Bad for Whose Business?

There’s a case that has come up recently in Las Vegas where two large companies have come to an impasse, with each claiming that the other is doing it wrong and that their business will be harmed if they accept anything the other company is suggesting. Such things are hardly unusual, especially in a bad economy, but what makes this case so interesting is that the companies are arguing about whether a building should be imploded and then bulldozed because it’s not safe. Such cases are common enough between landlords and tenants, cities and residents, or even contractors and their clients; over time, even very well-constructed buildings with gradually become weak and unsafe. What makes this case unusual is that the building is brand new, and has never been occupied by anyone – and the company that owns it has already spent more than $279 million on the project…

According to the story on the Time Magazine online news feed, the MGM Resorts company had contracted with Perini Building Company to make them a new hotel and condo complex as part of the CityCenter property in Las Vegas. The resulting product was a very nice looking steel-and-glass tower – which MGM is claiming is completely unsafe because of improperly installed steel links on 15 of the 28 floors. As a result, MGM want to implode the tower and bulldoze the property so they can work on a different project for that location; they would probably also demand their money back. Perini says the building is perfectly safe, and the few actual problems it has are all easily solvable. They further claim that MGM is just unhappy that they spent nearly $280 million during a real estate bust, and is therefore trying to get out of having to pay for the work. I can’t help thinking that both companies are missing the point, at least to some degree…

First off, MGM can’t really avoid looking foolish under these circumstances. Even if they are eventually vindicated in the legal action – if it turns out that Perini really did defraud them – there’s still the matter of having invested $280 million in a large real estate project during a completely dismal time in that industry, and that they borrowed money during a time when real estate loans are not particularly favorable. If they lose the case – even on a technicality – they come off as buffoons who tried to get out of a debt they legitimately owe by attempting to defraud another company and failed. And win or lose, MGM is going to pick up a reputation for being willing to screw over a business partner if it is in their best interest to do so – which won’t keep other companies from doing business with MGM, but will make it harder for them to get what they want in their next contract…

Perini isn’t risking as much – if they are justified by the court decision, they were just the innocent builders who got taken advantage of by MGM. On the other hand, if they lose the case – even on a technicality – they’re going to have real trouble finding work in Las Vegas ever again, and it will not help them to get the kind of contract they would want in any case. It’s possible that they could have avoided the current unpleasantness by wording their contract with MGM to make such a lawsuit impossible, or that they could have worked harder on their public relations efforts to make it clear to the public that their work on the MGM project was solid, or perhaps that they could have brought in allies (government agencies, academic institutions, industry experts) to help make their case (in the media, if not actually in the courts). All I know is that win or lose, some people are going to assume that they were up to something shady, if not actually trying to pass off unsafe buildings as state of the art – and that’s going to be bad for business…

I’m not saying that I have some easy answer for this situation. It’s entirely possible that one of these parties is completely in the right, and the other is trying to scam them. But from where I’m sitting, it looks like this whole court action is bad for business: in this case, everyone’s business. I have to wonder if there wasn’t a better way to have handled the matter…