SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK
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ATLANTIC YARDS B2 OWNER, LLC,
Plaintiff,
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SKANSKA USA BUILDING INC.,
Defendant.
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Index No.
COMPLAINT
Plaintiff Atlantic Yards B2 Owner, LLC (“B2 Owner”), by its attorneys, Kramer
Levin Naftalis & Frankel LLP, for its complaint against defendant Skanska USA Building Inc.
(“Skanska” or “Contractor”), alleges on personal knowledge as to its own actions and on
information and belief as to the actions of others, as follows:
Overview
1. This action seeks damages and related declaratory relief arising from
Skanska’s numerous prior breaches, its recent anticipatory breach, and its repudiation of the
parties’ Construction Management and Fabrication Services Agreement, dated October 31, 2012
(the “CM Agreement”).
2. B2 Owner engaged Skanska to construct a modular residential building
called B2 BKLYN in Prospect Heights, Brooklyn (the “Project” or “B2 BKLYN”) for a fixed
sum and in accordance with an agreed-to Project schedule. From the outset, however, Skanska
failed to perform under the CM Agreement as required. Skanska and the personnel it assigned to
this Project lacked the skill, experience and diligence to complete the Project in accordance with
the promised schedule and price. As a result, the Project has suffered significant delays and cost
overruns for which Skanska is responsible.
FILED: NEW YORK COUNTY CLERK 09/02/2014 11:52 AM
INDEX NO. 652681/2014
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 09/02/2014
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3. The more Skanska floundered, the more it manufactured excuses to evade
responsibility for its own malfeasance. The Project was to be constructed using modular
technology – i.e., with prefabricated modules that fit together to create completed apartments –
that was thoroughly reviewed and approved in advance by Skanska and also approved by the
New York City Department of Buildings. However, when Skanska and its subcontractors
proved incapable of producing or assembling the modules in accordance with the pre-agreed
schedule and cost, Skanska belatedly – and falsely – claimed the modular design was defective
and required modification. Similarly, when B2 Owner required Skanska to accelerate its work to
recover from its own delays in accordance with the CM Agreement, Skanska refused. Instead of
taking responsibility for its own failures, Skanska chose to fabricate the excuse that delays were
caused by others. This excuse was both false – as Skanska was responsible for the delays (and
costs associated with them) – and had been waived as a contractual matter because Skanska
repeatedly failed to follow the notice procedures required under the CM Agreement. Of course,
Skanska failed to follow the notice procedures because its delay excuse was belatedly contrived
long after any applicable notice periods had expired. Simply put, Skanska was in over its head
from the outset and lacked the wherewithal or the willingness to invest the time, energy and
funds to recover from its delays, as required by the CM Agreement.
4. Skanska’s mounting delays have caused, and continue to cause, significant
harm to B2 Owner. Among other things, B2 Owner’s construction lender temporarily stopped
advancing funds on its loan until it received a new anticipated substantial completion date.
Skanska, however, has refused to provide a new date, intentionally frustrating and delaying the
resumption of B2 Owner’s construction funding. B2 Owner has, therefore, been forced to fund
the construction costs out of its own moneys.
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5. Over the last six months, Skanska’s desperate efforts to avoid
responsibility for its own delays and cost overruns (now in the tens of millions of dollars) have
become more extreme. In particular, on August 8, 2014, Skanska attempted to turn reality on its
head by sending a notice to B2 Owner wrongly blaming B2 Owner for all of these issues and
purporting to terminate the CM Agreement, effective September 22, 2014.
6. Compounding its wrongful conduct, on August 26, 2014, Skanska sent a
notice of its intent to stop all work on the Project, effective immediately, because B2 Owner
purportedly failed to provide Skanska adequate assurance of B2 Owner’s ability to perform its
financial obligations under the CM Agreement. Skanska, however, had no right to issue this
notice. Under the terms of the CM Agreement, B2 Owner was and is not presently obligated to
provide adequate assurance of its financial ability to perform as a condition precedent to work
continuing. In any event, even assuming, arguendo, that it were, B2 Owner has repeatedly
provided such assurances by timely paying Skanska with its own funds, demonstrating to
Skanska that it has additional funds available upon resumption of its construction financing, and
also by showing Skanska that B2 Owner has obtained additional equity financing to cover all
construction costs. Despite these assurances, Skanska wrongfully delivered notices to stop work
to subcontractors at the Project and the work has come to a standstill, demonstrating Skanska’s
reckless and callous disregard of the trade subcontractors employed by Skanska and all of their
laborers and employees that are adversely impacted. Skanska’s unilateral decision has
needlessly put more than 150 people out of work, and has also compounded damages caused to
B2 Owner.
7. Skanska’s failure to complete the Work in accordance with the terms of
the CM Agreement has damaged B2 Owner and substantially delayed the completion of the
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Project. Skanska’s current stoppage of work constitutes a further breach of the CM Agreement.
Moreover, Skanska’s notice of termination and stop work notice constitute anticipatory breaches
and repudiations of Skanska’s obligations under the CM Agreement. The Court should declare
that Skanska’s notices were wrongful and in breach of the CM Agreement, and award B2 Owner
the damages already caused by Skanska’s breaches as well as damages that B2 Owner will incur
in the future.
The Parties, Jurisdiction and Venue
8. Plaintiff B2 Owner is a Delaware limited liability company with offices in
New York.
9. Defendant Skanska is a Delaware corporation with offices in New York.
10. This Court has jurisdiction over Skanska under CPLR Sections 301 and
302. Skanska regularly conducts business in the State of New York, including in connection
with the transaction from which this action arises.
11. Venue is appropriate in New York County under CPLR Sections 501 and
503 because the forum selection clause in the CM Agreement so provides, and because
Skanska’s offices are located in New York County.
The Pacific Park Brooklyn/Atlantic Yards Project and the B2 Site, Building and Modules
12. B2 BKLYN is the first residential building to be constructed at the Pacific
Park Brooklyn site (formerly known as Atlantic Yards). Anchored by the Barclays Center,
Pacific Park Brooklyn is a mixed residential and commercial development situated on 22 acres
that is ultimately expected to include 247,000 square feet of retail space, 336,000 square feet of
commercial space and 6,430 units of housing (2,250 of which will be affordable for low,
moderate, and middle income families).
