Pipeline Construction Contractor's Request for Compensation
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.
On August 9, 2000, Contractor Construction, Inc. (Contractor), entered into a contract with Owner Corporation (Owner) to construct a pipeline in Texas for a contract price of $10,849,606.50. The project is entitled the Owner Pipeline Project (the Project). The Project was divided into spreads 1 and 2, which included installation of approximately 92 miles of pipeline from Texas City to Markham, Texas.
In accordance with the contract, Contractor was to begin construction on August 8, 2000, and planned to achieve completion by December 23, 2000. However, as a result of Owner’s disruptions of Contractor’s work, Contractor has been unable to achieve completion as of February 28, 2001. This represents an extended project duration of at least 61 calendar days. April 1, 2001, is the forecasted completion date. The graphic below contrasts the forecasted project duration with the planned project duration.
Planned vs. Forecasted Project Duration
As the work progressed, Owner caused many disruptions and stoppages of Contractor’s work. These disruptions and stoppages occurred throughout the Project, affecting Contractor’s ability to maintain control of the Project and resulting in an extended schedule and additional costs. These schedule and cost overruns were a direct result of Owner’s failure to supply pipe and materials in a timely manner....
II. Typical Pipeline Construction Sequence vs. Contractor's Sequence
The pipeline construction technique Contractor used on the Project has been characterized by the industry as a moving assembly line. The tasks involving the construction of an overland pipeline are essentially the same throughout the industry. Although differences in terrain, climate, and owner’s specifications will affect the timing and duration of the work, they do not appreciably alter the construction sequence, which is basically the same for all types of overland pipelines.
The basic sequence in the field for constructing a pipeline is as follows: clear right-of-way, grade as required, string pipe, perform bending operations, weld, ditch, lower-in pipe, backfill, tie-in; and perform hydrostatic testing, final tie-in, and cleanup. The graphic below illustrates this typical sequence.
Pipeline construction requires extensive preparation and planning for the work if it is to be done efficiently. Each step depends on the previous step, and....
However, the illustration above does not represent the manner in which Contractor was required to construct the pipeline. Contractor was required to use a more costly, slower, and more inefficient method because of the extraordinary amount of disruption to Contractor’s operations…. The graphics that follow illustrate the actual progress Contractor made throughout the Project and the Owner-caused disruptions Contractor experienced.
Contractor’s Clearing Crews’ Progress
Contractor’s Welding Crews’ Progress
Contractor’s Lowering-In Crews’ Progress
The constant moves and uncertain timing of pipe arrival resulted in a confused and erratic construction sequence. Contractor did not anticipate such a sequence when it bid the Project, nor when it entered into the contract. The construction method Owner forced Contractor to use created an extraordinary number of move-arounds and standby times.
While the contract had unit rates to compensate Contractor for move-arounds, they included only the actual movement of labor and equipment. The contract rates did not include the effect on productivity that Contractor would experience because of the move-arounds. The contract rates had no component for additional time or losses in productivity due to move-arounds.
As a result of the excessive standby and move-arounds, Contractor incurred the costs of an extended project duration and lost productivity. The following graphic is a small part of the extensive analysis that Contractor performed.
Owner-Caused Shutdowns and Move-arounds
Owner’s failure to provide pipe and materials to Contractor in a timely manner critically disrupted Contractor’s construction plan and created disruptions, standby, and move-arounds for Contractor’s crews. The excessive standbys and move-arounds caused an extension of the Project and productivity loss....
Contractor could not have reasonably expected Owner’s failure to provide critical construction components such as pipe and project materials in a timely manner. The lack of pipe and project materials disrupted and changed the Project from that on which Contractor bid and fundamentally changed the method of construction, causing productivity losses. Because of the shutdowns and move-arounds caused by Owner, Contractor’s work was extended into a wetter and colder part of the year, which caused further productivity losses.
III.A. Owner’s Failure to Supply Pipe and Materials in a Timely Manner
Contractor entered into the contract with Owner based on a moving, assembly-line construction sequence in which work on the pipeline is performed sequentially. Due to Owner’s failure to provide Contractor with pipe and project materials in a timely manner, Contractor was required to construct small pieces of the pipeline in a random fashion with the basis of work being whatever owner-furnished material was available, as opposed to its construction plan dictating the logical and efficient timing and sequence of its work.
