Perini Files Big-dollar Mechanic’s Lien Against Vegas Developer

The Perini Building division of Tutor Perini Corp. has made good on its threat to file a near half-billion-dollar mechanic’s lien, in addition to a breach of contract lawsuit, against the developer of the massive CityCenter complex on the Las Vegas Strip. And a Perini memorandum obtained by NACM provides new and greater detail of growing rift with MGM Mirage, including claims that the traditional casino/resort developer is refusing to make any additional payments to Perini or any subcontractors for work completed on the project.

As speculated in last week's NACM eNews, Perini filed a $492 million mechanic's lien prior to month's end against MGM Mirage in connection with a dispute over the $8.5 billion project. Perini, named Nevada's top contractor in recent years by publications Southwest Contractor and In Business Las Vegas, alleges MGM Mirage abruptly stopped paying for work already completed, specifically at the Harmon Hotel portion of the mixed-use City Center. The suit also contains Perini's allegations that MGM Mirage made thousands of change orders on the project's design well after an agreed-upon deadline. For its part, MGM Mirage has publicly threatened its own suit against Perini, which served as general contractor, amid allegations of numerous design and construction defects.

In a written communications between Perini and subcontractors obtained late this week by NACM, the contractor says it was notified by MGM Mirage on March 17 that “no further payments were going to be made” to the general contractor and all subcontractors associated with the CityCenter project. The private memo goes on to allege MGM Mirage’s reasoning behind the payment stoppage, and a subsequent contractor lockout at the site, stems from $261 million of “nonconforming work and offsets.” Perini says it knew of $46 million in such costs, but received no notice or description of the remaining $215 million despite written requests.

“It is unknown at this time as to what work and components are at issue, and which subcontractor balances may be effected,” said the Perini memo penned by Pat Hubbs. “Perini demanded back up information related thereto and will share this with the applicable subcontractors once and if MGM produces the information.” The memo ended with notices that Perini will make no payments to the many subcontractors that worked on CityCenter “until these issues are resolved and Perini is paid by MGM.”

Representatives from MGM Mirage and Perini have continually refused to answer NACM telephone queries about dispute regarding CityCenter.

The legal spat is the latest in a series of trouble signs for the epic venture, the most expensive private development in U.S. history at its inception. Though the opening of its CityCenter's casino (Aria Resort & Casino) and various retail offerings was hailed as a victory for the previously struggling MGM Mirage, the project had to deal with a national economic meltdown shortly after construction began, a housing and commercial real estate downturn that forced a surge in Las Vegas vacancy rates and a freefall in values, a controversy surrounding the perceived high number of worker deaths in the construction of the development and the downsizing of the Harmon Hotel to 26 stories from original plans to build nearly 50 stories.

Although the amount of the mechanic's lien represents less than 10% of the total project, it will still stand as one of the most expensive filings in the United States. And while bad blood appears to be quickly percolating between Perini and MGM Mirage, several familiar with both the companies and the project remain optimistic that the sides will come to a settlement without a drawn-out legal battle.

Brian Shappell, NACM staff writer

Lawmakers Eye Federal Procurement Reform to Aid Small Businesses

As Congress continues to consider measures to spur job growth, a recent hearing in the House Committee on Small Business suggested that procurement reform may be necessary to ensure that the Federal Government is doing all it can to get smaller firms hiring again.

Entrepreneurs who testified at the hearing noted that despite major increases in federal spending over the last decade, many small companies still struggle to win their fair share of federal contracts. Committee Chairwoman Nydia Velázquez (D-NY) noted that this is especially troubling since the overwhelming majority of jobs created are created in the small business sector.

"When large corporations win federal contracts, their existing workforces take on the project, but when small firms get the work, they hire people," she noted. "Making the contracting system work for entrepreneurs is not just a small business priority, it is a jobs issue."

Although federal spending in FY 2009 hit $528 billion, continued audits have shown that small businesses are still being locked out of the federal marketplace. In the same period, federal agencies missed their contracting goals by $10 billion. "If that $10 billion went to small firms, they could use those funds to expand their operations and bring on new employees," said Velázquez.

