since
the module, "stiffened" by all the finishes applied in the factory, was not able to be adjusted in
the field. From the point of view of constructability, this is a critical failure in the B2 design.
(b) Thornton Tomasetti Peer Review
As early as May 7, 2012 an agenda prepared for a Thornton Tomasetti peer review
meeting asked, "What are adjustability measures if module is fabricated wide or racked?" In the
TT Structural System Review Report dated June 18, 2012, this issue is discussed at some length.
The agenda question is repeated in the Report's summary matrix at item G2 (page 9), and there is
a discussion on pages 25 through 27. The Report states, "In our experience, items can be out of
tolerance in the field even though the alignments were strictly monitored in the shop due to
shake-out and posting (sic.) welding effects." This supports Skanska's conclusion, reached when
forced by FC's conduct to make its own structural design review, that configuration changes in
the modules arriving on site were inevitable and accordingly a means of adjustment should have
been provided for; it also was advance warning to the FC design team that was not acted upon.
Further, on page 27 of the same TT peer review report, attention is drawn expressly to the
unique character of modular construction and to the fact that access to structural elements is lost
early in the process, and the recommendation is made that "that repair procedures for out-of-
tolerances or out-of-alignment elements or connections are evaluated in advance to avoid any
slowdown in the erection process." This again directly parallels a principal finding of Skanska's
August 8, 2014
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subsequent structural review, that there needed to be provision for adjustment of modules that
arrived on site out of alignment; and again, compounding error upon error, the peer review
advice was not acted upon.
Both the peer review agenda document and the Report discussed above call out the
question of how the curtain wall would be attached to the modules, and the Report requests
"architectural drawings for further review." While the final resolution of this issue in the peer
review (if indeed there was one) is not yet known, the attention to faade issues and the request
for drawings demonstrate that the curtain wall design was certainly considered within the
responsibility of the design team. What we know today is that the fixed faade approach
selected by FC's design team taken together with the other elements of their modular design
have resulted in a situation where the integrity of the curtain wall will remain highly uncertain
until the FC design team acknowledges responsibility for the whole modular design and provides
some system for adjusting either the modules on which faade panels are placed or adjusting the
panels themselves after assembly of the modules.
(c) Enlargement of Match Plate Holes
It was clear from the beginning of module erection that match plates designed by Amp
were flawed. The match plates are the 3/8" thick plates which tie the modules together and are
detailed completely, including bolt holes and size, on Project Drawings S-750 through S-807.
Although the Amp drawings and specifications call for a 1/4" tolerance between columns in the
modules, the bolt holes in the originally designed match plates allowed for only 1/16" of
horizontal sliding of the units during on-site erection. Soon after commencement of erection,
Arup realized the building could not be assembled unless it enlarged the match plate hole
diameter through issuance of SSK265. This standing alone should have set off serious alarms in
August 8, 2014
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the design team and resulted in a review of how tolerances in the module columns were going to
be handled. Moreover, although SSK265 references allowable reams that extend original holes
by 1/4" in a single direction, Banker's May 6, 2014 test report indicates that the holes were
reamed to 1 3/4" diameter. This allowed more room for an individual unit to be set in place;
however, it also created the potential for larger deviations from total system tolerance.
Enlargement of the tie plate holes to allow misaligned module columns to be connected thus had
the net effect of increasing the opportunity for a condition where the corner post above does not
align with the corner post below. Until the building is completed, no one can know how often
that opportunity becomes fact, but every time it does, it brings the likelihood of a leaking curtain
wall.
An alternative to enlarging the match plate holes to the extent approved by Arup would
have been to alter the module design in such a way as to allow adjustment in elevation via
warping/racking. As noted above, this could have been accomplished with hard points to which
temporary bracing or guy wires could be attached for the purpose of truing the modules in
elevation. The fact that Arup addressed the issue of module adjustability during erection only in
terms of plan position demonstrates that FC's design team continued to ignore the three
dimensional aspects of module alignment even as the module assembly process itself was
revealing the consequences of the underlying design error.
(d) Requirements of the AISC Code of Standard Practice
The American Institute of Steel Construction (AISC) Code of Standard Practice
specifically recommends how designers should handle special erection conditions in Section
7.10. Section 7.10.1(b) states:
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The Owner's Designated Representative for Design shall identify
the following in the Contract Documents:
(b) Any special erection conditions or other considerations that are
required by the design concept, such as the use of shores, jacks or
loads that must be adjusted as erection progresses to set or
maintain camber [or] position within specified tolerances or
prestress.
Section 7.10.3 states:
Based on upon the information provided in accordance with
Sections 7.10.1 and 7.10.2, the Erector shall determine, furnish and
install all temporary supports, such as temporary guys, beams,
falsework, cribbing or other elements required for the erection
operation. These temporary supports shall be sufficient to secure
the bare Structural Steel framing or any portion thereof against
loads that are likely to be encountered during erection, including
those due to wind and those that result from erection operations.
Thus, the erector need not consider loads during erection that result from the performance
of work by, or the acts of, others, except as specifically identified by the Owner's Designated
Representatives for Design (FC's design team), nor those that are unpredictable such as loads
due to hurricane, tornado, earthquake, explosion or collision. Temporary supports that are
required during or after the erection of the structural steel frame for the support of loads caused
by non-structural steel elements, including cladding, interior partitions and other such elements
that will induce or transmit loads to the structural steel frame during or after erection, shall be the
responsibility of others.
According to this section of the AISC Code of Standard Practice, it was the responsibility
of the Owner's design team to identify the special erection condition of fully finished modules
and the attendant difficulties of locating these modules in plan and truing them in elevation
(Section 7.10.1(b)). Furthermore, while it was the erector's responsibility to determine the
August 8, 2014
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temporary supports, guys, etc. required for erecting the "bare steel," it was not the erector's
responsibility to determine similar supports for loads caused by "non-Structural Steel elements,
including cladding, interior partitions and other such elements" (Section 7.10.3). Thus, the
erector was not responsible for the effects of finishes on the adjustability required for the steel
module frames during erection; this section of the Code can be further explained by the simple
truth that an erector is not in a position to have any knowledge of the effects of finishes on the
structural characteristics of a modular unit, not to mention the assembly consequences of such
effects.
