Case Studies: Construction

Black & Veatch Awarded Over $20 Million In Damages After Typhoon Delayed Building Project

Summary:

In 2001, steam generator equipment traveling from Japan to the United States, intended for the construction of a power plant near Pleasant Hill, Missouri, was badly damaged by a typhoon in the Pacific Ocean. Black & Veatch, the project’s engineering, procurement, and construction (“EPC”) contractor, was forced to invest an additional $38 million to overcome the impacts and complete the project on time.

Professionals from The Kenrich Group were hired by Black & Veatch to establish systems to properly track and quantify the disruption impacts and other delay costs related to the damaged steam generators. In addition to filing expert reports and providing deposition testimony in lawsuits filed against the equipment manufacturer and ocean cargo insurance company, Kenrich professionals also testified at trial in a third case involving the builders’ risk insurance company. This helped Black & Veatch favorably settle out of court in the equipment manufacturer and ocean cargo insurance company lawsuits and recover 100 percent of damages claimed in the builders’ risk lawsuit that went to trial.

Background:

During the late 1990s, economic growth in the Midwest spurred the need for additional power plants to meet increasing energy demands. Black & Veatch, one of the world leaders in power plant design and construction, was awarded a $200 million engineering, procurement, and construction contract to build a power plant in Pleasant Hill, Missouri. The plant was designed to be a cogeneration plant, creating both electricity and heat. It was touted for its ability to emit the lowest water and air emissions in the industry. Critical to the plant’s design were heat-recovery steam generators which were manufactured in Japan.

A typhoon struck while the steam generators were aboard a cargo ship to the U.S. from Japan. The storm’s high winds and rough seas severely damaged the steam generators, rendering significant portions of them unusable.

The steam generator manufacturer in Japan agreed to replace the equipment at no cost; however, it took six months for the new shipment to arrive. This presented a serious problem for Black & Veatch. Despite the significant equipment delay, the plant’s owner directed Black & Veatch to accelerate work in order to meet the original project schedule. Therefore, Black & Veatch was forced to invest an additional $38 million for extra workers and construction equipment to increase construction capacity.

Solution:

Black & Veatch foresaw the potential obstacles created by the delay in the construction equipment and retained Kenrich professionals shortly after the typhoon to assist with defining the multiple project impacts and determining how to address them. The Black & Veatch and Kenrich team understood that it needed to create a precise record of what impact the accident had on the project cost and schedule. Kenrich established procedures to monitor and track disruption and delay costs as the costs were incurred. Kenrich monitored the disruption cost calculations on an ongoing basis. Kenrich professionals also met with the insurance companies and their claim underwriters to provide ongoing documentation and describe the tracking and monitoring process.

Following the completion of the plant, Kenrich assisted Black & Veatch in using the contemporaneously prepared disruption calculations to quantify economic damages in three different disputes – against the equipment manufacturer, the ocean cargo insurance carrier, and the builders’ risk insurance carrier. Kenrich quantified delay and disruption costs, as well as other losses caused by the delayed steam generators. In addition to filing expert reports, Kenrich also provided deposition testimony in the cases against the equipment manufacturer and the ocean cargo insurance company. Kenrich also testified at trial in the third case against the builders’ risk insurance company.

Result:

By engaging Kenrich personnel early in the process, Black & Veatch cost-effectively positioned themselves to handle any potential future litigation stemming from the construction delays or damaged steam generators.

In 2007, Black & Veatch was awarded more than $20 million in a jury verdict, which was 100 percent of the damages presented by Kenrich’s expert testimony. Also, with the assistance of Kenrich professionals, Black & Veatch successfully settled the two other litigation matters out of court.