Case Studies details
Preserving the Past - Pay Now or Pay Later
Arbitration, North America
January 1, 2020
A large mid-stream facility was owned by two partners. The Operating Partner was responsible for care, custody, and control of the plant, including all operations and maintenance activities. The Non-operating Partner was responsible for funding their portion of the approved budgets for operations, maintenance, and capital expenditures. The agreement of both partners was necessary for large capital expenditures, as well as determining plant operating rates from time to time.
For economic reasons, the partners agreed to suspend operations in a portion of the plant. The agreement included a condition that the idled portion of the plant would be available to resume operations with one month’s notice by either partner.
After considerable time had elapsed since the plant was idled and mothballed, the Non-operating Partner gave notice to restart the facility in accordance with the original agreement. The Operating Partner responded that it was not possible to restart the facility within a one-month time frame due to the conditionof the equipment that had not operated in a long time. The Operating Partner estimated that reactivation efforts would incur significant costs and require more than a year to complete. The partners filed for arbitration to resolve this dispute.
Baker & O’Brien investigated whether standard industry practices were followed in the long-term preservation and maintenance of the idled equipment. In addition, we reviewed contract terms, preservation plans, equipment surveys, design reports, and costs associated with preservation and reactivation of the idled equipment. Our conclusions from this investigation were summarized in an expert report, which was defended in the arbitration hearing.