Arbitration: Lessons Learned from Trying a Megacase for International Clients During COVID

Anthony Gonzales, FAACE Founder and Managing Principal Spire Consulting Group

Chris Caputo, Esq. Vice Chair, Construction Practice Group Baker Donelson

Slade Sevier, P.E., Esq. Partner K&L Gates

Title Agenda Sub-Title Text 1. Body Introductions

2. Overview 3. Lessons Learned 4. Questions

Introduction

Master of Business Administration Northwestern University

Master of Science in Civil Engineering The University of Texas at Austin Bachelor of Science in Architectural Engineering The University of Texas at Austin

+ Who’s Who Legal 2016 – 2022 + The University of Texas at Austin Outstanding Young Alumnus + Fellow of AACE International and Project Management College of Scheduling + AACE Charles V. Keane Distinguished Service Award

With more than 25 years of experience, Mr. Anthony Gonzales is a seasoned construction engineering expert with extensive experience in developing, monitoring, and forensically analyzing effective construction processes and project control systems for AEC industry professionals. He ensures clients’ peace of mind by developing project schedules, cost estimates, evaluating control systems, and managing multibillion dollar projects globally. Mr. Gonzales has been designated as an expert on over 100 complex construction disputes and has testified on 25 multiparty disputes. He assesses and advises on operations, strategy, finance, delays, productivity impacts, and quantifies damages in order to guide clients through the claims and litigation process.

Overview of Project & Dispute

Project Location Overview of Project

General Layout Overview of Project • 1.5 million square feet of new construction • 17 sub-buildings (Areas 600-970) • Main building (Areas 100-500)

Main Building Buildings Sub Buildings

General Timeframes Overview of Project 2014 A

M

J

J

A

2015 S

O

N

D

J

F

M

A

M

2017 J

J

A

F

08/12/2015

04/02/14 – 11/11/14

03/12/15 – 04/07/17 11/21/14 – 03/11/15 9/22/14 – 11/20/14

07/22/15 – 03/24/17

M

A

Owner’s Damages Overview of Project 2017 JAN

FEB

MAR

APR

MAY

JUN

2018 JUL

AUG

SEP

OCT

NOV

DEC

JAN

FEB

MAR

3/30 Negotiations 97 Reduction COPs $18,188,548

03/03

12/12

Contractor COPs 176 COPs $47,214,917

03/24 Substantial Completion

03/12

Non-Conformance Notice 115 NCNs - $39,684,332

11/01 Contractor Demand for Mediation

Key Parties Overview of Project

Owner

Architect / Engineer

General Contractor

Structural Engineer

Subcontractor -

Steel Fabricator

Steel Erector

Steel Fabricator

(Main Bldg)

(Main Bldg)

(Sub-Bldgs/Ext Pipe Rack)

Steel Fabricator

Steel Fabricator

Steel Fabricator

(Main Bldg – Joists/Deck)

(Ext Pipe Rack)

(Sub-Bldgs – Joists)

Structural Detailing

Contractor Damages Overview of Project $270,865,917

$270,865,917 $254,993,200

$44,550,666

$50,791,582

127 Pending COPs

$223,650,000

Amount Not Paid by Owner

$23,181,200

$220,074,335

$231,812,000

Amount Paid

by Owner

Amount Paid

by Contractor

Contractor O&P

$2,665,251 49 Approved COPs

Contract Price

Contract Price + Submitted COPs

Amount Paid & Not Paid by Owner

Contractor Actual Cost + Overhead & Profit

Contract Price Timeline Overview of Project 2014 JUN

JUL

AUG

Legend Original Design Basis Contract Price Basis Original Design & Contract Price Basis Additional Key Documents Revised Design Basis Prior to AIA Contract Execution

SEP

2015 OCT

NOV

DEC

JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

ITB Documents 9/22 Invitation to Bid & Tender Documents 02/01 Contractor VE Proposal for $227,873,000

