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March 1, 2010

Power Owners in Strong Position to Collect Liquidated Damages

By Judah Lifschitz, Esq. and James McMichael, Esq.

Background of the Athens Case

In 2001, Athens engaged one of the world’s preeminent EPC contractors, Bechtel, to engineer, procure, and construct a $533 million power plant in upstate New York. The EPC contract governing the project called for $49,000 in liquidated damages for each day of “inexcusable” delay for each of the plant’s three power island units, as well as $49,000 for each day of inexcusable delay in completing the facility as a whole, with a cap of $147,000 for each day of inexcusable delay. The EPC contract called for substantial completion no later than August 2003. Bechtel did not achieve that benchmark for the three power island units and the rest of the facility until March 2004.

After Bechtel completed the project some eight months behind schedule, it initiated arbitration proceedings against Athens, seeking $94 million in damages, as well as more than 250 days in extensions of time for performance. Bechtel claimed that risks of highly advanced combustion turbine technology (which it alleged were Athens’s responsibility), severe winter weather force majeure events (events out of the control of the builder), and other factors caused project-critical delays and forced Bechtel to eat numerous extra costs.

Athens counterclaimed, denying any liability and alleging that Bechtel’s late completion was inexcusable, seeking $33 million in delay liquidated damages. Bechtel countered, alleging that enforcement of the EPC contract’s liquidated damages clause would constitute an unlawful penalty because the liquidated damages sought allegedly exceeded Athens’s actual costs and damages caused by late completion and would provide Athens a windfall.

The arbitration panel found that, as a matter of law, the actual damages, calculated in hindsight, were of no consequence. After extensive arbitration proceedings, the panel largely agreed with Athens, awarding $26.9 million due to Bechtel’s late completion of the plant. Not only did Athens defeat Bechtel’s affirmative claims, but Athens also obtained $26.9 million in liquidated damages for Bechtel’s late completion of the project.