All Posts from October 19, 2018

Jury Awards IFCo Subcontractor $62.4 M in Case Against General Contractor

Maintenance Enterprises LLC (MEI), a subcontractor that helped build the Iowa Fertilizer Co. (IFCo) plant in Wever, Iowa, was awarded approximately $62.4 million by a jury on Oct. 12. The case was brought against the general contractor, Orascom E&C USA Inc. (OEC), in U.S. District Court for the Southern District of Iowa, Davenport Division, in February 2016 (GM Feb. 26, 2016).

OEC is a unit of Orascom Construction, Cairo, Egypt. IFCo, which is not a part of the lawsuit, is owned by OCI NV, Amsterdam. The $3 billion IFCo facility was officially inaugurated in April 2017 (GM April 21, 2017). At the time, anticipated capacities were 195,000 mt/y of sellable anhydrous ammonia, 420,000 mt/y of urea, 1.5 million mt/y of UAN, and 315,000 mt/y of DEF (GM Nov. 23, 2016), though the company more recently said production has exceeded capacity.

The jury found that OEC breached its contract with MEI by not paying its invoices, and awarded MEI $50.1 million plus interest. It added on other sums, including OEC’s use of MEI’s tools and consumables, punitive damages, and diminution of value damages.

MEI said on Dec. 22, 2015, it warned OEC that it would halt work until OEC paid overdue invoices. Thereafter, MEI said it was told to prepare to hand over its work to OEC, and the last work the subcontractor performed was on Jan. 31, 2016. MEI said it was owed some $53 million at the time.

MEI, which is owned by MEI Group, a unit of Crown Enterprise LLC, all of White Castle, La., said it was initially hired in September 2014 to work on the ammonia primary reformer furnace, and was retained to work on the urea unit in first-quarter 2015 after another subcontractor was terminated.

OEC countersued MEI, saying it was owed over $65 million due to MEI’s poor performance on the project (GM May 6, 2016). OEC said MEI agreed to an $85 million contract to complete a downstream scope project before Sept. 15, 2015. However, the cost and timeline kept going up, with the cost at $140 million as of December 2015 and the completion near June 2016.

OEC terminated its deal with MEI in December 2015, and said it hired new subcontractors who found problems with MEI’s work performance that required repairs. It said MEI-caused delays also pushed construction into the winter of 2015/2016, which weighed on costs. Overall, it accused MEI with low productivity, insufficient manpower, high turnover, and inaccurate estimates.

While the jury found MEI breached the contract with OEC by failing to comply with OEC’s specifications, drawings, and quality plans, it awarded OEC no damages. It found MEI did not breach the contract by failing to perform its work in a reasonable amount of time or by charging OEC for out-of-pocket costs that were not reimbursable under the contract.

Judge Caps Weatherly Liability at $2.2 M in U.S. Nitrogen Case

U.S. District Judge Michael Brown of the U.S. District Court for the Northern District of Georgia, Atlanta Division, late last month capped any liability by Weatherly Inc., Atlanta, in a suit brought by U.S. Nitrogen LLC (USN), Mosheim, Tenn., at only $2.2 million, granting a motion for partial summary judgment brought by Weatherly (GM June 30, 2017; May 6, 2016). USN said Weatherly cost it some $30 million and some five months of delay.

Judge Brown said under Georgia law, a party may contract away liability to the other party for the consequences of his own negligence without contravening public policy … except when such an agreement is prohibited by statute. While Georgia has an indemnification statute that prevents contractors from contracting away liability, Judge Brown ruled that it only applies to third parties.

The Weatherly/USN contract had a provision saying liability shall not exceed 15 percent of a price of $14.7 million, or $2.2 million. Judge Brown went with this price, which was in the contract as the estimated price, though USN argued for a higher price based on the $20.1 million it said it actually paid Weatherly. Judge Brown said USN should have put the higher figure in the contract. He said the millions USN spent to fix the alleged problems fell within the cap, and that USN waived any consequential damages such as loss of production, business, or profits. He was also not impressed with USN’s argument that Weatherly initially drafted the contract, saying both parties engaged in negotiations and revisions.

USN, a subsidiary of Austin Powder, Cleveland, Ohio, complained about several items, with the centerpiece involving the foundations for two Worthington BDC natural gas compressors that were delivered to the site from Argentina and Lake Charles, La. USN said both foundations failed when the units were placed upon them on Jan. 4, 2014, and that Weatherly offered only patchwork repairs. USN sought independent advice from two other firms, and both independently recommended that the entire foundations be removed and redesigned. USN said this was at significant expense, and that it cost $7 million to have the work done.

Likewise, USN cited foundation problems for a cooling tower. USN said the Weatherly designs called for supports based on a cooling tower weighing 3,500 pounds, when in fact the tower weighed 35,000 pounds. While mistakes in the cooling tower basin were remedied, USN said the company bore the additional costs despite Weatherly’s design warranties.

USN also cited water accumulation problems at the 500-acre site that it said were directly attributable to the grading design constructed under Weatherly’s supervision. USN went on to describe a litany of other problems, including issues with the foundation of the nitric acid stack, pipe connectivity issues, and elevation issues that affected connectivity. The company later amended the complaint to add a cracked ammonium nitrate solutions (ansol) tank (GM Aug. 19, 2016).

Weatherly had told the Court that there was only one new major plant at the complex – a 420 st/d ammonium nitrate solutions facility. It detailed that the others included two skid-mounted ammonia plants (90 st/d and 100 st/d) built by N-REN Corp. in the 1970s that were sold to Louisiana Chemical after N-REN filed for bankruptcy in 1986.

Weatherly said the two plants sat in Louisiana for more than 20 years before being sold to Grupo Gloria in Peru. Weatherly said USN bought the plants, which had never been put into service, from Grupo Gloria in 2010, and moved them to Tennessee. Also in 2010, USN bought a 30-year old (500 st/d) nitric acid plant from Olin Corp. in Lake Charles, La. It, too, was dismantled and brought to Tennessee.

The pre-lawsuit cost estimate for the USN plant was $220 million.

Weatherly was purchased by KBR Inc., Houston (GM Jan. 15, 2016).

USN had not responded to inquiries at press time.