Welded Construction, L.P. v. The Williams Companies, Inc.

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

In re: Chapter [1

WELDED CONSTRUCTION, L.P., et. al., Case No. 18-12378 (LSS)

Debtors. (Jointly Administered)

WELDED CONSTRUCTION, L-P.,

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

v.

THE WILLIAMS COMPANIES, INC.,

WILLIAMS PARTNERS OPERATING LLC,

and TRANSCONTINENTAL GAS PIPE

LINE COMPANY, LLC.,

Defendants.

OPINION

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 simpie: 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

performance under the contract negates amounts owed. ‘Transco 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

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,” 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.’ This new pipeline would permit Transco to bring gas from the Marcellus

Shale south to Transco’s existing pipeline system.*

| "This background contains my findings of fact as required by Federal Rule of Civil Procedure 52,

made applicable by Federal Rule of Bankruptcy Procedure 7052. Additional factual findings will be

made when addressing specific disputes.

2 Aug. 28, 2023 Trial Tr. (Sztroin) 1128:19-22.

3 See generally D0007.0005. The ASR Project contained several pipelines of varying lengths. Aug.

28, 2023 Trial Tr. (Sztroim) 1130:9-11; D0007.0006. For example, Welded’s spreads were located

on the Central Penn Line South, which had a total length of 128.3 miles. Aug. 28, 2023 Trial Tr.

(Sztroin) 1132:25-1133:2.

4 Aug. 28, 2023 Trial Tr. (Sztroin) 1132:2-1133:7.

Tn 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.°

In June 2015, Transco hosted a full day pipeline job showing to which it invited

approximately ten contractors capable of performing the required work.® 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.’ For bidding purposes, the ASR. Project was

divided into seven spreads.

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.’ 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

5 Aug. 28, 2023 Trial Tr. Sztrom) 1128:20-1129:22.

§ See Aug, 28, 2023 Trial Tr. (Sztroin) 1131:7-14.

7 See generally DOOQ7.

§ 1)0007.0006.

9 See Aug, 22, 2023 Trial Tr. (Hawkins) 59:8-17.

demand also created limitations on the equipment and labor fronts as all companies were

pulling from the same pools.”

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." As most relevant here,

Welded owned a fleet of equipment that could service large diameter pipeline construction

in the United States.”

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," Welded

submitted a proposal for both.’ Welded’s bid for the Spectra work was initially on a fixed

price basis for two spreads.’> 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

Aug. 22, 2023 ‘Trial Tr. (Hawkins) 59:8-61:16; Aug 23, 2023 ‘Trial Tr. (Wall) 389:24-390;

Kirchen Dep, 35:17-24, Dec, 14, 2020; see Springer Dep. 51:22-52:12, Dec. 3, 2020; Sztroin Dep.

35:14-36:4, Dec. 3, 2020.

1 Aug. 22, 2023 Trial Tr. Hawkins) 60:7-18.

® Aug, 23, 2023 Trial Tr. (Wall) 391:23-392:11; see also Kirchen Dep. 36:8-13, 36:22-37:7, 41:12-

15, Dec. 14, 2020.

3 Aug. 23, 2023 Trial Tr. (Wall) 390:5—14.

4 Aug, 23, 2023 Trial Tr. (Wall) 390:15-18.

5 Aug, 23, 2023 Trial Tr. (Wall) 391:1-7.

Welded on a two-spread, fixed price contract and the parties began to finalize

documentation.

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.'? 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." Transco returned a signed Letter of Intent

to Rich Wall, Welded’s then-CEO, on November 7, 2015 (the following Saturday).” 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.” Based on the signed Letter of Intent,

Welded declined to go forward with Spectra.

Aug. 23, 2023 Trial Tr. (Wall) 391:12-392:20.

Aug, 23, 2023 Trial Tr. (Wall) 392:21-393:9,

Aug, 23, 2023 Trial Tr. (Wall) 395:15-397:19; PXO13.

PX009; PX638. In a Motion in Limine, ‘Transco objected to the use of parol evidence, arguing

that the Contract is unambiguous and contains an integration clause such that looking beyond the

four corners of the Contract is forbidden. Def. Transcontinental Gas Pipe Line Company, LLC’s

Mot. in Lim. to Exclude Parol Evid., ECF No. 349. At trial, Transco renewed its objection,

specifically contesting the admission into evidence of the Letter of Intent to the extent it is used to

interpret the Contract or determine the parties’ mtent. Aug. 23, 2023 Trial Tr. (Wail) 400:1-401:13.

T overruled the objection because the Letter of Intent provides relevant background. To the extent

that I look to this document to interpret the Contract, it will be because I find the Contract

ambiguous on a disputed point. To be clear, this Motion in Limine is denied for these reasons.

Compare PX013,0007-0010 with PX638.0003-07.

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.” Mr. Wall negotiated on behalf of Welded while Transco’s

Project Director, Chris Springer, led negotiations for Transco.” 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 IT: Scope of Work, Section IT: 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. Compensation to Welded and accompanying incentives are scaled to an all-in

construction cost of $335 million.”

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.”> The all-in cost estimate was updated to $454 million reflecting

21 PX009.0002,

2 Aug. 23, 2023 Trial Tr. (Wail) 405:6-23.

3 Aug. 23, 2023 Trial Tr. (Hawkins) 266:18-267:3.

4 JX001.0495.

JX001.0529-857,

a revised cost estimate generated by Welded at the request of Transco and presented at an

August 17, 2017 meeting.” 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.”

Broadly speaking, the Contract is a cost-plus reimbursable contract. Transco’s key

negotiators had not previously negotiated a cost-plus reimbursable contract.” Rather,

Transco usually entered into unit rate-based or lump sum contracts.” 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,” explained: a cost-plus

reimbursable contract means “they [sic] are costs that are compensated, and the plus side is

the profit portion.”*' Such a contract allows the owner to “secure resources earlier. . .

before you have final design and final permit authorizations.”** However, it also allocates

to the owner the risk that costs will exceed expectations,*

B. Welded Begins Work on the ASR Project’*

*6 Aug. 24, 2023 Trial Tr. (Hood) 522:17-523:10, 526:17-527:6; PX121; TX001.0836.

27 JX001.0845.

% See, e.g., Kirchen Dep. 20:2-6, Dec. 14, 2020; Springer Dep. 43:1-10, Dec. 3, 2020.

2 See, e.g,, Kirchen Dep. 20:7-18, Dec. 14, 2020; Springer Dep. 43:1-18, Dec. 3, 2020.

Kirchen Dep. 26:19-24, Dec. 14, 2020.

3! Kirchen Dep. 24:3-10, Dec. 14, 2020.