9/26 Instruction to Bidder 10/07 Addendum No. 1 10/22 Addendum No. 2

02/11 Owner Purchase Order to Contractor for $227,870,000

11/07 Addendum No. 3 11/11 Addendum No. 4

11/14 Contractor Initial Bid for $374,465,000 11/20 Contractor Reverse Auction Bid for $277,498,900

12/08 Additional Drawings Received by Contractor

01/12 FabArc Quotation to Sys-Con

01/07 SDLLC sends Floor Area Matrix to FabArc

08/06 Letter of Guarantee (Contract Exhibit C) 07/10 Letter of Commitment (Contract Exhibit A)

03/11 Contract VE List (Contract Exhibit B) $227,264,723

06/04 Letter of Award $224,000,000 08/12 AIA Contract $223,650,000

03/24&25 VE Workshop 03/31 Contractor provides steel quantity of 9,239 Tons to Owner for structural design guide.

-

Contract Priority Overview of Project

AIA Document A101 Article 9.1.6 August 12, 2015

To the extent there may be deemed any conflict between the Contract Documents, the order of priority of prevailing documents should be the following: 1. Letter of Commitment (attached as Exhibit A).

2. The Prime Contract (A101).

3. The Prime Contract (A201).

4. Value Engineering Redesign Item List Dated March 11, 2015 (attached as Exhibit B).

(The Stipulated sum in this document is not correct. The Stipulated sum is as set forth under Article 4 above.)

5. The Tender Drawings dated November 27, 2014.

6. Tender Queries, the Engineer's Clarifications dated October 7, 2014, October 22, 2014 and November 7, 2014, and ITB dated September 26, 2014.

7. Letter of Guaranty (attached as Exhibit C). [emphasis added]

Revised Design Basis Overview of Project 2015 A

M

J

J

A

2016 S

O

N

D

J

F

M

A

M

J

J

2017 A

S

O

N

D

J

F

M

Legend

09/29 Pkg No. 6 08/14 Pkg No. 5A 07/23 Pkg No. 4

Package No. 1

Contract Price Basis

• Area 100 Structural Steel

Revised Design Basis

Package No. 2

Additional Key Documents

• Areas 200-500 Structural Steel & Sub-Buildings

07/14 Pkg No. 2

Package No. 3

06/30 Pkg No. 3

• Area 100 Foundations

06/22 Pkg No. 1

Package No. 4

06/15 Pkg No. 5

• Areas 200-500 Foundations Package No. 5 08/12 AIA Contract 06/04 Letter of Award

• Long Lead MEP Equipment Package No. 6

08/06 Letter of Guarantee (Contract Exhibit C) 07/10 Letter of Commitment (Contract Exhibit A)

• Building Package – Civil/Arch/MEP

A

Revised Design Basis Overview of Project 2015 A

M

J

J

A

2016 S

O

N

D

J

F

M

A

M

J

J

2017 A

S

O

N

D

10/06 Bul. No. 1

F

M

A

Legend

10/09 Bul. No. 2 09/29 Pkg No. 6

J

Contract Price Basis

10/13 Bul. No. 3 07/11 Bul. No. 10

12/4 Bul. No. 5 08/14 Pkg No. 5A 07/23 Pkg No. 4

12/11 Preliminary Conformed Set 01/18 Bul. No. 6 02/04 Bul. No. 7

Revised Design Basis

08/03 Bul. No. 11

Additional Key Documents

09/01 Bul. No. 13

03/09 Bul. No. 4

07/14 Pkg No. 2

03/25 Bul. No. 8 06/30 Pkg No. 3

10/07 Bul. No. 12

04/13 Bul. No. 9

06/22 Pkg No. 1

05/26 Conformed Set

06/15 Pkg No. 5

10/27 Bul. No. 14

04/07 Bul. No. 15

08/12 AIA Contract 06/04 Letter of Award 08/06 Letter of Guarantee (Contract Exhibit C) 07/10 Letter of Commitment (Contract Exhibit A)

Owner issued 15 major design changes as late as 20 months after Contract execution

Design & Contract Price Basis Overview of Project • Consisted of • Design documents provided by Owner prior to Contractor’s initial bid proposal and reverse auction bid • VE efforts captured in Exhibit B of Contract

