How Lack Of Proper Management Systems Built ‘The Nightmare On Las Vegas Boulevard’

We tell business owners that the best managed companies are “systems dependent” rather than “people dependent.”  This is a truism, for both small and large companies.  One of the best examples, of why this is true, can be found in the story of the ill-fated Harmon Hotel in Las Vegas.

It’s a tale of how a construction company failed to develop the necessary methods, systems, controls and procedures to ensure the quality of its work, causing a half of a billion dollar mistake—yes, half a billion dollars!

The Harmon Hotel and Residences was meant to be part of MGM’s $9 billion City Center, the largest privately financed development in the United States.  Upon completion of the outer shell (before the interior finishing) of this 49-story hotel and condominium unit, it was discovered that there were serious flaws in the installation of the reinforcing steel on the first 15 floors.

According to an article in the Las Vegas Sun, “Some of the steel, known as rebar, was so badly positioned that it stuck out of the concrete floor and was sawed off to conceal the mistake.” In addition, “Harmon workers reportedly moved rebar without first getting an OK from the structural engineer … which is a major no-no in the construction chain of command.  Rebar placement is carefully configured to maximize structural building strength. ‘Congestion, or too much rebar matted together, prevented proper coverage and distribution of concrete,’ said a project official who requested anonymity.”

The investigation also revealed that the contractor had failed to properly coordinate the rebar installation and concrete placement with the firm’s different crews working the day and night shifts.

An engineering firm was hired to evaluate the structural problems caused by the incorrectly installed rebar and concrete. The consultants concluded, according to Wikipedia, “On July 11, 2011 a report was released by Weidlinger Associates, an engineering firm hired by MGM Resorts International. This report indicated that the building was likely to collapse in a major earthquake and that a determination of possible repairs would take at least a year.”

The Clark County Development Services Department issued five notices concerning the contractor, against the ironworker subcontractor, over problems alleging that the contractor “failed to provide workmanship.”

The failure by the contractor to have the proper methods, systems, controls and procedures implemented to accomplish the work correctly was further compounded by the incompetent work of the inspection firm that had been hired by the contractor.  In other words, the contractor had hired this firm to inspect the project as being compliant with the engineering specs.  This was the only ‘check and balance’ used to ensure the quality of the work.  Rather than developing the proper internal processes, the contractor, instead, had relied on hiring an outside inspection firm.

Whether it is hundred million dollars, a million dollars, or a hundred thousand dollars, there is no excuse for putting one’s company at significant financial risk.

This, however, is what the Las Vegas Review-Journal reported about the inspection firm, “They found that the Harmon’s third-party inspection firm … falsified 62 daily reports between March and July 2008 stating that things were OK when they weren’t.  County inspectors missed the problems, too. It seems rebar was misplaced inside link beams that transfer horizontal loading to the building’s shear walls.  A shear wall is a braced panel wall that counters lateral loads on a structure.  In other words, it supports the building and keeps it from falling over.

Stirrup hooks, ties that hold rebar together, also were spaced incorrectly, county inspectors found; some even poked past the floor slab, prompting workers to cut them off with a blowtorch, so that they wouldn’t show.

‘We do not see this very often,’ county building official Ron Lynn said.  ‘They installed it wrong.  That’s the bottom line.’”

The attorney for the inspection firm per the article, “sought to attribute the Harmon errors to bad communication.  ‘There were numerous representatives on site during the entire process of construction, evaluation and implementation …It is safe to say there was a shortfall in communication.’”

A hearing into the Harmon uncovered the fact that the inspector from the third-party inspection firm was inexperienced.  Per the transcript of the inspector’s meeting with the county, the inspector stated that on previous jobs, he always had help from other inspectors in reading the plans.  The Harmon project was the first job where he had read the plans on his own.

For over two months, this inexperienced inspector and another company inspector issued 62 notices stating the rebar was in compliance.  In the county meeting, the inexperienced inspector admitted that he had personally inspected floors 17-20 and “made an error signing items that were in noncompliance with the approved construction documents.”

The Las Vegas Sun reported, “… inspectors did not identify the nonconforming reinforcing steel work … This may have been the result of a variety of different causes, including misinterpretation, incompetence, a mistake or something more nefarious.

Other things, such as reinforcing steel and concrete placement during different shifts, night work, moving reinforcing steel to facilitate concrete vibration, or accidental or intentional concealment of the problem by others may also have been contributing factors.”

The county hearing officer found the contractor at fault for the lack of systems to ensure that the engineering specs were followed, saying, “By these individuals, most knowledgeable of this issue, not communicating this problem with the inspector, the engineer, the owner or the construction manager, the ability of all concerned to mitigate these issues early on was dismissed, and the chain of problem discovery, supervision and problem resolution was broken.”

From our perspective, as a management consulting company (focused on installing state-of-the-art methods, systems, controls and procedures for our construction industry clients), this was a failure which the company’s management could have avoided, if they had brought in our team of experts.  We would have identified the lack of management systems and then implemented a consulting services project to install the correct methodology and safe-guards to ensure that the workers were installing the rebar and concrete per the engineering specifications, and just as importantly, that there was the proper communication between the day and night shifts to make certain that both supervisors and company workers were working in concert and according to plan.

On August 27, 2013, District Court Judge Elizabeth Gonzalez ruled that the hotel should be torn down; acknowledging the public safety risk, if there was an earthquake, that the result could be catastrophic damage.  A $500 million construction defect lawsuit, which has already been filed, is expected to be heard in the Nevada courts in 2014, over who’s responsible for this loss. The litigation, alone, is going to be a nightmare for the construction company.  All of this could have been avoided with the right systems in place.

The shell of the Harmon Hotel—the world’s most expensive billboard—is now being dismantled for metal scrap per the Las Vegas Review-Journal,
photo credit:  Nick_Nick / Shutterstock.com

While this case study may represent an extreme result—tearing down the project and its total loss to investors, it vividly demonstrates the real financial risks that contractors take on when they operate their businesses without the proper methods, systems, controls and procedures to ensure that building projects conform to the engineering design.

Whether it is hundred million dollars, a million dollars, or a hundred thousand dollars, there is no excuse for putting one’s company at significant financial risk.

The business analysis that we can provide for contractors is like insurance against improper management planning. It’s a small price to pay (just contrast it to losing half a billion dollars), to ensure that a business owner has the right internal systems to insure that the ‘Horror of the Harmon’ will never be visited upon one of their projects.