Shumway Sorensen International Construction Disputes

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    Collaboratory for Research

    on Global ProjectsGlobal Projects Seminar Series

    Avoiding and Settling Disputes onInternational Construction Projects

    Professors Ron Shumway & Nick Sorensen

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    Prof. Ron Shumway

    JD, Duke University LawSchool; BA, BYU

    Director KPMG; ManagingDirector FTI Consulting

    Bechtel Principal Counsel forContracts & Disputes

    Eurotunnel ClaimsManagement Committee

    General Counsel, AtkinsonConstruction Company

    Atkinson

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    Prof. Nick Sorensen

    Juris Doctor, University ofChicago Law School; BA,Brigham Young University

    Bechtel Claims ManagerBART Extension to SFO,

    Special Counsel

    General Counsel, Ball, Ball

    & Brosamer and The ScottCompanies

    Associate General Counsel,Dillingham Construction dillingham

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    Global Projects Seminar Series

    A Tale of Three Projects

    Positive and Negative Examplesfor

    International Project Development

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    Global Projects Seminar Series

    Lo Que Mal Abarca, Mal Termina

    [Spanish Proverb]

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    Project #1 - Guri Dam

    Caroni River, Venezuela SE of CaracasCompleted 1985

    Cost US$ 4-5 Billion

    Provides 70+% of Venezuelas electricityFinished without a claim or dispute

    everyone happy

    [But it wasnt always that way . . .]

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    Why Guri (finally) worked well

    Cost reimbursable contractIncentives:

    Target Fee

    Milestone BonusesGood contract administration

    [But more importantly . . .]

    Owner did their homework up front [more onthat later]

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    Project #2 - Eurotunnel

    Strange solicitation for proposals withschemes for fixed link

    Governments of UK and France selectedwinner, but did not invest (privately financed

    by 220 banks)Offers of helium balloons, Euro-Bridge

    (cars), Euro-Route (trains & cars),Eurotunnel (trains)

    Bid at US$7 Bn; finished at US$13 BnTechnological triumph; financial disaster

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    Why Eurotunnel went wrong

    Winner of proposal stage composed entirely ofcontractors

    First negotiated construction contract with selfwhile Eurotunnel (owner) was captive ofcontractors

    Eurotunnel later spun off and sold stock to (mostlyFrench) widows & orphans

    During negotiations, banks were the onlycounterweight

    Result was good for contractors, less so for ownerProject met projections for traffic & sales but not

    payback of loans; widows & orphans lose

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    How to get it Right

    [Details after Professor Sorensen

    dissects Dabhol / Enron]

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    The Dabhol PowerProject

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    India and the State of

    Maharashtra

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    The MajorPlayers

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    Initial Plan:The Gas Pipelinefrom the Caucasus

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    Under Construction

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    Stopped

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    Restartedthe Dabhol Power Plant LNG Terminal

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    Getting it right up front:

    Will my investment be protected by locallaws, authorities and institutions?

    Will governmental bodies and financialinstitutions honor their agreements with

    me?

    If theres a dispute, will it be in a forumthats timely and fair to me?

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    Getting it right up front

    Realistically: an Owner must prioritize, and haslimited control over cost, schedule and quality:

    First Priority +60%

    Second Priority +30%

    Third Priority +10%

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    Example:

    Owner says:

    Gotta keep the cost down cost comes first!

    Generally means fixed price and competitive bids

    Which generally means design-bid-build

    Takes longerQuality suffers

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    If the Owner wants...

    Priorities Type of Contracting

    Cost, schedule,quality Design-bid-build

    Cheapest, but takes longest."Quality" is inversely proportional to completeness,accuracy, etc. of design.

    Cheap design = poor quality + disputes.

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    If the Owner wants...

    Cost, schedule, quality Fixed price design-bid-build, or .. . *

    Cost, quality, schedule Fixed price design-bid-build; butmore on design

    Schedule, quality, cost Very tough combination workwith bonuses

    Schedule, cost, quality Fixed price, design-build[goodbye quality]

    Quality, cost, schedule Cost + with GMP [but . . .]

    Quality, schedule, cost Cost + design-build

    * Can jigger all these with incentives & bonuses

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    Can you make the Contractorfinancially responsible?

    Lets look:

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    Top Ten Contractors

    1985 - 2005

    From Engineering News-Record

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    Top U.S. Contractors1985 - 2005

    1985 20051. Kellogg Rust, Inc. 1. Bechtel Group, Inc.

    2. Fluor Corp. 2. KBR

    3. Bechtel Group, Inc. 3. Centex

    4. The Parsons Corp. 4. Fluor Corp.

    5. Stearns Catalytic Corp. 5. The Turner Corp.

    6. Brown & Root, Inc. 6. Skanska USA Inc.

    7. Lummus Crest, Inc. 7. Jacobs

    8. Stone & Webster 8. Bovis Lend Lease

    9. FosterWheeler Corp. 9. URS

    10. Raymond International 10. Washington Group

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    Remember . . .

    Over the long haul, all contractors areheaded the same place

    Make sure your career doesnt head thesame way

    Sign up for CE 290 L, Law for Engineers Spring Semester 2007

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    The EndThe End

    CE 290 L

    Law for Engineers