Equipment Failures - Were Unique Environmental Conditions to Blame?

Arbitration, North America

A newly commissioned power and steam cogeneration facility experienced significant and frequent equipment failures shortly after start-up. The owner and engineering, procurement, and construction (EPC) contractor entered arbitration over their dispute regarding responsibilities for each stage of the project lifecycle. Baker & O'Brien provided testimony during international arbitration on best practices for project development, environmental and operating conditions, responsibilities for successful execution of the project, and economic damages.

Successful capital projects follow a structured process divided into three distinct phases that form the Project Lifecycle: 1) Project Definition or Front-End-Loading (FEL); 2) Project Execution or Engineering, Procurement, and Construction (EPC) and; 3) Commissioning, Startup, Operation, and Handover. Even though the Project Lifecycle is well defined, there may be slight differences in terminology and the required deliverables for each phase. In addition, every project is unique, and the responsibility for each of these phases should be well defined in the commercial agreements.

Projects typically achieve more favorable outcomes when the Project Definition or FEL phase is properly resourced and adequate time is allotted for completion. As part of the FEL process, it is important to identify, evaluate, and define all external factors and environmental conditions at the facility location.

An international chemical company requested a proposal from an EPC contractor to design and build a new power and steam cogeneration facility (the "Facility"). The Facility consisted of two gas turbine power generation units, based on previously completed FEL work. The EPC contractor developed a proposal, was awarded the work, and completed the detailed design, procurement, construction, and commissioning of the Facility.

Shortly after startup, the operating Facility experienced significant and frequent equipment failures. Follow-up assessments found that the primary cause of the failures was accelerated corrosion due to the unique environmental conditions at the Facility site. Eventually, the owner and EPC contractor entered arbitration over the following disputed areas: (1) was the FEL information correct; (2) was the Facility built fit-for-purpose based on the FEL information; (3) was the Facility operated and maintained correctly; and (4) who was responsible for each phase of the Project.

Baker & O'Brien was retained to render opinions on the: (1) best practices for development of a power plant project; (2) environmental and operating conditions of the Facility; (3) responsibilities of each party for the successful execution of each phase of the Project; and (4) quantum of economic damages. Baker & O'Brien developed expert reports and provided testimony during arbitration proceedings.

Gary N. Devenish

Vice President

Power Generation
Standard of Care / Commercial Contracts / Engineering, Procurement, and Construction (EPC) / Litigation / Arbitration / Expert Witness Testimony / Operations and Maintenance / Forensic Analysis / Quantum/Damages Assessment
South and Central America