Death, Taxes… and Changes: A Glimpse

November 4, 2013

By: Gray Slocum

It’s not too late to check out the October 2013 issue of Modern Contractor Magazine for Interface Consulting vice president and principal consultant Chris Sullivan’s article, “Death, Taxes… and Changes.” In the article, he summarizes the importance an effective change management process, provides insight into potential issues, and recommends ways to maximize your ability to successfully manage a project through changes.

According to the article, an effective change management process includes the following five (5) key steps:

1. IDENTIFICATION
Identification of a change is often the hardest part of change management, as some changes may initially be subtle in nature. A change can be defined as any anticipated or actual deviation from the contract basis, scope of work, cost, or schedule. All key project team members should be familiar with the contract scope, estimate basis, and schedule in order to enable them to more quickly identify variances from the contract basis.

2. NOTIFICATION
Most contracts have change notice provisions that require a contractor to provide notice to the owner of potential changes within a fixed period of time. Construction disputes often result from a failure to provide timely and written notice of a change. Timely notice enables the owner the opportunity to review and analyze the potential impact of a change before deciding whether to implement the change.

3. DOCUMENTATION
The next step is to document the change and its impacts. Furthermore, confirm in writing all relevant oral directives and changes.

4. CHANGE ORDER PREPARATION
The change order proposal and estimate should be prepared as soon as possible, keeping in mind any contractual time limits. The estimate should be based on the best available data using the contractual unit rates and mark-ups or other contract requirements, where applicable.

5. RESOLUTION
Parties are encouraged to settle changes as quickly as possible, as changes made earlier typically result in less rework and allow more time for efficient planning and scheduling, hence minimizing project cost. A properly documented and prepared change order proposal stands a much higher chance of resolution when it is based on contemporaneous data and factual information.

Remember, change is inevitable on construction projects, but it’s how changes are managed that determines project success. For the complete article, please visit the following link to our website: http://www.interface-consulting.com/articles/death-taxesand-changes/

Construction Industry Hangs in Suspense over Government Shutdown

November 4, 2013

The October issue of Construction Headline News focuses on the impact the government shutdown had on the construction industry. While US congress members wrangled over spending bills and healthcare, the construction industry hung in suspense over how the government shutdown will affect projects both in the works and ongoing. From defense infrastructure to transportation, construction projects across multiple sectors were suspended while many federal contractors were furloughed. Read on to learn more about the types of projects at risk and the potential longer-term effects on the industry.

Construction arbitration matters are making headlines this month. Particularly, an increasing number of Chinese firms are flocking to Hong Kong, instead of elsewhere in Asia or London, with their international commercial disputes that are tried under the rules of the New York convention. When it comes to disputes, Lakeshore TolTest Corp., is under fire and more than $70 million worth of contract work is on hold as several vendors allege nonpayment. In other news, a group of Philadelphia business and political leaders aim to bring a natural gas pipeline into Philadelphia straight from the Marcellus Shale site to fuel economic growth in the city.

Coal Power Industry Threatened by Regulations; Natural Gas Picks up Steam

September 27, 2013

The September issue of Construction Headline News spotlights the US coal industry’s reaction over pending EPA regulations requiring coal-fired plants to implement expensive solutions to trap and store carbon emissions. Set for release on September 20, the regulations may suffocate the fizzling coal power industry, with many plants already at risk for replacement to accommodate lower-cost power sources such as natural gas. Read on to discover how the new regulations and alternative fuel sources are changing the power generation landscape in the US.

Settlements are in the news this month as the North Carolina Department of Transportation has agreed to pay Skanska Corp., over $13 million to settle a lawsuit concerning the three-year delay surrounding the I-485 project. The Louisiana Stadium and Exposition District board voted to settle a contractor’s lawsuit regarding alleged irregularities on the New Orleans Arena project bidding process. The City of Prescott has agreed to pay over $300,000 to settle a payment dispute with the contractor on the Prescott Airport runway safety improvement project for money that was still owed on the contract.

