Case Studies

Mismanagement of Engineering and Construction for Power Plant

Accumyn assisted a state regulatory agency representing ratepayers in a proceeding to address the rising cost of construction for an electricity generating facility. The matter involved management of engineering and construction for a 630 megawatt Integrated Gasification Combined Cycle (IGCC) power plant, the first of its kind of its size. The owner had received approval to construct the facility in 2007 based on an estimated project cost of $1.98 billion. The estimated cost soon increased to $2.53 billion for which a second approval was granted in 2009. By early 2011, the estimated cost had increased again to $2.88 billion.

Accumyn’s experts provided testimony on gross mismanagement based on a review of records illustrating the utilities performance in its execution of the project. Aided by a team of engineers, economists and accountants, Accumyn conducted a review of the project’s progress and cost reports, correspondence, and hearing testimony. To enhance research efficiency, Accumyn’s e-discovery specialist converted almost 8,000 separate documents to searchable format.   Project management and financial specialists addressed mismanagement of the project’s FEED Study; the delivery method; the contracting approach; the project controls program; the reasonableness and prudency of management’s engineering and construction of the project’s grey water disposal process; and budget manipulation. Testimony addressed financial reporting, transparency and management’s adherence to industry standards and practices for project and construction management.

Construction Lien Dispute an HPIB Process Unit

Accumyn project management specialist Robert James and chemical engineer Carl Bradow were hired by counsel for a major surety to provide an expert opinion of its position in a matter involving contractor liens on materials and equipment.  After the bankruptcy of the owner of a High Purity Isobutylene (“HPIB”) unit constructed in Pasadena, Texas, several contractors had claimed removal of their installed improvements. .  Accumyn’s research, analysis, and testimony in deposition and at court, resulted in denial of more than 80% of the contractors’ claims.

As background, counsel made the Accumyn’s experts aware of unique statutes governing the issues in the case.   Specifically, under certain circumstances, Texas law on liens and removables allows contractors to remove materials and equipment from a facility as compensation for non-payment.  The law requires that removal operations will not result in material injury to (i) the land, (ii) the pre-existing improvements, or (iii) the improvements themselves.

Accumyn was charged with provision of expert opinions in reports and testimony on construction and process technology issues that may arise in the case.  James addressed aspects of physical removal; Bradow addressed impact to plant operations.  A third party expert was engaged to opine on the value of removed material.

The three parties claiming removal of materials and equipment were the boiler supplier, the piping supply and install contractor, and the instrumentation and electrical (“I&E”) contractor.  More than $3.08 million was at stake.

Two site visits were made the experts, counsel, and   representatives of past and present owners of the HPIB unit.  Interviews were conducted and photos were taken.   Expert reports opined on (i) the ability of materials and equipment to be removed without damage to itself or to pre-existing improvements, and (ii) the market value of materials at installation and once removed.

As the trial date approached the I&E contractor relinquished its $1.45 million claim, evidently realizing upon review of expert reports and deposition transcripts that removal of instrument tubing, conduit and wire could not be removed without material self-damage and damage to pre-existing improvements. The boiler and piping fabricator maintained their positions and the matter went to trial in the United States Bankruptcy Court, Southern District of Texas, Houston Division.   The piping fabricator’s $1.10 million claim was denied.  In addition to a negative finding on the validity of that contractors’ lien, the Court found Accumyn’s expert to be a credible witness and gave “substantial weight” to his testimony.

The Court discounted the testimony of the pipe contractor’s expert witness to a certain extent, giving only “some weight” to his testimony.  Credibility had been reduced by the expert’s failure to conduct more than a five-minute drive-by at the plant.

The Court found the boiler equipment in question was situated in a manner that allowed removal under the statute and ruled a claim of $533,000 unpaid billings be awarded to the boiler supplier.  In sum, the sureties liability in the bankruptcy matter was reduced by $2.55 million.

Error & Omission Dispute Mediation

A litigation support team was assembled to successfully address resolution of a lawsuit turned mediation involving a major Chicago based engineering contractor and its client, the builder/operator of a gas fired power plant.

Background. The Chicago law firm Mechler, Bulger & Tilson, LLP engaged Robert James, PE, now director of Accumyn’s capital project management practice, to provide dispute resolution support in a mediation arising out of an error and omissions lawsuit.

Expert witness services including reports and mediation testimony were provided by a team of specialists in support of a dispute involving more than 40 unresolved error & omission (“E&O”) claims. The claims were raised against Chicago based engineering and construction contractor Sargent & Lundy, L.L.C. and Security Insurance Company of Hartford (“Defendants”), by the contractor’s client, Columbia Energy, L.L.C., the builder/operator of a 630 MW cogeneration facility in South Carolina (“Plaintiff”). The mediation arose out of litigation originally filed by the Plaintiff in the US District Court, Northern District of California Case No. C04-04436.

Co-defendant Security Insurance Company of Hartford had issued a $10 million project specific professional liability insurance policy providing coverage of Sargent & Lundy’s work on the project.

