Case Studies details
Engineering, Procurement, and Construction (EPC) - Change of Scope or Design Development?
July 1, 2019
An energy company (Owner) entered into negotiations with a technology provider (Developer) and an EPC contractor (Contractor) to design, engineer, and construct a plant (the “Project”) that used the Developer’s proprietary technology, supplemented by the Contractor’s EPC expertise for all of the supporting work, e.g., utilities, civil works, etc. In the initial stages of the Project’s development, the parties understood that the plant would be constructed in two parallel trains in sequential phases – each being 50% of the total plant capacity. From the outset, however, the utilities were to be constructed at 100% of the total plant capacity. Both the Developer and the Contractor had, themselves, performed the Front End Engineering Design (FEED) on this basis.
Several months prior to signing the final EPC contract, the decision was taken to construct the plant at 100% in a single phase. Due to the nature of the process, the utility and related requirements for 100% in a single construction phase were not simply twice those of two 50% sequential phases. Consequently, it was necessary to readdress the FEED to ensure that it was optimized for the single-phase approach. All parties agreed that this would be feasible, and the FEED was revised to reflect this change. However, as the EPC progressed, the schedule milestones began to be missed and the costs began to escalate, and the parties could not agree on the causes. The Contractor claimed that: (1) the delays were due to an incomplete FEED from the Developer; and (2) the as-built plant was not representative of that contained in the FEED and, as such, the Contractor was entitled to compensation due to changes in the scope of work. The Owner’s position was that: (1) the delays were due to the Contractor’s mismanagement of the Project; and (2) the as-built plant was a result of normal and expected design development of the optimized FEED.
Baker & O’Brien was engaged to review and analyze the available Project records and provide an expert opinion on: (1) whether the optimized FEED from the developer was incomplete; (2) if the optimized FEED was incomplete, were these omissions, in fact, material to the Contractor’s ability to progress; and (3) were the differences in the as-built plant and that contained in the optimized FEED the result of design development or a change in the scope of work.
We submitted a technical expert report to the arbitration tribunal. Observations and opinions with respect to the opposing expert’s report were prepared and submitted in a reply report, as was oral testimony.