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13. B2 BKLYN, located directly adjacent to the Barclays Center, is expected
to contain 363 rental apartments (50 percent of which will be affordable housing). Upon
completion, it is expected that B2 BKLYN will be 346,000-square-feet, and stand 32-stories
high.
14. B2 BKLYN was designed to be built using modular construction practices
and technology. B2 BKLYN is planned to consist of 930 pre-fabricated steel modules, which fit
together to create completed apartments. The modules are required to be fabricated at an off-site
factory, trucked from the factory to the Project site, and then stacked like blocks to form the
finished building.
15. This modular design was conceived by B2 Owner and its design team,
which included Ove Arup and Partners, P.C., as engineer, and SHoP Architects P.C., as architect,
and was reflected in drawings and specifications prepared by the design team for the Project,
which were reviewed and approved by Skanska. Unlike previous modular approaches, this
design allowed for the construction of a high-rise building.
16. Because modular construction requires a factory in which to assemble the
pre-fabricated modules, Forest City Ratner Companies, LLC (“FCRC”), an affiliate of B2
Owner, began a search for a partner to establish a modular factory business, and issued a request
for proposal to prospective partners with experience in modular design, manufacturing and
construction.
17. Skanska submitted a proposal, which, among other things, represented that
it had experience in modular building and manufacturing know-how. Skanska was selected in
large measure because of these representations, and the parties embarked on an information
sharing, due diligence and negotiation process that lasted approximately 10 months.
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18. During this process, Skanska was provided with a complete set of the
drawings, specifications and other documents and material information prepared by the Project’s
design team, a peer review of the structural design prepared by Thornton-Tomasetti Inc., an
engineering firm, and proposed factory organization documents. Critically, Skanska had
approximately 10 months to review and verify this information, engage its own consultants, and
raise any concerns it had with the design, factory organization, or any other aspect of the
modular process.
19. Skanska availed itself of the opportunity to perform its own due diligence
by, among other things, thoroughly reviewing, testing and verifying the modular technology that
was to be used on the Project, thoroughly reviewing the drawings and specifications for the
Project, engaging its own exterior wall consultant to review the design (including such issues as
the façade system design), enlisting the assistance of its own European modular expert, and
commissioning full-scale prototype modules to test for design or other flaws. Skanska also
engaged various subcontractors, including such key trades as plumbing, fire sprinkler, carpentry
and electrical, to assist with its due diligence, many of whom later became subcontractors to
Skanska on the actual construction of the Project. Upon completion of its lengthy due diligence,
Skanska acknowledged and confirmed in writing that there were no flaws in the design or
constructability of the modular units that would have caused a material increase in the price of
fabricating modular units in connection with the Project. Ultimately, and based upon its own
review, verification and acceptance of the design and constructability of the Project, Skanska
determined the price and schedule for completion of the Project, as set forth, respectively, in
paragraphs 27 and 28 below.
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20. Contemporaneously with Skanska’s due diligence and design review
process, the parties agreed to an economic and legal structure for the modular business and
construction of the Project. Under this structure, Skanska Modular, LLC (“Skanska Modular”), a
Skanska-related single purpose entity, would enter into a joint venture with FCRC Modular, LLC
(“FCRC Modular”), an FCRC-related single purpose entity, to form FC+Skanska Modular, LLC
(“FCS Modular”), the new modular business, of which Skanska Modular would be Managing
Member with control of the day-to-day operations of FCS Modular’s factory. The intellectual
property necessary to conduct the business would be contributed by FCRC and FCRC Modular.
Skanska would be engaged by B2 Owner under a fixed-price contract (which ultimately became
the CM Agreement) for the construction of the Project, including all module fabrication and on-
site work, such as the excavation and foundation, structural brace frame, module erection, and
connection of the modules to one another. FCS Modular was to be hired as a subcontractor to
Skanska under the CM Agreement and would furnish it with modules under a fixed-price
purchase order contract. As between FCRC Modular and Skanska Modular, Skanska Modular
undertook responsibility for all cost overruns in performing this purchase order, and provided
security for this responsibility through a corporate guaranty provided by Skanska.
The CM Agreement
21. On October 31, 2012, the parties entered into the CM Agreement. The
provisions of the CM Agreement most relevant to this dispute are as follows:
22. Performance of Work: The CM Agreement states that Skanska, as
“Contractor,” is required to “provide and perform, or cause to be provided and performed, all of
the Work.” CM Agreement § 3.1 Similarly, Contractor is “responsible for fabricating the B2
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Modules and performing its other Work in accordance with this Agreement, the B2 Design and
approved Design Submittals.” Id. at § 2.4(a).
23. “Work,” is defined in the CM Agreement as “all obligations, duties and
responsibilities of Contractor pursuant to this Agreement for the fabrication, delivery and
erection of the B2 Modules and construction management services in connection with the B2
Building, including all labor necessary to produce such construction, together with all
workmanship, transportation, and other services or things to be furnished by Contractor, to the
extent required by this Agreement.” Id. at § 1.1 (definitions, p. 5).
24. Skanska is required to “supervise and direct the Work” (id. at § 3.6(a)),
“establish quality control procedures” (id. at § 3.3), and perform the Work “in a good and
workmanlike manner, in conformity with this Agreement, free of any faults or defects in
equipment, material, or workmanship performed by Contractor, or any Subcontractor retained by
Contractor for purposes of performing the Work.” Id. at § 8.1.
25. Skanska is required to “hire and retain a sufficient number of employees
and other personnel with the requisite skill, training and experience to enable Contractor to
perform the Work in conformity with this Agreement.” Id. at § 2.3(c).
26. The CM Agreement allows Skanska to hire subcontractors to perform the
Work, however, “[n]otwithstanding the foregoing, Contractor shall be responsible to Owner [i.e.,
B2 Owner] for the full performance of all obligations hereunder, irrespective of the conduct,
liability or default of any such Subcontractor.” Id. at § 2.1.
27. Price: For performance of the Work, B2 Owner is required to pay
Contractor the fixed sum of $116,875,078. Id. at § 6.1.
