Gas Turbine Generator - Breach of Contract and Change Order Dispute
The following is an excerpt from an Interface Consulting work product issued for use in litigation, arbitration, or mediation (dispute resolution). Names, dates, and other information has been modified for client confidentiality purposes.
Lohr Turbine & Compressor Services v. Pine Cove Electric Power Arbitration
I. Overview of the Project and Dispute
I.A. Project Background
In October 1999, Pine Cove Electric Power, Inc./St. Lucia Industries, Inc. (St. Lucia), solicited proposals from at least four (4) companies to remove three (3) PL Frame 7B gas turbine generator units from an existing electric power plant in Cherryville, Arkansas, and to repair, refurbish, and reinstall the three (3) units in a plant in Apple, Illinois.
…In an effort that paralleled its management of the Frame 7 Lohr work, St. Lucia began the development of an alternate power supply system that added two (2) new PL Frame 6 gas turbine generator units to the Apple site.
Layout of the Apple, Illinois, Frame 6 and Frame 7 Projects
...As is illustrated in the preceding and the following graphics, Lohr Turbine & Compressor Services, Inc. (Lohr), was the prime contractor for the Frame 7 project, under a fixed-price agreement, and QIT Contractors, LLC (QIT), was the prime contractor for the Frame 6 work, under a cost-reimbursable agreement. Additionally, QIT worked as a subcontractor to Lohr on the Frame 7 project, and Eagle Electric and Crest Engineering worked both as subcontractors to Lohr on the Frame 7 project and under QIT on the Frame 6 project. St. Lucia retained responsibility as the overall site project manager for both the Frame 6 and Frame 7 projects. The following graphic indicates the general project organization on the Frame 6 and Frame 7 projects.
Apple, Illinois, Project Site Organization
St. Lucia waived Acceptance Testing and commenced....
II. Summary of Observations and Conclusions
II.A. Summary of Opinion
Lohr is entitled to compensation from St. Lucia in the amount of...for base contract work scope and approved change orders, which St. Lucia has not paid.... Lohr’s damages are illustrated below based on source of funds.
Lohr performed the work outlined in the agreement and project scope of work….St. Lucia received a commercially viable facility in August 2000. Lohr continued to perform warranty work and repairs until....
Lohr’s entitlement for damage recovery is due to St. Lucia's breach of the contract and St. Lucia’s actions that constitute constructive changes to the contract. St. Lucia breached the contract by failing to pay Lohr as mandated by the contract. St. Lucia was to pay Lohr in accordance with the milestone payment schedule illustrated below. St. Lucia failed to do so, and thus, breached its contract with Lohr....
II.B. Lohr’s Damages
St. Lucia breached the contract by not paying Lohr for the work Lohr performed. Specifically, St. Lucia failed to pay Lohr for contractually-mandated milestone payments and contract change orders. Further, Lohr has incurred additional costs and expenses due to St. Lucia-caused constructive changes....
Lohr’s contract damages of…are composed of the elements as illustrated below:
…St. Lucia has failed to pay Lohr for the balance of Milestone Payment…despite St. Lucia’s contractual obligation to do so. St. Lucia has also wrongfully withheld $1,000,000 in liquidated damages from Milestone Payment 8b. In total, St. Lucia has failed to pay Lohr…in contract milestone payments, which are outlined in the table below.
III. Discussion of Opinions
III.A. St. Lucia’s Breach of Contract
III.B. St. Lucia’s Breach of Contract – Failure to Pay for Approved Change Orders
During the project, St. Lucia and Lohr agreed upon numerous change orders, and Lohr performed the work authorized in those change orders....
The following summary outlines Lohr’s submitted change orders and St. Lucia’s actions for each.
Of the 24 change orders Lohr initiated during the project, we will address three (3) change orders that St. Lucia has approved but for which St. Lucia has not yet fully compensated Lohr, shown in red above. These change orders total…, to which Lohr is entitled as compensation from St. Lucia. Unapproved change orders, shown above in yellow, will be discussed later in this opinion....