22 Kirchen Dep. 32:8-15, Dec. 14, 2020.

3 Aug. 29, 2023 Trial Tr. (Sztroin) 1312:10-12; Springer Dep. 53:15-54:10, Dec. 3, 2020.

“Work” is a defined term in the Contract. It means “the entire construction project and/or parts

thereof that are to be performed by Contractor pursuant to this Contract, including its appendices.”

JX001.0009. In this Opinion, I use the term work more generically unless it is capitalized.

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”). 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.”*° 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.*’ Welded’s role

was primarily planning the execution of the project.

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.” Welded

sought Transco’s authorization on or about August 10, 2017.”

35 190025. The RFS was signed by Welded on March 23, 2017 and by Transco on April 5, 2017,

with an effective date of September 15, 2016. The RFS incorporates an earlier agreement

(Agreement No. 300686 with an effective date of November 29, 2007). This earlier agreement is not

attached nor did either party ask to have it admitted into evidence separately.

36 F0025.0003.

37 Aug. 28, 2023 Trial Tr. (Sztroin) 1128:23-1129:17; Kirchen Dep. 91:5-9, Dec. 14, 2020.

38 See Aug. 24, 2023 Trial Tr. (Hood) 561:13-562:5, 615:2-8, 630:23-631:7.

3 JX001.0828 (“Contractor shall not mobilize personnel, equipment and/or resources to the

Worksite without prior express authorization from Company.”).

40 See D0285.0001. But see Aug. 24, 2024 Trial T'r. (Hood) 649:7-21.

Additionally, prior to beginning Work on the ASR Project, Transco must issue a

Notice To Proceed (“NTP”). The parties anticipated the NTP would issue and

mobilization would begin by February 1, 2017 for tree felling work and March 1, 2017 for

full mobilization of mainline construction crews.” These dates assumed required regulatory

approvals would be received by that time.” Instead, Transco did not receive FERC

clearance to proceed on the ASR Project until September 15, 2017 and did not complete pre-

construction meetings with Pennsylvania County Conservation Districts until September 22,

2017.“ Accordingly, Transco did not issue the Restricted Notice to Proceed on the ASR.

Project until September 25, 2017.% As a consequence of the later start date, the revised.

target Mechanical Completion® date was moved from October 6, 2017 to June 14, 2018.”

2. Welded’s Team

Welded required significant personnel to perform the Contract. Welded’s team was

led by Marcus Hood, the Senior Project Manager, who reported directly to Steve Hawkins,

4 YX001.0027,

JX001.0027,

‘8 The Letter of Intent anticipated a start date of between October 1, 2016 and January 1, 2017

because regulatory approvals were anticipated to be received at that time. See, e.g., PX009.0002;

Kirchen Dep. 44:11-46:4, Dec. 14, 2020.

“4 PX135; D0394.0005--06; see, e.g., Kirchen Dep. 45:17-47:22, Dec. 14, 2020.

45 PX135.

46 The Mechanical Completion date is “the date which all equipment has been set in place and

aligned, all welding and tie-ins are complete, the pipe has been installed and hydrotested, caliper pigs

have been run, and the pipeline is ready to receive gas.” JX001.0531.

Compare TX001.0495 with JX001.0835.

Welded’s President and Chief Executive Officer during the relevant time period.” Mr.

Hood directed the project management team for the ASR Project. In this capacity, he

supervised the project controls manager, the project safety manager, the project quality

manager and the project contracts manager.” Additionally, Mr. Hood supervised lower-

level project managers, quality managers and safety managers at each spread that reported

to the project management team.” The project controls manager had primary responsibility

for cost reporting and invoicing.’ This position was staffed by James Grindinger from

February 2017 until January 2018.” Following Mr. Grindinger’s departure, Sean Singleton

assumed the role.” Under the project controls manager, a team led by Mary Lynn Murphy

and Sue Hallowell was responsible for invoicing Transco and providing appropriate backup

documentation.** Spread superintendents assisted cost engineers in the invoicing process.”

Weided staffed the ASR Project with either direct employees or individuals obtained

through an outside source. The Contract specifically contemplates that Welded can use

Agency Personnel (i.e., individuals hired through an agency or a staffing agreement) to

Aug, 22, 2023 Trial Tr. (Hawkins) 48:21-25, 52:5-9; Hood Dep. 23:16--18, Dec. 14, 2020. Sandy

Williams was the original Project Manager, but he left Welded in June or July of 2017. Grindinger

Dep. 21:13-22:5, Dec. 14, 2020.

® Hood Dep. 22:13-23:8, Dec. 14, 2020.

Aug. 24, 2023 Trial Tr. (Hood) 515:6-20.

Hood Dep. 27:6-20, Dec. 14, 2020.

Grindinger Dep. 15:17-24, Dec. 14, 2020.

Hood Dep. 30:11-17, 31:24-32:1, Dec. 14, 2020.

4 Aug. 23, 2023 Trial Tr. (Hawkins) 245:22-246:7; Aug. 25, 2023 Trial Tr. (Hood) 744: 13-20;

Grindinger Dep. 30:2-8, 86:14-87:19, Dec, 14, 2020.

Aug. 24, 2023 Trial Tr. (Hood) 650:24-651:19.

10

supplement its work force.° As Mr. Wall testified, Welded is a “project company,”

meaning that as it takes on projects, it hires more personnel.*”

Additionally, the ASR Project was a union job with work performed by “craft” labor

covered by four National Pipe Line Agreements (each a “Union Agreement” and

collectively “Union Agreements”) negotiated between the Pipe Line Contractors

Association (on behalf of its contractor members) and the unions for truckers, plumbers and

pipe fitters, operating engineers and laborers. The Union Agreements contain the benefits

and conditions of labor and are specifically incorporated into the Contract as are individual

Pre-Job Conference agreements for each of the three spreads, negotiated between Welded

and union representatives of each union.” These unions supplied the labor for the ASR

56 JX001.0827 (“‘Agency Personnel’ means any individual or individuals who are hired through an

agency and/or staffing agreement to supplement Contractor’s work force.”). Agency Personnel are

also contemplated within the definitions of Field Personnel and Home Office Personnel.

JX001.0826,

7 Aug, 23, 2023 Trial Tr. (Wall) 389:2-14,

The four Union Agreements are: (1) International Brotherhood of Teamsters Union Agreement

(JX001.0860-85), (2) The United Association of Journeymen and Apprentices of the Plumbing and

Pipe Fitting Industry of the United States of America Union Agreement (JX001.0886-958), (3) The

International Union of Operating Engineers Union Agreement (JX001.0959-1000) and (4) The

Laborers International Union of North America Union Agreement (JXOO01.1001~33). See also Aug.

