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NEW YORK CITY-Silverstein Properties Inc. has sent the Port Authority of New York and New Jersey a “Notice of Dispute” letter that says the agency has not met its rebuilding obligations at the World Trade Center site in Lower Manhattan. In the letter, SPI blames the Port Authority for not meeting obligations spelled out in a 2006 Master Development Agreement with the developer. Among other things, it’s meant that SPI has been unable to obtain private financing and re-build at the site, according to the letter.

The notice triggers a 10-day period for the parties to come together and try to negotiate their differences. If that does not produce an agreement, either party will have a right to call for binding arbitration.

In a statement, developer Larry Silverstein says Monday’s action was “designed to inject a renewed sense of urgency to these discussions and, should those discussions fail, to take the matter to an impartial panel of experts as early as this month.” Mayor Michael Bloomberg, who called a summit meeting between the authority and SPI in May, says in a statement of his own that “the reality is, the Port Authority owns and controls and is financially tied to the 16 acres in Lower Manhattan, the development of which this city and the entire nation demand move forward.” The mayor adds, “the port can certainly proceed with other projects without abandoning its obligations Downtown.”

Observers close to the Port Authority tell GlobeSt.com the move by Silverstein sours the negotiating atmosphere, and that it ultimately threatens other negotiations over the office towers. Responding to the SPI action, Port Authority executive director Christopher Ward calls the SPI actions unfortunate. In a statement, Ward says “as the 2006 Master Development Agreement makes clear, the Port Authority is meeting all of its obligations, and we look forward to a quick arbitration decision should Silverstein continue down this legal path.”

Ward points out that an arbitration decision under the 2006 MDA “will not resolve when there will be a market for two private office towers on the site, and how this speculative private office space should be financed.”

A Port Authority spokesperson tells GlobeSt.com that if SPI could get private financing, “they could start the project tomorrow.” The spokesperson says that the authority has met its obligations under the 2006 MDA and continues to meet them.

But SPI’s contention with the Port Authority progress on infrastructure construction at the WTC site extends back years. In a detailed letter Silverstein sent to the Port on May 8, the developer sums up by saying Port Authority has failed to cooperate in good faith, failing, among other things, “to issue candid or reliable schedules,” and by failing to share with SPI “significant information relevant to the scheduling and coordination” of the work at the site.

Among other complaints in the May letter signed by Silverstein president Janno Lieber, the developer points out the Port had “abruptly removed Phoenix Constructors from its construction manager/general contractor job for any future work for the East South Bathtub improvements.” On April 23, Port Authority revealed that it would modify its contract with Phoenix, a consortium of several major construction companies, and handle the job itself.

The removal of Phoenix came despite the Port’s October 2, 2008 “Roadmap Forward” report where Ward had seemingly expressed faith in Phoenix as a tool of expediency. He wrote that by staying with the construction manager, “the agency would avoid the lengthy delay and uncertainty of a whole new bidding process.”

In the May Silverstein letter, SPI says that by firing Phoenix, the authority pulled what the letter called an “about-face,” and says the authority’s action appears to have been taken without a “coherent construction or construction management strategy in place going forward.”

“In the October report, we were sticking with Phoenix because subsequent to October 2, there have been a number of changes in the costs of construction,” says the Port Authority spokesman. He adds that if the authority had stuck with the Phoenix contract as it existed, the authority wouldn’t have been able to take advantage of competitive cost changes in the marketplace.

SPI says in the nine months since that October 2008 report, the company has sought to negotiate an agreement to re-work the 2006 Master Development Agreement. The developer says it has done all this in an attempt to get the rebuilding back on track, and to fairly address the impact of what Silverstein calls “the Port’s failures.”

Regardless, observers who are close to the Port Authority say that inside the agency, the charges by SPI are seen as moot. For example, on June 30, 2008, the date when the bulk of the site was set to be turned over to SPI for development, the agency was still talking to Merrill Lynch about space at Tower 3. Merrill as an individual entity has since ceased to exist.

Despite all the fuss, a Port Authority spokesperson tells GlobeSt.com that the negotiations have to continue in some way. But he adds that the Silverstein pursuit of a dispute over a three-year-old MDA does pose a threat to those negotiations.

For his part, Silverstein says the project’s continued negotiation is a necessity. “One way or another, we must take all steps necessary to resolve, once and for all, the disputes that have arisen as a result of the Port Authority’s continued and admitted delays.”

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