Print View

Your printed page will look something like this.

https://www.interface-consulting.com/offshore-platform-construction-contract-dispute/

Offshore Platform Construction Contract 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.

 

MarCo Drilling, Inc. v. Board Limited Litigation

This Statement of Opinion was prepared at the request of....

I. The Dispute

A dispute has arisen between MarCo Drilling, Inc. (MarCo), and Board Limited (Board) relative to a contract entered into on December 19, 2001, to construct the components of an offshore drilling rig. The dispute between the parties primarily concerns contract compensation due to Board for the craft labor it provided under the contract, contract overhead, and MarCo’s backcharges against Board.

 

The contract around which the dispute revolves…for a project known as the Ramotswe Project.

The following graphic illustrates the relationship between the parties.

 

Relationship between the Parties

 

In 2001, MarCo provided plot plans, general arrangement drawings, flow sheets, major equipment listings, and weights to Board upon which Board would base its proposal. Because the bid documents MarCo provided were preliminary and partially designed in nature, Board’s proposal to MarCo stipulated that compensation would be based on a fixed lump sum for overhead plus compensation for Board’s direct craft labor and material expenditures.

With preliminary guidance from MarCo, Board made an initial craft labor hours estimate, which both parties referred to as Pool A. This Pool A estimate included a preliminary craft labor hour estimate of 310,166 labor hours. As agreed to in the contract, Board would provide a more definitive craft labor estimate later; Board did so, and this subsequent estimate, once agreed upon, was referred to as Pool B. The Pool B estimate of.…

In addition, throughout the project, MarCo directed Board to perform extra work above the hours agreed upon in….Board expended 394,600 labor hours for the MarCo-directed additional work scope items.

By mid-2002, both parties realized the completion date of….To accelerate its work, Board increased its manpower, worked extended overtime, added a second shift, and modified its planned work methodology. At times, Board had two and a half (2.5) times the manpower it originally contemplated working on this project. This acceleration and other events led to increased manpower levels exceeding both the Pool B estimate and the extra work agreements between the parties.

To complete all the work and do so in an accelerated manner, Board expended 1,550,130 craft labor hours on the project. The following illustration.…

 

Increase in Board Field Labor Hour and Schedule Duration

Source Data: …

 

During the project, Board submitted numerous requests for additional compensation and schedule extensions in an effort to address the labor escalation and additional time required to perform the expanded work scope in an accelerated manner. MarCo did not accept Board’s position and frequently ignored Board’s requests. These contract disputes remained unresolved as the project went forward, and Board drew down MarCo’s letter of credit in an effort to mitigate the effect of MarCo’s refusal to provide contract compensation.

MarCo submitted its Demand for Arbitration to….

I.A.      MarCo’s Position – Demand for Arbitration

I.B.      Board’s Position

 

II. Summary of Opinions

It is my understanding that Board.…The following graphic illustrates the original contract estimated value and the payments received, categorized by the contract’s pricing structure: (1) fixed lump sum, (2) direct field labor, and (3) material costs.

 

Total Project Value Increase

 

MarCo has failed to pay Board the full amount it is due….The following table provides a summary of the calculation of the final contract value based on the contract provisions. In my opinion….Board is entitled to $13,439,482 from MarCo in accordance with the contract.

II.A.        Opinions Relative to Additional Craft Labor Hour Expenditures

Board’s total expenditure of craft labor under its contract….The following graphic illustrates the Pool B labor hours estimate, the additional scope of work Board performed, and the remaining labor hours Board expended.

 

Board Craft Labor Hours

 

Board Extra Work

 

 

The timing of the changes, as well as the large volume of changes, negatively impacted Board’s ability to perform its work in an efficient and timely manner.…The extra work labor hours and resulting productivity loss are not subject to the risk-sharing provisions of the contract.

Late and Deficient Engineering

MarCo delayed and disrupted Board’s schedule by issuing numerous late and defective construction drawings and…with its key dates outlined in the Schedule of Key Dates,…MarCo failed to release the drawings to Board….MarCo understood that by directing Board to use design drawings rather than AFC drawings, Board would have to perform considerable rework that would be directly billed to MarCo.

In addition, MarCo prevented Board from performing.…Board is contractually entitled to additional compensation for MarCo’s failure to fulfill its obligations under the contract. Board expended significant labor hours overcoming the MarCo-caused delays and disruptions, including accelerating its work. Board is due additional compensation for the productivity loss of Board’s labor to perform its work under MarCo’s engineering restraints.

Late Response to RFIs

MarCo’s late and deficient engineering on the project, detailed above, also forced Board to issue numerous requests for information (RFIs) throughout the project. Board issued a total of 437 RFIs to MarCo which can be grouped into the following categories:

  • Missing and/or partial engineering design

  • Incorrect design and conflicts

  • Inadequate material/equipment information

  • General information relative to engineering and construction

  • Other

The RFIs negatively affected Board’s structural, piping, and electrical system construction progress and did so throughout the project. These RFIs were caused by MarCo’s failure to provide timely and correct design information in order for Board to perform its contract obligations. The resulting loss of productivity due to these factors is a change under the contract.

Board submitted RFIs to MarCo in an effort to obtain information necessary to overcome MarCo’s deficient engineering....

A major factor in overcoming deficient engineering and excessive RFIs on a project is for the parties involved to, in a timely manner, address any questions, clarifications, and redesign issues....

