Isle building boom’s downside is trio of disputes over workmanship

Hawaii’s construction industry received three big black eyes in the last year from high-profile project defect disputes: a state airport maintenance facility, a city traffic management center and a luxury condominium tower.

Some observers, including taxpayers paying for the two government projects, have wondered whether something is out of whack with contractors. But the recent cases may be nothing more than a spate of bad outcomes.

Like the frequency of hurricanes in the tropics, sometimes they come in greater numbers during any given season.

One local attorney specializing in construction defect litigation said more disputes can be expected during building booms, including the ongoing one that began several years ago and is now trailing off.

“It’s just part of the cyclical nature of the thing,” said the attorney, who asked not to be named to avoid any perception that the comment seeks to influence any pending case in which the attorney’s firm is involved.

Johnny Higa, executive vice president of the General Contractors Association of Hawaii, echoed the attorney’s comment and said it would be wrong to conclude there is any trend or underlying problem in the industry.

“For the three to come up all at once is very unfortunate,” he said. “You just have more projects out there.”

Higa added that many large projects, including residential towers, hotels and several new or expanded shopping centers, were completed in the last two years as construction was peaking.

Local developer Stanford Carr, who has completed two residential high-rises in Honolulu in the last few years, said manpower shortages during construction cycle peaks can strain quality control and increase risks for defective work, disputes and litigation. But his view of the three troubled projects is that they aren’t connected to any systemic problem.

‘Voluminous’ defects

In the airport project involving an $85 million airplane maintenance building developed by the state for tenant Hawaiian Airlines, general contractor dck Pacific Construction appeared to have financial difficulties.

The state Department of Transportation alleged in a lawsuit initiated by subcontractors against dck and the state in 2016 that dck was being paid by the state for work but not paying its subs. After subs stopped working, the state kicked dck off the job, and litigation has expanded.

Hawaiian Airlines stepped in last year to finish the project and correct work that it said included walls built without necessary electrical wiring, lights obscured by ducts, refrigeration equipment mounted on the wrong wall, a 12-foot door with the top four feet obstructed, and cracked concrete floors. The project’s total cost ended up at $120 million, with the airline spending $34 million that it will recoup through rent abatement.

The contractor has suggested that it was a scapegoat for poor state airport expansion planning, and that the company paid for substantial work not in the state’s original plan based on state approval that was later disapproved. Litigation in this case is ongoing, and the Legislature last year approved spending $10.1 million in taxpayer money to pay subcontractors for unpaid work that the state intends to recoup from dck.

At the traffic management center on Alapai Street, the city and contractor Watts Constructors are quarreling over the source of water leaks in the largely built $54 million structure and elements of the building that allegedly deviated from designs, including stairs, welding for a glass lobby curtain wall and a weather barrier behind exterior metal panels.

The city said numerous efforts to have Watts address the concerns weren’t successful, so on Feb. 12 the city threatened to terminate the contract if satisfactory corrections aren’t made.

Watts said it will ensure that all work satisfies the city.

In the third dispute, a developer and a contractor sued each other late last year over the luxury condo tower Waiea at Ward Village in Kakaako.

Developer Howard Hughes Corp. sued general contractor Nordic PCL Construction in November, alleging that the tower had “voluminous” deficiencies and defects several months after opening in late 2016. Hughes Corp. seeks over $75 million in damages that include $25,000 daily fines for not substantially completing the tower by a deadline.

Among cited problems are “sonic booms” coming from the tower’s glass window-walls, flooding in unfinished units after they should have been sealed, and construction dust and debris left in units.

Nordic is contesting the developer’s claims, and said Hughes Corp. was responsible for delays and hadn’t paid for $40 million of finished work. The contractor in December filed what are known as mechanics liens in state court to claim an ownership interest in 18 unsold residences at Waiea as part of the dispute.

Settlements typical

Though three major construction disputes at one time is unusual, numerous other cases have been litigated over the decades, including two far bigger ones that involved mold in a Waikiki time-share tower and defects at Aloha Stadium.

In Waikiki, mold was discovered in Kalia Tower a year after the $95 million project opened in 2001 at Hilton Hawaiian Village.

Hilton sued in 2003, claiming that it cost $60 million to fix the problem, which kept the tower closed for a year. The litigation entangled at least 26 companies including architects, engineers, contractors, materials suppliers and consultants. The case was resolved in 2006 after numerous settlements without disclosing financial terms.

In the Aloha Stadium case, the state filed two lawsuits in 1982 and 1983 after having problems with the facility, which was built in 1975 for $32 million.

Defects cited by the state included unsuitable entry gates, seats that accumulated water, cracked concourses, inadequate tunnel dividers, water leaks, an unsafe baseball backstop and ruptured utility lines. The two biggest issues were the stadium’s unpainted steel structure, which was supposed to develop a thin protective layer of oxidation that prevented deep rust but instead corroded severely, and seating stands that were supposed to move easily to configure the facility for either baseball or football but became a costly pain to adjust.

The Aloha Stadium litigation targeted more than 30 companies and individuals, including four steel suppliers, architects, engineers and contractors. By 1993 the state settled with every defendant but one. The holdout, U.S. Steel, took the case to trial and won but then settled in 1998 after the Hawaii Supreme Court ordered a new trial. The state collected $31 million from settlements but spent $10.5 million on legal expenses and $45 million to $50 million on stadium repairs.

Settling before a trial verdict that discloses findings of fault is typically the outcome in complex construction litigation, occurring in more than 90 percent of cases by some estimates.