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28. Schedule: The CM Agreement provides that the “Scheduled Date for
Substantial Completion” is 416 Business Days from the effective date of B2 Owner’s “Notice to
Proceed” (i.e., to commence the Work) to Skanska. Id. at § 1.1 (definitions p. 5).
29. Moreover, the CM Agreement provides that Skanska shall “promptly and
diligently perform, or cause[] to be performed, and coordinate the Work in accordance with the
Contractor’s Schedule” including all Milestones Events. Id. at § 5.3.
30. Schedule Changes: The CM Agreement contemplates that there could be
events that could change the schedule, and divides those changes into three categories. First, the
CM Agreement references a “Force Majeure Event,” which includes labor unrest, acts of war and
acts of God. Id. at § 5.4(a). Second, the CM Agreement contemplates that there may be
“Owner-Caused Events,” such as changes in Work requested by the Owner, and events that are
the “fault, neglect or other negligent or wrongful act or failure to act by Owner, Owner’s
Representative, Design Professionals, Owner’s Other Contractors, and others for whom Owner is
responsible.” Id. at § 5.4(b). The third is a “Contractor-Caused Delay,” which includes “delays
to the extent caused by the fault, error, omission or negligence of Contractor, Subcontractors or
anyone directly or indirectly employed by them for whom they are responsible.” Id. at § 5.4(c).
31. The CM Agreement allows for adjustments of the schedule in the event of
Force Majeure Events and Owner-Caused Events, under specific circumstances and provided
Skanska takes certain steps. Only Force Majeure Events and Owner-Caused Events that
“adversely impact activities on the critical path of the Contractor’s Schedule,” trigger the
possibility of a “Time Extension.” Id. The Contractor is not entitled to a Time Extension for
delays that do not adversely impact activities on the critical path of the Contractor’s Schedule or
for Contractor-Caused Delays. Id.
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32. Even where a Time Extension is potentially available, it is not automatic.
The CM Agreement first requires that “Contractor shall notify Owner in writing within five (5)
days after Contractor has actual knowledge of the occurrence of any Force Majeure Event or
Owner-Caused Event for which Contractor may be entitled to a Time Extension . . . which
written notice shall set forth the circumstances or activities that are the basis for the Owner-
Caused Event or Force Majeure Event.” Id. at § 5.4(d). The CM Agreement also requires a
second notice to be issued setting forth a “claim” for the Time Extension, with “(i) Contractor’s
reasonably detailed explanation for its claim; (ii) an estimate of the then known probable effect
of any delay; and (iii) such supporting evidence reasonably available at the time and as Owner
may deem reasonably necessary for a determination whether Contractor is entitled to its claim
under the provisions of this Agreement.” Id. This notice must be sent “within forty-five (45)
days after the end of the circumstances or activities constituting the Owner-Caused Event or
Force Majeure Event or forty-five (45) days after Contractor has provided Owner the above
referenced five (5) day notice, whichever is later.” Id. The failure to provide either of these two
notices in a timely fashion results in the waiver of the potential right to a Time Extension. Id.
33. Compensation Changes: The CM Agreement allows Skanska’s
compensation to be increased, under certain circumstances, if there are Force Majeure Events or
Owner-Caused Events that increase its costs to perform the Work. Id. at §§ 5.4(e) and (f).
However, as with delays, for compensation changes the CM Agreement requires Skanska to
provide the two notices similar to those described above. Id. at § 15.4(a). If it fails to send those
notices, its “claim shall be deemed waived.” Id. Any increase in compensation must be
documented via a “Change Order” issued by B2 Owner. Id. at § 15.2. Upon signatures from B2
Owner and Skanska, the Change Order becomes a part of the CM Agreement. Id.
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34. In addition to Force Majeure or Owner-Caused Events, a Change Order
may also be issued by B2 Owner when B2 Owner requests changes in the scope of Work. Id. at
§§ 15.1 and 15.2. If B2 Owner and Skanska cannot agree upon a Change Order with respect to a
change in scope, Owner has the right to issue a directed Change Order “directing Contractor to
proceed with the Work constituting such change and, if applicable, providing for any undisputed
adjustment in the Contract Price and Contractor’s Schedule resulting therefrom.” Id. at § 15.3.
35. If Force Majeure Events or Owner-Caused Events delay the Work for an
aggregate period of 180 days or more and the parties cannot agree on a Time Extension and
increase in the Contract Price, “Contractor shall be entitled to terminate the Agreement and such
termination shall be treated as a termination for Owner’s convenience under Section 14.5.” Id. at
§ 5.4(g). See ¶ 41, below.
36. Acceleration of the Work: The CM Agreement describes how time lost to
delays can be recaptured. If “a Force Majeure Event or an Owner-Caused Event delays the
Work, Contractor shall promptly take appropriate action to regain the Contractor’s Schedule to
the extent it does not require Contractor to incur additional cost or expense.” Id. at § 5.4(h)(i).
Even if there will be additional cost or expense, the Owner can still seek acceleration of the
Work. The CM Agreement allows Owner to require Contractor to submit “a written recovery
plan that (1) describes how Contractor intends to reorganize, re-sequence and/or accelerate the
Work to mitigate delays and their impact on the Contractor’s Schedule, and (2) demonstrates the
manner and extent in which the lost time in the Contractor’s Schedule may be regained.” Under
this scenario, Contractor’s costs of accelerating the Work are to be compensated under the CM
Agreement’s change order procedures. Id.
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37. The CM Agreement also allows the Owner to demand that Contractor
accelerate the work in the event of a Contractor-Caused Delay. In that circumstance:
Owner has the right to require Contractor to, without increase in
the Contract Price, submit a written recovery plan and take
corrective measures to accelerate the progress of the Work,
including (1) working additional shifts or overtime, (2) supplying
additional manpower, equipment and facilities, and (3) other
similar measures, as necessary to regain the Contractor’s Schedule.
Such acceleration measures shall continue until the progress of the
Work complies with the requirements of the Contractor’s
Schedule.
Id. at § 5.4(h)(ii).