22, 2023 Trial Tr. (Hawkins) 69:1—-8; Kirchen Dep. 49:9-17, Dec. 14, 2020,

FX001.0825-26:

The “NPLA” means collectively, or individually (as context requires), the effective

National Pipeline Agreement between the Pipeline Contractors Association and: (i)

the Laborers’ International Union; and/or (ii) the International Brotherhood of

Teamsters; and/or (iii) the United Association of Journeymen; and/or (iv)

Apprentices of the Plumbing and Pipe Fitting Industry and the International Union of

Operating Engineers. Reference to “NPLA” also includes Gj) any written

amendment(s) thereto; and/or (ii) project specific written agreements between

Contractor and the aforementioned unions which result from the “Pre-Job

Conference.”

11

Project from the clearing and grading, to trenching and preparation, to laying the pipe,

welding the pipe and restoration.”

Transco holds approval power over Key Personnel: Superintendent, Project

Manager, Environmental Coordinator and Project Safety Manager.®! And, it has the right

to force Welded to remove any individual whom Transco believes lacks the skill to do the

necessary Work on the ASR Project.” Transco also has the right to review any Pre-Job

Conference agreement.

Welded’s team was generally stationed in one of three locations. Welded’s home

office is in Perrysburg, Ohio.“ During the ASR Project, Welded also maintained a Field

headquarters in Mt. Joy, Pennsylvania, close to Spread 7.© It also had Field offices on each

spread.

See, eg., Aug. 22, 2023 Trial Tr. (Hawkins) 54:11-24 (describing the work encompassed by the

Contract), 69:1-3 (acknowledging that union labor is the primary source of labor for Welded),

JX001.0829-30,

JX001.0024:

In accordance with Company’s quality control program, Company maintains the right

to require that Contractor remove from the Work, any individual who, in Company’s

sole discretion, lacks the skill and/or care to perform acceptable Work. With respect

to welding, Company shall not require that Contractor remove any welder for quality

of workmanship issues unless or until Contactor has been notified of such quality

issues and has been given three (3) opportunities to correct such quality issues (“3

Strike Rule”).

6 JX001.0835 (“Company shall have the right to review any Pre-Job Conference agreement.”).

See Aug. 22, 2023 Trial ‘Tr. (Hawkins) 60:11-13.

Aug. 22, 2023 Trial Tr. (Hawkins) 58:9-23; Aug. 23, 2023 Trial Tr. (Hood) 439:18-21.

6 Aug. 22, 2023 Trial Tr. (Hawkins) 58:9-23.

12

3, Transco’s Team

Transco actively managed the Work performed by Welded. It, too, had a team of

construction managers working in the Field under Chris Springer, Transco’s Project

Director.®’ Mr. Springer oversaw the entire ASR. Project, but rarely visited the Field.

David Sztroin, the Project Manager for the Central Penn South Pipeline, reported to Chris

Springer.” David Sztroin was based in Houston, Texas, but he made frequent trips to the

Field.”

Colby Pew served as Transco’s senior construction manager on Spreads 4 through

7." Mr. Pew hired an inspection staff and he and the staff “work alongside the contractor,

to make sure the contractor is adhering to all our specs and expectations.”” Mr. Pew was in

the Field three to four days a week.” On those days, he held daily morning meetings with

his team and they would drive around the Field as needed.“ LaDonna Rothgeb led a team

of field accountants who performed monthly invoice reviews.” Contract support for the

6? Springer Dep. 30:11-17, Dec. 3, 2020; Aug. 28, 2023 Trial Tr. (Sztroin) 1129:23-1130:23.

6 Springer Dep. 34:13-15, Dec. 3, 2020.

® Aug. 28, 2023 Trial Tr. (Sztroin) 1124:24-1125:1; Springer Dep. 23:10-18, 32:6-9, Dec. 3, 2020;

Kirchen Dep. 25:8-15, Dec. 14, 2020.

” Springer Dep. 38:13-19, Dec. 3, 2020.

7 Aug. 28, 2023 Trial Tr. (Sztroin) 1130:12-18; Aug. 30, 2023 Trial Tr. (Pew) 1481:15-24.

2 Aug, 30, 2023 Trial Tr. (Pew) 1482:2-9.

3 Aug. 30, 2023 Trial Tr. (Pew) 1483:6~—[1.

4 Aug, 30, 2023 Trial Tr. (Pew) 1484:22-1485.9,

Sztroin Dep, 63:4-24, Dec. 3, 2020; Aug. 28, 2023 Trial Tr. (Sztroin) 1164:12~-1165:6,

13

ASR Project was provided by Tina Malone from Williams’s contracting department.” And,

Transco had a quality control team led by Gerry McLaughlin, whose team would

periodically audit the construction.”

To oversee the ASR Project, Transco acquired two Field offices in Pennsylvania. It

rented office space in Lancaster to oversee Spread 7 and in Pine Grove to oversee Spreads 5

and 6," Between the two Field offices, Transco deployed around 100 personnel.”

4, Regular Meetings/Reporting

Welded and Transco engaged in regular meetings throughout construction. For

example, Welded executives met with Transco executives monthly in Houston for a high-

level discussion of the ASR Project.% At these meetings, Welded provided actual cost

updates and updated cost forecasts, and the parties discussed the construction schedule,

resources, production and manpower.®!

% Aug. 28, 2023 Trial Tr. (Sztroin) 1140:20-25.

7 Aug. 28, 2023 Trial Tr. (Sztroin) 1261:22-1262:10.

% Sztroin Dep. 76:11-77:3, Dec. 3, 2020.

Sztroin Dep. 78:5-13, Dec. 3, 2020; see also Aug. 30, 2023 Trial Tr. (Pew) 1482:10-17:

Q: Okay. Who were your primary — who primarily reported up to you for this project?

A: It kind of tiered as myself and then I hired two other construction managers that are not

Williams-related, and then, beneath them, there’s a chief, and one other CM had two other

chiefs; and below them we do environmental leads, welding leads, utility leads, and they

each have a group of people beneath them.

% Aug. 22, 2023 Trial Tr. (Hawkins) 79:23-80:21; Kirchen Dep. 60:23-61:15, Dec. 14, 2020.

8! Aug. 22, 2023 Trial Tr. (Hawkins) 81:12-82:10.

14

At lower levels, Welded’s project management team submitted weekly progress

reports updating Transco on actual work versus planned work for the week,” Welded’s

Field team also met weekly with Transco’s project team.”

5. Construction

The order of the Work is mapped out in Section VI Exhibit 9—the Baseline

Construction Schedule—that anticipates construction beginning on October 2, 2017 with

the issuance of the NTP.** Broadly speaking, the Work consists of clearing and grading the

site, excavating, laying the pipe, welding, backfilling and restoration.

