Colonial Downs To Negotiate Settlement of Subcontractor Disputes
NEW KENT, Va.--(BUSINESS WIRE)--Jan. 14, 1998--Colonial Downs Holdings, Inc. (the "Corporation") (NASDAQ NMS:CDWN) announced today that it will enter into settlement negotiations directly with Norglass' subcontractors that have not received payment for materials and services for the construction of the Colonial Downs racetrack in New Kent County, Va. "Colonial Downs will negotiate payments to these subcontractors to prevent them from becoming victims of Colonial Downs' dispute with its general contractor, Norglass, Inc.," explained Jeff Jacobs, Chief Executive Officer of the Corporation. Any negotiated payments will be made despite Colonial Downs' position that Norglass has improperly billed Colonial Downs for these subcontractors' change order work.
Colonial Downs contends in arbitration filed with the American Arbitration Association that the work performed was within the scope of Colonial Downs' $29.5 million fixed-price contract with Norglass and is, therefore, Norglass' responsibility. While the Corporation and Norglass attempted to resolve their dispute in mediation overseen by the Virginia Racing Commission, Norglass' subcontractors have not been paid approximately $4.0 million. Many have filed mechanics' liens against the Corporation's racetrack property.
"There are a number of subcontractors that have been trapped in the middle of our dispute with Norglass. It has become apparent to us that a quick resolution of our dispute with Norglass is unlikely. The arbitration process could continue through much of 1998. We want to attempt to accommodate the subcontractors responsible for assisting in opening Virginia's first modern pari-mutuel horse racing track. We are now in the process of doing that," stated Jeffrey P. Jacobs, Chief Executive Officer. The Corporation's board of directors authorized the Corporation's officers to seek resolution of subcontractor claims at the directors' meeting on Jan. 9, 1998.
Colonial Downs intends to continue to pursue in arbitration recovery of expenses that are Norglass' obligations under the agreement. "We have a strong claim against Norglass, and we will proceed as quickly as possible with arbitration to resolve our claim; however, we did not want to see these subcontractors suffer because of our dispute," Mr. Jacobs continued. Colonial Downs has spent the last three months attempting to decipher the conflicting information Norglass has provided regarding amounts purportedly owed to it. Although Colonial Downs disputes the amounts claimed are its responsibility under the agreement, Colonial Downs believes efforts should be made to accommodate the subcontractors and permit the arbitration to resolve which party - Norglass or Colonial Downs - is ultimately responsible for payment to the subcontractors.
Colonial Downs entered into a guaranteed maximum price construction contract with Norglass, Inc. to build and deliver a complete racetrack facility to Colonial Downs. Norglass agreed to do so for a price of $29.5 million. Of this amount, $24,025,000 was the guaranteed maximum that could be charged for certain defined work; $2,425,000 related to the interior finish of the grandstand and the construction of the paddock and certain other outbuildings, which price was subject to increase as approved by Colonial Downs. An additional $3,050,000 was payable to Norglass as a fee and fixed reimbursement of certain out-of-pocket costs. All costs that would result in a final charge in excess of $29.5 million were to be presented to and approved by Colonial Downs prior to incurring such costs. Contrary to the terms of the agreement, Norglass has presented Colonial Downs with approximately $3.7 million in changes after the fact. Such cost overruns were never provided to Colonial Downs in accordance with the terms, or the spirit, of the agreement. The Corporation has refused to pay such amounts since the changes are for work which the Corporation believes to be within the scope of the $24,025,000 fixed-price work.
In addition to the $29.5 million expended through Norglass, Colonial Downs expended $4 million in additional improvements to its racetrack facilities. These improvements are enhancements to the plans first approved by the Virginia Racing Commission when the license was awarded on Oct. 12, 1994. "We wanted to provide Virginians a world-class racing facility. The harness Breeders Crown in November and the quality of thoroughbred racing on the turf course this fall will enable Colonial Downs to obtain this goal," added Jeff Jacobs. Colonial Downs has fully paid for these improvements. The work was performed by contractors hired directly by Colonial Downs and is not subject to the arbitration dispute.
In addition to Colonial Downs' claims that Norglass seeks compensation for work within the scope of its fixed-price work, the Corporation asserts several other offsets against Norglass in the Corporation's arbitration claim. The Corporation contends that it incurred expenses because of Norglass' failure to complete the facility pursuant to deadlines in the agreement, failure to supervise the project properly, and failure to administer the contract documentation with subcontractors properly. When it became apparent that Norglass' performance was jeopardizing the completion of the project by a legislatively imposed deadline of Sept. 1, 1997, Colonial Downs was forced to hire additional staff to help oversee timely completion of the work. In addition, Norglass' failure to supervise the project properly resulted in overtime and premium work that would not have been incurred but for Norglass' failure, asserts the Corporation. Colonial Downs also incurred direct expenses for services for which Norglass was responsible, such as survey staking and testing. Finally, in order to meet the September 1, 1997 deadline, Colonial Downs was forced to bid out and have performed work that it believes was within the scope of work which Norglass was to perform. Norglass contests each of these offsets, and the matter is currently pending before the American Arbitration Association. No hearing date for the arbitration has been set. |