(e) Conclusion
While the design did attempt to account for adjustability in the plane of each floor level,
it failed altogether to provide an opportunity to plumb the columns in the finished modules and
achieve correct vertical alignment of the modules during erection on site. In their unfinished
form as steel frames, the modules are flexible. Once finishes are installed, the modules become
much heavier and stiffer. In their finished state, higher forces are necessary to true them for final
assembly; and because no provision has been made to develop these forces, final assembly
cannot proceed according to the established norms of steel construction. The design of the
modules removed opportunities for the erector to use means and methods that are standard
practice, and did not replace these opportunities with sufficient alternative means and methods to
ensure proper adjustability on site. This violates the AISC Code of Standard Practice. The
design did not adequately address the fundamental steel construction principle that some
warping/racking of the units after their removal from the jigs and during and after installation of
finishes was to be expected, and it therefore would be necessary to correct the warping during
erection on site through the use of appropriate force.
August 8, 2014
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The structural drawings and specifications call for tighter-than-industry-standard
tolerances in the fabrication shop and in the field erection, primarily so as to assure fit-up of the
curtain wall panels which are installed in the factory and cannot be adjusted in the field.
Achieving tolerance is critical for achieving an effective weather seal with the curtain wall, but
adjustability to ensure that the building envelope is weather tight is lacking in the design. In a
typical steel frame building, this adjustability would come from four sources:
1. Plan position of the steel framing;
2. Elevation warping/racking of the steel framing;
3. Plan position of the slab edge and other structural faade supports;
4. Adjustment of the faade itself with respect to the building structure.
For the B2 Project as designed, however, the plan position of the modules (item 1)
constitutes the only source of adjustability. Other sources of adjustability are available in the
factory, but are no longer available on site in a manner consistent with the norms of steel frame
building construction. As the Project moves forward, FC's design team should develop
additional sources of adjustability for the faade panels on site. Depending on the precise needs
for adjustability and the most economical and effective means for providing such adjustability,
this new adjustability might be developed to come from sources 2 and 4 above in addition to
source 1. In the absence of such additional adjustability, the building is expected to continue
experiencing problems that will make it difficult or impossible to maintain the tolerance between
faade panel gaskets that is required to support the warranty of these panels and their
performance as a building envelope. This issue is particularly troubling when one considers that
the out of plumbness of assembled module columns can, depending upon the extent and direction
of variance of each module, be cumulative.
August 8, 2014
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While the full extent to which these problems will persist is difficult, if not impossible, to
predict, the necessity for additional adjustability to address these same problems is very clear.
Erection crews have had to struggle with bringing the module columns as close to specified
alignments as possible, using the limited resources made available by the incomplete design, and
large parts of the heavy cost overruns incurred in the field are traceable to this issue. Moreover,
in addition to the increased costs of assembly, a major and important consequence of the
problems discussed above is that it is impossible to predict that the building when completed will
perform as designed; and in particular, it is impossible to predict that the curtain wall joints will
be and, over time, will remain effective barriers to the passage of air and water in simple terms,
no one knows if the building is going to leak. There is risk in this Project substantially in excess
of a conventional high-rise commercial building, and that risk arises directly from a defective
design that ignores in important places the unique circumstance of a modular as opposed to
conventional high-rise structure.
2. Failure of Design Team to Provide Direction for Structural Aspects of Factory Fabrication
The failure of the FC design team to exercise design responsibility for the entire modular
building process, and not just for the completed structure, is further evidenced by FC's attitude
toward the factory work. At every juncture, FC and its design team have taken the position that
every aspect of factory operations was solely a matter of "methods and means", as if the factory
were a construction site and not a place where modules were being manufactured under
conditions that have little to do with ordinary construction. The failure of the design with respect
to the build out of the modules was highlighted by Arup's response to RFI 568, dated March 14,
2014, which had asked:
August 8, 2014
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Please review and confirm the below items that need to be
performed in the FCS factory to mitigate matchplate, column and
curtain wall misalignment due to frame racking (this was sent in an
email on 3/4/2014).
2. Use connection plates at the top of all columns in the
factory to true up module frames prior to installation of the
primary walls and facades.
Arup encouraged the implementation of Provision 2 of RFI 568; however, it also claimed
that such a decision was within the contractor's means and methods, and therefore resided
outside of the design team's ultimate responsibility. Arup's position contradicts its position in
Drawings S-750 through S-807 with regard to detailed instructions for positioning the modules
in plan. Furthermore, Arup's position in this instance also contradicts the basis for Section 7.10
of the Code of Standard Practice, which distinguishes the erector's responsibility for means and
methods related to the erection of bare steel (the steel frame prior to the addition of finishes)
from the design team's responsibility for special erection methods and consideration of loads
imposed by non-structural steel elements, such as partition walls, facade panels and other
finishes. The Code of Standard Practice states explicitly that the erector is to account for such
loads "as specifically identified by the Owner's Designated Representatives," however no such
direction for vertical alignment was provided by FC's design team.
In this Project, by requiring that the units be finished at the factory prior to erection of the
steel, the FC's design team removed opportunities for field adjustment that the erector could rely
upon in a typical steel frame building and thereby made the fabrication in the factory all the more
critical. What the designers should have known and what the fabricator needed to know was that
the frames would arrive at the factory as relatively flexible structures almost certain to have
August 8, 2014
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experienced some warping/racking out of vertical alignment and almost certainly out of
tolerance, and that they would leave the factory with little flexibility. To deal with this
circumstance, the designer should have provided a specific program to insure the completed
modules would be in proper shape for assembly on site, including tolerances applicable to the
modules while in the factory, instructions for surveying the frames once in place on the
pedestals, methodologies for bringing the frames into tolerance, and clearly stated methods for
keeping them in tolerance and as true as possible during the factory work. This is a design
responsibility because it is based on knowledge peculiarly in the realm of the designer and
because it relates directly to the ability of the overall modular design of the building to perform
as intended. Moreover, it could not have been imagined that there would be anything in the
experience of any fabricator operating the factory that could have formed the basis for "means
and methods" regarding those issues since they relate to the effects of non-structural steel
elements on the erection of the steel modules . Indeed, the concept of "means and methods" is
foreign to and not applicable to factory work.
Over time, the factory and Banker, working together on the basis of experience as
numerous problems were encountered, developed a series of approaches to the problems caused
by or not addressed in the Owner's original design. In addition to the installation of match plates
at the column tops per RFI 568, survey practices and programs were developed at various stages
of the factory process. This created the effective fabrication process absent from FC's design
and improved the assembly process in the field. This need to provide by trial and error what
should have been part of the design stretched out the factory's learning curve, increased costs
and extended the productions schedule.
