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Chemical Plant Payment 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.

 

Lake Side v. Syms/Trefger Arbitration

I. The Dispute

A dispute has arisen between Lake Side Contractors, Ltd. (Lake Side or LSC); and Syms Chemicals, Inc., and Trefger International, Inc., joint venture (Syms/Trefger or ST) relative to a contract entered into on May 25, 2001, for the mechanical piping installation at the Canadian Consolidated, LLC (Canadian Consolidated), Sky Plant. The Sky Plant is located at the Sky Industrial Park, Trevor County, Idaho. The dispute between the parties primarily concerns contract compensation due Lake Side for the work it performed under the contract, unpaid change orders, and additional indirect charges on scope growth. Syms/Trefger has filed a counterclaim for 1) a portion of liquidated damages that has been assessed against Syms/Trefger by the owner, 2) cost overruns, and 3) retraction of a contract amendment.

In February 2000, Canadian Consolidated and Sun Chemicals, Inc., awarded Syms/Trefger cost-reimbursable contracts for the engineering, procurement, and construction of an acrylic acid plant (AA Plant), an offsite utility area (OSBL), and a butyl acrylate plant (BA Plant), valued at $161.5 million. For the purposes of this opinion, Canadian Consolidated and Sun Chemicals, Inc., are collectively referred to as Canadian Consolidated.

In May 2001, Syms/Trefger subcontracted the mechanical piping installation....

Lake Side signed the contract on June 4, 2001, and on June 11, 2001, Lake Side mobilized on site to begin pipe installation. Lake Side’s planned mechanical completion date was established as February 21, 2002.... The following graphic illustrates Lake Side’s planned timeline of events.

 

Lake Side Planned Timeline


 

Immediately after mobilization to the site, Lake Side began experiencing a series of delays and disruptions that would continue throughout the project. Syms/Trefger did not adhere to its planned delivery of complete isometrics and large bore pipe spools. Instead of delivering the large bore pipe in an incremental manner, Syms/Trefger delivered the majority of the required pipe near the deadline....

To mitigate the impact of the Syms/Trefger problems, Syms/Trefger agreed to compensate Lake Side for accelerating its work force to maintain the scheduled completion date. By September 2001, Lake Side was able to increase and accelerate its manpower to recover Syms/Trefger’s schedule impacts. On December 3, 2001, Syms/Trefger and Lake Side signed a schedule acceleration agreement that became Contract Amendment No. 4.... The following graphic illustrates the events that led to the December 3, 2001, Contract Amendment No. 4.

 

Actual Lake Side Timeline as of December 3, 2001

 

By January 2002, Syms/Trefger’s engineering was to be complete; however, Syms/Trefger continued to increase Lake Side’s scope of work by issuing drawing revisions, thereby causing Lake Side rework; Syms/Trefger also mismanaged the pipe testing phase. The following graphic shows the events that contributed to Lake Side’s extended mechanical completion date of May 17, 2002.

 

Events After Contract Amendment No. 4

 

…Lake Side increased its manpower to mitigate the impact of Syms/Trefger’s actions and inactions, as illustrated below.

 

Lake Side Planned vs. Actual Manpower


…However, Syms/Trefger has failed to fully compensate Lake Side for the authorized work performed, and Lake Side has sought recovery of additional contract compensation in arbitration, which Interface Consulting will now address....

 

Amount Due Lake Side - $10,284,593

 

II. Summary of Opinion

II.A. Amounts Due Lake Side

It is Interface Consulting's opinion that Syms/Trefger delayed and disrupted Lake Side’s work, substantially increasing Lake Side’s contract scope of work….A summary of the compensation due Lake Side is outlined below.

 

Amounts Due Lake Side

 

Lake-Side-Authorized but Unpaid Contract Work - $692,054

On September 26, 2002, Lake Side submitted Contract Progress Billing No. 14 for $480,207 for work performed and authorized under Amendment No. 14. On October 11, 2002, Lake Side submitted Progress Billing 15 for work authorized in Amendment No. 15. Syms/Trefger has inappropriately withheld payment....

Lake Side’s initial contract value was based upon an estimated BOQ provided by Syms/Trefger. The BOQ listed piping materials, valves, in-line instruments, specialty piping items, and supports installation. Upon completion of Syms/Trefger’s issuance of piping isometrics, Lake Side was to resubmit to Syms/Trefger the final actual amount of installed quantities for contract pricing adjustment.