38. Financial Assurance: The CM Agreement describes different occasions
when financial assurance of performance may be required of B2 Owner. First, at the outset of
performance and as a condition precedent to the commencement of the Work, B2 Owner has the
obligation to provide evidence that it has obtained financing for the Project so that it can pay
Skanska in accordance with the then anticipated Payment Schedule annexed to the CM
Agreement. Id. at §§ 4.3 and 5.1(e). In addition, after commencement of the Work, “Contractor
may request in writing that Owner provide reasonable evidence that the Owner has made
financial arrangements to fulfill Owner’s obligations under the [CM] Agreement.” Id. at § 4.3.
The furnishing of such evidence is described as a “condition precedent to the continuation of the
Work” only in two limited circumstances – “if the request is made because (i) Owner fails to
make payments to Contractor as the Agreement requires; or (ii) a change in the Work materially
increases the Contract Price.” Id.
39. Liquidated Damages for Delay: Skanska agreed that if it could not
achieve Substantial Completion by the Scheduled Date for Substantial Completion, and such
failure was “due to its fault, or the fault of Subcontractors, or those for whom it is responsible”
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Owner would be entitled to “Liquidated Damages.” Id. at § 5.5(a). Those damages are
calculated based on the duration of the delay, but generally cannot exceed $3,300,000. Id. at
§ 5.5(b). However, if the duration of the delay is such that more than the full $3,300,000 would
be due as liquidated damages, Owner may terminate the CM Agreement for cause “and
thereafter pursue termination remedies under Section 14.3 in addition to Liquidated Damages.”
Id. See ¶ 40, below.
40. Termination: The CM Agreement permits the parties to terminate the CM
Agreement under certain circumstances, including for cause by Owner, for convenience by
Owner and for cause by Contractor. Id. at Art. 14. A “for cause” termination by Owner
generally involves a notice that Contractor has defaulted in a specified manner, including by
failing “to perform the Work in accordance with the Contractor’s Schedule or the provisions of
this Agreement,” or for failing “to meet any other material obligation,” among others. Id. at
§ 14.1. Contractor is afforded 45 days to cure the default (or to diligently commence curing a
default that requires more than 45 days to cure). Id. at § 14.2. If the default is not cured within
the required time, Owner may terminate. Id. In the event of a termination for cause, “Contractor
shall cease all performance under the Agreement and Owner shall be entitled to collect from
Contractor the reasonable and direct additional costs paid by Owner to a replacement contractor
to complete the terminated scope of Work.” Id. at § 14.3. These termination remedies are in
addition to those that may be available as liquidated delay damages. Id.
41. Owner is also permitted to terminate for convenience on 10 days’ notice.
Id. at § 14.5(a). In the event of such a termination, the Contractor is required to take steps to
protect and preserve the site, terminate subcontractors and eliminate expenditures. Id. at
§ 14.5(b). If the work is terminated for Owner's convenience, “Contractor shall be entitled to
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compensation for all Work performed prior to the effective date of the termination, as well as
compensation for any costs and expenses reasonably incurred by reason of termination of
Contractor's activities and commitments.” Id. at § 14.5(c). However, Owner is not liable “for
lost profits on unperformed portions of the Work or other consequential damages resulting from
such a termination for convenience.” Id.
42. Finally, Contractor is permitted to terminate for cause as well, including if
“Owner fails to pay Contractor,” or if “Owner fails to meet any other material obligation
contained herein or is otherwise in material breach of this Agreement.” Id. at § 14.7. First, the
Contractor must serve a notice stating its intent to terminate (id.), and afford Owner 45 days to
cure (or to diligently commence curing a default that requires more than 45 days to cure). Id. at
§ 14.8. The CM Agreement provides that a termination by Contractor for cause “shall be treated
as a termination for Owner’s convenience[.]” Id. at § 14.9.
43. Dispute Resolution: The CM Agreement provides a dispute resolution
procedure “so as to avoid unnecessary losses, delays and disruptions to the Work.” Id. at
§ 16.1(a). In “Step One,” the parties are to try to resolve the dispute through field-level
discussions among particular representatives. Id. at § 16.1(b). These discussions are initiated by
either party’s written request to the other, and are supposed to conclude within 10 days from
when the notice is received. Id. If those discussions are unsuccessful, “Step Two” requires
executives of Contractor and Owner to meet. Id. at § 16.1(c). That meeting is supposed to take
place no later than 14 days after the field-level discussions. Id. The parties are required to
exchange relevant information, in written format, concerning their dispute five days prior to their
meeting. Id. If the dispute is still not resolved, there is a “Step Three” involving a mediation
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under certain circumstances (id. at § 16.1(d)), none of which are present here. “Step Four”
permits the “the aggrieved party” to commence a litigation. Id. at § 16.1(e).
44. Choice of Law and Forum Selection: The parties agreed that the CM
Agreement would be governed by New York law and that any suit concerning the CM
Agreement would be litigated in a court in New York County. Id. at §§ 16.1(e) and 17.3.
Events Leading to this Dispute
45. B2 Owner closed on construction financing in December of 2012, and on
December 14, 2012, issued to Skanska a notice to proceed with the work, effective as of
December 21, 2012. Based on this notice, the actual date of Substantial Completion was July 25,
2014 and the Milestone Events were as follows:
Milestone Event Date Per
Contractor’s Schedule
1. Commence Production of pile installation February 11, 2013
2. Commence factory tenant improvements March 4, 2013
3. Commence on site steel erection June 17, 2013
4. Commence factory module production July 8, 2013
5. Begin module erection on site August 19, 2013
6. On site module erection complete April 18, 2014
7. Elevator machine room acceptance by elevator Subcontractor May 19, 2014
8. On site mateline work complete June 9, 2014
9. Substantial Completion July 25, 2014
10. Close Out/Final Completion October 10, 2014
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46. From the start, Skanska mismanaged the Project through gross
incompetence, causing it to be riddled with delays and cost overruns. Skanska has stumbled
through every step of the Project, and has repeatedly and routinely failed to meet any self-
imposed or contractual deadlines, goals, or targets. As noted, the Construction Schedule
stipulated that the building would be substantially completed by July 25, 2014. That date has
come and gone and, as of today, only 10 floors of the planned 32-stories have been erected at the
Project site.