3. The Prototype Project Was Not Properly Designed to Prove
August 8, 2014
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Fabrication, Erection, Cost and Schedule Elements of the Project
Consistent with the idea that this modular building system is new, the design team
specified and oversaw the construction of a prototype structure in the fall of 2012. This was
preceded by extensive planning and design work, resulting in a set of prototype construction
documents used to build the prototype modules. Early on there were at least six matrices, headed
"Design/Engineering Testing & Prototyping", describing the activities and goals of the process,
together with two scope documents, all of which set forth in detail a substantial effort. These
documents also indicate that the proposed scope of the prototyping plan was reduced over time
from as many as 16 modules to the six in the final plan; and at one point it was proposed to stack
the test modules three high instead of only two, as in the final plan.
Arup provided Prototype Testing Status reports on October 29, 2012 and November 21,
2012. The November 21 report indicates that the prototype consisted of 6 modules, all of which
had been delivered by the report date. The four modules representing the 12th floor had been
75% fit out (with finishes) and two modules representing the 13th floor were just bare steel
frames and thus did not in any respect replicate conditions that would exist during actual
assembly of the modules. Amp's observed that in module 1218 "the end purlin was not lined up
with the outside of the column." In this area, the match plate bolt holes had been reamed to a
larger diameter in order to provide adjustability, foreshadowing the eventual decision behind
SSK 265 (discussed in the previous section) which was a response to a similar need to enhance
adjustability in the actual building. In addition to the Amp report, a SHoP Architects PC
("SHoP") report from December 8, 2012, including site observations from November 13, 2012
noted, "Joints between the modules did not hold the 1" tolerance between the two modules, and
in some cases this approached nearly 2-1/4".
August 8, 2014
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Commenting on the erection of the two bare steel modules representing the 13th floor,
Arup noted: "The tolerances for the setting of the 13th floor modules proved to be within setting
limits and the speed of erection was truly impressive. On all accounts, the setting of the modules
was a complete success." Arup commented further, "the 13th floor modules did not have the
faade on during the set sequence the fit-up of the facades and the sealing of the mateline gap
has not yet been proven through testing."
Similarly the SHoP report concluded:
The work of the prototype has confirmed the feasibility of the
project design approach... In no case has the work on the
prototype suggested any flaws in the design approach that would
prove fatal to the scheme and we are not aware of any issues
stemming from the modular prototypes and/or the B2 Design that
would prevent or affect the construction of the B2 Property in
accordance with the B2 Design documents.
Although Amp and SHoP somehow declared the prototype and its erection sequence to
be successful, the prototype erection sequence failed to simulate the actual erection sequence in
several critical ways:
(a) the four 12th Floor units were not 100% finished;
(b) the two 13th Floor units contained no finishes (bare steel) and so could be aligned
according to the Code of Standard Practice;
(c) the four 12th Floor units were set under ideal shop conditions, which were likely
to be more level than the top of the 11th Floor in the field;
(d) the two 13th Floor units were insufficient in number to produce an over-
constrained field condition, such as where four units come together their corners,
or three units come together at a reentrant corner while they are constrained on
their other sides by other units; and
(e) two stories were insufficient to produce a situation where units within tolerance
could produce compounding errors that resulted in the system being out of
tolerance at a higher story.
August 8, 2014
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Considering these discrepancies between the prototype structure and the actual building,
the prototype plainly was not designed and constructed to represent critical erection conditions
and in fact it failed to reveal the serious problems that would be encountered in attempting to
assemble the modules to the required tolerances.
Apart from providing a prototype procedure that was wholly inadequate, FC's design
team ignored an important piece of information that the procedure actually did produce. The
very first Observation in SHoP's the December 8, 2012 prototype assessment reports that "Joints
between the modules did not hold the 1" tolerance between the two modules, and in some cases
this approached nearly 2-1/4." Nothing further is stated about this finding, but it is completely
inconsistent with the conclusion that "the setting of the modules was a complete success." At this
time it is not known whether FC's design team felt the prototype process was not meaningful or
somehow did not consider the 2'/2 gap between modules to be important. In any event, this is a
further indication that the prototype process was not serving an intended purpose. More than
that, this event should have raised a large red flag concerning the need for design attention to the
critical issues surrounding assembly of modules (as opposed to conventional steel members) on
site within the very close tolerances that FC's modular design of the building demanded. If FC
had not been so profit and schedule driven at this stage of the Project, if it had been willing to
step back and consider seriously the implications of its own prototyping information, the
possibility existed for catching at the outset an important problem in its design the inherent
tension between very tight assembly tolerances and the inevitability of some deformity in the
stiffened modules being delivered to the site. The enormous increase in site work resulting from
this lost opportunity has become, and unless corrected will continue to be, a very expensive
consequence of FC's haste.
August 8, 2014
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B2 HAS MATERIALLY BREACHED THE CM AGREEMENT
BY FAILING TO ISSUE CHANGE ORDERS AND DIRECTED CHANGES
EXECUTIVE SUMMARY
The Owner must issue a change order when there is a scope change requested or, among
other things, as a result of the fault or negligence of its design professional. (CM Agreement,
5.4 and 15). Section 15.3 addresses the instance in which the Owner and Skanska do not
agree to the terms of a particular change order. In that event, the Owner is to issue a Directed
Change providing for the undisputed adjustment in price and time. Upon receipt of the Directed
Change, Skanska reserves its claim for the disputed amount of cost and schedule relief.
Skanska is also entitled to full compensation for Force Majeure Events lasting more than
five (5) days and Owner Caused Events in all circumstances ( 5.4). Generally stated, a Force
Majeure Event is one beyond the reasonable control of Skanska. An Owner Caused Event,
generally stated, is a change in the Work requested by FC or resulting from the fault, neglect or
other negligent or wrongful act or failure to act by Owner, Owner's Representative, its Design
Professionals, and others for whom the Owner is responsible.
Outstanding requests for additional cost and/or time include:5
Bulletins
Field Cost Events
FC+S Cost Events
Anticipated Subcontractor Claims
The Owner has failed to issue change orders for most all of these items. They have
rejected change requests improperly and have disingenuously asserted lack of notice, when
5 Given the challenging nature of this Project and the failure in design and IP, issues are constantly arising.
Consequently some CEs may not be fully developed, whether it is racking module steel and/or faade costs, costs
resulting from transfer of work from factory to field and subcontractor claims. Additional CEs arose as a result of
ongoing or other issues. Consequently, the information set forth in this portion of the Notice of Termination is that
which existed as of July 1, 2014.
August 8, 2014
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indeed it is the rarest of occasions if in fact any occasion exists where notice is truly an issue.
