Business Context and Reporting Period
This Form 8-K was filed by Overstock.com, Inc. on October 14, 2014. The filing reports the entry into a Material Definitive Agreement regarding the construction of a new corporate headquarters. The registrant's subsidiary, O.com Land, LLC, entered into a Construction Agreement with Okland Construction Company Inc. to build an approximately 225,000 square foot facility in Midvale City, Utah.
Key Financial Metrics and Agreement Terms
The filing details a Guaranteed Maximum Price (GMP) construction contract. Specific financial commitments and terms include:
- Preconstruction Fee: $50,000 for preconstruction phase services.
- Construction Fee: $1,320,500 for construction phase services, profit, and overhead (subject to increases for scope changes or data center additions).
- Cost of Work: O.com Land will pay the actual cost of labor, materials, and equipment, plus a 7% markup on labor costs.
- Guaranteed Maximum Price (GMP): Not yet determined at the time of filing; to be established after bid packages are finalized.
- Liquidated Damages: $500 per day for the first 14 days of delay beyond the 100-week completion window, increasing to $2,000 per day thereafter.
- Retention: 5% retention on progress payments.
- Major Change Threshold: Contractor's fee increases by 1.9% if major, unforeseeable changes exceed $4 million in aggregate.
Material Changes and Project Scope
The primary material change is the formalization of the construction contract for the new headquarters. The project scope includes the building and related facilities on land recently purchased by O.com Land. The agreement outlines a timeline requiring Substantial Completion within 100 weeks of the Construction Phase commencement. The filing notes that the GMP and final Construction Schedule are subject to change and have not yet been finalized.
Outlook, Risks, and Contingencies
Management commentary is limited to the terms of the agreement. Key risks and contingencies identified include:
- Cost Overruns: While a GMP is intended, the final price is not yet set. Costs may increase due to material changes in scope, systems, or quality of materials.
- Delays: The 100-week completion timeline is subject to modification if plans are not provided in a timely manner or if delays occur due to labor/material shortages.
- Termination: The agreement allows for termination by Overstock for convenience or cause, and by the Contractor under specific conditions (e.g., stoppage of work for 90+ days, non-payment).
- Contingency Fund: A contingency fund exists for concealed or latent conditions, with compensation capped at 10% of the fund before requiring a change order.
- Indemnification: The Contractor must indemnify Overstock against liabilities arising from the work, excluding negligence by Overstock.
Investor Verification Checklist
- Verify the final Guaranteed Maximum Price once the bid packages are accepted and the Amendment is executed.
- Monitor the Construction Schedule to ensure the 100-week timeline remains viable given the complexity of the 225,000 sq. ft. build.
- Track any change orders that may trigger the 1.9% fee increase on costs exceeding $4 million or the addition of a data center.
- Confirm the status of governmental approvals and permits required for the Midvale City site.
- Review future filings for updates on the Contingency Fund utilization regarding latent site conditions.