47. This mismanagement began with the initial startup of the modular factory.
Before the actual work of fabricating modules could commence, the factory where the modules
would be fabricated needed to be “fitted out”, i.e., renovated such that it could be equipped for
fabrication. Though FCS Modular was responsible for the fit-out of its own factory, Skanska
Modular, as manager of the factory, and Skanska employees engaged all the design professionals
and managed all aspects of the design, construction, permitting, purchasing and execution of the
fit-out work. But from the beginning, this process was delayed due to Skanska’s
mismanagement. For example, Skanska employed three different project managers over the
course of a fit-out process that was supposed to take approximately five months.
48. Ultimately, due to Skanska’s mismanagement, the factory fit out was
delayed by seven months, significantly delaying the production of modules, and in turn, the
entire Project.
49. Once fabrication of modules finally began, the Project continued to suffer
significant delays resulting from Skanska Modular’s inability to successfully purchase essential
building materials, such as doors, frames, hardware, flooring, and items needed for painting,
roofing and insulation. Due to procurement delays, by the time production of the first modular
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floor began, Skanska Modular had secured less than 20% of the materials needed to fabricate
those modules. These problems were undoubtedly compounded by the apparent revolving door
within Skanska Modular’s factory management ranks, which deprived this nascent business of
consistent leadership. Skanska, which is responsible under the CM Agreement for the
performance of its subcontractors (id. at § 3.6(a)), took insufficient steps, if any, to address
Skanska Modular’s failures.
50. An attempt at course correction was made by B2 Owner on January 15,
2014, when its representatives met with Skanska’s Bill Flemming to discuss mounting delays.
During that meeting, B2 Owner proposed a written recovery plan to Skanska to fill the vacuum
created by Skanska’s inaction, despite the fact that the contractual onus was on Skanska to
produce such a plan.
51. Skanska failed to respond to B2 Owner’s recovery plan, prompting B2
Owner to issue a notice of default on February 21, 2014, pursuant to Sections 14.1 and 14.2 of
the CM Agreement. In that notice, B2 Owner pointed to breaches of the CM Agreement
resulting from delays by Skanska and demanded that Skanska furnish and implement a schedule
recovery plan under Section 5.4(h)(ii) of the CM Agreement to accelerate the progress of the
work on the Project.
52. Skanska responded to B2 Owner’s notice one week later, on February 28,
2014. Skanska denied any responsibility for Project delays or any breaches of the CM
Agreement and, as such, refused to provide a recovery plan pursuant to Section 5.4(h)(ii).
Instead, Skanska claimed that any delays were the result of Force Majeure or Owner-Caused
Events and offered to proceed under Section 5.4(h)(i), which would permit Skanska to request
additional remuneration for acceleration of Work. Up until this point, Skanska had never sought
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a Time Extension or served either of the written notices procedurally required under Section
5.4(d). In fact, with respect to many of the changes for which Skanska now claimed entitlement
to an extension of time, Skanska had previously indicated that it was not seeking any additional
time with respect to such changes, as shown by Change Order requests already submitted to B2
Owner. Accordingly, Skanska had already conceded that it was not entitled to a Time Extension,
and, even if there had been delays due to Force Majeure or Owner-Caused Events (which there
had not been), Skanska had waived any right to demand Time Extensions or other compensation
because of them.
53. In a follow-up letter dated March 21, 2014, Skanska provided to B2
Owner three alternative recovery plans for an accelerated completion of the Project without
making any recommendations as to which plan was the most viable. The cost estimates for each
“scenario” were vastly higher than the cost agreed to in the CM Agreement. In the letter,
Skanska also threatened to terminate the CM Agreement under Section 5.4(g) because Force
Majeure and Owner-Caused Events had purportedly delayed the Work for an aggregate of more
than 180 days and no Change Order had been issued granting Skanska a Time Extension and
increase in the Contract Price. In doing so, Skanska attempted to shift cost increases to B2
Owner, despite B2 Owner’s previous notices, and despite the fact that Skanska was not entitled
to a Time Extension or an increase in the Contract Price for Contractor-Caused Delay under the
terms of the CM Agreement.
54. On March 24, 2014, B2 Owner rejected Skanska’s characterization of the
Project delays as being caused by Force Majeure or Owner-Caused Events, as well as Skanska’s
claim for entitlement of a Change Order increasing the Contract Price and extending the
Contractor’s Schedule. B2 Owner also rejected Skanska’s position that it could seek termination
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of the CM Agreement under Section 5.4(g). Instead, B2 owner pointed to numerous breaches of
the CM Agreement by Skanska and demonstrated that the delays to the Project were, in fact,
Contractor-Caused Delays resulting from Skanska’s and FSC Modular’s failures, including
delays in the procurement process; delays in the factory fit-out; and Skanska’s failure of
leadership and management.
55. Skanska, however, continued to refuse B2 Owner’s request for an
acceleration of the Work. Instead, on March 31, 2014, Skanska proposed a Change Order to
extend the “TCO date to August 18, 2015 and increase the contract value in the amount of
$28,427,465.” This compared to prior Change Orders to date, many in which Skanska already
conceded that it was not entitled to a Time Extension and which had totaled less than $122,000.
56. Although Change Orders requested pursuant to either of Sections 5.4(d) or
15.4(a) of the CM Agreement required detailed explanation for the claim and supporting
evidence, Skanska provided neither. Rather, it merely said in vague, conclusory fashion that the
proposed Change Order was predicated on “numerous impacts” caused by B2 Owner “which
have prevented orderly performance” by Skanska. The sole “impact” that was identified more
specifically was the ostensible failure by B2 Owner to provide a “detailed design for the B2
project.” However, Skanska provided no specific examples of design flaws or the alleged impact
any such flaw could have had on the critical path of the schedule. Therefore, there could be no
timely Change Order claim based on this assertion.
57. B2 Owner denied the Change Order request on April 4, 2014, on the
grounds that any claim for delays resulting from purported design flaws was waived by Skanska,
undercut by its own documents and wholly lacking in substantive merit.
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58. On June 17, 2014 Skanska sent B2 Owner a notice, ostensibly pursuant to
Section 4.3 of the CM Agreement, requesting that B2 Owner provide financial assurance of its
ability to fulfill its obligations under the agreement (the “Request for Assurance”). As grounds
for the Request for Assurance, Skanska cited B2 Owner’s purported failure to make timely
payments under the CM Agreement, changes in the Work that have materially increased the
contract price with a failure to execute Change Orders for that Work, and a statement by the
Chief Operating Officer of FCRC that “the existence of delays have caused the Construction
Lender for B2 to stop funding.”