The Baseline Construction Schedule set a Mechanical Completion date of June 14,

2018 and a final completion date of September 11, 2018. Mechanical Completion occurs

when construction is complete and the pipeline is able to receive gas.” Final completion is

achieved when all Work has been completed, including all cleanup and restoration work.*’

As noted, Transco issued the N'T'P on September 25, 2017, which was one week

earlier than the anticipated start date of October 2, 2017.5 Upon receipt of the NTP,

Welded began to mobilize Field Personnel and Union Personnel to begin Work.

Aug. 22, 2023 Trial Tr. Gawkins) 79:23--80:8; Aug. 25, 2023 Trial Tr. (Hood) 794:24~-795:3; see

D1530 (weekly progress report dated September 23, 2018).

33 Aug. 22, 2023 Trial Tr. (Hawkins) 79:23-81:2; Aug. 24, 2023 Trial Tr. (Hood) 539:21-540:15.

JX001.0846-58.

8 FXO001.0846,

% FXOOL.0531.

8? See JXO01.0836-37 (distinguishing final completion from Mechanical Completion).

8 PX135.

15

Two different types of crews were used to lay and weld the pipe.” The mainline

crew on each spread consists of welders and the pipelaying heavy equipment employed by

them. This crew goes systematically along the pipeline like a moving assembly line and is

the most productive and efficient part of the assembly welding process.” As the mainline

crew progresses, areas requiring crossing or bending of pipe may arise; the mainline crew

keeps going, leaving these sections of pipe unwelded.”' Following behind the mainline

crews are smaller tie-in crews, consisting of different welders and the equipment they

employ for this special purpose.” These smaller crews join the pipeline sections that were

left undone by the mainline crew.” Welded planned for 2,641 tie-in welds, but the amount

of tie-in welds increased to 2,944 over the course of construction.”

The ASR. Project encountered delays throughout. Welded cites to winter weather,

poor working conditions and additional environmental requirements, which were

acknowledged by Mr. Springer.” Additionally, delay occurred when Transco’s imaging

expert rejected proper welds, requiring rework by Welded.’ Transco cites to Welded’s low

productivity and lack of planning. Regardless, eventually, Mr. Sztroin instructed Welded to

® Aug. 23, 2023 Trial Tr. (Hood) 336:15-338:5.

© Aug. 23, 2023 Trial Tr, (Hood) 336:22-337:4.

1 Aug. 23, 2023 Trial Tr. (Hood) 337:4—-13.

% Aug. 23, 2023 Trial Tr. (Hood) 337:17-22.

% Aug. 23, 2023 Trial Tr. (Hood) 337:17-338:5.

4 Sept. 6, 2023 Trial Tr. (Triche) 1965:13-1966:16.

648.0022; Aug. 30, 2023 Trial Tr. (Sztroin) 1376:11-1377:18; see also Kirchen Dep. 84:13-86:9,

Dec. 14, 2020.

% PX648.0022; see also Kirchen Dep. 73:3-19, Dec. 14, 2020.

16

increase the number of tie-in crews to speed up the work pace.’ Mechanical Completion

was finally achieved on September 19, 2018.%

6. Safety

The Contract requires timely reporting of safety incidents. It also provides for a

reduced incentive payment if Welded’s safety record is below stated standards.” Every

morning, the construction crews would discuss the potential safety issues for that day.'°°

And, when Welded and Transco leadership met, safety was often the first topic of

discussion.’ During the project, Welded incurred safety incidents, including “near miss”

incidents; at times, Welded stopped work for supplemental training.’ While Transco could

issue stop work notices for repeated, wilful or unaddressed safety concerns, no stop work

notices were issued. Ultimately, Welded’s safety record fell within the allowable range.'

C. The Dispute Emerges

1. The Invoices/Payment

as 24, 2023 Trial Tr. (Hood) 572:15--573:11; see also Aug. 30, 2023 Trial Tr. (Sztroin) 1388:2—

% See, eg., Aug. 24, 2023 Trial Tr. (Hood) 577:45.

JX001.0842-44.

1 Aug. 30, 2023 Trial Tr. (Pew) 1530:3-13.

Aug. 22, 2023 Trial Tr. (Hawkins) 80:22-81:21.

102 See, e.g., Aug. 29, 2023 Trial Tr. Sztroin) 1187:2-25; Aug. 30, 2023 Trial Tr. (Pew) 1526:10-25.

¥X001.0019, 0080. Notwithstanding Transco’s general testimony attempting to paint the picture

of an unsafe work environment, it did not introduce any stop work notices into the record, or at least

it did not point the Court to any such evidence. See 'Transco’s Post-Trial Br. in Supp. of Its Claims

and Defenses against Welded 49-50, ECF No. 435 (“Transco Br,”), Further, Transco’s expert is

unaware of any stop work notices. Sept. 6, 2023 Trial Tr. (Slavis) 1884:5-16.

104 Aug. 28, 2023 Trial Tr. (Kakol) 964:18-965:15. See also Sept. 6, 2023 Trial Tr. (Triche) 2005: □□□

2006:2. Transco asserted no claim or defense based on the Safety Modifier.

17

In general, Welded billed Transco for services provided under the Contract on the

fifth of the month.’ The invoices contain two distinct parts. First, the invoices contain a

Cash Call component, which is Welded’s good-faith estimate of the cost of the Work for the

ensuing month.’ Second, the invoices provide a reconciliation (or true up) for the actual

services provided two months prior. The reconciled amount is then netted (positive or

negative) against the current Cash Call to arrive at the amount owed that month.'”’ The

invoices also seek payment of a portion of the Fixed Fee,’

The chart immediately below lists the invoices issued by Welded under the

Contract.!

Invoice Number | Invoice Date | Cash Call Reconciliation | Net Invoice

Amount Amount Amount

2017-0109 Sep-1-2017 $ 17,865,073 $ 0.00 |$ 17,865,073

2017-0111 Oct-5-2017 $ 43,839,870 $ 0.00 | $ 43,839,870

2017-0113 Oct-30-2017 $ 6,553,428 $ 0.00 |$ 6,553,428

2017-0114 Nov-6-2017 $ 77,840,815 $ 0,00 77,840,815

2017-0115 Dec-8-2017 $ 74,203,035 $ 4,196,247 |$ 78,399,282

2017-0116 Jan-5-2018 $ 72,865,820 $ 1,086,079 | $ 73,951,899

2017-0117 Feb-5-2018 $ 95,090,514 ($ 4,104,287) | $ 90,986,227

2017-0118 Mar-5-2018 $ 77,332,863 $ 179,753 | $ 77,512,616

15 See JX001.0042 (“Contractor will invoice Company each month, and deliver to Company on the

fifth (5) day of the month for funds forecast to be required for the following calendar month[.]”).