Witnesses in the hearing criticized the procurement system, which they said consists of a series of obstacles and pitfalls that prevent small businesses from winning contracts. They also noted that agency practices, such as bundling contracts together so that only larger corporations can compete for them, and a thinly-stretched acquisition work force also keep smaller firms from getting the federal work to which they're legally entitled.

"For small firms trying to navigate this process, it would be hard not to conclude that the procurement system is broken," Velázquez added. "It is time to ensure that federal agencies start living up to their small business contracting obligations and allow entrepreneurs to win their share of federal work."

Jacob Barron, NACM staff writer

Republican Health Care Protest Postpones SBA Budget Hearing

A Republican objection during the health care debate left one prominent Democratic Senator fuming after it resulted in the postponement of a hearing on the 2011 budget for the Small Business Administration (SBA).

Senator Mary Landrieu (D-LA), chair of the Senate Committee on Small Business and Entrepreneurship, sharply criticized her Republican colleagues after they cited an obscure Senate procedural rule to cancel or delay a set of afternoon hearings. According to the rule, no hearings can be held in the Senate after 2:00pm without the unanimous consent of all Senators. While this consent is routinely granted on a daily basis, Senate Republicans recently refused in order to show their displeasure with the health care debate and the Democrats' use of the reconciliation process to enact a bill.

In addition to postponing a hearing in Landrieu's committee, the protest also canceled a series of others, including a budget hearing in the Senate Armed Services Committee.

"Over eight years under President Bush, more than a quarter of the SBA's funding was slashed-more than any other federal agency. Year after year of cuts-combined with the worst economic downturn we have seen since the great depression-have finally caught up to small business owners, as more than 80% of the jobs lost last year came from small firms," said Landrieu. "Yet, while my Committee is trying to reverse this trend by making the SBA a more muscular agency and by getting money into the hands of small businesses, my Republican colleagues will not permit the Small Business Committee to even meet to discuss the budget for the single agency that aids our entrepreneurs."

"My colleagues' pettiness has gone too far," she added.

However, citing this rule to cancel hearings is a tactic that has been employed by disenfranchised Democrats as well, during their years as the minority party, and the move tends to be standard operating procedure when one party is displeased with the other.

The SBA budget hearing has yet to be rescheduled. Additionally, while the Republican protests very clearly frustrated the majority party, they did little to stop the health care reform bill, which cleared its procedural hurdles and is expected to be signed into law by President Barack Obama next week.

Jacob Barron, NACM staff writer

Vermont Senate Takes Aim at Credit Card Interchange Fees

The Vermont State Senate Judiciary Committee recently approved a bill that would restrict interchange fees levied on merchants by credit card companies each time a card is used for payment.  Should the legislation be signed into law, the state would become the first to regulate these charges.
The bill, S. 138, plainly titled "An Act Relating to Credit Card Fees," passed the Judiciary Committee with an amendment proposed by State Senate President Pro Tem Peter Shumlin (D) that would prohibit credit card companies from fining merchants for offering discounts to customers who use a credit card that costs less for the merchant to accept. The legislation would also allow merchants to set minimum or maximum transaction amounts without being fined or penalized by credit card companies and prohibit credit card companies from mandating the acceptance of all of their cards if the merchant chooses to accept only one of them.

The credit card industry is typically regulated by the federal government, which enacted the Credit Card Accountability Responsibility and Disclosure (Credit CARD) Act in May 2009. While the bill only went into effect last month, many argue that the credit card industry has already found routes around its provisions. Furthermore, the legislation included no measures aimed at addressing interchange fees, also known as swipe fees, charged of merchants whenever a customer uses a credit card for payment.