Conquering the Summit with the Future Leaders Program

September 20, 2013

By: Jennifer M. Hatten

The Engineering and Construction Contracting Association (ECC) held their 45th annual conference September 11 – 14, 2013, at the JW MarriotDesert Springs in Palm Desert, California. This year’s attendance was the largest in the conference’s history with over 750 registered attendees. Centered on the theme, Conquering the Summit, Aspiring to Flawless Project Delivery, the ECC delivered an exciting conference that provided valuable insight into how to deliver an unspoiled project.

A unique aspect of the ECC is the Future Leader Program. This program brings together new and young industry leaders and allows them to take on an active role not only in the ECC, but directly in the conference. The Future Leader Program plans for months and meets one day before the conference begins to provide an avenue for thought leadership and personal development.

I was able to be a part of the Wednesday Working Session Planning Team on September 11, 2013, that coordinated speakers and round table discussions. The team had the day organized into three main topics: Thought Leadership, Collaboration and Networking, and Industry. The Thought Leadership discussion was lead by Bill Hawkins of the Marshall Goldsmith Group. Bill is an expert in leadership and executive coaching and has worked with more than 20 Fortune 500 Companies. Bill spoke on the topic, “what got you here won’t get you there,” which is also the title of one of his published books, What Got you Here Won’t Get You There: How Successful People Become Even More Successful.

The Collaboration and Networking discussion was led by Denise Elston and her husband, Rob Elston. Denise was a huge success the previous year’s conference and was brought back by popular demand. Denise retired from Shell in January 2013 after 28 years of service. At the time she retired, she was the Vice President, of Safety, Environment and Sustainable Development (SE/SD) for the Upstream Americas (UA) business. Rob Elston has worked for Shell for 26 years. For the past 10 years, he has worked in Downstream where he supported refinery and chemical plant operations, helped maintenance positions, served as a reliability engineer, and causal analysis team lead.

The Industry discussion was an insightful round table discussion with current leaders in capital projects from companies such as Advanced Project Solutions, Worley Parsons, CH2M Hill, Burns & McDonnell, Albemarle, Eastman Chemical Company and Universal/Pegasus International, Inc.

The Wednesday Working Session Planning Team put on a great program that was engaging and informative. It is great to be a part of such a dynamic group that continues to grow each year.

Shale Oil and Gas Market to Get Boost from New Pipelines

August 26, 2013

The August issue of Construction Headline News focuses on the new pipeline projects in the works surrounding shale gas exploration across the United States. Pipeline companies are capitalizing on the abundant shale oil and gas plays, like Eagle Ford, Bakken, Utica, and Marcellus shale formations, among others. These deposits require extensive pipeline infrastructure to bring oil and natural gas resources to the Gulf Coast and other regions for processing. Read on to discover which shale sites have pipelines in various stages of construction, and what the outlook is for future production.

Also of interest in this month’s issue, the Modesto Irrigation District has filed a lawsuit against the city of Modesto for over $9 million in additional costs on the delayed water treatment plant expansion. Also, the owners of the private Branson Airport have accused four construction firms of building a faulty $70 million runway that collapsed 2 years after construction. The Salt Creek Tunnel in Oregon has hit delays that are pushing the $9.4 million tunnel project into its third year of construction. The delayed $68 billion ‘shovel-ready’ bullet train through California has yet to secure a contractor or federal permits. Look to Canada as an over $1 billion Enbridge pipeline is slated for construction and will connect to refineries and export pipelines in Edmonton.