6 Aug, 23, 2023 Trial Tr. (Hood) 468:2-15; see also TX001.0042.

7 Aug. 23, 2023 Trial Tr. (Hood) 468:16-469:2.

8 The Fixed Fee is a lump sum of $50,500,000 covering overhead, management, profit and costs

related to Home Office Personnel. JX001.0825; see also FX001.0041 (“Ninety percent of

Contractor’s Fee shail be divided into equal installments and paid in equal installments between the

Initial invoice and subsequent invoices until 90% of the total fee has been paid.”); Aug. 24, 2023

Trial Tr. (Hood) 503:8-504:1 (describing cost categories in each invoice, including the Fixed Fee).

9 JX030, JX034, FX060, FX067, IX068, JXO71, TX085, JX102, PX124, PX140, PX151, PX182,

PX192, PX207, PX329, PX394 (Welded’s monthly invoices).

18

2017-0119 Apr-5-2018 | $ 73,665,244 ($ 3,626,483) | $ 70,038,761

2017-0120 May-5-2018 | $ 79,380,375 ($16,327,709) | $ 63,052,666 □

2017-0121 Jun-5-2018 $ 52,277,395 ($ 5,321,722) |$ 46,955,673

2017-0122 Jul-5-2018 $ 36,407,002 ($ 8,879,802) | $ 27,527,199

2017-0122 Jul-5-2018 $ 0.00 $ 0.00 | ($10,000,000)

2017-0123 Aug-5-2018 $ 21,273,616 $ 3,523,193 | $ 24,796,808

2017-0124 Sep-5-2018 $ 20,208,530 $ 7,155,287 | $ 27,363,816

2017-0125 Oct-5-2018 $ 12,797,451 $ 16,592,432 | $ 29,389,883

2017-0126 Mar-4-2019 $ 0.00 $ 17,440,393 | $ 17,440,393

2017-0127 Mar-4-2019 $ 0.00 $ 13,713,656 |$ 13,713,656

Subtotal — Pre- $761,601,028 $ 25,627,037 | $777,228,065

Petition Period

Payment is due on the fifth of the following month." In this fashion, Welded is not

advancing funds for Work on the Contract; Transco is fronting costs.""!

Transco paid the first nine invoices in full and on time. Then, on June 5, 2018,

Transco short-paid Welded’s invoice dated May 5, 2018.'” Transco informed Welded that

it had run out of budgeted funds and needed to seek approval from its executive

management before it could make further payments.‘ On July 3, 2018, Transco sent two

nearly identical letters to Welded paying the balance of the short-paid invoice and stating

that future payments would be made “under protest” because of “(1) Welded’s failure to

meet expectations on productivity, work quality, and safe work practice; (2) questions and

10 JX001.0042 (“On or before the fifth (5) day of the Pay Month, Company will pay Contractor the

undisputed amounts invoiced.”).

Wt Aug, 22, 2023 Trial Tr. (Hawkins) 64:10-14 (describing the Contract’s cash-flow neutrality for

Welded).

2 Aug. 22, 2023 Trial Tr. (Hawkins) 83:10-18.

3 Aug, 22, 2023 Trial Tr. (Hawkins) 83:19-84:14. See also PX648.

19

concems about the accuracy of billing and Welded’s compliance with contract obligations;

and (3) uncontrolied growth in Welded’s estimated cost of completion.”’"*

Transco also delayed payment of Welded’s July 5, 2018 invoice. The invoice reflects

a $2 million deduction toward the $10 million Cost Incentive Penalty Welded

acknowledged was owed under the Contract.’ Notwithstanding an apparent agreement for

payment over five months, Transco deducted the full $10 million Cost Incentive Penalty

and paid the remainder of the invoice.’"°

Then, on October 4, 2018, Transco sent Welded a letter announcing the withholding

of $23,563,538 from the September 2018 invoice.'"’ Transco asserted that Welded had billed

for fees and costs in excess of those permitted under the Contract and that Welded owed

Transco a penalty under the Incentive Program for failure to achieve Mechanical

Completion on June 14, 2018. ‘Transco paid only $3,800,278.46 of the September 5, 2018

invoice. That was Transco’s last payment for prepetition Work on the ASR Project.

2. The Dispute Resoiution Process

The Contract establishes a dispute resolution mechanism. If Transco disputes any

portion of an invoice, the parties are to “work diligently” to resolve the dispute prior to the

invoice due date. If not resolved by that time or within ten business days after, the dispute is

to be “immediately escalated to senior management for a discussion as soon as reasonably

"4 71296; see also PX282.0002-03.

115 See infra for a discussion of the Incentive Plan.

"6 Welded Constr., LP. v. Williams Cos., Inc. (in re Welded Constr., 1.P.), Adv. Pro. No. 19-50194, 2023

WL 4853146, at *5—6 (Bankr. D, Del. July 28, 2023), ECF No. 394 (granting summary judgment in

favor of Transco; determining that Welded. had incurred a $10 million Cost Incentive penalty).

nT JX094,

20

possible.”** Ifthe matter is still not resoived after escalation, the parties are to consider, in

good faith, whether an alternative dispute resolution method could resolve the matter rather

than litigation.””

The October 4, 2018 letter states the withholding of $23,563,538 is “in accordance

with” the Contract’s audit provision (see infra), Section VIII and Appendix G of the

Contract.” But, while Transco field accountants asked for additional backup information

for the reconciliation portion of certain invoices (and some may have remained

outstanding),!*! no evidence was submitted that Transco was dissatisfied with the additional

materials eventually supplied or that documentation was overall Jacking. Further, Transco

did not identify any specific items improperly billed or escalate any invoicing disputes to

senior management for discussion prior to sending the October 4, 2018 letter.

3, The Audit

Separate and apart from the Dispute Resolution procedures in Appendix G, the

Contract provides audit rights to ‘Transco. Specifically, the Contract contemplates a three-

year period after completion of the Contract for audit of expenses charged other than fixed

rates, unit rates or similar amounts agreed to by the parties.'!”

M8 FX001.0042.

"9 FX001.0042.

20 ¥X094.0002.

For example, Transco’s field accountants completed their audit of the October 2017

reconciliation invoice in February 2018 and requested. “clarification or justification” for certain

issues. D1057,0008-09. Transco’s field accountants continued to review reconciliation invoices and

submit discovered discrepancies to Welded for clarification or justification. See D1059; D1108;

D1251. Welded’s responses to these discrepancies were not immediately forthcoming, with October

2017 discrepancies still outstanding m July 2018. D1291,

22 FX001,0030:

21

Mr. Kirchen made the decision to conduct an audit “early on” because the Contract

was a cost-plus fixed fee contract.”* He viewed it as part of “risk mitigation.”'* Transco

retained Oil & Gas Consultant Services (“OQGCS”) in March or April of 2018 to perform

what OGCS described as an invoice verification exercise (“Audit”). OGCS began by

reviewing the Contract and invoices and speaking with Transco employees in its Field

offices. OGCS originally reported to Transco’s business side, but after a preliminary audit

update, Transco’s legal department began to oversee the Audit.'?”

