Welded Constr. v. The Williams Cos. (In re Welded Constr.)

• Court: U.S. Bankruptcy Court — District of Delaware
• Writing for the Court: Laurie Selber Silverstein, United States Bankruptcy Judge.
• Docket Number: 18-12378 (LSS),Adv. Pro. 19-50194 (LSS)
• Decision Date: 04 February 2025
• Citation: Welded Constr. v. The Williams Cos. (In re Welded Constr.), 18-12378 (LSS), Adv. Pro. 19-50194 (LSS) (Bankr. Del. Feb 04, 2025)
• Parties: In re: WELDED CONSTRUCTION, L.P., et. al., Debtors. v. THE WILLIAMS COMPANIES, INC., WILLIAMS PARTNERS OPERATING LLC, and TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC, Defendants. WELDED CONSTRUCTION, L.P., Plaintiff,

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In re: WELDED CONSTRUCTION, L.P., et. al., Debtors.

WELDED CONSTRUCTION, L.P., Plaintiff,
v.
THE WILLIAMS COMPANIES, INC., WILLIAMS PARTNERS OPERATING LLC, and TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC, Defendants.

No. 18-12378 (LSS)

Adv. Pro. No. 19-50194 (LSS)

United States Bankruptcy Court, D. Delaware

February 4, 2025

Chapter 11

OPINION

Laurie Selber Silverstein, United States Bankruptcy Judge.

Introduction

This is a multi-million dollar contract dispute arising out of the construction of a natural gas pipeline in the Commonwealth of Pennsylvania. The contractor, Welded Construction, L.P. ("Welded" or "Debtor"), and the owner of the pipeline, Transcontinental Gas Pipe Line Company, LLC ("Transco"), each assert the other breached the construction contract and seek damages and penalties, as appropriate. Debtor's claims are deceptively simple: it billed for services performed and costs incurred under the contract and seeks the balance of unpaid invoices. Transco asserts both that Debtor billed for items not compensable under the contract and that Debtor's poor

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performance under the contract negates amounts owed. Trans co concludes that it, not Debtor, is the net winner.

After a ten-day trial, I am left to determine whether numerous categories of costs are compensable under the contract. While certain categories can be determined as a legal matter by review of the contract, certain items require determinations of fact. Having considered the evidence and the credibility of the witnesses presented both through testimony in court and by deposition designations, I make the following findings of fact and draw conclusions of law.

I. BACKGROUND^[1]

A. Transco Decides to Build a Pipeline

Transco is a natural gas transmission pipeline company that constructs, maintains and operates pipelines across the country. No later than May 2014,^[2] Transco began planning the Atlantic Sunrise Pipeline Project ("ASR Project")-the construction of a 197 mile large-diameter intrastate natural gas pipeline running through the Commonwealth of Pennsylvania.^[3] This new pipeline would permit Transco to bring gas from the Marcellus Shale south to Transco's existing pipeline system,^[4]

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In May 2014, David Sztroin, Transco's Project Manager for the portion of the ASR Project known as the Central Penn Line South, was engaged in planning activities, including (1) selecting the route of the pipeline, (2) performing environmental analyses and gathering data from the field to obtain necessary permissions and permits, (3) working with and obtaining permission and permits to construct the pipeline from federal and state agencies such as the Federal Energy Regulatory Commission and the Pennsylvania Department of Environmental Protection and (4) securing easements from landowners,^[5]

In June 2015, Transco hosted a full day pipeline job showing to which it invited approximately ten contractors capable of performing the required work.^[6] An eighty-seven page slide presentation provided detailed drawings and specifications for the ASR Project and set out numerous permitting milestones culminating in the beginning of construction in July 2016 and an in-service date of July 2017.^[7] For bidding purposes, the ASR Project was divided into seven spreads.^[8]

Transco's pipeline job showing occurred at a time when domestic pipeline work was starting to pick up. In 2015 and 2016, the pipeline industry for both liquids and natural gas was very competitive in the northeast/Marcellus Shale region.^[9] Large diameter pipeline work (over thirty-six inches), which was dormant in the United States for the prior ten years, provided significant opportunities for contractors and owners. But, the increased

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demand also created limitations on the equipment and labor fronts as all companies were pulling from the same pools.^[10]

Welded was well positioned to take advantage of the abundance of work. It had fifty years of experience in the pipeline business, was centrally located in Ohio, had yards from Michigan to Pennsylvania and an experienced superintendent.^[11] As most relevant here, Welded owned a fleet of equipment that could service large diameter pipeline construction in the United States.^[12]