The passage of the bill through committee drew cheers from the Merchants Payments Coalition, an association representing businesses and advocating nationwide reform to rein in credit card interchange fees. "We applaud Senate President Pro Tem Peter Shumlin, Majority Leader John Campbell, Judiciary Committee Chairman Richard Sears, Assistant Minority Leader Kevin Mullin and the Vermont Senate Judiciary Committee for taking this critical stand on behalf of Vermont businesses and their customers," said Lyle Beckwith, Senior Vice President of the National Association of Convenience Stores, on behalf of the coalition. "Credit card swipe fees are one of the largest expenses small businesses face and these huge, hidden fees hurt small businesses and consumers at the very time we're relying on them to rebuild our economy."

Jacob Barron, NACM staff writer

Senate Banking Committee Passes Dodd Financial Reform Bill

After an expected lengthy markup period turned out to only take 21 minutes, the Senate Committee on Banking, Housing and Urban Affairs passed the sweeping financial reform bill originally introduced by its chairman, Senator Christopher Dodd (D-CT). It now heads to the floor for consideration by the full Senate.

The bill passed the committee by a 13-10 vote which fell strictly along party lines. Republicans had originally proposed over 400 amendments to the bill, but chose not to introduce them during markup. Considering the size and scope of the bill, some committee members were rankled at the brevity of the debate period and were quick to criticize.

"It is pretty unbelievable that after two years of hearings on arguably the biggest issue facing our panel in decades, the committee has passed a 1,300 page bill in a 21 minute, partisan markup. I don't know how you can call that anything but dysfunctional," said Senator Bob Corker (R-TN), a freshman Senator who Dodd had worked with prior to introducing the bill. Corker voted against the measure.

Still, statements from Dodd and Committee Ranking Member Richard Shelby (R-AL) left Corker hopeful that debate and negotiations on the bill would continue on the Senate floor. "The optimistic comments from the chairman and ranking member, along with the actions of some of my colleagues on the committee, give me hope that there is still an opportunity to produce a sound piece of legislation that will merit broad bipartisan support from the full Senate and stand the test of time," he said. "My staff and I will continue to put forth the same efforts we have over the past few months toward that end."

Additionally, in a recent speech in Washington, D.C., Dodd's bill received an endorsement from U.S. Treasury Secretary Timothy Geithner. In an address to the American Enterprise Institute, Geithner urged lawmakers not to water down the existing legislation. "When you see amendments designed to weaken the basic protections of reform; when you see amendments to exempt certain types of financial firms or financial instruments from rules; ask why we should be protecting those private interests at the expense of the public interest," he said. "The test we face is whether we enact real reforms that provide strong protection for consumers, strong constraints on risk taking by large institutions, and strong tools to protect the economy and taxpayers from future crises."

"We will not accept a bill that does not meet that test," Geithner added.

Jacob Barron, NACM staff writer

New Financial Reform Bill Would Shift FDCPA Enforcement to Federal Reserve

In its current form, Sen. Christopher Dodd's (D-CT) new financial reform bill would shift enforcement responsibilities for the Fair Debt Collection Practices Act (FDCPA) to a new bureau operating within the Federal Reserve.

The Federal Trade Commission (FTC) has enforced the FDCPA since its enactment in 1978. Should Dodd's bill pass unchanged, that enforcement authority would shift to a new consumer financial protection regulator that the bill itself would create.

In response to Dodd's legislation, representatives from the accounts receivables management (ARM) industry recently called on Congress to keep FDCPA authority within what they considered to be the FTC's capable hands. In a joint statement, DBA International, ACA International, the Commercial Law League of America (CLLA) and the National Association of Retail Collection Attorneys (NARCA) urged lawmakers to alter Dodd's bill to leave the FTC in charge of their industry and its business. "We are not running from regulation; we simply want an appropriate regulator," they said. "The bureau, as proposed by Sen. Dodd, is geared toward banks and others depository institutions. The FTC is the appropriate venue for our industry."