The Plaintiffs lawsuit claimed the full value of the insurance policy as compensation for alleged breach of a professional services contract, negligence, and failure to indemnify.   After a period of discovery and submittal of the Plaintiff’s expert reports detailing specifics of 43 alleged E&O issues, the parties agreed to settle the dispute in a mediation to be held in San Francisco. The Plaintiff’s claims had been categorized by design disciplines; civil/structural, mechanical, and electrical & instrumentation (“E&I”). After initial review of case documents Mr. James arranged for discipline specialists to be engaged for provision of independent and objective opinion of each claim, and to report and testify separately on findings observed after review of claims in their field of expertise. Mr. Frank Fronek of Fronek Power Systems was engaged to address piping and mechanical issues. Mr. Fred Hassid, an independent electrical engineer, was engaged to address electrical and instrumentation issues. Mr. James addressed civil/structural issues and managed coordination with counsel.

The Plaintiff had engaged an ex-employee as an expert witness who managed preparation by project participants to prepare E&O Issue Summary documents that included alleged Problem, Solution, Cause, and Cost sections for each claim. This expert’s report presented these documents along with selected support documentation without significant additional commentary. In addition, two engineering firms were engaged by the Plaintiff to comment on findings of its expert.

Defendant Expert’s Methodology. Along with the three expert reports prepared by the Plaintiff’s expert and consultants, more than 30,000 documents representing the project’s contracts, subcontracts, design documents, meeting notes and correspondence were provided by counsel in electronic format. This data was divided by design discipline for review. Research was manual, conducted without benefit of search software.

It was agreed with counsel that E&O Issue Summaries having a Plaintiff’s estimated cost over $40,000 would be addressed in individual detailed “Response to Claim” documents. In this manner 23 of the largest alleged E&O errors were fully addressed. Each response document contained the respective expert’s opinion, plus sections addressing Background and Relevant Facts discovered within the documents, Comments, and a Cost Analysis. Other than the Response to Claim documents no separate reports opining on the Plaintiff’s three reports were prepared.

Nature of the E&O Issues. The majority of the Plaintiff’s 43 alleged E&O issues were within the mechanical discipline (53%). The remaining issues were split almost equally between civil/structural, (26%) and E&I disciplines, (21%).

·      Of the 23 largest claims, the mechanical issues involved alleged piping interferences with access to equipment; over sizing of cooling water piping and pipe supports; steam vents in unsafe locations; missing vents and drains; improperly sized tankage; and inefficient routing of fuel lines.

·      Civil/structural issues involved alleged omission of run-off design to adjacent wetlands; overdesign of pipe rack foundations and rack steel; errant placement of piping and electrical stub-ups in floors and foundations; omission of a water treatment lab; incorrect elevation of a fuel tank foundation; misallocated lube oil skid foundations; and incorrectly located rail spur trackage.

·      Significant E&I issues involved installation of both undersized and oversized cables; interference of a transformer blast wall with equipment; overdesign and omission of underground electrical duct banks; undersized fuel gas regulators; switchgear location design errors; and missing key one-line diagrams and instrument index calibration data.

The Mediation. A two day mediation was conducted by a JAMS appointed neutral at the JAMS Arbitration, Mediation and Alternate Dispute Resolution Services in San Francisco. Attendees included each party’s representatives, their counsel, the insurance carrier, and certain experts. The neutral had read the three reports by the Plaintiffs experts and the detailed Response to Claim documents prepared by the Defendant’s experts to get a full understanding of each party’s position.

A joint session was first conducted with initial presentations by each party, including opinions requested of the Defendants experts in attendance. The Plaintiff had decided to exclude its three experts from the hearing. On day one the Plaintiff’s counsel repeated its demands for the full amount of the $10 million professional liability policy. The Defendant’s initial proposal recognized certain errors or omissions estimated to amount to under $500,000. Individual Neutral/Defendant and Neutral/Plaintiff sessions in separate rooms continued to a second day, with the Neutral conveying demands, observations, concession suggestions and the party’s proposed settlement amounts between the parties. Focus quickly became directed on the ultimate settlement rather than technical issues. A second joint session on day two managed to achieve basic agreement on a settlement amount. Final settlement believed fair and just by each party, amounted to less than third of the claimed full value of the Defendants professional liability insurance policy.

Lessons Learned.
·         Attendance by experts at a mediation hearing adds value. In this case failure of the Plaintiff to allow expert presence obviously worked in the Defendant’s favor.

·         Use of ex-employees to provide litigation support risks a conflict of interest challenge. As one of the Plaintiff’s witness statements was prepared by an ex-employee bias was evident.

·         Decisions on research tactics need to be resolved soon after engaging expert services. A relatively small investment in commercial search software would likely have improved productivity.

·         Finally, it was observed that the main focus of a mediations proceedings can quickly transform from technical details to a financial bottom line.

robert-james

ROBERT JAMES

AFFILIATE DIRECTOR

rjames@accumyn.com