Watson Millican & Company ’s technical experts were retained through counsel for an EPC contractor’s project in a European refinery regarding a dispute with the owner of the facility. The contractor was responsible for the design, construction, and commissioning of a new Hydrocracking unit and associated facilities and upgrading of existing process units. The project was contracted on a Lump Sum Turnkey basis. The dispute resolution was international arbitration.
The Dispute
The new Hydrocracking unit at this European refinery successfully started up after a considerable schedule delay. The owner claimed that the contractor was responsible for the entirety of the delay due to its inability to continue the construction during adverse weather conditions, failure to issue error free construction drawings in a timely manner and failure to adequately manage some of the subcontractors. The owner also claimed that the contractor did not follow the welding specifications, and that the contractor was responsible for having hundreds of stainless-steel welds cut out and rewelded.
Watson Millican & Company Scope
The initial civil works phase of construction was severely hampered by extended and abnormal amounts of rain which generated great quantities of mud and rendered the construction site unsafe. The owner claimed that the temporary drainage system designed by the contractor was inadequate. Watson Millican reviewed the historical meteorological data for the area and the reports from the media and confirmed that rainfall quantities reported were near or above record levels, depending on the source and the timeframe examined, concluding that a standard construction site drainage system would have been overwhelmed, as it was.
On review of the issuance of construction drawings and their impact on the construction, Watson Millican reviewed a sample of the drawings selected by the owner’s expert to assess what had changed between the revisions, when the change was made and whether this would have impacted the construction. Watson Millican found that most of the revisions were either not material or were associated with small bore (2 inch or less diameter) pipe which were to be field fabricated and routed, so there was minimal impact from the drawing changes. All but one drawing had been issued prior to start of construction so we concluded the allegations were without merit.
One of the subcontractors was selected for part of the project against the contractor’s recommendation. This subcontractor claimed that it had insufficient work front due to the late issuance of drawings and materials from the contractor. Watson Millican investigated the progress and productivity reporting as well as drawing issuance dates, determining that the subcontractor was not utilising sufficient staff to execute the work available and that the issued for construction drawings had been timely supplied for the work schedule.
It was discovered that incorrect weld material had been used to fill 563 stainless steel welds and subsequently some of the repaired welds displayed micro cracks. Watson Millican reviewed the project specifications, the welding logs and the material procurement records. Watson Millican found that the contractor had complied with project specifications and that the welding rods used had been mislabelled by the rod supplier. Even if the contractor had carried out spot checks on the rod materials prior to their use, which was not required by the contract, they may not of found the error as many welding rods were of the correct material in the shipment. The micro cracks were caused by using an alternative welding rod, which was compliant with the specification and had been agreed to by the owner. The alternative welding rod had been procured due to poor availability of the first choice of rod. These welds were also cut out and rewelded by the contractor.
Project Scope:
Value: US $114 Million
Services: Design; Construction; Selection and management of subcontractors
Sectors: Refining