Moreover, FC has repudiated its contractual obligation by refusing to issue Directed Changes.
These actions are a material breach of the CM Agreement entitling Skanska the right to provide
notice of termination and absent a cure, terminate the CM Agreement. On an individual basis,
these change requests entitle Skanska to additional compensation and a time extension.
DETAILED DISCUSSION
Bulletins
There are nine bulletins totaling $4,223,011 and the status is as follows:
BULLETIN STATUS
BULLETIN DATE PRICE
SUBMITTED
PRICE
SUBMITTED
CURRENT
STATUS
1 10/1/13, $1,291,000 OPEN
CE #3
2 10/1/13, $488,578 OPEN
CE #4
3 10/1/13, $657,040 OPEN
CE # 35
4 10/14/13, $47,372 OPEN
CE # 42
5B 4/29/14, $1,455 OPEN
CE # 62
Disputed CO 5
language.
Directed change
not issued
August 8, 2014
Page 125
6 4/29/14,
CE # 63
$394,853 OPEN
7 4/29/14, $61,522 OPEN
CE # 64
8 4/29/14, $403,521 OPEN
CE # 93
9 6/20/14, $877,670 OPEN
CE 160
There is no indication that FC has any intention of acting in good faith to resolve any of
these Change Orders, Bulletins and issues. They are simply acting in furtherance of the FC
business ethic of denial, regardless of its contractual obligations and the legitimacy of the other
party's rights.
Some representative examples of this are offered.
First, a hardwood flooring CE was submitted to FC. It has not yet been priced, but it is
expected to exceed $1.5 million.
Hardwood flooring was specified for the Project. As everyone knows that this is a
modular project, the work is to be performed in the factory. Conditioning sufficient for the
installation of wood flooring was not included in the fit-out budget provided by FC under the
LLC Agreement.
Prior to February 20, 2014, Roger Krulak and others met with Armstrong Flooring at
which time the supplier advised that the installation of the wood flooring in the factory would
void the warranty. This was then stated in a letter addressed to Jonathan Clouser dated February
20, 2013 with a copy to Roger Krulak.
August 8, 2014
Page 126
Although the subject of past discussions, in May of 2014, Skanska "formally" requested
direction from FC as to whether to install the wood flooring in the factory and lose the warranty
or to install it in the field at an increase in price.
Scott Stutman responded on June 6, 2014 disingenuously claiming late notice and
asserting that it was Skanska and FC+S' responsibility because this is a "means and methods
item." In fact, FC and Scott Stutman had actual notice of the existence of the issue, that it was a
design error and that a cost and time impact would exist. This is proven without contradiction
by:
Roger Krulak's February 18, 2014 email advising of his meeting with Armstrong
flooring and the existence of "a specification problem."
Roger Krulak's February 19, 2014 emails advising that the issue "negates
modular installation," acknowledging the existence of a cost impact for field
installation and representing that "Scott" was advised of the issues.
In response Mr. Stutman actually alleged that the emails were taken out of context and
that a "design error must be proven" before Skanska can rely on 2.4 which requires Skanska to
"await further instructions from Owner" once it discovers and then reports the existence of
errors, omissions or inconsistencies in the B2 Design.
These actions repudiating responsibility for the effects of the design error constitute a
material breach of the CM Agreement.
FC also refused to pay for extended liability insurance. In part, FC objected to the
change, alleging a "Contractor Caused Delay". As to that, FC is wrong. As set forth herein, the
delay on this Project is based on Owner Caused Events and Force Majeure Events. FC also
refused to pay for insurance which falls within the original schedule. As to that, it makes
reference to an unwritten agreement that the insurance was to be shared by FC and Skanska as a
August 8, 2014
Page 127
cost of the FC+S business, in contradiction to the fact that it is a required payment as an amount
in excess of an allowance in the CM Agreement. No such agreement exists and this failure to
issue a Change Order is a material breach of the CM Agreement.
Finally, FC has refused to follow the Directed Change provision in 15.3 of the CM
Agreement.
First, as to the quantum of the change order, if there are disagreements between the
parties, FC is required to issue a Directed Change and pay the undisputed amount, with the rights
of the parties reserved as to the balance in dispute. FC refuses to do so, evidencing that it is
either their amount or no change order will be issued.
Second, as to form, on change orders 1-3, FC improperly and intentionally included
language that payment of the change order constituted "full payment of the additional work
covered thereby and for any delay, disruption, cost or expense occasioned by reason of such
change and shall release Owner from any further liability. All other terms and conditions of the
contract are unchanged". (Emphasis added). The terms of the CM Agreement do not require a
waiver. In fact the CM Agreement is clear. Change Orders include only the "Costs of
Additional Work". These are the direct "sticks and bricks" of the change ( 15.2). Accordingly,
by issuing the change order in the improper form, FC intentionally sought to prejudice Skanska.
FC tried to further their misconduct in the May 2014 Change Order No. 4. Skanska objected and
returned the change order with language preserving for itself the right to claim impact. FC then
revised that change order going through a number of machinations as to language including
reserving to itself the right to challenge the change order at a later date both as to quantum and
entitlement while never addressing Skanska's concern; that being its right to assert the existence
August 8, 2014
Page 128
of schedule impacts. While ongoing, FC refuses to issue a Directed Change for the agreed
amount of the change or pay for the agreed amount.
The amounts of change orders 4 and 5 are not in dispute. Skanska is entitled to payment.
Skanska has billed these amounts and FC has not paid the amount because Skanska will not
execute FC's form of change order.
Under these facts, the sums due and owing under the CM Agreement have not been paid
for a period of thirty days. Under the CM Agreement, Skanska may terminate the CM
Agreement under 14.7(b) as an amount properly due which has not been paid within 30 days
after it became payable.
FIELD COST EVENTS
After Cost Events are submitted to the Owner, an Authorization Request follows with the
final price for the change. The items identified below are only those Cost Events for which final
pricing has been provided. There are other CEs which have been submitted but for which
pricing has not been finalized.
