Executive Problem: Strategic Objectives and a Tough Project Background You are the Project Executive and Business Developer for JE Dunns Hospitality Group. This is a high-profile team as JE Dunns CEO has made it one of the companys key strategic initiatives to grow in the hospitality market. JE Dunn traditionally had very little experience in this space, but the CEO saw an opportunity two years ago when speaking with a friend who introduced him to a hotelier, who needed a key partner to grow with. The hotelier is a family owned hotel developer client (the Owner), who had a high-end concept to be built in the extremely hot market in San Diego. The Owner previously had no experience in this market, was having trouble developing relationships with the general contractors there, and decided to take a shot on JE Dunn, despite its lack of a resume in this space and despite that JE Dunn previously had no experience in the local San Diego market. As a result, JE Dunn was awarded an $83,300,000M contract to build this high- end hotel in San Diego. A copy of the contract between you and the Owner is attached to this Problem as Exhibit A. Please note that the Contract involves an A102, and A201, and relevant portions of the Supplementary Conditions. During the negotiations of this deal, it became apparent that the partnership with this Owner could extend into working on numerous future deals together, but also could help establish JE Dunn as a high-end hotel builder in San Diego and potentially other markets. As a result, JE Dunns CEO branded Dunn Hospitality as a group and put you two in charge. The CEOs instinct paid off immediate dividends: as soon as construction started on this high-profile project, JE Dunn got noticed in the local market. Several other hoteliers have called you to speak about other opportunities locally in San Diego. However, the Hospitality Group is new, and only has one project team, so JE Dunn has been reluctant to commit itself to any other hotel projects until this one is complete. Project Challenges This Project experienced numerous challenges. For one thing, JE Dunn has had difficulty managing the buyout of its subcontractors. Most of this has to do with the limited experience it has in San Diego: it just doesnt have the local relationships and had trouble getting subcontractors attention in this very busy market (this is a common theme when entering new markets). For example, the Project team realized that it did not properly buyout the drywall scope of work on this Project as the drywall contractor did not include numbers for the hotels gym and spa (those facilities are actually adjacent to the hotels main building). When your Project team confronted the subcontractor, their Project Manager pulled out the scope of work attached to their subcontract which clearly showed the spa and the gym was excluded from their bid. Nor was the subcontractor too enthusiastic about remobilizing and adding more work to their plate when they were already engaged on numerous other projects with San Diegos traditional general contractor pools. Your team reacted quickly to this development and was able to make a quick call to your headquarters and enter into a subcontract with a JE Dunn wholly-owned subsidiary called Dunn Drywall, Inc., to come in and finish out this portion of the Project for $800,000. (See A102 Sec. 7.8). In addition to some of JE Dunns challenges, the Owner has proven to be extremely difficult to work with. Being family owned, the dynamics of this client can be complicated: often-times, the brothers (the two managing partners of this entity) are fighting with one another about business but also family issues. This Owner drama has often impeded its ability to reach timely decisions with regard to materials selections, and other issues that impacted your progress at the job. For example, the Owner delayed the Project 25 days due to its failure to timely select the millwork finishes for the lobby. JE Dunn was able to get a change order, after much squabbling, extending the Contract Time by 25 days from the original duration (See A102 Sec. 4.3) and increasing the overall GMP $134,125.00 for its extended general conditions associated with the change (See A102 Sec. 5.1.5 for unit prices for extended general conditions). Another dynamic is that while the Developer will own and operate the hotel, it has associated with a major hotel franchise (e.g., Hyatt, Marriott, Hilton) (known in this contract as the Hotel Franchisor). The involvement of the Hotel Franchisor caused a significant design change, since it wasnt officially involved in this Project until construction had started. Midway through the Project, the Hotel Franchisor communicated to the Owner that all of its standard rooms needed a wet bar (this was not previously shown on the construction drawings attached to the Contract). As a result, the Owner (through its Architect) issued revisions to the drawings that wet bars be included in all rooms. The procurement and buyout, and ensuing work flow, stemming from this change caused an impact to the timing of the Project. While the JE Dunn team gave an initial notice that it thought this would delay the job (the impact to be determined), no change order was ever executed, and nor resolution was ever reached. As the wet bars were procured and begun being installed, the JE Dunn team was able to sign a Change Order with the Owner, for the direct costs associated with this issue. The Change Order was in the amount of $1,000,000.00 but was only relating to the cost of materials and labor associated with this issue and did not address any time impacts. Internally, the team did track this issue and has a reason to think it caused a 90-day delay to the critical path of the Project. No formal claim was ever submitted to the Owner because the team was in a pinch and remained focused on just getting finished (See A201 Article 15, it can be argued we never submitted a formal claim and have waived same). Finally, as the Project was nearing completion, it became apparent to JE Dunn that punch-list/closeout management would be critical in order to meet the Owner and the Hotel Franchisors rigorous standards. In order to remain efficient, JE Dunn utilized a remote employee (stationed at JE Dunns home office in Kansas City) to process all of the final documentation needed by the Owner for completion. This employee billed out $150,000 over the last 6 months on the job. (See A102 Sec. 8.1(.1) disallowing such costs unless approved by Owner) and did a great job preparing all key schedules and submitting it to the Owner, completing all applicable ADA check lists, and all other certifications and completed start up documentation. (See A102 definition of Substantial Completion). The Owner had appreciated this increased supervision and all costs billed by this employee were approved and paid by Owner in the second to last payment application for this Project. As a result, the Owner received all approvals from the Hotel Franchisor relating to its inspections and authorization to turn on the reservation system. 