Resolving a £4.6m factory running costs claim on a complex nuclear project

Our client is a high precision, specialist manufacturer to sectors which include nuclear, oil & gas, petrochemical and power generation. They had agreed a contract to supply bespoke storage boxes to a decommissioning nuclear facility however issues in the design stage led to production delays.

This caused our client to incur costs which it considered was caused by its client and we were commissioned to lead the recovery of these losses. The dispute had been running for nearly 3 years with losses and cash flow issues growing until an agreement was reached.

Our client’s approach to managing the contract presented some challenges because there was no programme in place, critical path progress was not measured, staff time activities were not recorded, changes in sequence were not tracked and the contract was not correctly administered.

Our approach

We undertook a review of the various information sources including the contract, the business systems, internal financial data, and the payment notices. We collated this information and, through an analysis of the data, gained a clearer picture of the difficulties in recovering costs.

The biggest barrier was the absence of a baseline programme because this made it difficult to understand which events had impacted the critical path which would then allow an assessment of who was responsible for what period of the overall delay.

However, through conversations with our client and their nuclear client, it was recognised that both parties needed to work together to agree a solution and the following options were considered:

1. Option 1 utilised the dates of documents which influenced component manufacture. However, this approach would not work because the issue may have impacted one, but not all, components or alternative components may have been selected thereby mitigating the delay impact. Accordingly, this approach was not pursued.

2. Option 2 involved identifying the period of no activity where a component had not started and assign liability between the parties relevant to the issues that were holding up manufacture of the storage box. The parties agreed this was workable, so the approach was used but after initial tests it was concluded that the approach would not work.

3. Option 3 related to the impact on engineering resource who were prolonged because of the issues and how this impacted the workload and capacity. This produced a realistic / reasonable outcome however there were concerns about the subjective measures used. This is an imperfect solution, but it was agreed by the parties that it was the most equitable option in the circumstances.

In order to prepare a valuation of the events, we took the period of critical delay as being the period of time that an engineer took to review design and prepare manufacturing design documents.

For example, in a 30-day period from receipt of design to preparation of design documents, if it took 2 days to review the design and 2 days to prepare the design document then 4 days was used as the basis of the factory running costs claim.

The contract included an annual cost for factory running costs so it was agreed with our client and their client that this would be converted to a daily rate and applied to the 4-day period to derive a valuation of that event.

Through this approach we prepared and submitted a £4.6m claim for additional factory running costs.

The determining factor in resolving these issues was the engagement with our client’s client. We had to overcome numerous challenges which included designers being unwilling to accept design flaws, changes in key personnel, project delivery personnel understanding the cause and effect of the delay but being constrained by the commercial team.

The outcome

Through senior management escalation, we managed to help our client overcome the commercial blockers with more focus placed on the overall strategy and direction, and how we could work collaboratively to close out the issues.

Our simplification of a complex situation managed to secure an initial cash release for our client with a series of structured senior management meetings ongoing to finally resolve the remaining issues and recover 50-60% of the amount claimed.