Welded was informed of Transco’s intention to conduct an audit through OGCS in

July 2018. Following a virtual introduction, Adrian Green and Phil Burke, OGCS

auditors, visited the Welded Field offices on July 24 and 25, 2018.'" Welded’s CEO

Company may audit or have audited and copy the books and records of Contractor that in

any way relate to this Contract upon reasonable notice during normal work hours. When

requested by Company, Contractor shall provide auditors with access to all personnel,

property and records and the cooperation of Contractor’s personnel necessary for audit.

Contractor shall retain all books and records relating to the Work for at least three (3) years

after Company’s final acceptance of the Work. Nothing herein is to be deemed as

authorization to audit the composition of any fixed rate, unit rate or similar fixed figure as

agreed upon by the parties. Contractor shall include identical audit provisions in its

contracts with subcontractors and, upon request of Company, shall secure equivalent rights

and information from any subcontractors. Any adjustments to be made as a result of audit

shall be made within reasonable amount of time (not to exceed 90 days) from presentation of

findings to Contractor.

3 Kirchen Dep. 148:2-6, Dec. 14, 2020.

4 Kirchen Dep. 145:1-14, Dec. 14, 2020.

25 See, e.g., Kirchen Dep. 151:11-14, Dec. 14, 2020; see Burke Dep. 17:24-18:12, 41:8-17, 282:17-

23, Dec. 17, 2020.

26 Burke Dep. 84:10-86:18, Dec. 17, 2020.

27 Kirchen Dep. 146:16-20, Dec. 14, 2020; Burke Dep. 125:11-15, Dec. 17, 2020; PX276,

8 Aug. 22, 2023 Trial Tr. (Hawkins) 104:13—-105:11; see PX294.

29 Aug. 22, 2023 Trial Tr. (Hawkins) 105:25-107:15.

22

instructed his employees to cooperate “[t|ransparently, fully, [and] fulsomely.”'°

Notwithstanding the significant work OGCS had already performed, OGCS intended to

(and did) show a “low level of contractual awareness” to Welded at that meeting."’ For

several weeks after this in-person meeting, OGCS auditors met virtually with Welded

employees on a weekly basis.’

An interim report was provided to Transco on August 22, 2018.1" In September

2018, Transco internally decided to withhold monies from Welded allegedly based on the

audit findings.“* The October 4, 2018 letter followed.

On October 11, 2018, an executive meeting occurred between Mr. Hawkins and Mr.

Wall (as a representative of Bechtel, Welded’s parent company) for Welded and Mr.

Kirchen and Mr. Springer for Transco.’ Nothing was resolved."

On October 16, 2018, OGCS orally presented its audit findings to Welded and

Transco.'*’ Following this presentation, Welded requested a copy of the audit findings, but

Transco did not provide it.

Aug. 32,2003 Tal Te: Caving) 1076-19

41 Burke Dep. 116:6-10, Dec. 17, 2020; Green Dep. 162:20-163:16, Dec. 18, 2020.

82 Green Dep. 50:15-51:17, Dec. 18, 2020; see Aug. 24, 2023 Trial Tr. (Hood) 576:13-577:3.

83 Green Dep. 217:23-218:16, Dec. 18, 2020.

34 Goebel Dep. 40:1-16, Mar. 24, 2022.

35 Aug, 22, 2023 Trial Tr. Hawkins) 151:10-152:2,

36 See Aug. 23, 2023 ‘Trial Tr. (Wall) 411:14-23.

37 Burke Dep. 224:12-225:21, Dec. 17, 2020; Green Dep. 48:4-49:8, Dec. 18, 2020.

88 Green Dep. 229:4-230:24, Dec. 18, 2020.

23

OGCS gave its final audit report to Transco on June 1, 2019.1" OGCS concluded

that even if Transco succeeded on each challenged item, Transco would still owe Welded $8

million; otherwise it could owe Welded up to $66 million.” Notwithstanding the audit

provision in the Contract, Transco did not present OGCS’s final audit findings or report to

Welded until required discovery in this case.

4, The Oklahoma Lawsuit

On October 4, 2018—the same day it sent its withholding letter—Transco sued

Welded for breach of contract in Oklahoma state court." Welded was unaware of any

impending lawsuit because Transco did not follow the Contract’s dispute resolution

mechanism. Further, there is no evidence that Transco “worked diligently to resolve” the

disputed costs prior to the payment date.” The October 4 letter is also the first evidence

that Transco sought to escalate any disputed costs to senior management. Transco did not

wait until the failure of the requested senior management discussions before filing its lawsuit

in Oklahoma. Further, there is no evidence in the record to support the idea that Transco

gave “good faith consideration” to engaging in alternative dispute resolution methods.’

D. Welded Files Its Bankruptcy Case

|. The Postpetition Contracts

139 See Green Dep. 44:24 47:22, Mar. 10, 2022.

Green Dep. 132:13-134:19, Mar. 10, 2022.

41 Aug. 22, 2023 Trial Tr. (Hawkins) 131:7-15, 139:2-4.

2 Compare TX001.0042 with TX094.

43 Compare JX001.0042 with PX400.

Mt JX001.0032.

24

Welded filed a voluntary bankruptcy petition on October 22, 2018. Following the

filing, Welded, now a debtor-in-possession, sought to continue work on certain of its

construction projects. As part of its first-day relief, Welded sought approval of the ability to

enter into a Commitment Letter providing for continuation of work on the ASR Project

under specified conditions. After a hearing, at which Transco was represented, the Court

authorized Debtor to execute the agreement.'* Subsequently, Welded and Transco entered

into two more Commitment Letters to continue work on the ASR Project, which were also

approved by the Court.“° The Third Commitment Letter reduced Welded’s scope of Work

and established the timeline for the winddown of Welded’s Work on each spread.'“’

Welded successfully completed this reduced scope of Work.”

2. Transco’s Proofs of Claim

On February 28, 2019, Transco filed two proofs of claim.” Proof of Claim number

632 asserts a general unsecured claim of $16,320,000 based on Welded’s purported warranty

obligations under the Contract with respect to defects and anomalies.°

45 Order Approving Commitment Letter from Transcontinental Gas Pipe Line Company, LLC, □□

ve Welded Constr,, L.P., No. 18-12378 (Bankr. D. Del. Oct, 23, 2018), ECF No. 45.

46 421.0006; PX428.0006; PX434.0006; Order Approving Second Commitment Letter from

Transcontinental Gas Pipe Line Company, LLC, In re Welded Constr., L.P., No. 18-12378 (Bankr. D.

