Refinery Construction Dispute - Expanding Liquidated Damages Claim

Arbitration, Western Europe

Engineering, procurement, and construction (EPC) contracts generally define liquidated damages provisions for non-performance and delay. Parties may seek to expand claims beyond liquidated damages provisions in an arbitration by alleging exceptional circumstances. We analyzed a contractor's performance with respect to its planned project management, quality control, and project control practices to determine the extent of the deficiencies - if any. Baker & O'Brien consultants provided opinions in expert and rebuttal reports, as well as oral testimony.

Lump Sum Turn-key engineering, procurement, and construction (EPC) contracts generally include provisions for liquidated damages that may result from either poor performance or delay. Contract clauses for liquidated damages define limits of liability and detailed calculations for determining the amounts required to resolve contract claims. Arbitration tribunals typically consider damage awards within the contract limits of liability unless one of the parties can demonstrate an extreme circumstance, such as willful misconduct or gross negligence.

Following completion of a major refinery project, a dispute arose between the owner and the EPC contractor concerning schedule delay, construction quality, and project management. The owner claimed that the liquidated damages provisions in the contract were not adequate to cover its lost production and other costs. The owner sought to expand its claim by asserting a complaint of gross negligence against the EPC contractor.

The EPC contractor responded that it was liable only for contractual liquidated damages because its actions were in line with actions that any contractor would have taken under the circumstances of the project. For example, the EPC contractor asserted that much of the delay resulted from weather events that were outside of its control and that alleged quality issues were diligently and satisfactorily resolved.

Baker & O'Brien was engaged to evaluate the EPC contractor's performance with respect to its planned project management, quality control, and project control practices. We compared the EPC contractor's planned and actual performance to industry benchmarks to determine if the EPC contractor's actions were reasonable and, if not, the extent of any deficiencies. Our consultants submitted expert and rebuttal reports, and provided testimony at the evidentiary hearing.

Charles J. Hirst

Executive Vice President

Petroleum Refining
Standard of Care / Engineering, Procurement, and Construction (EPC) / Commercial Contracts / Litigation / Arbitration / Expert Witness Testimony
Western Europe