Case Studies details
Delay in Oil Refinery Turnaround Leads to Dispute over Causation
Arbitration, North America
January 1, 2016
Oil refineries and petrochemical facilities must periodically be shut down for long-term maintenance, cleaning, inspection, and repairs. Such shutdowns, which can often last a month or more, are referred to as “turnarounds.” Turnarounds are carefully planned months in advance to minimize costly plant downtime and lost production. Also, because they require many different craftsmen working together with maximum efficiency, turnarounds are typically performed by contractors that specialize in coordinating such diverse activities. During the duration of a turnaround, facilities become a “beehive” of activity, with scores of skilled craftsmen working to complete their specific tasks within tight deadlines. It is not uncommon for a day or two of delay to cost millions of dollars in lost profits.
An oil refinery owner (the “Owner”) engaged a contractor (the “Contractor”) to provide the manpower, equipment, materials, and tools to perform a turnaround. Following conclusion of the work, the Owner filed for arbitration against the Contractor, alleging that the turnaround had been unduly delayed because the Contractor had not employed its craftsmen in the most efficient manner.
The Contractor was also accused of flawed workmanship that required a subsequent partial shutdown of the refinery for repairs. The Owner’s arbitration claim demanded reimbursement for lost profits due to the turnaround delay and the subsequent shutdown, as well as the actual repair costs incurred. In its answer, the Contractor claimed that the Owner’s turnaround plan was poorly conceived and frequently changed, requiring inefficient transfer of craftsmen between tasks as the job progressed. The Contractor also alleged that its work scope unexpectedly expanded, requiring additional trained labor to be obtained at short notice.
Baker & O’Brien was engaged to review the arguments—as well as the facts presented—by the parties and offer expert opinions on: 1) the Owner’s original turnaround plan and whether it impacted worker productivity, as alleged by the Contractor; 2) the level of damages claimed by the Owner due to the alleged delay and repairs; 3) the quality of the Contractor’s turnaround work in relation to industry standards. Our findings assisted the parties in a settlement of the case during mediation, thus avoiding full arbitration.