Del. Oct. 29, 2018}, ECF No. 111; Order Approving ‘Chird Commitment Letter from

Transcontinental Gas Pipe Line Company, LLC, in re Welded Constr., L.P., No. 18-12378 (Bankr. D.

Del. Nov. 8, 2018), ECF No. 172.

47 See PX434.

48 Kirchen Dep. 54:15-55:6, Dec. 14, 2020,

4 Joint Final Pretrial Order 2, ECF No. 390 (“Pretrial Order”).

150 Joint Final Pretrial Order 2; Transco Proof of Claim Number 632,

’ /www.veritaglobal net/welded/document/1812378190228000000000044 (“Transco Claim

25

Proof of Claim number 636 asserts a general unsecured claim of $94,291,513.58. In

a seventeen-page Addendum, ‘Transco details its legal theories and specific damage

calculations in four categories: (1) overbilling under the Contract, (2) billing for

nonreimbursable expenses, (3) schedule overruns and (4) failure to pay subcontractors.*'

The first category includes improper application of the Equipment Fee to: wait/show up

time, travel pay and per diem, paid time off and holiday pay, Welded’s tax and insurance

liabilities, rig rental and vehicle allowance, as well as improper charges for portable toilets,

dump trucks, truck rental via subcontractors, trailers, Included Equipment charged as

Specialty Equipment, transportation of Included Equipment and union dues. The second

category is for damages relating to rework and weld repairs, safety shut down costs, failures

in environmental and regulatory compliance and other damage to materials, machinery and

equipment. The third category is Transco’s demand for payment of a penalty under the

Incentive Program because Welded failed to timely achieve Mechanical Completion. The

final category asserts damages relating to Welded’s failure to pay subcontractors. The

claims documented in this proof of claim are based on the results of the OGCS Audit.”

51 Joint Final Pretrial Order 2; Transco Proof of Claim Number 636,

https://www.veritaglobal net/welded/document/1812378190228000000000048 (“Transco Claim

636”).

2 Transco Claim 636 at 2,12. From the outset of this litigation until 2020, Transco relied

substantially on the OGCS audit results as the basis for its claims. Former Judge Sontchi also relied

on the existence of the audit as a basis to deny summary judgment in Welded’s favor. After Transco

asserted privilege over the audit findings, former Judge Sontchi ordered production of the audit and

wrote:

Here, [Transco] substantially relied on the Audit in representations to Welded and

the Court, [Transco] haJs] asserted that the Audit “revealed wrongdoing” and

repeatedly sought specific relief because of the Audit, including through the

Oklahoma Complaint, Transco’s proof of claim .. . Transco’s counterclaims, the

2019 Burke Declaration, and the Defendant’s summary judgment response.

Mem. Order 12, Feb, 15, 2021, ECF No. 236.

26

On April 26, 2019, Transco filed a Request for Payment of Administrative Expense

alleging that Welded owes it $2,399,279.48 for overpayments made under the Commitment

Letters.’

IL. PROCEDURAL POSTURE

On May 3, 2019, Welded commenced this adversary proceeding against Transco and

Williams.* Welded alleges that Transco (1) breached the Contract by failing to pay

Welded and (2) violated Pennsylvania’s Contractor and Subcontractor Payment Act

(“CASPA”) by withholding payment for completed work.** Welded also objects to

Transco’s proofs of claim and its request for administrative expense. Finally, Welded seeks

a declaratory judgment that no money is owed Transco in connection with the

Commitment Letters.'°°

From that point onward, Transco no longer relied on the audit to support its claims, In July 2020,

Transco retained its current expert, Joseph Slavis, to perform a new review and divine new legal

arguments. Aug. 31, 2023 Trial ‘Tr. (Slavis} 1770:22-23, 1773:24-1774:7 (describing that ‘Transco

hired him to “start from scratch.”).

53 ‘Transco Req. for Payment of Administrative Expense Claim for the Period from the Pet. Date

through and Including March 31, 2019,

hitps://www.veritaglobal net/welded/document/1812378190426000000000008.

4 Pretrial Order 3; Compl. and Obj. to Claims, ECF No. 1 (“Complaint”). In November 2020,

Transco and Williams filed a motion to withdraw the reference of the adversary proceeding to the

Bankruptcy Court. Defs.’ Mot. for Withdrawal of the Reference and Renewed Demand for Jury

Trial, Welded Constr., L.P. v. Williams Cos., Inc. (In re Welded Constr, L.P.), No. 20-cy-1613 (D. Del,

Nov. 25, 2020), ECF No. 1. Chief Judge Connolly denied the motion with prejudice as to Transco

and without prejudice to the Williams defendants, with leave to renew their request upon my

resolution of the ‘Transco claims. Order Denying Defs.’ Mot. for Withdrawal of the Reference,

Without Prejudice with Respect to the Williams Defs., Welded Constr., L.P. v. Williams Cos., Inc. (In re

Welded Constr., L.P.), No. 20-cv-1613 (D. Del. July 21, 2021), ECF No. 14.

Complaint 62-67, 79-81.

86 Complaint 73~79.

27

Transco filed its answer on November 13, 2019, denying each claim and asserting

affirmative defenses of material breach and offset; Transco also brought counterclaims.'*’

Transco’s first counterclaim mirrors Proof of Claim number 636 and seeks damages for

breach of contract arising from (1) contract overbilling, (2) violation of Contract policies,

procedures and specifications, (3) Mechanical Completion delay and (4) Welded’s failure to

pay subcontractors and suppliers. Transco’s second counterclaim mirrors Proof of Clarm

number 632 and seeks damages for coating anomalies and defects. Transco’s final

counterclaim asserts that Welded breached the Commitment Letters.’

Each party filed summary judgment motions. I ruled on Transco’s motion by a

written Memorandum dated July 28, 2023." I ruled on Welded’s motion in an August 4,

2023 Bench Ruling subsequently memorialized in writing and filed on the docket.’

Notwithstanding these rulings, myriad factual issues remained.

In the months preceding trial, Transco and Welded submitted motions in limine

objecting to certain evidence expected to be introduced at trial. Transco sought to exclude:

(1) parol evidence, (2) testimony of Dennis Kakol, (3) testimony of Peter Singh and (4)

testimony of Scott Gray.’ Welded sought to exclude: (1) testimony of Joseph Slavis, (2)

57 Def. Transcontinental Gas Pipe Line Company, LLC’s (A) Answer to Compl. and Obj. to

Claims of Pl. Welded Construction, L.P. and (B) Countercl., ECF No. 63 (“Counterclanm”).

58 Counterclaim 61-64.

99 Welded Constr., L.P. v. Williams Cos., Inc. In re Welded Constr., E.P.), Adv. Pro. No. 19-50194, 2023

WL 4853146 (Bankr. D. Del. July 28, 2023), ECF No. 394.