SITE AUTHORIZATION REQUEST STATUS CHART
(Exclusive of Bulletin Pricing)
COR (AR)
NUMBER
DATE
SUBMITTED
DESCRIPTION DOLLARS
SOUGHT
STATUS
2 3/25/2013 Road / Curb
Modifications at
Intersection of
Navy & Tillary
Streets
$75,623 OPEN
9 11/26/2013 Furnish and
Install Glass
Protection on
$44,177 OPEN
August 8, 2014
Page 129
South Facade of
Barclays Center
10 11/27/2013 MEP Tunnel
Additional Scope
$125,793 PRICE
APPROVED,
disputed Change
Order 04
14 12/16/2013 Stop Work Order
from MTA
$12,707 OPEN
15 12/16/2013 Civetta Work for
Roux (hazardous
fill)
$9,466 OPEN
16 12/18/2013 Existing SOE for
sewer line and
underpinning of
sewer line
$49,387 OPEN
17 5/5/2014 Trash Chute
Framing per RFI
118 & 205
$30,748 Rejected
19 2/10/2014 CE#0156 -
Civetta - Bollard
Modification
$14,256 OPEN
20 3/31/2014 FCS Schedule
Delay Impacts &
Associated
SUSA Extended
GC's
$28,427,465 Rejected
25 6/25/2014 Fulcro
Reconciliation
$1,113,534 Rejected in part,
7/23/2014
26 5/5/2014 Field Weld
Plinth Plates in
Lieu of Shop
Weld due to
Erection
$68,277 Rejected
August 8, 2014
Page 130
Tolerances
27 5/5/2014 Furnish and
Install Additional
Flue Riser
Supports
$6,118 OPEN as to price
29 6/16/2014 Remove Decking
and Versaroc on
Mod 13-01 floors
2-7
$5,012 OPEN
31 6/25/2014 FCS Extended
General Liability
Insurance
$1,157,796 Rejected,
7/23/2014 (as
Contractor
caused delay)
32 6/25/2014
7/15/14 (rev 1)
FCS Insurance
Adjustment
(Deductible and
Stop Loss Cap)
$255,099 Rejected,
7/23/2014 (as
budgeted factory
cost and for
disputed mark-
ups)
TOTAL
TOTAL
excluding AR 20
$31,395,458
$2,967,993
The information above demonstrates that FC has persistently failed to timely and fairly
address Change Order Requests (COR's). There is approximately $2.9 Million dollars pending
in submitted CORs, exclusive of the amounts submitted as Bulletin pricing (which is another
$4.2 Million for Bulletins 1 through 9) and the rejected COR 20. Some CORs have been
pending with FC since 2013, while others which should be routinely acknowledged and
processed as valid extra work claims are subject to multiple rounds of negotiation and emails by
FC. The end result is that Skanska is unjustly deprived of payment for clear items of extra work.
August 8, 2014
Page 131
As seen in COR 10 for the MEP Tunnel Additional Scope, while both parties have
acknowledged this as additional work and FC has agreed to the price, FC has frustrated the
payment process by insisting, first, that waiver language be included in the change order to be
signed by the parties, despite the fact that there is no contractual basis for it to insist that such
language be included. While Skanska has demanded the issuance of a Directed Change, FC
continues to refuse to issue a Directed Change for items of acknowledged extra work, where any
issues remain in dispute. If FC complied with the CM Agreement, it would issue the Directed
Change and pay the undisputed portions of the COR. The disputed portions of the COR would
be preserved for later claim resolution. FC's unwillingness to issue Directed Changes or pay
undisputed portions of CORs is again manifest in its recent response to COR 25 "Fulcro
Reconciliation," for amounts FC knows to be owed for sums in excess of the allowance provided
for this work item in the agreements. As opposed to following the CM Agreement's Directed
Change procedure, FC has been content to act in a commercially unreasonable manner to deprive
Skanska of payment. Stated otherwise, the Directed Change provision is a contract term. It was
specifically negotiated to protect Skanska and because it removes leverage from FC, they have
steadfastly refused to honor it.
FC's dismal record in timely processing CORs becomes all the more shocking when
viewed in light of the fact that, to date, only three CORs have been approved by Owner. Those
three CORs date back to May, November and December 2013 and amount to a total value of
$79,860 all for extra work to date. On a Project of this magnitude and one with extra work
claims approximating $10 Million, FC's total payment of approximately $80,000 is a stark
indictment of how FC abusively handles the change and payment process.
August 8, 2014
Page 132
FC+S COST EVENTS
There are 65 Cost Events which have been submitted by FC+S to Skanska.
FC+S CE STATUS REPORT
Factory
CE No
Description RFI
Created
RFI
Answered
Amount
Sought
TT001 Temporary Roofing
Protection EPDM (RFI 206)
7/23/13 5/20/14 $1,519,840
MC046 Bus Duct Switch AIC
Changed (RFI 597)
4/22/14 4/29/14 $32,827
TT003 Under Cabinet Gap Closure
(RFI 570
3/21/14 3/28/14 $36,021
TT004 LT-04 Diffuser (RFI 430) 11/21/13 11/21/13 $16,076
TT005 LT-21 Additional Fixture
Heads (RFI 609)
4/28/14 5/5/14 $2,997
TT006 Additional LT-04 Lighting
in Amenity (RFI 627)
5/8/14 5/15/14 $907
TT007 SVT Flooring (RFI 450) 12/18/13 12/20/13 $30,661
TT008 Pocket Door Wall Interior
Finish (RFI 583)
4/9/14 4/16/14 $20,743
TT009 POD 9A Door Added (RFI
572)
3/24/14 3/31/14 $3,170
TT011 Sprinkler Piping-Soffit
Coordination Amenity
Levels 07, 08, 09 (RFI 573)
4/1/14 4/8/14 $7,292
TT012 Closet PTAC Location P.6
