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Offshore Deck Fabrication Payment Claims 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.

 

Roe McFlintock, Inc. v. Kolb Construction Arbitration

I. Introduction

I.A. Background

On January 16, 2001, Roe McFlintock, Inc. (McFlintock), entered into an Alliance Agreement with Kolb Construction, Ltd. (Kolb), to pursue construction projects which would utilize McFlintock’s Baker Island fabrication yard, located in Port Babcock, Texas (Baker Island). Kolb would provide certain labor and equipment to be used at Baker Island and to support construction activities at this location.

 

Relationship between the Parties

 

 

I.B. McFlintock’s Suspension of the Work

In October 2001, Cielo Azul began fabrication of the topside subassembly. Kolb was to begin its scope of work at Baker Island in December 2001, but did not begin its work until February 2002 due to initial delays by McFlintock in providing construction drawings. Additionally, Cielo Azul experienced significant delays, and the ship dates for each deck slipped significantly. The total delay relative to the delivery of the decks was approximately three (3) months, from March through June 2002. The delays in receiving the decks from Cielo Azul prevented Kolb from beginning the outfitting work on the decks as planned.

In late November 2002, during Kolb’s outfitting of the topsides at Baker Island, McFlintock made the decision to remove and reapply paint on the decks that had been applied at Cielo Azul because the paint contained a lead component....

I.C. Dispute Between the Parties

A dispute has arisen between Kolb and McFlintock, relative to the Swartz Tower project….The dispute between the parties primarily concerns unpaid contract compensation Kolb claims it is due for the work it provided under the original unit pricing contract structure and McFlintock’s alleged backcharges against Kolb. At this time, Kolb’s claims for damages associated with McFlintock’s failure to pay for services received total....McFlintock is claiming damages of....

 

II. Summary of Opinions

 

III. Discussion of Opinions

III.A. Unit Price Contract

We have provided two (2) damage models related to the unit price contract as follows:

  • Damage Model 1 – Termination for Convenience – Kolb’s Damages of $7,558,186

  • Damage Model 2 – Breach of Contract – Kolb’s Damages of $8,759,017

The following graphic illustrates the value of Damage Models 1 and 2.

 

Kolb Damage Models 1 and 2

 

Damage Model 1 – Termination for Convenience

Damage Model 1 is based on contract entitlement relative to McFlintock’s termination of the contract for convenience. Using the contractual entitlement afforded Kolb under Article 19.4 of the contract, we have calculated Kolb’s damages based on its actual costs to perform the work prior to McFlintock’s termination for convenience. To determine the full value of the work that Kolb performed, we have also added overhead cost and profit.... The following table illustrates the calculation of the full value of Kolb’s work prior to termination.

 
 

Kolb’s Damages - Termination for Convenience

 

Damage Model 2 – Breach of Contract

Damage Model 2, failing to pay Kolb for work that Kolb performed under the unit price contract, is an alternative to Damage Model 1 and is based on McFlintock’s breach of the contract.... The following graphic compares Kolb’s direct project costs including overhead cost and profit, and the amount Kolb invoiced under Kolb’s provisional contract value.

 

Unit Price Contract - Kolb’s Costs, and Kolb Invoiced Amounts

 

Basis of Damages – Breach of Contract

Kolb has invoiced and McFlintock has failed to pay $5,836,736 for work Kolb performed under unit pricing per the BSA, including extra work. This amount represents the work Kolb performed relative to the AFC scope of work McFlintock issued during the course of the project. Kolb is also entitled to contract compensation for lost labor productivity….

Basis of the Original Contract

The basis of the original contract price for Kolb’s work performed for McFlintock on the Swartz Tower project is primarily outlined in Kolb’s response to McFlintock’s invitation to bid....

Changes to the Unit Price Contract

The BSA contract addresses changes to Kolb’s scope of work. Article 12 of the contract, Changes, allows McFlintock to make changes to Kolb’s work. If those changes alter the work and/or quantities, then Kolb is entitled to an adjustment in the level of compensation and schedule...as shown in the following contract excerpt....

Adjustment of Lump Sum Values

The bid items, as identified by McFlintock in its invitation to bid, were priced either on a unit price basis or a lump sum basis. McFlintock, in its invitation to bid, required such bid items as project management, quality control, non-destructive examination (hereafter NDE) services, scaffolding, and pre-commissioning to be priced on a lump sum basis....