Power Projects Fuel Construction Industry Growth

August 9, 2013

By: Gray T. Slocum

Currently, overall construction spending is increasing globally after a prolonged slowdown. In the United States, Interface Consulting expects the increasing demand for energy and the retirement of older, less efficient power plants to drive investment in power projects. In recent years, the quantity and size of power construction projects has reflected considerable growth in that subsector. Based on Interface Consulting’s research and experience, this trend is expected to continue for several years. While there are several factors that contribute to this industry growth, some of the most significant factors include:

A rebound in the residential and commercial sectors

  • Continued population growth
  • Slowing advancements in energy efficiencies
  • Shifts in the selection of fuel sources for power generation

The following chart shows the projection of electricity generation by fuel as analyzed by the US Energy Information Administration. Almost all fuel sources aside from nuclear and coal are expected to increase in market share and will require even more generation facilities to meet the demand.

Electricity Generation by Fuel, 1990-2040 Source: http://www.eia.gov/forecasts/aeo/er/early_elecgen.cfm

While coal is, and looks to remain, the top fuel used in the production of electricity, other fuel sources will slowly cut into the market share. This is largely due to the phase out of environmentally unfriendly power plants. Coal-fired generation is expected to reduce its market share because of continued concerns regarding the release of greenhouse gases.

Fuel sources likely to gain from the decline in coal use are natural gas and renewables. Nuclear power is expected to experience a slight decrease in the market share during a period of decommissioning of old plants and the construction of new plants.

Interface Consulting Project Data

Interface Consulting tracks data on its consulting engagements and categorizes them according to industry sector. Power-related assignments are grouped within the “Power, Process, and Industrial” industry sector. Since 2005, Interface Consulting has seen a significant increase in the quantity of these assignments. When it comes to power, process, and industrial projects; owners, contractors, and attorneys are looking to Interface Consulting due to the growing size and complexity of these projects. Interface Consulting’s scope of work on these engagements includes project management, claims management, and litigation or arbitration assistance.

As shown in the following charts, the percentage of Interface Consulting Power, Process, and Industrial engagements has more than doubled over the past eight years.

Concentration of Interface Consulting Engagements by Industry Sector, 2005-2013 Source: Interface Consulting International, Inc., Project Data

Large and complex power projects will continue to see significant construction growth in the near future. The rebound in residential and commercial sectors, continued population growth, slowing advancements in energy efficiencies, and shifts in fuel sources for electricity generation will continue to drive power industry construction for years to come.

For the complete Construction Outlook click the following link.


The Great LNG Reversal

July 25, 2013

By: Peter van der Schans

The US is transitioning from being a net importer of liquefied natural gas (LNG) to a net exporter. After going through a revival earlier this century, LNG imports into the US have been on the decline since 2007. As of March 2013, only three out of the 12 US import terminals have seen shipments of LNG into the US since the beginning of 2013. The US imported less LNG in 2012 than it did in any of the last ten years, and if the trend continues, will almost surely import even less this year. The following chart shows the overall decline in LNG imports over the past 10 years in billions of cubic feet (bcf) per day.

US LNG Import Volume (bcf), 2003-2012

(Click to enlarge)

The declines shown in recent years can be explained in part by the relatively low price of domestic natural gas in the US coupled with the increase in domestic supply, which has made imported LNG economically unfavorable.

The following chart shows the level of imported LNG declining as the amount of domestic natural gas production has increased.

US LNG Import Volume (bcf) v. US Natural Gas Production (bcf), 2003-2012

(Click to enlarge)

This trend is expected to continue as domestic production continues to increase. According to the EIA, the United States is projected to be a net exporter of natural gas by 2020.

The trend toward exporting natural gas can be seen in the number of planned LNG export terminals. In 2008, there were zero planned export terminals in the US. However, according to FERC, there are 21 potential LNG export facilities, including one (1) currently approved and under construction, planned in the US.

Currently, the U.S. does not export any LNG. By 2025, an industry report by ICF International indicates that US exports could exceed 10 billion cubic feet per day. This assumes that the construction of several LNG export facilities is completed on time. These massive projects involve years of planning and construction, and costs that exceed, in many cases, over $10 billion per facility. At that magnitude, claims and disputes are inevitable. Owners and contractors will need to prepare for effectively mitigating, pursuing, and defending against very large and complex claims resulting from the construction of these facilities.