P.7 (RFI 578)
4/2/14 4/9/14 $2,948
TT013 Panel Relocation E.2A (RFI
579)
4/3/14 4/10/14 $9,855
TT014 Bathroom POD 1B at Level 4/7/14 4/14/14 $6,427
August 8, 2014
Page 133
07 Mateline Connections
(RFI 582)
TT015 PTAC Sleeve Extension
(RFI 633)
5/12/14 5/19/14 $1,624
MC069 McGrath Backcharge for
0836 Faade
6/4/14 6/4/14 $1,012
TT017 Relocate Vent at Riser 14
(RFI 595)
4/21/14 4/28/14 $329
TT018 LT-22 Finish Specification
Required (RFI 626)
5/8/14 5/15/14 $996
TT020 NCR Gap Between
Electric Range (ER-30) and
Backsplash (RFI 651)
6/4/14 6/11/14 $18,642
TT021 Module Strap Securing
HardiBoard (SSK-242 SSK-
243
3/20/13 3/20/13 $38,998
TT022 Exit Sign Upgrade
(Submittal 286)
10/15/13 10/15/13 $13,939
MC066 Bullet 3 + 6 Door Change
Order
8/9/13 8/9/13 $925
TT027 BR Pods 9A Services
Altered (RFI 598)
4/22/14 4/29/14 $3,512
TT030 Soffit for Electrical VML
Connection Mods 0717 &
0721 (RFI 612)
4/29/14 5/6/14 $201
TT031 Shallow Sump Floor Drains
(RFI 620)
5/1/14 5/8/14 $771
TT032 Coordinated Lighting in
Mechanical Space Level 05
(RFI 515)
2/14/14 2/21/14 $1,708
TT033 Column Wrap Detail GL- 2/18/14 2/21/14 $1,327
August 8, 2014
Page 134
7/GL-4 Intersection
(RFI518)
TT024 Fire Rated Access Doors
(RFI 499)
3/11/14 3/18/14 $8,443
TT026 Shower Fixture BR POD
9BS (RFI 611)
4/29/14 5/6/14 $908
TT034 Additional Junction Box
Needed (RFI 548)
3/7/14 3/14/14 $374
TT035 Exposed Ductwork in
Weight Room Level 08
(RFI 552)
3/7/14 3/14/14 $228
TT036 Added Soffits in Conflict
with LT-07 Level 09 (RFI
589)
4/11/14 4/18/14 $590
TT037 Closets in Units A.2 & A.5
(RFI 412 & 489)
1/22/14 1/25/14 $9,267
TT039 Elevator Overrun Ceiling
(RFI 601)
4/24/14 5/1/14 $663
TT038 Missing Arch and Elect
Design for PTAC MOD
0725 (RFI 635)
5/12/14 5/19/14 $597
TT041 Architectural Finish
Discrepancies Level 08
(RFI 553)
3/7/14 3/14/14 $1,848
TT045 Finish Schedule Floors 33-
34 (RFI 500)
1/31/14 2/3/14 $21,868
TT043 5th Floor Mystery Space
(RFI 501)
1/31/14 2/3/14 $8,258
TT040 Decora Light Switch
Change (RFI 423)
11/15/13 11/21/13 $21,511
TT044 4th Floor West Wing 2/3/14 2/6/14 $218
August 8, 2014
Page 135
__.
Column Welds That Are
NCM (RFI 502)
TT046 Level 11 Piping Clash with
Amenity Lounge Millwork
(RFI 506)
2/6/14 2/9/14 $1,480
TT047 Kitchens and Furring Walls
for Piping (RFI 223)
8/1/13 8/8/13 $3,431
TT050 Column Wrap Detail
Horizontal Section Through
Acute Corner (RFI 239)
8/13/13 8/20/13 $3,802
TT051 Column Wrap Detail
Horizontal Section Through
Obtuse Corner (RFI 238)
8/13/13 8/20/13 $5,493
TT052 Column Wrap Detail Plan
Detail at C.L 7, 5, H (RFI
240)
8/13/13 8/20/13 $8,209
TT053 Column Wrap at Brace
Frame Perimeter Condition
(RFI 269)
8/29/13 9/5/13 $62,670
TT054 Fire Rated at Floor and
Ceiling Decks (RFI 360)
10/21/13 10/25/13 $144,284
TT055 Missing Hard 1A01 and
1B01 (RFI 233)
8/12/13 8/19/13 $675
TT056 Fire Rated Assembly at
Exterior Walls (RFI 268)
8/29/13 9/5/13 $266,229
TT057 PTAC Installation Issues
(RFI 363)
10/25/13 11/6/13 $79,756
TT058 Issues with Shaft Wall (RFI
366)
10/28/13 11/4/13 $6,340
TT060 Shaft Wall Detail (RFI 373) 10/29/13 11/5/13 $25,179
TT062 Missing Mateline Detail in 6/10/13 6/17/13 $2,147
August 8, 2014
Page 136
Unit A.2 (RFI 140)
TT064 Trash Chute Support (RFI
118)
5/24/13 5/31/13 $1,652
TT063 Frame Screen Horizontal
Section Through Rotated
Columns (RFI 190)
7/11/13 7/18/13 $12,808
TT065 Floor Finish, POD 1 at WD
Closet (RFI 101)
5/15/13 5/21/13 $6,245
TT066 Reflective Ceiling Plan
Floors 2 & 3 Need for
Soffit Locations (RFI 103)
5/15/13 5/21/13 $2,012
TT067 ER-30 Range Electrical
Design Conflict (RFI 497)
1/30/14 2/2/14 $3,630
TT068 Fire Extinguisher and
Cabinet Models (RFI 226)
8/5/13 8/12/13 $8,115
TT069 Countertop Overhang (RFI
511)
2/12/14 2/15/14 $90,141
TT070 Missing Closet Ceilings
(RFI 147)
6/11/13 6/18/13 $83,793
TT073 Bulletin 6 8/2/13 $106,582
TT076 Bulletin 7 9/3/13 $50,000
TT077 Bulletin 8 10/17/13 $66,650
TT078 Bulletin 9 2/14/14 $313,189
MC068 Replacing Gray Electrical
Panel Covers (RFI 662)
6/13/14 6/20/14 $621
TT075 PTAC Sleeve and Furring
Wall Depth Discrepancy
(RFI 661)
6/13/14 6/20/14 $43,552
TT078 Putty Pad for Fire Rating at 2/28/14 3/5/14 $22,326
August 8, 2014
Page 137
Abutting Outlets (Submittal
438-260533)
TT080 Ceiling Type for Emergency
Stair (RFI 352A)
7/2/14 $30,038
TT083 Bulletin 1 3/20/13 $317,158
TT084 Bulletin 2 4/11/13 $94,349
TT085 Bulletin 3 6/10/13 $417,275
TT081 Bulletin 4 6/14/13 $7,324
TT082 Bulletin 5 6/28/13 $0
TOTAL
TOTAL EXCLUSIVE
OF BULLETINS
$4,135,676
$2,763,149
Skanska submitted notice of the CEs upon its receipt of same from FC+S. Skanska's
field costs are being computed to complete the submission and it is expected that they will be
submitted shortly.
Moreover, 54 of the 64 Cost Events51 arose during the timeframe when Roger Krulak was
running the factory and/or Scott Stutman was the Design and Technical Service Director. Of the
64 Factory Cost Events, 25 fell within Mr. Krulak's tenure and 29 others, exclusively during Mr.
Stutman's tenure. Stated otherwise, 54 out of the 64 Cost Events arose when FC employees were
in the positions of leadership.