832 days after construction commenced, the Hotel opened up for business and rooms begun booking up quickly. At this time, 23% of the guest rooms still had minor punch list items to be resolved and JE Dunn was able to complete such punch list items within 30 days. In other words, all work was completed 862 days after construction originally commenced. As the Project is now complete, the Owner would like to meet with you to finalize negotiations to close out the Project. Overall, this Project left your team exhausted and worn out. Your star superintendent needs a vacation, though he is thrilled to have moved his family to San Diego for this project two years ago. In this market it is virtually impossible to find a good superintendent so you are happy to give him a nice 4 week vacation to visit his family in cousin in Italy as this Project is coming to an end. The Project Manager really enjoyed working on this Project (as she had a chance to grow professionally) and has a good grasp on how to work with this quirky Owner. Additionally, the Project teams individual bonuses for 2019 are tied to how well the Project performs, financially. With the Millwork Change Order, and theWet Bar Change Order, the current GMP agreed to by the parties is $84,434,000.00 and the Contract Time was agreed to be increased to 757 days. While this was a tough project, JE Dunn did manage through the Project well overall and was able to complete this work for $84,000,000.00 in direct costs of the Work. [See A102 Sec. 5.2.1 savings clause] However, the following items are still outstanding and not resolved: One item that is still not yet accounted for is the internal costs JE Dunn incurred for the 105 days of extra time it was out on the site. Such internal costs add up to $563,325.00 in extended general conditions and are not included in the $84,000,000 above. [15 days are still unaccounted for even with the Wet Bar Delay] The Owner is insisting that the Projects late finish is JE Dunns fault, and wants to assess Liquidated Damages in the total amount of $375,000 (45 days at $5000 per day and 60 days at $2500 per day). [See LD Provision clause in Supplementary Conditions] Moreover, the Owner is seeking lost revenues of $2,000,000 which it is forecasting as the total profit that the property would have made had it been completed on time (i.e., revenues from room rentals, restaurant services, valet, etc.). The Owner conducted a final audit of the Project costs and has now disputed all amounts billed by Dunn Drywall and the employee in Kansas City who was charged with closing out the Project. The Owner is also questioning how you came up with certain rates for equipment and insurance. Please be prepared to respond to the disputed cost items and to address the Owners request to better understand how you charged such rates (dont worry about the rates themselves, but just the request to better understand the rate build ups). Please note that the Owners request could to understand your rates build up could really hamper your ability to charge the same rates on the next job. The Owner is promising JE Dunn another $100M opportunity in Baltimore (another market in which JE Dunn has no experience), provided that this Project is closed out, successfully. That project would commence within 6 weeks from the July 20th meeting. Some other hoteliers in California are asking your Hospitality Group to start pricing some other similar high-end hotels in the area. You just received a phone call that a prominent hoteliers favorite contractor just had a falling out, and the hotelier has asked for your groups availability to be on site in the next 14 days. This is a smaller boutique hotel that will be roughly $35M but you havent really dug into the details of this project, yet. Assignment Please prepare for the meeting with the Owner on July 20th, the objective of which is to finalize the Project closeout and the address the following: o This memorandum should be drafted at least 72 hours in advance of the meeting with Owner and emailed to the instructor. (50 Points) Draft a letter summary to the Owner outlining how you propose to close out this Project. o Make sure to justify your positions with contractual support based on the various applicable provisions in the attached Contract; please note that while we have given you some guidance in the above problem as to relevant contractual provisions to consider, not all guidance is included. Make sure that you should read the contract carefully (and the cited provisions) and come up with whatever arguments or points you think should apply under these circumstances. o You will be graded on whether the tone and nature of your negotiated offer matches up with the long term strategic objective that you outlined, above. You will also be graded on how well your logic matches up with the terms of the contract. There is no right answer but supporting your argument with the contract is important and is what is expected when working through a tough Project issue. o This letter should be sent out at least 48 hours in advance of the meeting and emailed to the instructor. Based upon both of the above deliverables, be prepared on July 20th to answer questions related to your summary as to how you intend to close out the Project. 14-June,

write a documents about :

(1) Q&A Professionalism

(2) Effective Negotiation Strategies Used