Collaboratory for Research on Global Projects

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Collaboratory for Research on Global Projects

• Global Projects Seminar Series
• Avoiding and Settling Disputes on International
  Construction Projects
• Professors Ron Shumway Nick Sorensen

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Prof. Ron Shumway

• JD, Duke University Law School BA, BYU
• Director KPMG Managing Director FTI Consulting
• Bechtel Principal Counsel for Contracts
  Disputes
• Eurotunnel Claims Management Committee
• General Counsel, Atkinson Construction Company

Atkinson
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Prof. Nick Sorensen

• Juris Doctor, University of Chicago Law School
  BA, Brigham Young University
• Bechtel Claims Manager
• BART Extension to SFO, Special Counsel
• General Counsel, Ball, Ball Brosamer and The
  Scott Companies
• Associate General Counsel, Dillingham
  Construction

dillingham
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Global Projects Seminar Series

• A Tale of Three Projects
• Positive and Negative Examples
• for
• 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 Caracas
• Completed 1985
• Cost US 4-5 Billion
• Provides 70 of Venezuelas electricity
• Finished without a claim or dispute everyone
  happy
• But it wasnt always that way . . .

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Why Guri (finally) worked well

• Cost reimbursable contract
• Incentives
• Target Fee
• Milestone Bonuses
• Good contract administration
• But more importantly . . .
• Owner did their homework up front more on that
  later

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Project 2 - Eurotunnel

• Strange solicitation for proposals with schemes
  for fixed link
• Governments of UK and France selected winner, but
  did not invest (privately financed by 220 banks)
• Offers of helium balloons, Euro-Bridge (cars),
  Euro-Route (trains cars), Eurotunnel (trains)
• Bid at US7 Bn finished at US13 Bn
• Technological triumph financial disaster

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Why Eurotunnel went wrong

• Winner of proposal stage composed entirely of
  contractors
• First negotiated construction contract with self
  while Eurotunnel (owner) was captive of
  contractors
• Eurotunnel later spun off and sold stock to
  (mostly French) widows orphans
• During negotiations, banks were the only
  counterweight
• Result was good for contractors, less so for
  owner
• Project 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 Power Project

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India and the State of Maharashtra
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The Major Players
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Initial Plan The Gas Pipeline from 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 local laws,
  authorities and institutions?
• Will governmental bodies and financial
  institutions honor their agreements with me?
• If theres a dispute, will it be in a forum
  thats timely and fair to me?

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Getting it right up front

• Realistically an Owner must prioritize, and has
  limited 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 longer
• Quality suffers

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If the Owner wants...
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...
Can jigger all these with incentives bonuses
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• Can you make the Contractor financially
  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
2005
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Remember . . .

• Over the long haul, all contractors are headed
  the same place
• Make sure your career doesnt head the same way
• Sign up for CE 290 L, Law for Engineers
  Spring Semester 2007

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CE 290 L Law for Engineers