EPC Dispute - Design Development or Change of Scope?

Arbitration, Middle East and Africa

Basic front end engineering design (FEED) parameters are typically supplied by an owner to an EPC contractor as requirements to build a process plant. A dispute arose when the contractor claimed the as-built product was not representative of the FEED, and the owner believed the differences were the result of normal design development. Baker & O'Brien submitted testimony to an arbitration tribunal based on an analysis of the completeness of FEED and the pertinence of design/scope differences between the as-built plant and FEED.

An energy company (Owner) entered into a contract with an engineering, procurement, and construction (EPC) contractor (Contractor) to design, engineer, and construct a series of non-process buildings - offices, warehouses, workshops, etc. - as part of a multi-billion dollar new refinery construction project. The basic design parameters were included as part of a Front End Engineering Design (FEED) package supplied by the Owner. While this method is typical for the petroleum industry to define the requirements of a process plant, it is less common to define the requirements for buildings in this way. Nonetheless, this was the way in which the requirements of the buildings were specified.

As the EPC progressed, schedule milestones were missed, and the costs escalated. To make matters worse, the parties could not agree on the causes of these delays and cost issues. The Contractor, who had submitted claims for change orders, asserted that: (1) the FEED was precise and detailed concerning the requirements and the specifications to be used; 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 FEED was only a guideline; and (2) the as-built plant was a result of normal and expected design development of the FEED.

Baker & O'Brien was engaged to review and analyze the available records and provide an expert opinion on: (1) whether the FEED was complete as it pertained to the definition of the basic design parameters; and (2) were the differences between the as-built plant and that contained in the FEED the result of design development or a change in the scope of work. Due to the unique nature of this case, we worked in parallel with a design-build consultant who used our findings concerning the FEED to assess any consequences concerning the execution of the EPC contract.

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, along with oral testimony.

Charles J. Hirst

Executive Vice President

Petroleum Refining
Engineering, Procurement, and Construction (EPC) / Standard of Care / Expert Witness Testimony / Arbitration
Middle East and Africa