It was Messrs. Krulak and Stutman who had first knowledge of changes related to these
issues, and it was Messrs. Krulak and Stutman who owed the duty of fidelity and loyalty to
FC+S, to furnish notice to Skanska, so that Skanska could then furnish notice to B2. They did
51
This excludes CEs included in Bulletins.
August 8, 2014
Page 138
not do so. In so doing, they sought to guard the financial interests of FC to the damages of
FC+S.52
SUBCONTRACTOR CLAIMS
Subcontractors, particularly Banker and M.G. McGrath, Inc. ("McGrath"), have advised
that a claim for additional compensation will be forthcoming, with McGrath asserting an amount
without backup of $2.5 million and Banker explicitly advising that its claim will be based on the
inadequate design and IP, as well as representations made to it by FC prior to Banker ever
submitting a proposal to Skanska. Banker advises that it will also rely on its involvement with
FC "early on" as a basis for its claim. Skanska has advised FC of its intent to properly process
and submit subcontractor claims to the Owner for appropriate action and payment as warranted.
However, since no actual claim has been received, nothing can be vetted or processed.
FC HAS MATERIALLY BREACHED THE CM AGREEMENT
DUE TO ITS REPEATED AND INTENTIONAL FAILURE TO MAKE
PAYMENT TIMELY AND ITS REPUDIATION OF ITS OBLIGATIONS
TO MAKE TIMELY PAYMENTS
Mid-month and final month payments are due under the CM Agreement timed from the
submission of a "clean invoice" ( 6.2). A clean invoice is achieved after a meeting in which the
pencil copy is reviewed. The clean copy is then uploaded to "Live Link."
If documents or further information is required of Skanska, which is not uploaded with
the clean invoice, that information is due by the time of payment.
There have been disputes between the parties over the nature and quality of the
supporting information required with Skanska always providing what has been requested.
52 In fact, it is known that while "working for FC+S", Mr. Krulak was creating documents regarding production for
FC's use and which FC through Robert Sanna has refused to disclose. It is a fair characterization that Mr. Krulak
was a "spy" for FC while pretending to work for FC+S. On the LLC level, this conduct would clearly constitute a
breach of the covenant of good faith and fair dealing subjecting FC to liability.
August 8, 2014
Page 139
Notwithstanding the fact that the due date for payment is timed from the submission of the clean
invoice ( 6.2(a) and (b)(ii) and (iii)), without any justifiable reason and solely to delay payment,
FC has continually ignored the terms of the CM Agreement and timed payment from the date
Skanska uploaded the last document. Skanska continues to protest FC's actions. Regardless of
FC's continual and systematic letter writing campaign of denial, FC has materially breached the
CM Agreement.
FC FAILED TO PROPERLY AND TIMELY FUND OR
ADMINISTER THE IMPREST ACCOUNT REQUIRED BY
THE CM AGREEMENT, WHICH IS A CONTINUING BREACH
OF THE CM AGREEMENT
An Imprest Account was required to be established by FC upon the signing of the CM
Agreement. It was to be established to ensure that security existed for payment on account of
future work as the "next" payment to become due was to be deposited with the current payment
already existing in the account. It was also to expedite payment by authorizing Skanska to
withdraw payment on the due date. The account was not opened as required. Demands were
made by Skanska, and while FC made promises, it did not establish the Imprest Account until
July 2014. Since then, FC has continually failed to properly fund and administer the Imprest
Account. It has also frustrated Skanska's ability to monitor the Imprest Account.
The Owner is not funding the account as required by the Agreement so as to maintain the
balance in accordance with the Payment Schedule. Under Article 6.2 (f) of the Agreement,
Owner is to continually fund the account "so that the balance of the Imprest Account is no less
than the amount shown in the Payment Schedule as the next sum payable from the Imprest
Account." (Emphasis added). Recent correspondence in connection with the short payment of
Payment Application # 34 reveals that the Owner is only funding the account up to the amount it
August 8, 2014
Page 140
believes is currently due and not to the amount of the sum next due for payment under the
Payment Schedule. The Owner is failing to provide the required security bargained for under the
CM Agreement and is using the Imprest Account as a means of delaying payment, instead of as a
tool for expediting payment as contemplated by the CM Agreement.
Further, as currently administered, FC is impeding Skanska's contractual right to monitor
the Imprest Account balance. Pursuant to Article 6.2 (f), " [t]he parties agree that Contractor
shall monitor the Imprest Account balance to assure that it contains adequate funds. If additional
funds are required to cover such amounts, such additional funds shall be deposited into the
Imprest Account as mutually agreed between Owner and Contractor." To date, despite request,
FC has not permitted Skanska to have online access to the account to effectively monitor it,
citing instead FC's "company policy" of not allowing such access. These acts and omissions
constitute a material breach of the CM Agreement.
FC HAS MATERIALLY BREACHED THE CM AGREEMENT
AS IT HAS FAILED TO PROVIDE SECURITY FOR PAYMENT
TO SKANSKA AS REQUIRED BY LAW
The property upon which the Project is being constructed is owned by a public entity.
The Project is being constructed by a private party, FC. Section 5 of the Lien Law of the State of
New York is applicable to this matter. It requires that the private entity (FC) "post, or cause to
be posted, a bond or other form of undertaking guaranteeing prompt payment of monies due to
the contractor, his or her subcontractors and to all persons furnishing labor or materials to the
contractor . . .".
On two occasions, Skanska made demand upon FC for a copy of the bond or undertaking.
On each occasion, FC ignored Skanska's demand.
August 8, 2014
Page 141
Finally, on or about July 24, 2014, General Counsel for Skanska demanded a straight
answer to the question as to whether or not a bond existed. In-house counsel for FC, John Hunt,
admitted that a bond was not posted or issued.
FC's failure to comply with the law is a material breach of the CM Agreement.
FC HAS MATERIALLY BREACHED THE CM AGREEMENT BY FAILING
TO PROVIDE REASONABLE EVIDENCE THAT THE OWNER HAS
MADE FINANCIAL ARRANGEMENTS TO FULFILL ITS OBLIGATIONS
UNDER THE CM AGREEMENT
Section 4.3 of the CM Agreement requires FC to furnish evidence that FC has made
financial arrangements to fulfill its obligations under the CM Agreement. The furnishing of this
information is a condition precedent to Skanska's obligations to continue the work.
Changes in the work exist. In addition to the sums due on account of Force Majeure
Delay Events and Owner Caused Delay Events, there is approximately $10 million outstanding
in change order issues.
