L.M.D.C. blasts lawsuit; celebrates $100 million settlement
By Josh Rogers
There was relief and outrage at the L.M.D.C. board meeting Thursday. Members approved a $102 million settlement intended to pay for the rest of the demolition of the plagued Deutsche Bank building, but also learned that the project’s contractor had slapped them with an $80 million lawsuit.
Avi Schick, the Lower Manhattan Development Corporation’s chairperson, said the lawsuit by Bovis Lend Lease is “wrong on so many levels,” including violating an agreement not to sue until after the 9/11-damaged building was finally demolished.
“They seek additional profit on monies they’ve already been paid,” said Schick, the former deputy attorney general of New York. “They seek to recoup what they call overhead back office charges for work that’s already been done. They seek to recoup money that we already had agreed to split 50-50 over a certain cost level.”
It was a marked change for Schick, who vigorously defended keeping Bovis on the project after a 2007 fire killed two firefighters. Facing community calls to drop Bovis then, he called the firm a “world-class contractor.”
The firm later admitted to wrongdoing as part of an agreement to avoid criminal prosecution for the deaths, a fact that Schick pointed to on Thursday.
Julie Menin, chairperson of Community Board 1 and an L.M.D.C. board member, said that C.B. 1, before and after the deadly blaze, was clear about problems with John Galt Corp., a Bovis subcontractor now under indictment for manslaughter.
“We were equally vocal about Bovis and unfortunately our advice was not heeded,” she said after the meeting.
A Bovis spokesperson did not return calls for comment on Thursday, but in court papers filed last October, the firm asserted it was permitted to sue now for additional money connected to the environmental cleanup of the building, which was completed in September. News of the lawsuit had not been reported until this week, and Schick said the development corporation was only served with the papers last week.
The L.M.D.C. and Bovis have been clear for years they planned to sue each other for excessive costs or unpaid bills, and Bovis is likely to demand more money once the demolition half of the project is done.
Schick and board members were much more happy to talk about the insurance settlement with Allianz Global Risks and AXA Corporate Solutions because it will free up money the L.M.D.C. had been holding in reserve that was previously allocated for community and cultural programs.
Schick said the agreement also avoids a difficult “two-front war” with Bovis and insurance companies. He added that it allows “Downtown to get the shot in the arm it needs.”
In interviews last year, L.M.D.C. president David Emil said the community-cultural money was roughly about $10 million and Menin said she thought it was around $15 million.
Schick said the board is setting up a subcommittee to figure the best way to allocate the remaining money. The group will have at least four board members: Menin, the C.B. 1 chairperson; Kate Levin, commissioner of the city Dept. of Cultural Affairs; Carl Weisbrod, president of Trinity Real Estate and former president of the Downtown Alliance; and Kevin Rampe, former chairperson and president of the L.M.D.C.
Menin said Thursday it’s unclear how much there will be, but she is hoping that additional money will be added to the community-cultural fund with the large settlement.
“Not for profits are really, really struggling,” she said, citing one of the most pressing needs Downtown. She wants to direct additional funds to Lower Manhattan schools and said I.S. 89 has just lost after-school money, which would be a great use for some of the settlement
Cas Holloway, a board member and one of the Bloomberg administration’s key rebuilding officials, said the insurance agreement also removes one of the major complications of taking down Deutsche. Since the insurance companies were obligated to pick up most of the cost overruns, they had to be consulted on every contracting, cleanup or deconstruction decision.
When former Gov. George Pataki announced the L.M.D.C. purchase of the building in 2004, he suggested the sale and project costs would be capped at $135 million, with the insurance companies picking up any overruns.
It turned out the companies were only obligated to pay 75 percent of the additional cleanup-demolition costs and the $102 million comes close to the formula. The insurers had already paid about $64 million, but they had reserved the right to recover the money at the end of the demolition. Under the agreement approved Thursday, the companies gave up claims to the money and agreed to pay an additional $38 million.
The total costs of the project including the $90 million purchase now stands at about $300 million.
Demolition on the building continues and the building is currently 20 stories. The L.M.D.C.’s Emil said with the settlement, the corporation has secured the funds to take down the building “barring some other disaster.”