In its own project documents as shown below, MarCo acknowledged its responsibility....

MarCo Internal E-mail…

As a result of these and other MarCo failures to manage its contract engineering responsibilities, MarCo directed Board to accelerate its work in order to meet MarCo’s contract obligations with RyCE. The acceleration activities Board performed, some of which are listed below…, include the following:

o   Extended Overtime

o   Congestion of the Worksite

o   Out-of-Sequence Work

o   Increase in Manpower

All the previous issues negatively impacted Board’s labor productivity and caused Board to expend additional resources....

Late MarCo-Furnished Equipment

MarCo delivered several key pieces of equipment significantly later in the project than stipulated in the schedule included in the contract. These included the BOP control, cement unit, mud treatment equipment, electrical equipment, skidding system, high pressure manifold, and high pressure unit. The equipment delays ranged from....

MarCo’s late equipment supply also compressed Board’s schedule,…which increased Board’s labor hour expenditures.

Schedule Delay and Acceleration

MarCo’s failure to fulfill its obligations under the contract, as detailed in the previous sections, impacted Board’s ability to perform work. Board’s construction effort was delayed and disrupted, and additional costs were incurred due to additional craft labor to accelerate the project.…In early-June 2002, MarCo directed Board to accelerate in order to mitigate the MarCo-caused delays and disruptions. Board accelerated by working extended overtime, working double shifts, and adding more craftspeople. MarCo directed Board to add more and more craftspeople to further accelerate the work. Because of Board’s acceleration activities….We have analyzed the engineering schedule and the delays associated with MarCo’s engineering, and found that MarCo’s delays in providing engineering drawings and revisions to those drawings substantially delayed Board’s work as shown in the following illustration. The illustration below depicts the actual drawing release dates…and progress curves for MarCo’s engineering and Board’s construction work.

 

MarCo’s Engineering Schedule Analysis
Planned versus Actual Engineering Schedule

 

 

The MarCo engineering delays in all disciplines were…MarCo’s responsibility, not Board’s responsibility. A detailed CPM analysis is not required in this situation because the delays are directly associated with the design of the facility, which is necessary for its construction. Board is clearly entitled to a time extension of 59 days resulting from…the contract.

 

II.B.     Opinions Relative to Additional Overhead

Board is entitled to additional contract overhead compensation....

Furthermore, MarCo directed Board to perform extensive extra work amounting to 394,600 labor hours.... The contract mandates....

Board is entitled to additional compensation for overhead to mitigate the following MarCo-caused delays and disruptions:

  • Significant extra work

  • Failure to provide accurate and timely engineering

  • Failure to respond to RFIs in a timely manner

  • Failure to deliver owner-furnished equipment in a timely manner

  • Acceleration efforts to mitigate the MarCo-caused delays and disruptions

II.C.     Conclusion

  •  MarCo failed to perform its obligations under its contract with Board in the following ways:

o   MarCo directed Board to perform....

o   MarCo failed to provide accurate engineering....

o   MarCo failed to....

o   MarCo failed to deliver owner furnished equipment....

o   MarCo directed Board to accelerate....

o   MarCo caused a schedule delay....

  • The issues described above were pervasive throughout the entire project, causing delays and disruptions to Board’s work.

  • The MarCo-caused delays and disruptions negatively impacted Board’s work, reducing Board’s productivity and requiring Board to expend significant craft labor hours to mitigate the delays and disruptions.

  • In accordance with the contract, Board is entitled to compensation at the full Contract Labor Rate and is not subject to the risk-sharing provisions for those craft labor hours it expended resulting from productivity loss caused by MarCo.

  • Pursuant to the contract, Board is entitled to additional overhead for the extra work it performed at MarCo’s direction.

  • Due to MarCo’s delays and disruptions, Board is also contractually entitled to additional compensation for the overhead it expended resulting from Board’s effort to mitigate those delays and disruptions.

  • Board is entitled to (1) $13,654,282 in additional compensation from MarCo beyond that which MarCo has paid Board and (2) a contract completion extension until February 28, 2003, or 59 days.

 

III. Discussion of Opinions

III.A.    Additional Craft Labor Hour Expenditures

MarCo-Directed Extra Work

As seen in the following…

 

Board Extra Work

 

As a result of the extra work, Board’s productivity was reduced. Studies, such as....

Any extra work and any productivity loss associated with that extra work....

III.A.2.       Late and Defective Engineering

 
 

MarCo Issued Over 5,200 Project Drawings, Specifications, and Their Revisions

 

 

MarCo was releasing drawings and specifications to Board up to the planned contract completion date. The following MarCo internal emails acknowledge and confirm…. According to Board’s drawing log....

 

MarCo Issued 1,354 Structural Drawings to Board


Late MarCo-Furnished Equipment

Schedule Delay and Acceleration

In the following graphic…

 

MarCo Engineering Schedule Analysis
Planned versus Actual Engineering Schedule

 

 

MarCo Engineering Schedule Analysis
Planned versus Actual Engineering and Construction Progress

 

 

III.B.    Additional Overhead

III.C.    Contract Compensation Due Board

…Board is entitled under the contract to the remainder of its contract value, which MarCo has refused to pay, in the amount of $13,439,482....

 

IV. Signature

 

V. Exhibits