A lump sum procure and build contractor claimed that the owner disrupted efficient project execution through changes and delays in engineering deliverables on a megaproject. Baker & O'Brien analyzed change orders, engineering deliverables, project schedules, and construction records to evaluate whether the owner's actions affected the contractor's cost and schedule performance. Our experts presented opinions through multiple expert reports and oral testimony during international arbitration.

The oil and gas industry relies on various contracting models for its major capital projects. Each model is intended to balance the risks and opportunities for the owner and the contractor. Commonly used contracts, such as lump sum, cost-plus, time and materials, unit price, and guaranteed maximum price (not to exceed), come with their own set of risks, advantages, and disadvantages. Understanding these models is crucial for owners and contractors to comprehend their responsibilities and potential outcomes.

In a “lump sum procure and build” (LSPB) contract, the contractor typically assumes responsibility for procurement and construction. This type of agreement, when executed correctly, can be a straightforward arrangement for both parties. In a perfect world, the engineering plans are finalized (frozen), the scope and schedules are clearly defined, and the documentation of all pre-construction activities is completed. As such, the contractor knows what to expect, and the project should have a low risk of unforeseen problems. However, in some cases, not all information is known before releasing the contractor.

Sometimes, engineering deliverables will be issued with “Holds” to differentiate between those areas lacking reliable information/details and those areas with reliable information/details. By issuing deliverables with “Holds,” the contractor may commence work on all areas not shown to be “On Hold.” Risks for areas shown to be “On Hold” are identified, monetized in the budget, and incorporated in the schedule. When project costs and construction durations are accurately aligned with known risks, the project is more likely to be completed within budget and on schedule.

LSPB contracts present large financial risks and offer large financial gains to contractors. As such, contractors are responsible for discerning how well the proposed project is defined. Better-defined projects translate into smaller risks, which require less financial cushion. Conversely, projects that are not well defined translate into greater risk, which requires a larger cushion and better opportunities for contractors to maximize their profit. Varying degrees of project definition also impact the project owner. For example, in addition to higher costs to cover unknowns in an LSPB contract, project owners will be charged a higher price to cover unforeseen deviations from the finalized plans in the form of change orders.

Baker & O’Brien worked on a dispute in which an LSPB contractor (Contractor) claimed contractual payments from the owner (Owner) regarding civil, structural, and architectural issues associated with a megaproject. The Contractor alleged that the Owner interfered with its efficient and economical conduct of the works. Baker & O’Brien was brought in to investigate these claims. Our experts examined the impact of change orders and the timeliness of the owner/engineer in issuing construction drawings and plans.

Our expert opinions were presented in a first report, a second report, a reply report, a supplemental report, and in oral testimony at the arbitration hearing.