59. B2 Owner rejected the Request for Assurance on July 7, 2014, because it
was groundless. In its letter, B2 Owner noted that it had fully complied with its payment
obligations under the CM Agreement and that Skanska could not demonstrate that a change in
the Work had materially increased the Contract Price (failure to pay and material increase in the
Contract Price being the only two preconditions to Skanska’s continuation of Work in the
absence of evidence of financial arrangements). With respect to the suspension of funding by B2
Owner’s lender, B2 Owner noted that the suspension was caused by Skanska’s delays and failure
to provide a viable plan for acceleration. Nevertheless, B2 Owner advised Skanska that its
“funding for the B2 Project remains in place, as does its legal entitlement to access those funds,
and once Skanska has provided a credible Completion Date, those funds will be made available
to be drawn upon by the Owner.”
60. On July 9, 2014, Skanska reiterated its Request for Assurance, this time
basing such request solely on its contractual right to do so under Section 4.3, and “not
conditioned by the events for which the furnishing of such evidence is a condition precedent to
the continuation of the Work.”
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61. In response, on August 1, 2014, B2 Owner provided further financial
assurance by pointing Skanska to mortgages filed and maintained by the New York City Housing
Development Corporation against the B2 property, which evidenced funds available to B2
Owner for construction of the Project. B2 Owner also directed Skanska to the publicly available
SEC filings of Forest City Enterprises Inc. (“FCE”), “for proof of sufficient equity/liquidity
necessary to complete the construction of B2.”
The Notice of Termination
62. Despite the efforts discussed above, on August 8, 2014, Skanska issued a
Notice of Termination of the CM Agreement to B2 Owner (the “Notice of Termination”) in
which it stated its intent to terminate all Work under the CM Agreement pursuant to Sections 5.4
and 14.7. Skanska purported to justify termination of the CM Agreement on its assertion that the
Project has been delayed for a period of at least 180 days by Force Majeure and/or Owner
Caused Events and a Change Order has not been executed to grant Skanska a Time Extension
and increase in the Contract Price. Notwithstanding its prior failure to request any Time
Extensions, Skanska asserted that B2 Owner was to blame for all construction delays and cost
overruns on the Project.
63. Skanska argued that its entitlement to an extension of time and additional
compensation derived from “identifiable root causes, including: (a) a delay in the factory fit out,
(b) defective intellectual property, (c) design impacts, (d) failures of the Design Professionals
and others for whom the Owner is responsible, and (e) Changes to the Work.” The Notice of
Termination provided that the termination would become effective in the event that the purported
breaches were not cured “to the extent that any cure period is applicable under the CM
Agreement.” The 45-day cure period provided in the CM Agreement expires on September 22,
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2014. Skanska also forecasted that, as of July 1, 2014, the anticipated amount purportedly due to
Skanska through Project completion, over and above the Contract Price, is at least $49,757,746.
64. Each purported cause for delay specified in the Notice of Termination has
been fabricated by Skanska to cover up its massive failures as construction manager. As a
threshold matter, even if Skanska’s assertions had any validity, each was waived because
Skanska failed to comply with the Time Extension and Change Order provisions by notifying B2
Owner within the 5-day and 45-day time periods afforded under the CM Agreement. Moreover,
Skanska’s assertions are wrong as a substantive matter, as described below.
65. Factory Fit Out: Skanska claims in the Notice of Termination that it is not
responsible for delays in the factory fit-out because the fit-out was under the sole control and
direction of FCS Modular and was impacted by FCRC Modular’s decisions and Force Majeure
Events. However, Skanska is responsible to B2 Owner for the performance of its subcontractors
and committed to construct the Project in accordance with the Contractor’s Schedule. A
fundamental predicate to that commitment is being able to procure modules from FCS Modular
per that schedule. Delays in factory fit-out work, which was the responsibility of Skanska and its
subcontractor FCS Modular, in turn delayed the Contractor’s Schedule and manifestly
constituted a Contractor-Caused Delay.
66. Defective Intellectual Property: The Notice of Termination argues that
Skanska is entitled to a Change Order for a Time Extension and increase in compensation
because the intellectual property regarding hi-rise modular construction (the “IP”) conveyed to
FCS Modular by FCRC Modular and FCRC via an October 31, 2012 Intellectual Property
Transfer and Development Agreement (the “IP Transfer Agreement”) was “defective in most
every respect” such that, despite a disclaimer of warranties, FCRC Modular and FCRC
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purportedly breached an implied promise within the IP Transfer Agreement that the IP was
sufficient to complete the Work within the agreed time frame. Skanska essentially ignores the
fact that B2 Owner is not a party to and has no obligations under the IP Transfer Agreement, and
therefore, cannot be liable for any alleged defects in the IP.
67. Pursuant to the CM Agreement, Skanska “shall be responsible to Owner
for the full performance of all obligations hereunder, irrespective of the conduct, liability or
default of any such Subcontractor.” CM Agreement § 2.1. Thus, Skanska is responsible to B2
Owner irrespective of any delays caused by FCS Modular’s inability to construct the modules in
accordance with the Contractor’s Schedule.
68. Moreover, Section 4(a)(iv) of the IP Transfer Agreement contains an
express disclaimer of any warranty, and does not contain any representations that the IP is
complete or sufficient to execute the Project. Further, nothing in the IP Transfer Agreement
absolved FCS Modular’s responsibility to adapt, refine and supplement the IP to the extent
necessary to timely fulfill its obligations. Accordingly, even if Skanska’s allegations were true,
which they are not, and Skanska had directed its claim of defective intellectual property to FCRC
and FCRC Modular (the parties to the IP Transfer Agreement), they could not be held liable.
69. Design Impacts: Skanska posits that the eighth recital in the CM
Agreement that the design for the modules and the Project was “sufficient for the completion of
the Work as of the Effective Date” constitutes a representation and warranty that the design for
the modules and the Project was sufficient for completion of Skanska’s Work in accordance with
the CM Agreement’s terms and timetable. Skanska claims in the Notice of Termination that B2
Owner purportedly breached that warranty by providing incorrect and incomplete designs.