The coalition of ARM industry associations stopped short of rejecting the entire creation of a new consumer financial regulator, but cited the FTC's success as reason to keep the FDCPA under the commission's umbrella. "We understand Congress' intent to create a new bureau, and agree there is a need for fresh oversight in many areas," they said. "But the FTC has done a commendable job protecting the rights of consumers and bringing law enforcement action against outliers in our industry...Given the FTC's specific expertise at governing the debt industry, and given how pre-occupied a new regulator would be addressing issues other than those from FDCPA, we are calling upon Congress to leave the industry's regulatory powers with the FTC. The FTC is an effective protector of consumers' interests when it comes to the FDCPA. There is no need to break up something that is already working effectively for the American people."

Other business and industry leaders have been heavily critical of Dodd's move to create a new consumer regulator and the provision that would do so has been a lightning rod for criticism ever since its first mention last year. Among the regulator's loudest critics has been the U.S. Chamber of Commerce, which continued their opposition following the release of Dodd's bill, saying it "takes three steps backwards with the hope of making future progress."

Jacob Barron, NACM staff writer

NACM Sends Letter of Support to Senator Whitehouse In Wake of Bankruptcy Hearing

Following consultations with its Government Affairs Committee and Board of Directors, the National Association of Credit Management (NACM) recently offered its support to Senator Sheldon Whitehouse (D-RI) for his attempts to reform the way that small businesses reorganize themselves in bankruptcy.

Whitehouse chaired a hearing last week in the Senate Judiciary Committee's Subcommittee on Administrative Oversight and the Courts titled "Could Bankruptcy Reform Help Preserve Small Business Jobs." Prior to the hearing, NACM had met with staff in Whitehouse's office to discuss the possibility of new changes to the Bankruptcy Code that would increase the chances small companies have of reorganizing successfully in the court system.

"It is clear that the less time a small business spends in the reorganization process, the more assets are preserved in that business' bankruptcy estate for creditors and for the business itself," said the letter, signed by both NACM President Robin Schauseil, CAE and NACM Chairman Phyllis Truitt, CCE. "To the extent that Congress is willing to revisit the Bankruptcy Code as it applies to small businesses, NACM supports actions that would seek to improve the process for smaller firms."
Among the principles that NACM lent its support to in the letter were expediting the reorganization process for small businesses, reducing administrative costs associated with filing bankruptcy and creating a bankruptcy process that takes into account the interests of all parties in the case without overburdening the court system.

In the hearing chaired by Whitehouse, witnesses and officials present for testimony, including Judge Thomas Small, with whom NACM worked in 2005 to craft changes to the Bankruptcy Code included in the Bankruptcy Abuse Prevention and Consumer Protection Act, agreed that change in the code was necessary, but disagreed on how best to approach the matter. One proposal submitted in the hearing suggested allowing small businesses to file under Chapter 12, which is currently available only to family farmers and fishermen.

NACM's Government Affairs Committee has consistently been focused on bankruptcy reform since the release of its Issue Brief and Suggested Changes to the BAPCPA. Stay tuned to NACM's eNews, its Advocacy page and NACM's Credit Real-Time Blog for future updates. Additionally, if you have any thoughts on potential changes to the Bankruptcy Code, especially as it applies to small businesses, be sure to email your ideas to jakeb@nacm.org.

Jacob Barron, NACM staff writer

MGM Mirage, Contractor on Road to Court Battle over Massive Vegas Project


MGM Mirage made a splash when it announced plans for its massive, opulent mixed-use CityCenter project just before the economy crashed. Now nearing its completion, the somewhat troubled project faces the specter of a potential mechanic's lien worth nearly one-half billion dollars.
In a Securities & Exchange Commission filing within the last week, MGM Mirage noted the lead general contractor, Perini Building, on its $8.5 billion CityCenter project threatened a mechanic's lien worth up to $492 million.

If filed, the potential lien from Perini, the second largest general building contractor in the nation, would be among the largest filed in U.S. history. That would be in line with the scope of the project, actually, since CityCenter was the largest privately-funded project at its inception. The mechanic's lien, if filed, would likely come before month's end, MGM Mirage confirmed.

