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Breakout Session #105

The Art of Successful Claim Preparation for an ADR Setting. Breakout Session #105 Paul W. Searles, Esq., Partner, Haynes and Boone, LLP John T. Loving, CPA, Partner, KL Consulting Ric Dexter, Trial Services Coordinator, Haynes and Boone, LLP Date April 24, 2007 Time 1:40 to 2:40.

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Breakout Session #105

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  1. The Art of Successful Claim Preparation for an ADR Setting Breakout Session #105 Paul W. Searles, Esq., Partner, Haynes and Boone, LLPJohn T. Loving, CPA, Partner, KL ConsultingRic Dexter, Trial Services Coordinator, Haynes and Boone, LLP Date April 24, 2007 Time 1:40 to 2:40

  2. CONFLICT Failing to find a business solution to a contract dispute, your recourse under the contract is some form of ADR.

  3. What Can Trigger Disputes? • Change proposals • Constructive changes • Terminations • Schedule slippage • Cost overruns • Job site controversies • Equipment problems • Specification problems • Differing site conditions • Work suspensions • Excessive inspections • Personality clashes • Delayed responses • Challenged interpretations

  4. How is ADR not like a trial? • Less adversarial • Linear presentations • Witnesses have greater flexibility • Less acrimonious • Broader range of possible solutions

  5. RESOLUTION FACT INTERPRETATION FACT OPINION A clear presentation of your obviously unassailable position must be set before the “Decider” FACT OPINION INTERPRETATION FACT ASSUMPTION FACT INTERPRETATION FACT FACT ASSUMPTION INTERPRETATION FACT FACT OPINION ASSUMPTION FACT FACT INTERPRETATION FACT FACT FACT OPINION

  6. Can You Maintain the Business Relationship? • Building • Partnering • Non-emotional • Non-inflammatory • Non-personal • Long-term thinking

  7. Art (Dictionary.com) - noun 1. the quality, production, expression, or realm, according to aesthetic. principles, of what is beautiful, appealing, or of more than ordinary significance. . . . • (in printed matter) illustrative or decorative material. • the principles or methods governing any craft or branch of learning. • the craft or trade using these principles or methods. • skill in conducting any human activity: a master at the art of conversation. . . . • skilled workmanship, execution, or agency, as distinguished from nature.

  8. First Know Thy Case • Prepare to Present Your Story • Written position paper • Oral presentation • Application of the Art • Use technology First Know Thy Case • Prepare to Present Your Story • Written position paper • Oral presentation • Application of the Art • Use technology

  9. Who Are You Talking To? • Assess your audience • Tailor your presentation

  10. What Can Get in the Way? • Litigation posturing • Contracting officer’s decision • Limitations period expiring • Funding availability • Pending Board or Court action

  11. What Else Do You Need to Consider? • Differences in Perspective/Understanding • Different background and training • Business owner vs. Contracting Officer • Differences in Perspective/Understanding • Different background and training • Business owner vs. Contracting Officer • Financial accountant vs. government auditor

  12. Communication in ADR • Timely • Focused • Effective • Meaningful

  13. Why Should You Use Technology? • Persuade • Inform • Teach • Guide

  14. FACT FACT FACT FACT FACT FACT FACT FACT FACT FACT FACT FACT OPINION OPINION OPINION INTERPRETATION INTERPRETATION INTERPRETATION FACT FACT FACT ASSUMPTION ASSUMPTION ASSUMPTION INTERPRETATION INTERPRETATION INTERPRETATION OPINION OPINION OPINION INTERPRETATION INTERPRETATION INTERPRETATION OPINION OPINION OPINION FACT FACT FACT INTERPRETATION INTERPRETATION INTERPRETATION INTERPRETATION INTERPRETATION INTERPRETATION FACT FACT FACT FACT FACT FACT ASSUMPTION ASSUMPTION ASSUMPTION FACT FACT FACT FACT FACT FACT FACT FACT FACT FACT FACT FACT OPINION OPINION OPINION FACT FACT FACT ASSUMPTION ASSUMPTION ASSUMPTION FACT FACT FACT Provide Information Information Providers