Specific Classification Issues

Certain issues arose during the completion of the work regarding how to classify certain work items under the unit price contract, including the following:

  • Pipe supports versus pipe racks

  • Cable length

  • Piping weight

  • Touch-up paint

  • Spray nozzles and fire suppression equipment

Pipe Supports Versus Pipe Racks

Cable Length

Piping Weight

Touch-up Paint

McFlintock has stated that it believes Kolb’s application of two (2) square feet for touch-up painting around electrical studs is excessive and that one-half (1/2) square foot is adequate. Pat Waibel confirms this in his deposition. These studs were welded to the structure in numerous areas around the deck. Mr. Hill of Kolb addressed Kolb’s process for touching up the welds and damaged paint areas.....

Kolb’s unit price was based on touch-up painting two (2) square feet around welded materials, one (1) square foot on the front side and one (1) square foot on the back side. It is reasonable to allow two (2) square feet of touch-up painting considering the heat-affected zone involving the stud, and the need to blend the multiple layers of paint to recoat the area around the weld. The following illustration indicates the relative difference between the one (1) square feet claimed by Kolb on each side and the one-half (1/2) square foot that McFlintock claims is adequate.

 

 

Spray Nozzles and Fire Suppression Equipment

The parties dispute the classification of spray nozzles. McFlintock did not provide a specific line item for the spray nozzles in the invitation to bid documents. During discussions between the two parties, McFlintock contended that a new line item should be created for those items. Kolb originally classified them as valves, because they are a screwed fitting, and then changed the classification to specialty items after a meeting with McFlintock, as testified by....

Final AFC Unit Price Contract Value

The initial order of magnitude estimate, $16,560,395, included in the contract and shown on Kolb’s first invoice to McFlintock, was based on quantities provided in the original Gauthe bid documents. As McFlintock issued AFC engineering documents to Kolb, in many cases, actual quantities were found to be greater than what was indicated in the original bid documents.

 

Kolb Invoice Amount Compared to McFlintock Payments

 

III.B. McFlintock’s Suspension

McFlintock suspended Kolb’s work at Baker Island in late November to remove and reapply the paint on the deck structures. Article 18 of the BSA allows for McFlintock to suspend the work at any time, but it also allows for an adjustment to the payments owed the subcontractor....

III.C. Response to McFlintock’s Allegations and Mr. Craig Onstad’s Report

We have determined that McFlintock’s claims are not supported by contemporaneous project documentation and are unsubstantiated by both McFlintock and Mr. Onstad. In the following sections, we will address McFlintock’s damages, and the Preliminary Opinion submitted by McFlintock’s expert, Mr. Craig Onstad....

 
 

McFlintock’s Position Is Not Supported by the Facts or the Contract

 

Kolb’s Claimed Progress

Mr. Onstad takes the position that Kolb has overstated its piping progress and the progress of its lump sum items, such as project management, QA/QC, equipment support, and scaffolding...

In relation to the piping progress status, Mr. Onstad simply states that the piping progress should have been 63% rather than Kolb’s claimed 72%....

Piping System Defects

Mr. Onstad identifies rework of the piping systems totaling $1,287,501 for which Kolb is responsible. Mr. Onstad’s calculation is based on an alleged rework cost code implemented by McFlintock and performed during the time and materials portion of the work by Strickland Piping and Kolb....

McFlintock Acknowledges Responsibility for the Project’s Delays and Disruptions

Contrary to McFlintock’s and Mr. Onstad’s positions, McFlintock acknowledges responsibility for some of the same damages that it alleges Kolb caused. Early in the project, McFlintock’s monthly reports it submitted to Larsen indicate that McFlintock was late in providing AFC engineering documents to Kolb.

McFlintock’s Delay Allegations

 

McFlintock-Caused Delays

 

Conclusion

In general, McFlintock’s and Mr. Onstad’s allegations are without contractual support or substantiation. Of the $6 million in claims by McFlintock, I have found supporting evidence that McFlintock is due a credit of $200,000 relative to the material issue on the amounts owed Kolb by McFlintock. Thus, McFlintock is due a credit from Kolb of $200,000….

III.D. Conclusion

Based on the documents I have reviewed to date, I have determined that Kolb is entitled to one of the following damages from McFlintock based on contractual entitlement relative to a termination of the contract or, alternatively, relative to McFlintock’s breach of the contract.

 

Interface Consulting Analysis – Total Amount Due Kolb from McFlintock

 

McFlintock has not been damaged by Kolb and is not due damages from Kolb other than a $200,000 material cost that I have credited against outstanding monies owed Kolb.

 

IV. Signature

 

V. Exhibits