Work stops at Atlantic Yards as partners fight over cost

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An apartment building part of the Atlantic Yards development. (AP Photo/Mark Lennihan)
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Work stopped Tuesday on the first residential building at Atlantic Yards in Brooklyn as a dispute over the tower’s rising costs spilled into public view.

The decision by the general contractor, a subsidiary of Swedish group Skanska AB, to halt work on the project came even as its partners threatened to take legal action if the company went through with furloughing employees at a factory where pieces of the building are assembled, according to a letter obtained by Capital.

In the letter sent Tuesday to Richard Kennedy, chief operating officer of Skanska USA, a lawyer representing a subsidiary of developer Forest City Enterprises said any such action would violate their corporate agreement. The companies are partners in a joint venture that runs the factory. 

“By disregarding the terms of the LLC Agreement and proceeding without Board approval after you obviously came to the conclusion that such approval was required, you will be taking actions that are not in good faith and constitute a willful breach of the LLC Agreement,” the attorney, Harold Weinberger, wrote in the letter. “In the event that you do so, our client intends to hold both Skanska Modular LLC and you personally responsible for the significant damage these actions will cause.”

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The shutdown, first reported by the Wall Street Journal and Crain’s New York, is the result of a disagreement over cost overruns for work on the tower, which is called B2 and located next to the Barclays Center arena. The building, which is to rise 32 stories, was actually championed as being inexpensive to construct due to its Lego-like design. Much of the work is done in a Brooklyn Navy Yard warehouse where modular units are assembled—toilets, sinks and all—before each section is hauled to the construction site and hoisted into place.

Both Skanska and Forest City agreed the unexpected costs are the result of manufacturing delays. But each firm points fingers at the other, saying they are not to blame and should not have to pay. Skanska  claims the modules have technological problems, something that would contractually obligate the developer to pay, and that there are unresolved “commercial” issue as well.

“It finally got to the point where we said, ‘OK, this project is requiring from us an investment that is much more significant than anything we ever anticipated or agreed to,” Kennedy said Wednesday afternoon.

He said the letter sent by Weinberger, which arrived around 7 p.m. Tuesday after a stop-work order was issued, was “factually wrong” and was responded to on Wednesday. “It’s completely irresponsible to suggest that Skanska Modular or I personally should be held responsible” for work stopping at the Navy Yard factory, Kennedy said.

But Forest City says the contractor is at fault. Spokesman Jonathan Rosen said the costs are the result of “Skanska’s own failures and missteps” and that the company signed a management agreement that guaranteed a fixed price for their work. “Now faced with over-runs, they are employing a typical strategy to try to weasel out of that obligation,” Rosen said in a statement.

“We are extremely disappointed that Skanska has unilaterally and wrongfully stopped work at our factory—unnecessarily putting the livelihoods of hundreds of employees at risk and causing unneeded delays in a critical project for New York City’s future,” he said. “Forest City remains deeply committed to completing B2 and meeting our commitments to the people of Brooklyn … We intend to pursue all of our rights and remedies under the law to enforce our agreement and resume work at the factory.”