  15. Active Learning Organize Integrate FACT FACT Select FACT FACT INTERPRETATION FACT FACT INTERPRETATION FACT OPINION FACT OPINION ASSUMPTION FACT FACT INTERPRETATION FACT INTERPRETATION ASSUMPTION ASSUMPTION OPINION Conclusion FACT OPINION FACT FACT

  16. FACT FACT OPINION FACT FACT INTERPRETATION OPINION ASSUMPTION INTERPRETATION FACT INTERPRETATION FACT FACT INTERPRETATION FACT FACT FACT OPINION Idea FACT OPINION Conclusion Thought Cognitive Guide Concept C p C pt C nc pt Conc pt Concept

  17. Communication Isn’t Just Talking • Tone • Posture • Focus • Media

  18. What Else Do You Need? • Key facts • Legal points • Witness statements • Charts, graphs and demonstratives

  19. Do Your Homework! • Contract, specs, drawings • Personal logs and diaries • Inspection records • Correspondence files • Pre-proposal/bid documents • Memos and periodic reports • Photographs • Accounting records

  20. Communicate the Necessary Information What is being disputed? What do decision-makers need to know? What do you want them to decide? Guide them to a conclusion

  21. A Case Study in Applying the Art BIG OIL vs. Software-R-Us Hearing BIGOIL Claim III-58

  22. Hypothetical Software Dispute SRU agreed to develop and install software to control BigOil’s refinery operations BigOil failed to provide refinery in specified condition SRU delayed installation of software until refinery in specified condition BigOil makes claim for lost profits due to SRU’s delay in installing software

  23. QUESTION Prior to BigOil’s completion of the renovations to the refinery, should Software-R-Us have installed the refinery control software?

  24. Answer From an Engineering standpoint: Unprofessional From a Contractual standpoint: Practical Impossibility of Contract Performance From an Economic standpoint: Extremely wasteful of BIGOIL resources

  25. Statement of Facts BIGOIL wanted to be able to refine heavy crude oil, rather than current light crudes through the addition of a Heavy Crude Processor The Heavy Crude Processor drastically changes the operationof almost all of the major components of the refinery CHANGINGcrude mix and ADDING the Heavy Crude Processor overwhelms any previously developed control software Installing the software requires the disruption of refinery operations for 6 months to a year

  26. Heavy Crude Processor (“HCP”)

  27. Not All Crude Oils Are The Same Light Heavy Naphtha Naphtha Kerosene Diesel Kerosene Gas Oil Diesel Fuel Oil Gas Oil Bitumen Fuel Oil Bitumen Heavier fractions require adding costly processing units, so the crude sells for less

  28. Refinery Operations WITHOUT HCP Figure 1: Basic Light Crude process block diagram of the refinery and interrelation of units Off Gas Gas LPG Naphtha Raw LPG maya LPG isthmus Naphtha Reformate isthmus Isomerate Jet Fuel Jet Fuel Kerosene Kerosene Diesel Diesel GOPA Alkylate GOLV GOPV MTBE Vacuum Residue Diesel

  29. Refinery Operations WITH HCP Figure 2: Basic Heavy Crude process block diagram of therefinery and interrelation of units Off Gas Gas LPG Naphtha Raw LPG maya LPG isthmus Naphtha Reformate isthmus Isomerate Jet Fuel Jet Fuel Kerosene Kerosene Diesel Diesel GOPA Alkylate GOLV GOPV MTBE Vacuum Residue Diesel Gas Oil Combustion Oil Coke

  30. Heavy Crude Oil Light Crude Oil > > > > > > > Crack (DC) > Coke What does a refinery do? “Boil and Crack” Naphtha > > > > Kerosene and Diesel > > > Crack (FCC) > > Gas Oil and Fuel Oil > > > > > Boil > > > > Bitumen

  31. Operation of Heavy Crude Processor

  32. What is RCS?(Refinery Control System) Refinery process units all require constant adjustment and monitoring. Hundreds of pieces of information require hundreds of decisions. Proper decisions enhance productivity. Conflicts can be managed manually by operators, or automatically by computers using RCS software.