Beyond the fact that recitals are generally not viewed as operative parts of an agreement and that
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the term “represents” does not in and of itself create a warranty, Skanska’s reading of the CM
Agreement distorts the interpretation of the term “sufficient” and ignores the fact that terms
without specific definitions in the CM Agreement are to be interpreted in accordance with their
well-known meanings in the construction industry. See id. at § 1.2. Moreover, even a warranty
that the design for the Project was complete and buildable as delivered would not be a warranty
that the Project was buildable within a projected budget, time frame, or without creative
contribution from Skanska.
70. Importantly, Skanska’s claim ignores the role that was required of it under
the CM Agreement. While the design and specifications for the overall B2 BKLYN building
were provided by B2 Owner’s design professionals, it was Skanska and its subcontractors who
were delegated with responsibility to provide design, means and methods for fabrication and
production of the modules themselves, including without limitation how the modules would be
mated together to form the completed building. In this critical role, Skanska and its
subcontractors failed miserably.
71. Failures of the Design Professionals: The Notice of Termination claims
that design defects resulting from the inadequacies of FCRC’s design professionals constitute a
material breach of the CM Agreement and a cause of continuing damage to Skanska.
Specifically, the design team purportedly failed to recognize or address significant design defects
and rebuffed any attempts by Skanska to engage in mutual efforts at problem solving. In
addition to ignoring the critical role played by Skanska and its subcontractors in determining the
design, means and methods for fabrication and erection of the modules, this argument is
meritless because Skanska has failed to identify actual design errors in the drawings and
specifications for the Project, and has conveniently chosen to ignore the efforts of the design
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team to perform its contractually and legally defined function, as well as its efforts to assist
Skanska where no assistance was owed.
72. Changes to the Work: The Notice of Termination points to outstanding
requests for additional cost and/or time arising from Bulletins, Field Cost Events, FCS Modular
Cost Events and Anticipated Subcontractor Claims and asserts that B2 Owner has rejected
change requests improperly, has disingenuously asserted lack of notice, and has repudiated its
contractual obligation by refusing to issue Directed Changes as provided for in Section 15.3 of
the CM Agreement. These assertions are also meritless. The substance of the Bulletins makes it
clear that the items in the Bulletins had little, if any, impact on the critical path of the Project,
had no impact on the pace of module production, and for the most part, constituted minor
modifications related to matters such as trade coordination and code compliance. B2 Owners’
reliance on lack of proper notice was in accordance with the terms of the CM Agreement, which
were intended to prevent unanticipated cost exposures and exactly the sort of post-hoc distortion
of the facts that Skanska is attempting here. There is also no basis for Skanska’s claim that B2
Owner’s refusal to issue Directed Changes had an impact on the critical path of the schedule or
was in any way inconsistent with the terms of Section 15.3 of the CM Agreement. Skanska first
demanded that a Directed Change be issued in connection with “change order 4” in June of 2014,
and as explained in a July 1, 2014 letter from B2 Owner to Skanska, this demand was rejected
because Owner was under no obligation to issue a Directed Change for work that had been
performed months earlier. Section 15.3 provides the B2 Owner with the right, not the obligation,
to issue Directed Changes so that changes in the work can be implemented promptly and
contemporaneously with the parties’ inability to agree on a negotiated Change Order. By its
plain language, it does not address changes in the work that have already been performed.
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73. Skanska’s Other Claims: Skanska’s claims in the Notice of Termination
that B2 Owner has breached the CM Agreement due to purported lack of payment and failure to
provide security for payment and adequate financial assurances are also meritless. B2 Owner
has consistently complied with its payment obligations under the CM Agreement. To date,
Skanska has been paid all sums B2 Owner has been required to pay. Any delays in the payment
process are entirely attributable to Skanska’s own failures to timely and accurately submit proper
invoices, including required supporting documentation. Evidence of financial arrangements
sufficient for B2 Owner to perform its obligations, in compliance with Section 4.3 of the CM
Agreement, has been provided to Skanska even though it was not a condition precedent to
continuation of the Work.
74. The issuance of the Notice of Termination thus constitutes a threat to
terminate the CM Agreement predicated on arguments that utterly disregard the contractual
provisions concerning Time Extensions and Change Orders and the actual facts, and
demonstrates that Skanska has completely abandoned and repudiated, and has anticipatorily
breached, the CM Agreement.
75. Compounding its anticipatory breach, on August 26, 2014, Skanska issued
the Stop Work Notice to B2 Owner stating that it intended to stop the continuation of Work –
ostensibly pursuant to Section 4.3 of the CM Agreement – until Skanska received reasonable
evidence that B2 Owner had made financial arrangements to fulfill its obligations under the CM
Agreement. The Stop Work Notice was improper because neither of the two specific events that
could trigger the right to stop work under the CM Agreement had occurred, namely, (i) B2
Owner had not failed to make payments to Skanska and (ii) there had been no change in the
Work that materially increased the Contract Price. Furthermore, even though not required to do
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so as a condition precedent to Skanska continuing the Work, B2 Owner has provided Skanska
with financial assurance by notifying it about the availability of construction financing and by its
continuous payment of Skanska’s invoices. As of August 27, 2014 Skanska notified all of its
subcontractors and suppliers of the exercise of its purported rights. The Stop Work Notice was
issued before the 45-day cure period provided in the Notice of Termination had expired.
76. Also on August 26, 2014, FCRC Modular received a letter from FCS
Modular stating that, in furtherance of the Stop Work Notice, FCS Modular would stop the
continuation of Work under the subcontract for the modules, and would furlough the trade
associates employed by FCS Modular, effective August 27, 2014. The letter also provided that
FCS Modular would issue notices under the federal and state “WARN Acts” to all trade
associates informing them of the possibility that their employment would be terminated.