• Consisted of initial bid, reverse auction bid, Contract VE List, Letter of Award, Letter of Commitment and Contract

• Actual design documents used for construction and consisted of and

Changed Work Overview of Project 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝐷𝑒𝑠𝑖𝑔𝑛 𝐵𝑎𝑠𝑖𝑠 = 𝐼𝑇𝐵 𝐷𝑜𝑐𝑢𝑚𝑒𝑛𝑡𝑠 + 𝐶𝑜𝑛𝑡𝑟𝑎𝑐𝑡 𝑉𝐸 𝐿𝑖𝑠𝑡

𝑅𝑒𝑣𝑖𝑠𝑒𝑑 𝐷𝑒𝑠𝑖𝑔𝑛 𝐵𝑎𝑠𝑖𝑠 = 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝐷𝑒𝑠𝑖𝑔𝑛 𝐵𝑎𝑠𝑖𝑠 + 𝐶ℎ𝑎𝑛𝑔𝑒𝑑 𝑊𝑜𝑟𝑘

𝐶ℎ𝑎𝑛𝑔𝑒𝑑 𝑊𝑜𝑟𝑘 = If Revised Design differed from Original Design, Contractor should be compensated for changed work it performed

𝑃𝑎𝑐𝑘𝑎𝑔𝑒 𝑎𝑛𝑑 𝐵𝑢𝑙𝑙𝑒𝑡𝑖𝑛 𝐷𝑟𝑎𝑤𝑖𝑛𝑔𝑠/𝑆𝑝𝑒𝑐𝑠 𝑉𝐸 𝑅𝑒𝑖𝑛𝑠𝑡𝑎𝑡𝑒𝑚𝑒𝑛𝑡𝑠 𝑅𝐹𝐼 𝑅𝑒𝑠𝑝𝑜𝑛𝑠𝑒𝑠 𝐴𝑝𝑝𝑟𝑜𝑣𝑒𝑑 𝑆𝑢𝑏𝑚𝑖𝑡𝑡𝑎𝑙𝑠 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐼𝑛𝑠𝑡𝑟𝑢𝑐𝑡𝑖𝑜𝑛𝑠 𝐶𝑜𝑛𝑠𝑡𝑟𝑢𝑐𝑡𝑖𝑜𝑛 𝐶ℎ𝑎𝑛𝑔𝑒 𝐷𝑖𝑟𝑒𝑐𝑡𝑖𝑣𝑒𝑠 𝑀𝑒𝑒𝑡𝑖𝑛𝑔 𝑀𝑖𝑛𝑢𝑡𝑒𝑠 𝐶𝑜𝑟𝑟𝑒𝑠𝑝𝑜𝑛𝑑𝑒𝑛𝑐𝑒

Initial vs. Final Steel Quantity Overview of Project 9,239 Tons 400 1,450 235

External Pipe Rack Sub-Buildings Adjustments 100 & 500

14,207 Tons 915

External Pipe Rack

1,951

Sub-Buildings

577 719

Area 500

1,346

Area 350

1,867

Area 300

1,966

Area 200

Areas variance are 100, 200 and 300 1,005 with greatest Area 400 940

Area 350

1,320

Area 300

Area 400

Additional Steel 1,412

25 Tons

Area 200 4,842

2,477

Initial Quantity

Area 100

Final Quantity

Area 100 & 110

Validated Initial Steel Quantity Overview of Project 14%

Contractor’s Initial Steel Quantity aligns with four different engineering firms

Percent Change from Contractor Initial Quantity

12% 10%

7.6%

8% Average 6.28% 6%

6.8%

6.7%

(9,820 Tons)

4%

4% 2% (9,239 Tons)

0%

369 Tons

620 Tons

702 Tons

631 Tons

Company 1 (Contractor’s Modeled Quantity)

Company 2 (Owner)

Company 3 (Contractor)

Expert

Owner Changes to Steel Overview of Project

First Hearing Summary Overview of Project Contractor was impacted by changed work above and beyond Contract Price, which resulted in increased costs

