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Bitter dispute between Forest City and Skanska over cost overruns stalls work at B2 modular tower; raises questions about pre-fab future

Updated with a few details from New York Times coverage and the Wall Street Journal update.

Forest City Ratner has had very high hopes for its modular construction plan, at one point calling it their "iPhone moment" and claiming to have "Cracked the Code" for high-rise modular, expecting to build towers faster than conventional construction, steadily supplied by modules fabricated at a new factory in the Brooklyn Navy Yard.

But the first tower, the 32-story, 363-unit (half market, half subsidized) B2, which broke ground in December 2012, faced steady delays. It was originally said to take 20 months (though Forest City in one earlier interview hoped for 14 months!), but the delivery date then became December 2014. As of April 2014, it was slated to open in the fourth quarter of 2015.

Even that may be too optimistic, now that Forest City and its general contractor, Skanska USA, are in a bitter dispute regarding cost overruns (worth tens of millions of dollars, according to a source quoted by the Wall Street Journal), which has caused the jointly owned factory at the Brooklyn Navy Yard to furlough workers.

That dispute is such that Forest City's spokesman blamed Skanska for "failures and missteps as the construction manager" and claimed the firm is trying "to to weasel out" of its obligations.

It's a reminder of the prescient warning, as I wrote in a 10/31/11 analysis of the secret history of Forest City's prefab plans, from Brooklyn architect Jim Garrison: "The American modular industry typically builds up to four stories. It has not yet built a 30-plus-story modular tower or anything nearly that tall. The challenges are those of engineering, assembly, and production. "

“Having designed several modular buildings I can say that they are intricate and if they are to be cost effective require development totally outside of normal building practice," he stated. "They are more like product or automobile design where assembly and detail may be considered together.

And it's a reminder of the verb in the headline in a 7/26/12 Engineering News-Record article, Developer Gambles on Modular High-Rise for Atlantic Yards Sports Village.

What next?

Forest City's charges sounds like bridge-burning, a prelude not to mediation but rather to a lawsuit. That would be a significant snag, since the tower, located at Flatbush Avenue and Dean Street, is only ten stories complete, less than one-third of the total.

And even if by chance they wanted to open a truncated building, they can't: the tax-exempt bonds and subsidies are premised on a completed building, of course, and a full rent roll would be necessary to recoup costs.

“This is not a referendum on modular,” Forest City CEO MaryAnne Gilmartin told the Times, “it’s a monetary dispute. We’re confident we’ll get the building built. But we’re doing what we have to do to protect the company, the project and the business.”

Then again, as the Journal observed:
However the dispute is resolved, the struggles with costs undermine the tower's role as a pioneering project. The "code," said Mr. Kennedy of Skanska, "hasn't quite been cracked."
Note that, unlike the rest of the towers, which will be owned 70% by Forest City's new partner/overseer, the Greenland Group, and developed by Greenland Forest City Partners, B2 is co-owned by the Arizona State Retirement System, which likely is not happy its expected investment return has been jeopardized.

(The ASRS is actually the majority owner, since funding for the venture "will be 75 percent from ASRS and 25 percent from Forest City," the developer said in a 12/21/12 press release, which noted that "Forest City will serve as fund manager" for the $400 million fund, which invests in multiple buildings.)

Greenland has announced that the next set of towers will be built conventionally, but Forest City's Ashley Cotton said 6/27/14 that "as soon we can, we'll move forward with more modular buildings." It's an understandable wish to want to recoup their investment in both the factory and in research and development, and to perfect a process they hoped to sell to other developers. That plan is in question.

As noted in the latest Atlantic Yards/Pacific Park Construction Alert, issued 8/18/14, no more modules were delivered to the B2 tower in the previous two weeks, leaving a total of 297 (of 930), with the tenth floor complete. Erection of 11th floor modules was begin in September 2014.

The dispute emerges

According to an Aug. 26 letter (obtained by Capital New York), an attorney representing FCRC Modular told Skanska that its threat to unilaterally furlough workers at the factory violated the joint agreement since such "such decisions may not be made by any officer of FC+Skanska without approval of the Board of Directors," but the board did not approve it.

(Note that Forest City and Greenland also have an agreement which requires mutual assent on major decisions.)

Thus, wrote attorney Harold Weinberger, Skanska was was breaching the agreement, which would make it "responsible for the significant damage these actions will cause."

Richard Kennedy, chief operating officer of Skanska USA, told Capital New York, Work stops at Atlantic Yards as partners fight over cost, “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."

In the Wall Street Journal, Eliot Brown, who had the scoop, wrote that Kennedy blamed "'technological issues' that made it difficult to fabricate the modules, which he said were the fault of the design." The Times noted that the contract to provide the modules is $117 million.

Forest City responded with a blistering statement blaming Skanska's "own failures and missteps” and violation of a fixed-price agreement. “Now faced with over-runs, they are employing a typical strategy to try to weasel out of that obligation,” said Jonathan Rosen.

“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.”

The furlough notice

According to the notice below, obtained by Crain's New York Business, FCS Modular told workers that "a significant commercial dispute exists between the Atlantic Yards B2 Owner, the project Owner, and Skanska USA Building, the project Contractor, in connection with the B2 project. FCS is not a party to that dispute, but our factory operation here at the Brooklyn Navy Yard depends directly on the continuation of production of the B2 modules...at this time we do not know if, or when, the dispute will be resolved."






Previous optimism

From Skanska blog, 12/23/13, Construction history in the making: Skanska raises the first modules at B2 Atlantic Yards, the world’s tallest modular building
Construction history was changed December 12 in New York City when the Skanska team raised the first modules into place at B2, the 32-story residential tower that will be the world’s tallest modular building.
Nine hundred thirty modules – weighing between 10,000 lbs. and 40,000 lbs. – will go into this tower, with the units being assembled by the Forest City Ratner /Skanska team at the Brooklyn Navy Yard. But the focus that chilly Thursday morning was on that first module. It was just after 2 am when a tractor-trailer pulled that oversize load away from the Navy Yard for a one-and-a-half mile trip to the Atlantic Yards project site. At 9:30 a.m., the crane hoisted the module into place. Union ironworkers took 15 minutes to make the structural connections.
“There was a certain sense of excitement and a little bit of nervousness, just like on any jobsite when you’re moving and lifting something new,” said Susan Jenkins, Skanska vice president and operations head of the modular assembly plant. “And definitely a sense of pride for Skanska, and for myself being part of Skanska.”
Jenkins added: “It was a tremendous moment. A lot of people – from both Skanska and our partner and client Forest City Ratner – have worked very hard to develop and make modular construction possible on this project.”
When the modules leave the 100,000-square-foot Navy Yard assembly plant – operated by a joint venture of Forest City and Skanska – they are fully assembled, including kitchens, bathrooms and appliances. This isn’t how a building normally goes up, not even for Skanska, which has done much with off-site construction of mechanical, electrical and plumbing (MEP) systems on many projects (especially in the healthcare sector). Fully modular construction was needed on this project to ensure efficient, safe and sustainable construction.
Now that lifting modules into place has begun, it won’t be a daily activity, Jenkins said. Some days will be dedicated to setting into place the steel brace framing that rises the height of the 348,000-square-foot tower, and also surveying. However, the assembly plant will continue to send module units to the site. Our team plans to have at least two floors of modules – of which there are six types – ready and waiting at the Navy Yard to be sent to the site for the duration of the project, designed by SHoP architects and Arup engineers,

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