Kiewit Seeks Millions in Interest After Court Victory on L.A. Power Project
A big jury award leads to a big contested interest payment
Kiewit Corp. is seeking millions in interest payments on the heels of its $45-million federal court victory in a dispute with Los Angeles officials over delays to a major power plant project.
Kiewit contends it is owed anywhere from $9.7 million to more than $11 million in interest on the tens of millions of dollars in additional work it says it performed on a new city-owned power plant but was never paid for after the project's completion in late 2015, according to filings by Kiewit in U.S. District Court for the Central District of California.
The chief legal counsel for Los Angeles, Michael Feuer, is disputing Kiewit's claims for millions in interest payments, with city officials saying they are weighing whether to appeal the $45-million judgement in favor of the contractor.
Kiewit claimed it had rung up the extra work and costs after it was forced to deal with delays and equipment repairs when a shipment of power plant components from Korea was damaged by a storm at sea.
But the city argued in federal court that it, not Kiewit, was the victim, with the Los Angeles Dept. of Water and Power (LADWP) forced to deal with the fallout from delays to the crucial power plant project. Kiewit was already behind schedule before the storm the giant contractor blamed for its delays and additional costs occurred, the city contends in court filings.
"We are disappointed with the decision reached in this case and will evaluate our legal options in the coming days,'' read a statement by LADWP officials.
While a federal Jury on June 6th mostly sided with Kiewit, it did award the city a $1-million counterclaim that the contractor failed to meet the terms of the contract.
"We are also encouraged by the fact that the jury found Kiewit unfairly interfered with DWP's rights to receive the benefits of the contract and awarded damages to DWP as well," LADWP officials stated.
Separately, city officials sued General Electric, which made the power plant equipment, winning $19 million in a settlement with the company. That money will help defray the cost of the additional $45 million the city is now on the hook to pay Kiewit on the $441-million contract.
"GE generally does not comment on litigation, but we are pleased that we've resolved this matter," the company said in a statement.
Kiewit inked the contract in April 2013 to build the Scattergood 3 Repowering Project for LA's water and power department, taking an older steam turbine out of service and replacing it with a modern and more environmentally friendly system. LADWP entered into a separate agreement with General Electric to provide the plant's equipment.
The project, which broke ground in August 2013, included the design and construction of a combined cycle plant and power units that use a heat recovery steam generator, or HRSG, to produce additional power by recycling the exhaust heat of the combustion turbine. The project also included the design and construction of simple cycle or "peaking" units, which include a combustion turbine but no HRSG.
Kiewit had prepared the construction site for the arrival of the HRSG modules, with cranes ready to lower them in place, when disaster struck on April 21, 2014.
Stack Lost in Storm at Sea
A cargo ship carrying the equipment from Korea to California got caught in a "severe storm" in the Pacific, with both HRSGs damaged and the stack on which they were to be positioned lost at sea.
When the cargo ship finally arrived in Long Beach after an emergency pit stop in Hawaii, Kiewit repaired eight different HRSG modules, while two were so badly damaged they had to be refabricated in Korea. Deliveries of a steam engine turbine and combustion turbine were also delayed, according to court filings.
At the direction of LADWP officials, Kiewit says it accelerated and resequenced its construction plans, with substantial completion of the project by Dec. 27, 2015, and some parts completed earlier than that.
But LADWP officials continued to order changes, keeping Kiewit on the site and delaying final completion, the company contends in its court filings.
When Kiewit submitted an invoice for the additional costs triggered by the additional work and delays, LADWP officials refused to pay.
"Kiewit Power Constructors Co. is very pleased with this favorable decision by the jury, which validates our claims regarding payment for additional work our company performed on the Scattergood Unit 3 Repowering Project," said Bob Kula, vice president of corporate communications, in a statement.
But LADWP officials offered a much different take on the reasons for the project's delay in a counterclaim filed in federal court.
The storm at sea and damaged equipment that Kiewit cited as presenting major challenges to the project's original construction plan "should not reasonably have resulted in delays in Kiewit's work," according to the city's counterclaim.
Kiewit also failed to "follow the contractually mandated procedures in seeking an extension of time or extra compensation."
City officials argued, unsuccessfully, that Kiewit owed the city more than $29 million in liquidated damages based on delays to the project. Instead, city officials were awarded $1 million based on their allegations the company had violated contract terms.
Even so, the $45-million penalty will not have an impact on water and power rates in Los Angeles, LADWP officials said in a statement, pointing to the $19 million recovered from GE.
"Any amount ultimately due from this case is within the project contingency amount and will not impact ratepayers," the department stated.