ARCO Answers Questions on Pullout from $150M Gateway Studio Project in Chesterfield
Date Posted: June 27, 2024
Posted In: News, Organizations, Projects,
by Tom Finan, Executive Director and Co-Founder, Construction Forum
On Wednesday (June 26th) ARCO responded to questions from Construction Forum regarding its pullout on a major project.
In one of the most unusual disputes in memory over a construction project, $6.5B ARCO Construction notified its subs last Friday (June 21st ) on the $150M Gateway Studios project in Chesterfield, telling them that ARCO was leaving the site effective immediately.
The email from ARCO Senior Project Manager Michael King, obtained from subcontractors on the project, stated:
“Effective at the close of business today, June 21, 2024, work at the Gateway Studios jobsite will be suspended until further notice pursuant to ARCO’s right to stop work under its Contract with the Owner. We will be attempting to continue our dialogue with the Owner in good faith so that we can resolve our outstanding issues and resume work as soon as reasonably possible. We’re asking everyone to secure their tools, materials, and equipment and to police all areas to make it safe to the best of your ability.”
The subs subsequently received an email from Jerry Kerr, Gateway’s vice chairman, stating that, “On Friday morning, June 21, 2024, you were notified by ARCO that it was suspending operations at our Gateway Studios site at the close of business that day. On Friday evening, June 21, 2024, we advised ARCO that there were a number of material breaches by ARCO that could not be cured and of our intention to terminate our agreement with ARCO.
“We are pleased to announce that our new General Contractor for the Gateway Studio Project will be A. J. Brown, Inc. – Construction Services. Many of our subcontractors are already familiar with A.J. Brown and their president Douglas Rendleman.
“It is our intention and that of A.J. Brown to retain the services of the current subcontractors whenever possible. Gateway Studios intends to work with each subcontractor to clear up any outstanding payments as soon as they can be verified and validated. We would like to move this project forward as quickly as possible without any unnecessary delays and deliver this world-class facility to the St. Louis community.”
Gateway Chairman Trey Kerr reportedly told the St. Louis Business Journal of “numerous breaches” of contractual obligations, “including without limitation to, not meeting the project’s scheduled completion date.” Kerr reportedly told the Business Journal that the project would be complete by Dec. 31st of this year. Gateway previously had said that the facility — designed as a practice site for national musical tours as well as a corporate event venue — would be completed by Spring of 2023 and later by Spring of 2024.
In response to inquiries from Construction Forum, a spokesperson for ARCO issued the following statement:
“ARCO exercised its right to pause work on the Gateway Studios project because the project owner failed to pay multiple invoices for work performed and, when requested, did not provide reasonable assurances of having the financial resources necessary to fund our outstanding invoices and complete the project. ARCO met with Gateway’s ownership team to express our desire to resolve the issues and finalize a plan to finish the project. Unfortunately, these efforts were unsuccessful, and payment was not received. As a result, we suspended work according to the terms of our agreement and were subsequently notified of Gateway’s intention to terminate our contract and directed not to return to the site.
“Throughout our 32-year history, ARCO has successfully completed over 5,500 projects for thousands of clients without ever being terminated. ARCO’s inability to resolve payment issues and receive financial assurances from Gateway Studios, only to subsequently be notified of Gateway’s intention to terminate its contract with ARCO, is highly atypical in our industry. At the same time, ARCO’s commitment to honoring our agreements with our subcontractors, suppliers, and project partners is paramount. After spending several weeks attempting to resolve these issues, we could no longer jeopardize this commitment.”
The spokesperson further stated that, “The money owed to ARCO and our subcontractors, suppliers, and partners is substantial enough to require us to stop work on the project and exercise our legal rights to recover outstanding payments. We have received Gateway’s intent to terminate our contract, but the contract has not been officially terminated yet.
Regarding specifics of the dispute, the spokesperson stated, “We would prefer not to disclose details of the dispute as we are hopeful it can be resolved privately.”