III.C. Scope of Work and Execution of the Fixed-Price Agreement
During the negotiations, and as Lohr became more knowledgeable about the total scope of work to be performed, the total cost increased from.... This cost also increased because the parties began discussing a fixed-price contract, which would place the risk of completion on....The following graphic indicates some differences between a cost-reimbursable contract and a fixed-price contract.
Differences between Contract Types
III.D. St. Lucia’s Fast-track Construction Program
The project scope development, engineering, and construction proceed in a stair-step process on a fast-track project as opposed to a linear sequence on a typical design/build project. The following graphic compares the development of a fast-track schedule to a traditional design-build schedule.
Fast-Track vs. Design-Build Schedule
Interface Consulting also....
III.E. St. Lucia’s Decision to Incorporate Used Equipment
Although St. Lucia’s decision to refurbish and install used equipment on a fast-track project did not itself impact the progress of the work, this combination of additional risk factors increased the probability and severity of.... The following graphic indicates the increased element of risk on this project due to the utilization of used equipment on a fast-track project.
Increased Elements of Risk
III.F. St. Lucia’s Change Order Administration
The parties agreed to a fixed-price amount to complete the work in February 2000. Prior to this amendment, under the cost-reimbursable contract agreement, the parties had not fully developed the contract scope of work; therefore, any work that St. Lucia wished Lohr to perform was....
IV. Quantification of Lohr’s Damages
St. Lucia breached the contract by not paying Lohr for the work Lohr performed. Specifically, St. Lucia failed to pay Lohr for contractually-mandated milestone payments and contract change orders. Further, Lohr has incurred additional costs and....
IV.A. St. Lucia’s Failure to Pay for Change Orders
During the project, St. Lucia and Lohr agreed upon numerous change orders, and Lohr performed the work authorized in those change orders. St. Lucia has failed and....
IV.B. Approved Change Orders St. Lucia Has Not Paid in Full
A summary of approved change orders for work that Lohr performed and for which St. Lucia has refused to pay in full is provided in the table below.
IV.C. Unapproved Change Orders Not Paid by St. Lucia
A summary of unapproved change orders for work that Lohr performed and for which St. Lucia has refused to acknowledge or pay in full, is provided in the table below:
V. St. Lucia Claims against Lohr
V.A. St. Lucia’s Claims for Repair and Upgrade of Equipment
In its counterclaim in the lawsuit, St. Lucia has asserted claims for approximately.... A tabulation of these St. Lucia-alleged damages is shown in the graphic below.
Summary of St. Lucia’s Claimed Damages
St. Lucia’s Contractual Rights
St. Lucia’s Basis of Claims
St. Lucia began developing an “all concerns” list early in the project to describe alleged problems and defects with Lohr’s work. St. Lucia continued to add to this list throughout the project. St. Lucia’s list included a total of 306 items it considered to be issues; however, Lohr corrected many of these concerns during the execution of the project....
…St. Lucia worked from the beginning of this project to establish a claim against Lohr rather that to establish a working peaking power plant. Mr. Patton stated that St. Lucia started the punchlist or “all concerns” list in late-March 2002, just a month after the signing of the February 18, 2000, Firm Price Amendment to the agreement.
Major Items St. Lucia Identified on the “All Concerns” List
...In fact, only three (3) items on the “all concerns” list could be construed as “major” items at the time Lohr notified St. Lucia that it was ready to perform the Acceptance Testing of the Frame 7 units. The following graphic indicates the percentage of “major” items included on the “all concerns” list at the time Lohr notified St. Lucia about the Acceptance Testing.
Major Items St. Lucia Identified on the “All Concerns”
List Prior to August 18, 2000
In keeping with its warranty obligations, Lohr continued to perform repair and warranty work through the spring of 2001. However, Lohr was often refused access to...
In conclusion, Interface Consulting has found that Lohr is entitled to compensation from St. Lucia in the amount of $14,320,779....