For Lake Side’s compensation due to any change in the BOQ as well as other items of change in the work, Lake Side was to submit a Work Release Authorization (WRA) for approval to Syms/Trefger. This procedure was modified by Syms/Trefger when it responded to Requests for Information (RFIs.)....The following diagram illustrates the scope change process.

 

Contract Scope Change Process

 

Lake Side Retainage - $1,269,210

Syms/Trefger has failed to provide Lake Side $1,269,210 for contract work successfully performed....

Lake Side Outstanding Change Orders - $1,538,266

Syms/Trefger has failed to compensate Lake Side for outstanding change orders and productivity losses as a result of Syms/Trefger’s actions and inactions....

Upon Syms/Trefger’s authorization and agreement to pay for this scope increase, Lake Side performed the work. Syms/Trefger has failed to compensate Lake Side for this approved pay item....

  • Syms/Trefger has failed to fully compensate Lake Side for direct labor associated with extra grout work....

  • Syms/Trefger has failed to compensate Lake Side for additional indirect compensation associated with preparing 213 additional piping test packages....

  • Syms/Trefger has failed to fully compensate Lake Side for authorized and performed RFI work, which was attributable to Syms/Trefger engineering and management errors and....

  • Syms/Trefger has failed to fully compensate Lake Side for additional field activities that were not covered by the Bill of Quantities (BOQ) adjustment....

  • Lake Side is entitled to recover its direct labor compensation associated with productivity losses....

The December 3, 2001, Contract Amendment No. 4 provided Lake Side some relief for past productivity losses associated with overtime to recover Syms/Trefger’s past material and equipment delays. However, after the agreement was signed and during the testing phase, Syms/Trefger continued to disrupt Lake Side’s work progress by doing the following:

  • Increasing Lake Side’s scope of work

  • Issuing inadequate and deficient engineering

  • Interfering with Lake Side’s work and causing site congestion with Syms/Trefger’s supervised time and material work under WRA 71 and interferences with Syms/Trefger subcontractors

It is well known in the industry that scope changes in a project, in particular late scope changes, can cause considerable reductions in labor productivity. In addition, in our experience in the industry....

Lake Side experienced a cumulative impact of labor productivity losses ranging from 10% to 30% from December 2001 to May 2002. These losses occurred due to....


Lake Side Labor Productivity Loss - 60,019 Manhours

 

Lake Side Indirect Compensation for Scope Growth - $6,785,063

Lake Side is entitled to indirect compensation for scope growth work under the contract....

Lake Side’s work scope increased by $2,912,044, or 26%....

Syms/Trefger agreed on the format for the contract multiplier being a ratio of contract indirect and direct compensation....

II.B. Syms/Trefger Alleged Damages

In Syms/Trefger’s First Amended Counterclaim, Syms/Trefger alleges $5,690,000 in damages due to....

Liquidated Damages - $800,000

Syms/Trefger is not entitled to recovery of liquidated damages from Lake Side. To date, Syms/Trefger has not substantiated.... Syms/Trefger’s damages are a result of its own delays, disruptions, scope increases, and mismanagement of the project as illustrated in the following graphic.


Syms/Trefger Pipe Testing Phase Delays and Disruptions

 

In conclusion....

Cost Overruns - $1,277,000

Interface Consulting has seen no evidence to indicate that Syms/Trefger is entitled to its alleged damages of $1,277,000 in cost overruns....

Lake Side adequately managed its work and attempted to mitigate delays by increasing manpower and performing additional work scope. Lake Side suffered damages as a result of Syms/Trefger’s actions and inactions....

 

III. Discussion of Opinions

III.A. Amounts Due LSC

LSC Authorized but Unpaid Contract Work

...

LSC Retainage

...

LSC Outstanding Change Orders

...

LSC Indirect Compensation for Scope Growth

...

Summary of Amounts Due LSC

III.B. ST Alleged Damages

Liquidated Damages

...

Cost Overruns

...

Refund of Contract Amendment No. 4 Payment

...

 

IV. Conclusion

...

 

V. Signature

...

 

VI. Exhibits

...