As of April 28, 2014, David Berliner advised Richard Kennedy that FC's lending
institution has stopped funding. This fact was confirmed by Robert Sanna on July 7, 2014. As
noted previously, FC has not furnished a bond or undertaking guaranteeing payment to Skanska,
as required by 5 of the Lien Law of the State of New York.
Skanska made written requests on two occasions that FC provide financial assurances as
required by 4.3 of the CM Agreement.
After refusing to do so, in a letter dated August 1, 2014, Robert Sanna materially
breached the CM Agreement on behalf of FC as he, again, refused to provide reasonable
evidence that the Owner had made financial arrangements to fulfill its obligations under the CM
August 8, 2014
Page 142
Agreement and further stated that FC would not respond to any further communications
requesting financial assurances.
The information provided by Robert Sanna on August 1 demonstrates only two things.
First, there is substantial debt encumbering the property and no evidence of loan
agreements was provided or the availability to draw on proceeds from loan agreements.
Second, he made reference to Forest City Enterprises, Inc. as B2's parent and its SEC
filings for proof of sufficient equity/liquidity necessary to complete the construction of B2. This
reference falls short of identifying that financial arrangements exist.
Based upon FC's failure to provide information as required by 4.3 of the CM
Agreement and its repudiation of any intention of providing reasonable financial assurances in
the future, it has materially breached the CM Agreement.
DAMAGES
Individual changes to a contract are priced by the direct cost of the additional work,
together with the appropriate mark-up. Additional time is sought if it can be demonstrated that
the individual change would result in a delay to the completion of the Project. However, when
the number of changes becomes excessive, and/or intertwined with other causes of delay, the
labor productivity on base contract work, and previously negotiated change order work, is
impacted which creates "cumulative impact". Cumulative impact is the effect of a series of
changes, design clarifications, late responses to requests for information (RFIs) and other work
on labor productivity and project cost.
Contemporaneously measuring the impact of a single change on the Project is not
possible because the effects of cumulative impacts are comingled along with other causes of
labor overruns. Accordingly, it is sufficient to demonstrate that an excessive number of changes
August 8, 2014
Page 143
occurred and caused a ripple impact on productivity because there is no way to specifically
identify the effect of each change when they are constant and continuing.
The cumulative impact of changes on this Project start with the incorrect IP and continue
through the discretionary design changes and the changes caused by the incomplete and non-
detailed design. Collectively, there exists a sustained negative effect on the ability to efficiently
produce modular units. These impacts have increased the amount of labor hours required to
perform base contract and change order work. The amount of increased labor hours alone due to
the changes and other impacts experienced in the production of modules through Level 10
amounts to approximately 180,500 hours (roughly 245,100 actual v 64,600 planned).
This increase in the amount of manhours required to produce modules could never have
been anticipated given the information available and assurance of excellence and reliability of
the IP provided in the Opportunity Brief and continuing to the execution of the CM Agreement.
The actual rate of production of modular units has been and continues to be significantly
less than that professed by FC, and relied upon in pricing and planning the work. The causes of
this loss of productivity are numerous and pervasive, so much so that the ability to segregate
with precision that portion driven by the cumulative impact of the changes versus the myriad
other impacts53 is impossible.
Based on the cumulative impact caused by FC to the Project as described in this letter,
Skanska's damages address the anticipated costs to be incurred based on the promises of FC
which resulted in the Contract Price and comparing it to the amount actually incurred based on
53
Other impacts include, but are not limited to: FC's Estimate (ongoing), Lack of Learning Curve (through roughly
May 20 14, GTW manufacturing process (ended after Level 3), Failed IP (ongoing) and Poor Labor (ongoing).
August 8, 2014
Page 144
the failures of FC, as discussed above. As forecasted on July 1, 2014 the anticipated amounts
due Skanska through Project completion are:
Atlantic Yards B2 Project
Anticipated Amounts due as of
July 1, 2014
Field
Field Overrun 4,149,176 A
Skanska Field changes submitted to 2,967,993 Excludes out of scope FC+S CEs
Owner
Design Bulletins 4,223,011
Skanska GC Cost in Field Changes
Lost Fee/Savings 4,646,363 B/C
Total Field 15,986,543
FC+S
Trade Laborers

22,715,108
General Conditions

13,997,072
36,712,180
Materials including sales tax 19,289,186 Excludes out of scope FC+S CEs
reflected below
Insurance 2,551,077
Drawings 1,787,234
Total FC+S Cost Events 2,763,149 Excludes FC+S Bulletin costs
Less Labor in Cost Events (1,008,103)
Less General Conditions in Cost
Events (330,653)
Less Drawings in Cost Events (14,861)
Total

61,749,209
Less Current Budget

(32,550,087)
Total FC+S

29,199,122
Subguard/General Liability 2.25% 854,880 F=(A+B+C+E)*2.25%
Total Before Fee

46,040,545 G=D+E+F
August 8, 2014
Page 145
Fee 9% 3,717,201 Applied on G less $2mn Fee
Holiday, additional insurance cost
and additional drawings cost
Total 49,757,746
Items not included in the above computation are:
2" Floor FCRC Builders Risk Claim 845,000.00 2
nd
Floor and subsequent
damage
3rd Floor FC+S Business GLI for Damage

TBD
re: Water Infiltration During Winter
Transfer of Work from Factory to Field TBD
Subcontractor Delay Claims TBD
Racking Module Steel Added Cost for TBD
Adjusting in Field
Racking Module Faade Added Cost for TBD
Adjusting in Field
Skanska Seconded Overhead Support Costs TBD
Unpriced Field Cost Events

TBD
Unpriced FC+S Cost Events

TBD
August 8, 2014
Page 146
CONCLUSION
The matters set forth above are not all of the breaches committed by FC, or all amounts
due to Skanska arising out of or related to the CM Agreement, or the agreements between related
parties and affiliates. Rights to recover these sums from FC and its affiliates and third parties are
explicitly reserved and maintained. The matters above are, however, the specified breaches upon
which Skanska has delivered its Notice of Intention to Terminate.
Very truly yours,
Richard Kennedy
Co-Chief Operating Officer
Copy: Atlantic Yards B2 Owner, LLC (Via Hand Delivery)
1 MetroTech Center
Brooklyn, New York 11201
Attention: David L. Berliner, Esq, S.V.P & Secretary
Morrison & Foerster, LLP (Via Hand Delivery)
1290 Avenue of the Americas
New York, New York 10104
Attention: John J. McCarthy, Esq.
Fax No. 212-468-7900

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