Baker & O'Brien, Inc.

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Construction Dispute Arises Over Interpretation of “RAGAGEP”

Arbitration, North America

July 1, 2015

Hydrocarbon processing projects involving hazardous chemicals are highly regulated and typically must comply with Title 29 of the Code of Federal Regulations (CFR), Section §1910.119—process safety management (PSM) of highly hazardous chemicals.  This section of the CFR is governed by the Occupational Safety and Health Administration (OSHA) PSM Standard.  The OSHA PSM Standard focuses on prevention or minimization of the release of toxic, reactive, flammable, or explosive chemicals—and the potentially catastrophic consequences of any such release.  Under the PSM Standard, compliant equipment must be designed, constructed, and documented as complying "...with recognized and generally-accepted good engineering practices" (RAGAGEP).

An independent oil and natural gas company engaged an engineering, procurement and construction firm (the “EPC contractor”) to design and build a new cryogenic natural gas processing plant in North America.  The natural gas feedstock contained high levels of both hydrogen sulfide (a highly toxic gas) and carbon dioxide, as well as helium.  As such, the plant had to comply with the OSHA PSM Standard.  The agreement with the EPC contractor stated that the contractor was required to design, engineer, construct and deliver a plant that was compliant with all regulatory and industry standards.

An independent oil and natural gas company engaged an engineering, procurement and construction firm (the “EPC contractor”) to design and build a new cryogenic natural gas processing plant in North America.  The natural gas feedstock contained high levels of both hydrogen sulfide (a highly toxic gas) and carbon dioxide, as well as helium.  As such, the plant had to comply with the OSHA PSM Standard.  The agreement with the EPC contractor stated that the contractor was required to design, engineer, construct and deliver a plant that was compliant with all regulatory and industry standards.

 During construction, a number of problematic engineering and design issues arose that required significant rectification work.  Consequently, the project fell behind schedule and began to significantly exceed the budget.  Ultimately, the owner terminated its agreement with the EPC contractor and filed an arbitration claim for damages, alleging failure of the EPC contractor’s obligation to perform in accordance with all industry standards, codes, regulations and laws—including the OSHA PSM Standard and RAGAGEP.

Baker & O'Brien was engaged as an expert in the arbitration to determine whether the EPC contractor had complied with its obligations under the EPC agreement.  We, independently and objectively, examined multiple issues raised by the owner, including the control room location, safety system design, quality of welds, pressure relief systems, material selection, instrument air system design, and piping fabrication.  Many of these issues had to do with interpretation of RAGAGEP in the context of a gas plant project.  A report summarizing our findings and opinions was submitted into evidence in the arbitration, and the matter was eventually settled.