In the late summer, Welded received requests for construction proposals from two good customers: (1) the ASR Project from Williams Co. ("Williams"), Transco's parent company, and (2) a thirty-six inch pipeline project in Ohio from Spectra,^[13] Welded submitted a proposal for both.^[14] Welded's bid for the Spectra work was initially on a fixed price basis for two spreads.^[15] When approached to bid on three spreads, which required commitment of more of Welded's equipment, Welded would only bid on the work on a cost-reimbursable plus fixed fee basis. Spectra eventually determined to move forward with

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Welded on a two-spread, fixed price contract and the parties began to finalize documentation.^[16]

In the meantime, Welded heard nothing from Williams on the ASR Project bid. It was not until November 2015, on the eve of signing the deal with Spectra, that Williams reached out to secure Welded's participation on the ASR Project.^[17] Welded responded by detailing its current situation: (1) a meeting the following Monday to sign/accept the deal with Spectra, (2) the extremely high demand for Welded's fleet and (3) the need to reach a preliminary understanding on the ASR Project by that Friday afternoon. To facilitate meetings, Welded sent a draft letter of intent (contingent award) outlining the compensation terms it would require to work on the ASR Project, including a cost-reimbursable fixed fee structure and cash flow neutrality for Welded.^[18] Transco returned a signed Letter of Intent to Rich Wall, Welded's then-CEO, on November 7, 2015 (the following Saturday).^[19] Aside from changing certain dates, the only major change from the draft letter of intent is that the proposed contract party is Transco, not Williams.^[20] Based on the signed Letter of Intent, Welded declined to go forward with Spectra.

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Per the Letter of Intent, Welded and Transco agreed to "use good faith efforts to reach a definitive agreement for the execution of the [ASR] Project based on the . . . principles" outlined therein.^[21] Mr. Wall negotiated on behalf of Welded while Transco's Project Director, Chris Springer, led negotiations for Transco.^[22] On August 10, 2016, Transco and Williams executed that certain contract for the construction of a pipeline on Spreads 5, 6 and 7 ("Original Contract"). The detailed 521-page document includes eight sections: Section I: General Contract, Section II: Scope of Work, Section III: Materials, Section IV: Environmental, Land and Permits, Section V: Drawings, Section VI: Codes, Standards and Specifications, Section VII: Technical Exhibits and Section VIII: Compensation. Welded and Transco worked together to establish deliverables, costs and a schedule.^[23] Compensation to Welded and accompanying incentives are scaled to an all-in construction cost of $335 million.^[24]

In 2018, the Original Contract was amended via a Book Contract Amendment (together, "Contract"). The Book Contract Amendment replaced in their entireties the Scope of Work and Compensation Sections, changed the listing of specifications in the Codes, Standards and Specifications Section and added numerous attachments to the Technical Exhibits Section.^[25] The all-in cost estimate was updated to $454 million reflecting

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a revised cost estimate generated by Welded at the request of Transco and presented at an August 17, 2017 meeting.^[26] This revised cost estimate is reflected in a new Exhibit 8 to the amended Compensation Section, which breaks down the costs by activity and spread.^[27]

Broadly speaking, the Contract is a cost-plus reimbursable contract. Transco's key negotiators had not previously negotiated a cost-plus reimbursable contract.^[28] Rather, Transco usually entered into unit rate-based or lump sum contracts.^[29] Nonetheless, Transco understood this type of contract and the risks associated with it. As Mr. Kirchen, Transco's most senior person with responsibility for negotiating the contract,^[30] explained: a cost-plus reimbursable contract means "they [sic] are costs that are compensated, and the plus side is the profit portion."^[31] Such a contract allows the owner to "secure resources earlier . . . before you have final design and final permit authorizations."^[32] However, it also allocates to the owner the risk that costs will exceed expectations.^[33]

B. Welded Begins Work on the ASR Project ^[34]

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1. Pre-Construction

The first phase of the construction of the pipeline is a pre-construction period as documented in that certain Request for Services ("RFS").^[35] From September 15, 2016 through August 31, 2017, Welded conducted pre-mobilization work, including "construction planning, community outreach, design and material procurement assistance, and/or other services as requested by the ASR Project team."^[36] Payment for pre-construction services is to be made pursuant to the RFS, not the Contract. Much of the planning had already been done by Williams/Transco, including the planned route, anticipated environmental impacts and the estimates of rock in each area.^[37] Welded's role was primarily planning the execution of the project.^[38]

The second phase of the construction is the mobilization period-the period in which resources are deployed to the Field to be available for the start of construction work. Welded cannot mobilize resources to the Field without Transco's authorization.^[39] Welded sought Transco's authorization on or about August 10, 2017."^[40]

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Additionally, prior to beginning Work on the ASR Project, Transco must issue a Notice To Proceed ("NTP").^[41] The parties anticipated the NTP would issue and mobilization would begin by February 1, 2017 for...