III.B. Extended Project Schedule and Productivity Loss
…Owner failed to procure and provide Contractor with construction material in a timely manner, causing Contractor to suffer numerous disruptions in the form of standbys and move-arounds. As a result of these disruptions, Owner forced Contractor into extending its original project schedule....
The extended schedule caused by the standby and move-arounds pushed Contractor’s work period and completion date into unplanned adverse weather condition periods….Contractor experienced adverse weather conditions that frequently hindered crews from working because of conditions such as those depicted in the following photographs taken of the right-of-way:
The frequent and excessive work stoppages and move-arounds Contractor experienced prohibited Contractor from constructing the pipeline with an efficient, assembly-line construction sequence and consequently caused Contractor to suffer a significant loss of productivity....
The standbys and move-arounds that occurred on the Project resulted in a loss of production as identified and reflected in the crews’ progress curves. For example, the graphic below illustrates how the shutdowns and move-arounds negatively affected the progress of Contractor’s trench crew.
Contractor’s Trench Crew’s Progress
As it turned out, the months of November 2000 through February 2001 were extremely wet….
As the Project was extended beyond the projected completion date into a colder/wetter time period, the productivity of Contractor’s crews was impacted significantly....
The excessive number of disruptions caused by the standbys and move-arounds prevented Contractor from completing the Project in a timely manner and extended the Project into adverse weather conditions, causing further disruptions to the schedule. Contractor experienced severe productivity losses because of the standbys, move-arounds, and adverse weather conditions....
IV. Quantification of Contractor's Request for Compensation
The following subsections summarize the quantification of additional costs incurred by Contractor and due from Owner. Contractor requests $4,408,468.20 because of Owner-caused disruptions, which resulted in an extension of the project duration and the resulting loss in productivity.
IV.A. Extended Project Costs
Owner’s failure to provide pipe and project materials in a timely manner forced Contractor to shut down and move-around its crews, and this in turn caused a decrease in productivity for Contractor’s crews. As a result of Owner’s failure, the duration of the Project was extended by….Contractor includes in this request only the extended project costs it incurred as of February 28, 2001, although the completion date is projected to be April 1, 2001. The following graphic illustrates the extended project schedule.
Planned vs. Actual Duration of the Project
Contractor requests…for additional site overhead expense from Owner for…. Contractor will submit an additional request at a later date for the actual extended project costs that Contractor incurs beyond February 28, 2001.
IV.B. Productivity Loss
Each step in pipeline construction progress depends on the previous step, and any disruption to one of the steps usually severely impedes the momentum, disrupts the scheduling, and increases the cost of constructing the entire project. As discussed earlier, Contractor experienced significant productivity loss due to Owner’s actions and inactions….
Except for the clear, grade, haul, and bend crews, Owner’s lack of materials heavily impacted the productivity of Contractor’s crews. Contractor’s clear, grade, haul, and bend crews were able to make between 137% and 172% of the originally planned progress because these crews were unaffected by Owner’s failure to provide the pipe and project materials in a timely manner. Therefore, Contractor has revised its planned progress. Contractor has conservatively increased each crew’s planned rate of progress by 30%. The following table compares the originally planned and the revised planned rates to the actual rates of progress for Contractor’s crews.
Comparison of Planned vs. Actual Rates of Progress
As indicated in the table above, Owner’s failure to provide pipe and materials in a timely manner severely impacted Contractor’s crews from welding through hydrotest....
Contractor calculated the productivity loss by multiplying the actual productivity loss for each crew by the number of actual labor hours each Contractor crew expended. This loss in labor productivity was then multiplied by the actual composite labor rate. The following table summarizes the productivity loss the Contractor crews experienced as a result of Owner’s failure to provide Contractor with pipe and materials in a timely manner.
Productivity Loss Due to Owner
Contractor is entitled to....
IV.C. Contract Extra Work Markup
The compensation Contractor calculated in the extended project cost and productivity loss sections of this request are costs without profit. In Contractor’s original bid for the Project, it included a 15% factor for markup....
IV.D. Administration and Preparation Costs of Request for Additional Compensation
In addition, Contractor incurred and continues to incur additional costs of administering and preparing its request for compensation that is due from Owner. Contractor has incurred approximately....
Contractor is entitled to and requests compensation in the amount of…for the extended project costs, productivity loss, and other costs Contractor incurred resulting from Owner’s actions and inactions. The following table is a breakdown of the compensation Contractor requests from Owner.
Contractor’s Request for Additional Compensation