Click on the following Interface Consulting infographic to see a full-size summary of “The Great LNG Reversal” in the US.

(Click to enlarge)

For more information on the number of US LNG projects planned in 2008 versus 2013, please click to download the following presentation.

(Click for full presentation)

Solar Power Projects Heat Up Across the US

July 25, 3013

The June issue of Construction Headline News brings the activity of the US solar market to light. Photovoltaic panel manufacturers are trying to keep pace with the many solar power projects ramping up across California, Nevada, Arizona, New Mexico, and Georgia. Many of these public and private ventures will be the biggest solar initiatives in their states, and all are on track to be finished by the end of 2014. Read on to learn about solar construction projects in the works and some of the concerns surrounding the industry’s rapid growth.

This month’s issue also highlights many construction litigations, such as the lawsuits surrounding the Maryland Silver Spring $500 million gas-fired electricity plant and the $20 million nuclear site design dispute between Baker Concrete and Savannah River Nuclear Solutions. Construction infrastructure delays are also grabbing headlines in Virginia and South Carolina. The Western Bypass highway in Virginia is more than 5 months behind schedule and $4.7 million over budget while the Carolina Bays Parkway is over 3 years behind schedule and almost $100 million over budget. Also, check out the “Construction Economics” section for the “Global Construction 2025 Report” findings. According to the report, world construction activity will exponentially increase by $6.3 trillion by 2025, boosted by the new “Asian Tigers” of the construction world: Vietnam, Indonesia, and the Philippines.

Experts and Evidence and Exhibits, Oh My!

July 7, 2013

By Peter W. van der Schans

The Energy Bar Association’s (EBA) 2013 Spring quarterly newsletter, EBA Update, has an interesting article in the “Judge’s Corner” written by guest columnist, The Honorable Steven L. Sterner. His article, “Effectively Building a Record,” discusses how trial counsel can present their case before the Federal Energy Regulatory Commission (FERC) as effectively as possible. Judge Sterner is an administrative law judge with FERC and has served on the FERC bench for just over two years. Before joining the Commission, he served as an administrative law judge for the Office of Medicare Hearings and Appeals for five years.

Administrative law judges serve the Commission by working to resolve contested cases through hearings or negotiated settlements, conduct investigations, and perform other administrative duties related to disputes before the Commission. Judge Sterner also draws on his prior experience as assistant attorney general for the State of Ohio to discuss the importance of properly presenting evidence in a FERC hearing. His article uses a construction metaphor, the construction of a power transmission line, to explain how trial counsel should construct their case by effectively planning and executing the presentation of their case.

In the context of a FERC hearing, a construction expert’s role, such as that of Interface Consulting, oftentimes centers on evaluating the prudence of expenditures related to capital projects. The determination of prudence establishes whether a regulated company can include all of the costs of a capital project in the calculation of the rates that it charges the purchasers of the commodity. For example, if a utility company builds a power plant, the cost of the power plant can be spread across the usable life of the plant and incorporated into the unit rates for the power that is sold to the consumer. This is how regulated utilities recoup the costs of the project.

Judge Sterner proposes the following key guidelines for presenting evidence in a hearing:

  • Think of the hearing room as a construction site; trial counsel are the architects and builders.
  • Proper regard must be paid to preparing, marking, and introducing exhibits.
  • Verify the accuracy of electronic and hard copy versions of exhibits.
  • Assisting counsel plays a crucial role in tracking exhibits and having them ready for the judge, court reporter, or witness.
  • Read the judge’s rules of procedure and use them as a blueprint for constructing the case.
  • Master the laws of evidence and fundamentals of trial and appellate practice, as well as the art of direct and cross-examination of witnesses.
  • Bring sufficient copies of exhibits to share with witnesses, the judge, law clerks, court reporters, and other participants.
  • Make sure exhibits are properly marked, identified, and admitted.
  • Take special care with handling privileged or critical energy infrastructure information documents throughout the case.
  • Keep the record “clean” by ensuring use of the correct citations to exhibits, the hearing transcript, and the law.
  • Inspect the exhibits to make sure they meet the Commission guidelines.
  • Inspect the transcript for textual errors and to confirm that all exhibits were properly identified and admitted.
  • Inspect the briefs to ensure they correctly point the judge to supporting material in the record.

