A Project Gone Wrong - What Happened, and Who was at Fault?

Arbitration, South & Central America

The developer of a natural gas processing facility had a dispute with the owner over the compounding of cost and inordinate delay in mechanical completion. At issue were project planning and project management pitted against labor disruptions, lack of staff for key positions, industry cost escalation, and weather disruptions. We submitted our opinion of the effects on project progress and costs in a technical report submitted to the arbitration tribunal, followed by oral testimony at the hearing.

A technology provider (the "Developer") entered into a joint venture with a national oil company (the "Owner") to design, engineer, construct and operate the first ever natural gas processing facility (the "Project") using the Developer's patented technology. The facility was to be located at the Owner's site, and the Developer was to serve as project manager.

Unfortunately, after three years of work, the estimated final cost of the Project was several times the original budget, and the mechanical completion date could not yet be definitively estimated. There were also questions about whether the plant would ever be able to perform as specified under the contract between the parties. The Project was brought to a halt following disagreements between the parties as to who was at fault, and who should bear the costs of delay. The Owner alleged that the Developer's poor pre-project planning and poor project management were the key causes. The Developer claimed that issues such as local labor disruptions, lack of available and skilled manpower, general industry cost escalation, and local weather disruptions were the prime causes, and all were beyond its control. The parties agreed to go to arbitration over the dispute.

Baker & O'Brien was engaged to review and analyze the Project records and provide an expert opinion on: (1) whether the project management decisions were supported by prior project management steps and information; (2) the actual local labor disruptions and how these affected progress and cost; (3) the probable impact to the Project of lack of manpower - particularly for key positions; (4) the probable impact to the Project of general construction cost escalations in the process industries; and (5) if the local weather during the construction period was atypical and how this may have affected Project progress and costs.

We inspected the facilities and reviewed all work reports. Based on these findings, plus our experience with project management and project execution, we submitted a technical expert report to the arbitration tribunal. We also commented on a report submitted by the opposing party's expert. Our consultants gave oral testimony at the arbitration hearing.

Charles J. Hirst

Senior Vice President

Natural Gas & NGLs
Technology Assessment / Litigation / Arbitration / Expert Witness Testimony
South and Central America