It is also heavily rumored that MGM Mirage is cooking up its own lawsuit against Perini because of alleged building defects and change orders on the soon-to-be completed Harmon Hotel tower of CityCenter, which also features the Aria Resort & Casino, retail and restaurant space, a park, a movie theater, multiple boutique hotels and residential condominiums on the Las Vegas Strip. Representatives from MGM Mirage and Perini were unavailable for comment Wednesday.
Greg Powelson, director of NACM's Mechanic's Lien & Bond Services, says the brewing battle is significant because of the "bottom-line, major-dollars perspective." However, Randy Clark, assistant division manager of credit with Young Electric Sign Company (YESCO), is among those who believe the lien is not too out of the ordinary because its size represents less than 10% of the total cost of the project. Still, Clark admits the firm, which provided signage for several portions of the CityCenter project and is still owed some payments for its work, is "concerned" about the conflict but is optimistic that the parties will avoid a court battle.

More, in-depth analysis of the brewing MGM Mirage-Perini situation will be available in the March 23 edition of NACM's weekly eNews. Our latest edition of eNews can be viewed at www.nacm.org

Brian Shappell, NACM staff writer

Fed Leaves Rate Unchanged, Hints Action is Far Off

Voting members of the Federal Reserve see the economy improving but apparently not enough to move the needle on rates.

The Fed's Federal Open Market Committee (FOMC) emerged from its March 16 meeting to again leave the federal funds rate unchanged, in part because of the slow economic recovery and the present inflation situation that includes "substantial resource slack:"

“The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period…Although the pace of economic recovery is likely to be moderate for a time, the committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.”

The Fed noted that, even as bank lending “continues to contract, financial market conditions remain supportive of economic growth.” The FOMC’s Thomas Hoenig, who continues to fret over the possibility of long-run financial instability, was the only member to vote against maintaining the historically low rate.

The Fed also announced it will close Term Asset-Backed Securities Loan Facility program on June 30 for all loans backed by new-issue commercial mortgage-backed securities and on March 31 for loans backed by all other types of collateral.

Brian Shappell, NACM staff writer

Dodd Releases Financial Reform Bill Draft

Senator Chris Dodd (D-CT), chairman of the Senate Committee on Banking, Housing and Urban Affairs, recently released his version of a sweeping new financial regulatory bill that takes aim at the root causes of the only now-ending financial crisis.

"This legislation has three main goals," said Dodd. "First, we must plug the gaps and eliminate the inefficiencies that allowed this last crisis to happen-and still exist today. Second, in addition to looking in the rear view mirror, we must look through the windshield. There will be shocks to our system in the future - and we need an early warning system so that, next time, our system is prepared to deal with them. Third, we must protect American consumers and honest businesses, so that we can: restore optimism in our economy and confidence in our institutions, renew the flow of credit and capital, reestablish America as the world leader in financial services and rebuild a strong foundation to create jobs and prosperity for American families."

In its current state, the bill consists largely of democrat-endorsed initiatives peppered with a series of hat-tips to republican ideas.

Specifically, the bill's four major reforms would:

-End "too big to fail" bailouts, via new capital requirements and other supervisory protections, and require even large, and create a process for the U.S. Treasury, the Federal Deposit Insurance Corporation (FDIC) and the Fed to wind down complex companies that fail;

-Create an independent consumer protection watchdog with an independent budget and director, appointed by the President and confirmed by the Senate, that possesses the autonomy to craft and enforce its own rules;

-Create a systemic risk council, charged with scanning the economy for unsafe products or practices that could threaten the nation's economic stability at large, that serves as an early warning system for future crises; and

-Regulate "exotic" financial instruments such as hedge funds and derivatives in order to make the trading of these items more transparent and accountable.

According to Dodd, the fourth section of the bill is still being modified to build consensus between Senators Judd Gregg (R-NH) and Jack Reed (D-RI).

Other portions of the bill would regulate credit rating agencies by making them liable for errors and placing their business squarely within the jurisdiction of the Securities and Exchange Commission (SEC) by creating an Office of Credit Rating Agencies at the Commission.

