Trouble in paradise

Fluor Daniel Caribbean was recently ordered to pay $28.8 million to the developer of a resort hotel project in the Cayman Islands.

Fluor Daniel Caribbean, a wholly owned subsidiary of Fluor Corporation, recently received an ‘unexpected unfavourable jury verdict’ awarding $28.8 million to the developer of a resort hotel project in the Caribbean.

Fluor Corporation announced on March 22, 2002 that it had been awarded the $125 million contract to provide general contractor services for a new Ritz-Carlton resort in the Cayman Islands.

During the course of the project, Fluor ceased work on extra facilities the developer added to the project without demonstrating the availability of funding to pay for the extra work. Fluor continued to perform the original contract base work.

In January 2004, Fluor filed suit to force collection of invoices for work that had been performed by Fluor. Subsequent to the filing of the suit, the developer terminated Fluor, claiming that Fluor’s lack of progress constituted a material breach of the contract. The jury, sitting in federal court in New York, found in favour of the developers and awarded damages.

Fluor said in a statement that it strongly believes that this verdict is ‘not supported by the facts or by applicable law and will pursue all possible avenues of reconsideration or appeal.’

The overall financial impact to Fluor will be a charge of approximately $60 million to pre-tax earnings, plus yet to be determined interest and attorneys’ fees. In addition to the jury award, the charge also includes a reversal of amounts previously billed to the client by Fluor for work performed, including recognised project earnings.

The charge may have minimal tax benefits, which would adversely impact Fluor’s effective tax rate. This charge will be reflected in the Company’s second quarter earnings statement while efforts for reconsideration and appeal continue.