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9 replies [Last post]
Mon, 2005-01-10 01:57
Susan Young
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Dear Colleagues,

I would like to bring out a case for your inputs / suggestions:

DESCRIPTION OF THE CASE:

It’s a New power plant being constructed consisting of 2 Turbines. Each Turbine has a PAC & LD attached to it.

The first Turbine is already Constructed & Commissioning is in an advanced stage. The final stage of commissioning is a 7-days Reliability run wherein the Turbine has to be run continuously without any breaks, following which the PAC shall be achieved.

The LD for first GT shall be applicable from 15-Jan-05. The clause states that a “weekly ceiling rate of US$ 100,000 or pro rata thereof shall be applicable”

The Contractor started the Reliability run on 5-Jan-05 & would have achieved the PAC on 12-Jan-05 (3 days earlier). However the Machine tripped on 4 successive days, which now implies that if the Reliability run is started on 10-Jan-05 the new date of PAC would be 17-Jan-05 (2 days late, hoping that the machine doesn’t trip again).

CONCLUSION:

It appears that LD clause will be applicable now. I need inputs from experts as to “all possible valid arguments that can be raised to avoid payment of LD !”

Thankyou in advance,

Susan
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Replies

Tue, 2005-01-11 12:43
#1
Stuart Ness
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Hi Susan,

I am sorry but it looks as if you may just have to bite the bullet; it is probably too late to generate a credible claim unless you already have one for an EOT that has already been submitted and is being considered by the Client – that may be your only saving grace.
Other than that, I think that it is a matter of “damage limitation”: do not offer anything by way of LDs; if you have enjoyed good relations with the Client then he may turn a blind eye if you over-run by a couple of days.

The most likely cause of tripping is a screw-up somewhere in the commissioning work (probably some relatively minor software problem! – could it be caused by the need to have the new Turbine software integrated into an existing software program belonging to the Client?? – if so, that could help to get you off the hook!).

In any event, remember that the Client has to apply LDs (you don’t offer!); also (and I am sure you would have checked this anyway!) there is often a period of grace applied prior to LDs kicking in in such circumstances. Is this the case here?

If all else fails and you are two days late, it looks like your maximum liability could be $28, 571 (not the full $100k); the actual cost to the Client is irrelevant and I hope that your Contract confirms that LDs are the “sole remedy” of the Client against the Contractor.
In addition, I suggest that you get your commissioning engineers to ensure that everything is OK with the second GT asap (especially the software!!).

Good luck,
Stuart

www.rosmartin.com
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Tue, 2005-01-11 02:33
#2
Uri Shachar
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Susan,

The only way to avoid LD goes through the EOT clauses in your Contract. Look carefully for any reasons under which an EOT application can be submitted.
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Tue, 2005-01-11 01:03
#3
Susan Young
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In this case the scope is EPC contract. The Contractor also manufactures these turbines. Trying to shield behind own design issues would be impossible.

However, the contract doesn’t explicitly state that the power shall be used for the existing plant incase the new plant is not ready.

What it does specify very clearly is the PAC dates & the LD, which will be levied if the contractor fails. The contractor of course, accepted this, at the time of signing the contract.

Had the trip not occurred, perhaps the PAC could have been achieved ahead of plan.

I am just trying to hold on to any straw of hope to avoid payment of LD.

Any of you have successfully handled such case in past?

Susan
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Mon, 2005-01-10 08:44
#4
Ian Scrimshaw
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Susan,
I think that you should focus on the reason for the tripping out of the turbine. It may be that there is a technical problem which is the responsibility of the designers.

Otherwise it would make sense to investigate any delays to the project which would entitle you to an EoT which would adjust the date of the LD’s coming into effect.

I’m sorry to be unspecific but so much depends upon the particular terms and conditions of your contract.

As long as the LD’s represent a ’genuine pre-estimate’ of the loss, then it is likely that the employer can deduct these from your account
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Mon, 2005-01-10 08:33
#5
Don MacDonald
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Susan,

Unless the contract/plans called for the new turbines to be hooked into the existing building in order to power the existing plant on a temporary basis, I can’t see how the owner could reasonably argue that the possibility of using the new turbines in the old system is now grounds for charging LD’s.
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Mon, 2005-01-10 06:54
#6
Susan Young
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Any other suggestions for argument purposes?
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Mon, 2005-01-10 03:13
#7
Jaco Stadler
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The cause is important I would suggest that you read your Cantract and have a look at the "Force Majeure" Clause

Force Majeure means any circumstances beyond the control of the parties. Maybe the trip was beyond your control.

The turbine could be used for the old plant you need to check if it is possible. But I doubt that he will urgue that.

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Mon, 2005-01-10 02:29
#8
Susan Young
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Jaco,

1) The cause of the trip is still being evaluated, however preliminary investigations indicate, its not Clients fault.

2) The Client is building this new power plant for his new manufacturing plant which will not be ready before March. HOWEVER, they do have an EXISTING manufacturing Plant & maybe the Client could always argue that the power output of this new Turbine could have been used for the existing plant, thus giving their existing OLD, less efficient turbines some rest ?

How do we argue then?

Susan
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Mon, 2005-01-10 02:17
#9
Jaco Stadler
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1) Why did the machine trip ? Was it due to a Design / Construct error.

2) What cost did the owner incur due to the trip. (If none and I understand LD correctly the owner can only deduct incured cost)
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