Careful and thorough planning of a case includes carefully selecting and utilizing expert witnesses as well. For example, if the dispute includes a capital project construction component, it is advisable to retain a construction expert who has specialized knowledge in construction disputes. Preferably, the expert should have an engineering and business background, in order to effectively evaluate the technical, project management, cost, and schedule issues. Examples of ways to use expert witnesses effectively in FERC and other regulatory hearings include:

  • Choose your experts carefully and analyze their qualifications from every angle. For example, an expert that appears qualified on paper may not be effective on the witness stand.
  • Sometimes experts that have worked their whole life in an industry can make poor witnesses because they cannot communicate effectively with the trial participants, and/or they can fail under cross-examination.
  • Retain the experts with sufficient time to properly evaluate the issues, and provide them with access to all necessary documentation.
  • Have the expert evaluate project costs and schedules, including providing schedule delay analysis if applicable.
  • Ask the experts to review contracting strategies as well as other elements of the project planning phase. The planning process of a project can be just as important in a prudence hearing as the execution of the project.
  • Request that the experts evaluate project and construction management practices, as well as standards of care.
  • Ensure that the experts provide proper citations to hearing exhibits that effectively support their conclusions.

Judge Sterner describes several guidelines specifically for examining expert witnesses during a hearing – an area in which Interface Consulting is heavily involved. These are:

  • Using a barrage of documents in an attempt to confuse an expert witness during cross-examination is not effective.
  • Opposing counsel should use the skills of a builder to identify precisely any unsteady points by exploring the weaknesses in an opposing party’s expert opinion.
  • Counsel needs to cordon off problem areas to highlight their unsound nature and create a clean record for use in post-hearing briefs and in the initial decision.
  • Cross-examination of an expert witness can change the entire tide of a case by revealing weaknesses and weaving counter testimony using properly marked exhibits.

Like a successful construction project, presenting a successful case in a FERC proceeding takes careful and thorough planning. The effective treatment of expert witnesses, as Judge Sterner states, can change the direction of a case. This applies to counsel’s own experts as well as opposing experts.

The importance of Judge Sterner’s advice cannot be underestimated. There is one person above all others that counsel needs on their good side, and that is the judge overseeing the proceeding. Like a construction project, effective management of a case requires proper preparation, thorough execution, and minimal errors.

Hurricane Season 2013: US Coasts Prep for Next Big Storm

June 21, 2013

With memories of Katrina and Sandy still fresh, the June issue of Construction Headline News uncovers what preparations the Gulf and Atlantic coasts are making for the 2013 hurricane season. Louisiana is completing

major improvements to its levee systems, while New York and New Jersey are outlining plans for improved building codes, power grids, and transportation routes to lessen the effects of the next superstorm. Read on to learn how lessons learned are inspiring major changes in coastal disaster preparedness for the 2013 hurricane season.

Be sure to check out how the City of Milwaukee is offering to settle a lawsuit against multiple contractors for alleged construction defects on the City Hall project in exchange for $12.4 million. In other litigation news, multiple parties filed separate federal lawsuits seeking millions of dollars against the same contractor by alleging breach of contract for work done on the Burgess BioPower project. New construction is off to a slow start as New Belgium’s $175 million brewery has been set back eight months and the $650 million Peabody Essex Museum in Boston has been delayed by at least three years. The Montana Department of Transportation is investing heavily in their infrastructure, as over $438 million is committed for highway and bridge repair projects this year