In 2006, Duke Energy Corp. (Duke) estimated that it would cost $1.6 billion to build a massive 630-megawatt power plant in Edwardsport, Indiana (the Project). From 2006 to the present, the price for constructing the Project has grown to $2.9 billion. As a result of the price increase, Duke has made numerous requests for additional funds, which, if granted, would be passed onto consumers in the form of future rate increases.
What is Currently Happening with the Project
Consumer and environmental groups have opposed the plant since its inception, claiming that “it’s unnecessary, uses unproven technology, and is too expensive”. In January 2011, several of these groups, including, Citizens Action Coalition of Indiana, the Sierra Club, Save the Valley and Valley Watch filed a complaint, with the Indiana Regulatory Commission which asks the Commission to “investigate whether Duke mismanaged the project, committed fraud or concealed vital facts.” If the Commission finds that Duke mismanaged the project, then Duke would be expected to bear a large portion of the cost overruns.
The complaint shed light on some of the causes for this steep price increase and included as an exhibit a letter dated October 5, 2010, from Bechtel Corp., (Bechtel) Duke’s engineering contractor. The note raised a number of concerns related to Duke’s management of the project. Specifically, Bechtel claimed that Duke breached the parties’ contract by:
- Demobilizing Bechtel’s workers and severely limiting oversight of Bechtel’s support and engineering services.
- Stopping monthly project reports and monthly review meetings.
- Consolidating certain engineering functions.
- Taking personnel action against Bechtel management’s recommendation.
- Reducing documentation of certain work.
Assuming Bechtel’s accusations are true, Duke’s management of the Project provides an example of how not to handle a project that faces significant cost increases, especially one involving a high dollar value contract that directly affects the public. Duke’s most glaring error was decreasing documentation and stopping monthly project reports and review meetings as costs on the Project increased. This left little or no record of the events transpiring on the Project which led to the cost increases. Such conduct immediately raises a red flag. Contemporaneously documenting events that have cost impacts is the best way for a contractor to establish that they are not liable for the cost increases. Duke’s actions to reduce documentation as the Project progressed, suggests that it decreased its documentation for a reason – i.e., it was responsible for cost impacts and did not want a record in the event a dispute arose as to who should bear the costs. On the other hand, if Duke is not responsible for the cost impacts, it has an uphill battle of proving its case without proper documentation. Either of these scenarios will be difficult for Duke.
Contractors should learn from the mistakes made by Duke and ensure that all cost impacts on construction projects are thoroughly documented. By staying mindful of the need to document, contractors will increase the likelihood of getting paid for work performed and avoid liability for the acts of others.