77. Following receipt of the Stop Work Notice, B2 Owner once again
provided Skanska with assurance that it has made financial arrangements to satisfy its
obligations under the CM Agreements. This time those assurances came in the form of a letter
from David LaRue and Charles Ratner, Chief Executive Officer and Chairman of the Board,
respectively, of FCE, to MaryAnne Gilmartin, Chief Executive Officer of FCRC, acting as B2
Owner’s representative. The letter affirmed FCE’s access to six hundred million dollars
($600,000,000) in cash and credit, as well as its financial commitment to funding the completion
of the Project by B2 Owner, and advised that the company and its Board “are fully committed to
funding the remaining, properly due and payable construction costs with the necessary corporate
cash or other means to complete [the Project].” B2 Owner also provided Skanska with copies of
completion guarantees that FCE had previously made to the New York State Urban
- 28 -
Development Corporation d/b/a Empire State Development Corporation and B2 Owner’s lenders
for the Project.
78. Nevertheless, on August 27, 2014, as a result of Skanska’s actions, Work
on the Project ceased.
79. Every day that the Work stoppage continues adds substantial construction
costs to the Project’s budget. Shutting down and re-starting a work-site of the size and
magnitude of B2 BKLYN is no small matter, because the project must be secured against the
elements, equipment and machinery must be properly stowed, and materials have to be tied down
and covered. If Skanska is determined not to complete the Project, and B2 Owner is required to
contract with an alternate contractor, the costs of completing construction will increase
substantially.
80. Prior to commencing this lawsuit, B2 Owner complied with the dispute
resolution procedure set forth in the CM Agreement. Both sides waived a field-level meeting
and then had an executive level meeting on September 2, 2014. Despite requests by B2 Owner
that Skanska withdraw its Notice of Termination and reaffirm the validity of the CM Agreement,
Skanska refused and continued to insist that B2 Owner’s purported breaches of the CM
Agreement entitled it to terminate.
81. Skanska’s failure to withdraw its Notice of Termination and its Stop Work
Notice constitute anticipatory breaches of the CM Agreement and grounds for termination for
cause under Section 14.1(d) and (e), which B2 Owner intends to timely exercise. In addition,
Skanska’s refusal to resume Work under the CM Agreement and its failure to comply with the
Contractor’s Schedule in the CM Agreement are material breaches of that agreement.
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First Cause of Action for Breach of Contract
82. B2 Owner repeats the allegations of paragraphs 1 through 81 above.
83. The CM Agreement requires Skanska to perform all of the Work in
accordance with the Contractor’s Schedule, including all Milestone Events. Skanska failed to do
so, including by failing to meet the following Milestone Events by the applicable deadline:
Milestone Event Date Per Contractor’s
Schedule
Actual(A)/Projected(P)
Completion Date
1. Commence Production of pile installation February 11, 2013 February 13, 2013 (A)
2. Commence factory tenant improvements March 4, 2013 April 8, 2013 (A)
3. Commence on site steel erection June 17, 2013 August 15, 2013 (A)
4. Commence factory module production July 8, 2013 July 31, 2013 (A)
5. Begin module erection on site August 19, 2013 December 12, 2013 (A)
6. On site module erection complete April 18, 2014 June 15, 2015 (P)
7. Elevator machine room acceptance by
elevator Subcontractor
May 19, 2014 September 2, 2015 (P)
8. On site mateline work complete June 9, 2014 June 29, 2015 (P)
9. Substantial Completion July 25, 2014 September 9, 2015 (P)
84. Skanska has also failed to hire and retain a sufficient number of employees
with the requisite skill to perform the Work in conformity with the CM Agreement, and has
failed to supervise and direct the Work to ensure that all construction means, methods, and
techniques have been properly performed.
85. Moreover, Skanska has now stopped Work under the CM Agreement as of
August 27, 2014.
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86. Skanska is not permitted to stop Work under the CM Agreement because
neither of the triggering events (i.e., failure to pay or material increase to the Contract Price) has
occurred. Moreover, Skanska has already been provided with financial assurances of
performance that it unjustifiably rejected.
87. B2 Owner has performed all of its obligations under the CM Agreement.
88. B2 Owner has demanded that Skanska resume Work under the CM
Agreement, but Skanska has refused.
89. B2 Owner has been damaged by Skanska’s breaches in an amount to be
determined at trial.
Second Cause of Action for Anticipatory Breach
90. B2 Owner repeats the allegations of paragraphs 1 through 81 and 83
through 89 above.
91. Skanska’s Notice of Termination constitutes an anticipatory breach of the
CM Agreement. The Notice of Termination makes an improper threat of premature termination
that has no basis whatsoever in the CM Agreement. To the contrary, the Notice of Termination
so utterly disregards and misconstrues the CM Agreement’s provisions that it unequivocally
demonstrates that Skanska has repudiated the CM Agreement and will not abide by its terms.
92. Skanska’s Stop Work Notice is an additional anticipatory breach, and
constitutes further evidence of Skanska’s repudiation of the CM Agreement. Skanska is not
permitted to stop Work under the CM Agreement because neither of the triggering events (i.e.,
failure to pay or material increase to the Contract Price) has occurred. Moreover, Skanska had
already been provided with financial assurances of performance that it unjustifiably rejected.
93. B2 Owner has demanded that Skanska retract its repudiations and resume
Work under the CM Agreement, but Skanska has refused.
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94. B2 Owner has been damaged by Skanska’s anticipatory breaches in an
amount to be determined at trial.
Third Cause of Action for Declaratory Judgment
95. B2 Owner repeats the allegations of paragraphs 1 through 81, 83 through
89 and 91 through 94 above.
96. Through its Notice of Termination, Skanska has threatened to terminate
the CM Agreement. This threat is improper and unjustified for the reasons described at length
above.
97. Through its Stop Work Notice, Skanska threatened to stop Work. This
threat was improper and unjustified for the reasons described at length above. Skanska has
nevertheless stopped Work.
98. An actual and justiciable controversy currently exists between the parties
concerning their rights and obligations under the CM Agreement with respect to each of these
issues.
99. Accordingly, B2 Owner is entitled to a declaration that the Notice of
Termination is void and of no effect; that Skanska may not Terminate for Cause under either
Section 5.4 or 14.7 of the Agreement; that the Stop Work Notice is void and of no effect; and
that Skanska may not suspend Work under Section 4.3 of the CM Agreement.
WHEREFORE, B2 Owner respectfully requests judgment:
(i) on the First and Second Causes of Action, awarding damages in an
amount to be determined at trial;
(ii) on the Third Cause of Action, declaring that the Notice of
Termination is void and of no effect; that Skanska may not Terminate for Cause under either

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