The current bill is likely to undergo revisions before voting begins.

To read Dodd's full statement, click here.

Jacob Barron, NACM staff writer

Dodd to Unleash Own Financial Reform Bill Monday

Stalled after months of partisan bickering, Senate Banking Committee Chairman Christopher Dodd (D-CT) plans push his own vision of financial reform through the Senate on the fast track.

Dodd will unveil his proposed bill on Monday while setting the table for a committee and possibly floor vote before Congress recesses for Passover and Easter on March 26. The legislation is expected to address issues including "too big to fail" financial institutions and the establishment of an independent consumer protection regulation entity. The latter is massively popular with Democrats but a significant sticking point among Republicans.

Partially because of a divide over the consumer protection agency idea, Dodd abandoned what had been efforts to construct a bipartisan bill with Sen. Bob Corker (R-TN), a fellow member of Dodd's committee. This is likely the lawmaker's last attempt at significant legislation in his 30+ year career as Dodd, who saw slumping poll numbers in his home state throughout 2009, will not seek reelection in November.

"Over the last few months, Banking Committee members have worked together to try and produce a consensus package," Dodd said this week. "Together, we have made significant progress and resolved many of the items, but a few outstanding issues remain...And we have reached a point where bringing the bill to the full committee is the best course of action."

Dodd's attempt to single-handedly shepherd such a massive reform effort likely will raise some eyebrows. After all, Dodd was one of the key figures tied to the controversial "Friends of Angelo" program, which referred to Countywide Financial CEO/Founder Angelo Mozilo and a program where several policy-makers received what appeared to be significant special treatment in loan terms. A congressional ethics panel found there was not enough credible evidence to take any action against Dodd. Mozilo served as a virtual poster-boy of the subprime lending meltdown that helped sink his company, the housing industry and, subsequently the economy. Dodd received skewering from Democrats and the GOP alike during those earliest days of the financial crisis as he was largely viewed as an absentee committee chairman/lawmaker on Capitol Hill because he spent several months out of town on an ill-fated campaign to garner the Democratic Presidential nomination in 2008. This is not to mention that Dodd, in dollar amount, routinely ranked among the top five congressional lawmaker recipients of campaign contributions from the financial and real estate sector through the last decade.

S&P: Faster Bankruptcies Posing Risk

Expedited bankruptcy restructurings continue to seem more like the rule than the exception for struggling companies as the economy continues to search for a robust recovery. However, a survey from ratings agency Standard & Poor's (S&P) suggests many of these rush Chapter 11 restructurings more likely equate to risky quick-fixes than true repair or restructuring jobs.

A new study by S&P, Bankruptcy Financing Isn't What it Used to Be, poses the question of whether a faster bankruptcy proceeding -- usually in the form of a "pre-pack," prepackaged/prearranged deal in which key creditors agree to terms before the restructuring plan is officially filed -- is necessarily a more effective one. S&P suggests that is not the case, and a fast, seemingly successful entrance and exit from bankruptcy on the part of many companies could be "short-lived."

"In our view, many of the companies that have emerged from bankruptcy following quick-fixes may be vulnerable to another downturn," said the report spearheaded by S&P's Olen Honeyman. "Certain of these restructured companies may remain highly leveraged or have significant unaddressed operational issues. We believe these entities may be candidates for serial restructurings if their revised debt structures prove to be too onerous." S&P added that a failure by companies to address key existing problems in their struggling operations could ultimately decrease recovery prospects for creditors and promote long-term credit-rating damage.

S&P points out lighting and ceiling fan manufacturer Generation Brands and auto-wheel producer Hayers Lemmerz as companies that emerged quickly from bankruptcy, but with significant high leverage and credit risks. Both are targeted among many as "highly susceptible to another downturn, particularly if a double-dip recession comes to pass."

Brian Shappell, NACM staff writer

(Editor's Note: See much more on this topic in the upcoming May issue of Business Credit Magazine).