  33. Targets T L RCS Temperature Indicator Level Indicator Cold Water Hot Water Mixer Drain RCS Example: The Bathtub The algorithm design is set for certain limits Volume 70 – 110 gal Temp 60F to 120F The RCS algorithm contains a dynamic model of the bathtub

  34. Targets T L RCS Cold Water Hot Water Mixer Drain RCS Example: The Bathtub Adding a large block of ice puts the water outside those limits Volume 70 – 110 gal now 130 gal Temp 60F to 120F now 40ºF The RCS algorithm contains a dynamic model of the bathtub Temperature Indicator Level Indicator

  35. Steam RCS RCS Cracking Products Flue Gas V Reactor Cracked Gas Regenerator F F Light Naphtha F Spent Catalyst F Heavy Naphtha F Light Cycle Oil to HT F Heavy Cycle Oil to HT Regenerated Catalyst V Slurry (to HCP) F Air F F

  36. Refinery WITH HCPAfter installing RCS for light crude Without HCP Figure 3: Basic Heavy Crude process block diagram of the refinery and interrelation of units Off Gas Gas LPG Naphtha Raw LPG LPG Naphtha Reformate Isomerate Jet Fuel Jet Fuel Kerosene Kerosene Diesel Diesel GOPA Alkylate GOLV GOPV MTBE Vacuum Residue Diesel Gas Oil Combustion Oil Coke

  37. Negative Impacts Premature installation of RCS software would have negated the installed RCS applications. It would be necessary to re-install the RCS software from scratch after the HCP was put on line. This would have more than doubled the cost to BIGOIL of software installation and resulted in even greater lost profits from BIGOIL production.

  38. Economic Impact on BigOil Estimated profits for sale of oil with RCS Profits derived from sale of oil without RCS Claimed Lost profits due to delay of installation. Contract price for software installation Estimated lost profits from production during Initial installation Projected additional costs of reinstallation of software, including decommissioning. Projected additional lost profits from production during reinstallation Total Projected lost profits for premature installation $ 122,860,000 $ 87,320,200 $ 35,539,800 $ 987,000 $ 11,300,000 $ 122,860,000 $ 87,320,200 $ 23,252,800 $ 987,000 $ 11,300,000 $ 23,252,800 $ 31,456,000 $ 2,167,000 $ 17,002,000 $ 31,456,000

  39. CONCLUSION BIGOIL was obligated to integrate the Heavy Crude Processor (HCP) into the refinery. Adding an HCP, changing to heavy crude mix, and increasing production would destroy the effectiveness of any previously installed RCS applications. It was impossible for Software-R-Us to install the RCS in accordance with the Contract. Insisting on proceeding with commissioning would have been highly counter-productive, resulting in refinery disruption and loss of production Therefore, Software-R-Us was entirely ethical and professional in refusing to install the RCS software until BIGOIL completed the installation of the HCP.

  40. Artful ADR Preparation Gather your facts Start with the decision you want Organize the facts that lead to that decision Prepare a story that includes those facts Presentation Take advantage of the ADR setting Package your information Design for your audience

  41. The Art of Successful Claim Preparation for an ADR Setting Breakout Session #105 Paul W. Searles, Esq., Partner, Haynes and Boone, LLPJohn T. Loving, CPA, Partner, KL ConsultingRic Dexter, Trial Services Coordinator, Haynes and Boone, LLP Date April 24, 2007 Time 1:40 to 2:40

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