CONTRACT LAWS & CLAIMS

(CASE STUDY OF DISPUTE BETWEEN ATHENS GENERATING COMPANY AND BECHTEL POWER CORPORATION )

CONTRACT DETAILS

Contract - Construction of 1080 megawatt power plant in New York

( includes installation of 3 gas turbines manufactured by Siemens Westinghouse power corporation )
Client - Athens generating company
Contractor - Bechtel power corporation
Sub contractor Siemens Westinghouse power corporation
Type of contract - EPC
Contract price - $522 million
Contract start date - 12 th June 2001
Contract completion date - 12 th August 2003
Actual completion date 18 th march 2004
Liquidated damage - $49000 / day / turbine

CONTRACTORS PERSPECTIVE
Reason for delay :
i) Modification in the products by the client ( as per clause 20.1 )
ii) Tornado (as per clause 19.1 V )
iii) Regional power outage
iv) client suspended the use of fuel gas for 35 days due to hike in price ( as per
clause 8.5 b & c )
Contractor also argued that daily rate of $ 49000 / day / turbine constituted an
impermissible penalty

CLIENTS PERSPECTIVE
Product modification are within the scope of contractors contract (as per clause 13.1).
Contractor was aware that Siemens technology for gas turbine is immature.( as per clause
4.4 )
Some of the modification are not needed for the substantial completion of contract and are
made for the convenience of both contractor and sub contractor.(as per clause 5.8)
In any point of time the activities are not on the critical path of work.
Because of tornado , Contractor was entitled to one day of extension on two of three
turbines ( as per clause 19.1 V ).
Contractor was entitled two days of extension on all the three turbines because of
temporary power shutdown at site.

RULING

The panel of arbitrators found that the product modification and project
betterments alleged by the contractor were within the scope of contractors
contract because it is an EPC contract, the time delays and cost caused by the
implementation of product modifications should be borne by the contractor.

Contractors Expert
Witness

Laurie Oppel,who testified the things regarding the economics of

operating the generating plant at the time Contractor claimed.

Her opinion addressed the actual damages Athens incurred as a result of

late completion rather than the estimate used at the time of contract
formation.

Clients Expert Witness

Michael J King,a representative of client,in contrast addressed the

estimates used in arriving at the daily rate of $49000 per turbine per day.

He testified that this had been reasonable forecast , at the time of

contract formation , of the actual damages Athens might occur as a
result of late completion.

RELEVANT FIDIC ( EPC / TURNKEY PROJECTS) CLAUSES

Clause 20.1: Contractors Claim
Clause 19.1: ( V) : force majeure
Clause 8.5 (b) : Contractors work has been disrupted by the
decision of authorities.
Clause 8.5 (c) : Delay caused by authorities due to
unforeseeable reasons .
Clause 13.1 : Variations & adjustments (Right to vary )
Clause 4.4 : Subcontractors ( The contractors shall be
responsible for acts of Subcontractor)
Clause 5.8 : Design errors
Clause 2.5 : employers claim

FINAL VERDICT
The arbitrators found clients testimony credible and ruled that
the liquidated damages clause in the contract is enforceable
Hence, the contractor was awarded remaining contract price
DEDUCTING the liquidated damages.(as per clause 2.5)
Contract balance = $ 28,303,747
Liquidated damages = $ 26,950,000
Price awarded = $ 1,353,747

REFERENCE OF THE CASE

Construction Claims Advisor
Weekly e-letter
Volume-7 Issue-46
23 Nov 2009
www.constructionclaims.com
www.constructionrisk.com

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