• ITB Documents and Contract VE List • Initial bid, reverse auction bid, Contract VE List, Letter of Award, Letter of Commitment and Contract • Packages, bulletins and other contemporaneous documents • •

Contractor should be compensated $26,435,073 for COPs and $4,405,846 in interest Contractor actually incurred $21,328,887 (including O&P) and $3,554,814 in interest

COP Summary Overview of Project Quantity

Contractor Proposed Amount

Designer Approved Amount

Approved COPs

49

$2,665,251

$2,665,251

Partially Approved COPs

34

$3,408,365

$1,456,326

Unapproved COPs

90

$40,817,736

-

COPs Not Responded

3

$324,565

-

Total

176

$47,215,917

$4,121,577

Description

Owner Damages Overview of Project

Lessons Learned

Summary Lessons Learned • • • • • • • • • • •

Bidding process VE process Quantity takeoffs Design development Contracting Change order requests Schedule development Communication Performance Personnel Quality of documents

• • • • • • • • • • • •

Way it was contracted Three (3) hearings Prepping and putting on witnesses Direct witness statements Translating documents Treating counsel Negotiating without counsel Family dynamics Impact of experts Covid Arbitration vs. litigation Simplification

Bid Process Lessons Learned 2014 JUN

JUL

AUG

Legend Original Design Basis Contract Price Basis Original Design & Contract Price Basis Additional Key Documents Revised Design Basis Prior to AIA Contract Execution

SEP

2015 OCT

NOV

DEC

JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

ITB Documents 9/22 Invitation to Bid & Tender Documents 9/26 Instruction to Bidder 10/07 Addendum No. 1 10/22 Addendum No. 2 11/07 Addendum No. 3 11/11 Addendum No. 4

11/14 Contractor Initial Bid for $374,465,000 11/20 Contractor Reverse Auction Bid for $277,498,900

12/08 Additional Drawings Received by Contractor

Any changes to ITB Documents after the 11/20 Reverse Auction Bid are NOT part of the Original Design. This includes drawing set Contractor received on December 8, 2014 -

VE Process Lessons Learned

Dead Load and Live Load Reduction [translation provided by Contractor]

Contract VE List March 11, 2015

VE Process Lessons Learned

VE Process Lessons Learned Depicted pre-engineered building (PEB) steel structure

ARC-074-V1

Contract VE List March 11, 2015

철골부재 변경 (PEB → Conventional + Joist System)

Contracting Lessons Learned 1. Matters already agreed upon with respect to VE contract (1) Contractor enters into a contract for lump-sum construction of Tennessee Plants of Owner and the contract price negotiated through the VE proposal is USD 224.0 Million.

(2) The negotiated contract price covers all of VE items proposed in the bidding documents of Nov. 2014 (including all of specifications, ITB, and design documents) and the VE Proposal (December 2014 – February 2015) Letter of Commitment Contract Exhibit A July 10, 2015

(3) Contractor will provide fully controlled construction services according to design drawings where items in the bidding documents and VE proposal are reflected. [emphasis added, translation provided by Contractor]

Change Order Requests Lessons Learned

Change Order Requests Lessons Learned

Description

Unit Price

Amount

1. Agreed Unit Price

$5,921/Ton

$26,010,937

2. Contract Unit Price

$4,866/Ton

$21,377,348

3. RSMeans Unit Price

$4,977/Ton

$21,862,775

Scheduling Lessons Learned

Scheduling Lessons Learned

Total Number of Activities Remaining Number of Activities Missing Predecessors Missing Successors Relationship Leads Relationship Lags Constraints High Float (>45 Days) Negative Float High Duration (>45 Days)

S1 7-Aug-15 1626 1520 1% 35% 17% 21% 1% 71% 4% 22%

S2 12-Dec-15 1259 1102 2% 36% 18% 18% 5% 71% 2% 20%

S3 10-Feb-16 1260 1008 2% 37% 15% 23% 4% 82% 1% 21%

S5 6-Aug-16 1263 738 3% 42% 19% 20% 8% 55% 0% 24%