Casino operator SkyCity Entertainment Group is withholding $26.9 million from the Fletcher Construction Company because of issues building the $700m plus NZ International Convention Centre in Auckland.
In notes to the annual accounts contained in the annual report just released to the NZX, SkyCity reveals that the $26.9 m is liquidated damages and kept "as it considers that it has the right to these funds under the liquidated damages provisions in the construction contract with FCC."
Fletcher has notified SkyCity "that they dispute SkyCity's right to these liquidated damages," the accounts say.
The money was due to be paid to Fletcher under the progress claim as the NZICC rises but issues with the job resulted in SkyCity penalising its builder.
"Included within the Fletcher Construction Company construction contracts for the NZICC and Horizon Hotel is the right to liquidated damages if certain milestones are not met," SkyCity explained.
Those milestones are in regard to completion stages of the new centre and hotel.
Additional future costs expected to be incurred by SkyCity due the NZICC and hotel project are expected to be covered by liquidated damages, SkyCity said.
Further comment has been sought from both parties.
The project was initially timed to be finished in the first three months of next year but SkyCity announced last July that Fletcher had provided an updated programme of works and that showed it would not be finished until around the middle of 2019.
SkyCity has now said the NZICC won't be finished until around Christmas, 2019.
"The NZICC and Horizon Hotel project is continuing to benefit from positive momentum over recent months and SkyCity is actively working with Fletcher Construction to assist it to achieve its target completion date of December, 2019," today's annual report said.
"There continues to be good progress made on site with the roof of the NZICC currently being installed and the first of the glass panels, designed by Sara Hughes, due to be lifted into place in the coming month."
Derek Firth, an Auckland barrister specialising in construction disputes, said a major contractor was not always averse to having a provision for liquidated damages in a contract.
"Liquidated damages are very common in construction contracts and often they are welcomed by a contractor because if there is no provision for them, then their liability is potentially open-ended when it comes to delays. It can mean the builder is not exposed to further costs, potentially.
"Contractors and their employers welcome them because they have the advantage of fixing the damages on a daily basis and it simply avoids arguments," Firth said.
Fletcher would have wanted a provision for such damages on a project of the size of the NZICC, he said.
"It's a debatable issue as to when an employer starts deducting the damages," Firth said.