168 Welded Constr., LP. v. Williams Cos., Inc. (In re Welded Constr., L.P.), Adv. Pro. No. 19-50194, 2023

WL 5010429 (Bankr. D. Del. Aug. 4, 2023), ECF No, 404.

161 Def. Transcontinental Gas Pipe Line Company, LLC’s Mot. in Lim. to Exclude Parol Evid.,

ECF No. 349; Transcontinental Gas Pipe Line Company, LLC’s Mot. in Lim. to Exclude Test. and

Written Report of Dennis Kakol, ECF No. 351; Transcontinental Gas Pipe Line Company LLC’s

28

testimony of Brian Triche and (3) evidence regarding Welded’s cash management.'” I

refrained from ruling on these motions in limine pending the actual admission of evidence,

and this case proceeded to trial. Having heard the evidence: (1) I accept the testimony of

Scott Gray and Joseph Slavis for their calculations, but not for their conclusions with

respect to what was properly or improperly billed,’® (2) for the reasons set forth infra, I grant

Welded’s motion with respect to Brian Triche’s testimony on Defective and nonconforming

Work and conclude the motion is moot with respect to testimony regarding tie-in welds and

(3) I decline to exclude the testimony of Dennis Kakol on schedule analysis for reasons set

forth infra.

A ten-day trial was held from August 22 through September 7, 2023. Six fact

witnesses and four expert witnesses were presented live. Welded and/or Transco also read

into evidence portions of various depositions and designated portions of twenty

Mot. in Lim. to Exclude Test. and Written Report of Peter Singh, ECF No. 353; Transcontinental

Gas Pipe Line Company, LLC’s Mot. in Lim. to Exclude Certain Test. of Scott Gray, ECF No. 355.

162 Welded’s Mot. in Lim. to Preclude Joseph Slavis from Offering Legal Conclusions and

Unreliable Ops., ECF No. 357; Welded’s Mot. in Lim. to Preclude Transco from Raising Certain

Irrelevant Matters at Trial, ECF No. 358; Welded’s Mot. in Lim. to Preclude Brian Triche from

Offering Improper and Unreliable Ops. and Test., ECF No. 359.

163 Tn that same vein, | admit Exhibits D2044A—D2047AU, which are the schedules attached to Mr.

Slavis’s opinion as support for his calculations. Welded did not have a general objection to these

exhibits subject to my ruling on the scope and qualifications of Mr. Slavis. See Aug. 31, 2023 Trial

Tr. 1766:8-1767:2, Sept. 6, 2023 Trial Tr. 1887:7-21.

164 Mr. Singh did not testify at trial, so Transco’s motion to exclude his testimony is moot, No

evidence regarding Welded’s cash management was presented, so Welded’s motion to exclude

testimony on this topic is moot. Finally, I will only look to parol evidence where the Contract is

ambiguous.

29

depositions.’ Additionally, hundreds of exhibits comprising thousands of pages and

numerous excel spreadsheets were admitted.

On October 23, 2023, Transco and Welded submitted their posttrial briefs. On July

22, 2024, Lasked for argument and directed the parties to focus on four topics: (1) the

burden of proof when disputed categories of costs are included in Welded’s outstanding

invoices and Transco’s proofs of claim/counterclaims, (2) the impact of the audit provision

on the burden of proof, (3) the experts’ respective schedule analysis and (4) Welded’s waiver

argument.’ At the parties’ request, I also granted one-half hour of argument on topics each

party wanted to raise. Argument took place on August 20, 2024. This matter is ripe for

decision.

TI. JURISDICTION

Jurisdiction exists over this adversary proceeding pursuant to 28 U.S.C. § 1334. The

parties have stipulated that both the claims and the counterclaims are core.’*’? Accordingly, I

can enter a final judgment on all claims in this adversary proceeding.

IV. BURDEN OF PROOF

The dispute before me centers around whether certain costs are properly billed to

Transco under the Contract. Welded (as plaintiff) seeks payment of its unpaid invoices,

165 While now there appears to be some disagreement over designated deposition testimony, the

patties agreed it could be submitted. Pretrial Order 42-44; see also Aug. 2, 2023 Hir'’g Tr. 1-39, ECF

No. 406. As for documents relying upon designated testimony for admission, Welded seeks to

admit six documents (PX233, PX278, PX279, PX289, PX470, PX474) to which ‘Transco objects on

grounds of foundation, relevance and hearsay. Because [ have not relied on any of these documents

and because each is hearsay, I grant the objection. To the extent I cite to an exhibit or testimony,

any objection thereto is overruled.

16 Letter to Counsel, ECF No. 438.

167 Pretrial Order 4.

30

which detail the costs of the Work, Transco (as counterclaim plaintiff) seeks affirmative

recovery of payment already made for alieged improper charges and to avoid payment for

those same costs in the unpaid invoices.‘ Transco also asserts the rights of setoff and

recoupment against any award to Welded in this litigation.” Because of the overlapping

nature of the claims, which party has the ultimate burden of persuasion on each contested

cost is not straightforward.'”

The default rule is that the plaintiff—the party seeking to alter the status quo—bears

the risk that he will fail to persuade the factfinder.'" The default rule means that Welded

bears the burden on its claim and Transco bears the burden on its counterclaims and

defenses. Strictly applied, both parties carry the burden on the same disputed costs. ‘The

Supreme Court, however, has recognized that while the default rule “solves most [cases],” it

“admits of exceptions.”!” “For example, the burden of persuasion as to certain elements of

a plaintiff's claim may be shifted to defendants, when such elements can fairly be

characterized as affirmative defenses or exemptions.”'” Indeed, the burden of proof can be

68 As only two examples: Welded’s unpaid invoices include costs for pickup trucks and hauling

services. Transco contends that these costs are not properly billable under the Contract and so it

does not owe Welded for these items. Transco also seeks to recover the payments it has already

made for these costs.

16 Transco’s “Affirmative Defenses” include: “In the event it is determined that Transco owes any

amounts to Welded, Transco is entitled to set off and/or recoup any such amounts from and/or

against amounts due and owing to Transco from Welded’s estate.” Counterclaim 48. ‘Transco

made some payments “under protest,” but Transco cites to no law that payment under protest

absolves it of its voluntary payment.

170 The burden of production is not at issue here.

12 Schaffer ex rel. Schaffer v. Weast, 546 U.S 49, 56 (2005).

12 Td at 57 (examining burden of proof for statutory causes of action; not shifting the burden of

proof in the circumstances) (citing 2 J. Strong, McCormick on Evidence § 337 (Sth ed. 1999).

13 Schaffer, 546 U.S. at 57 (citing FTC v. Morton Salt Co, 334 U.S 37, 44-45 (1948)).

31

placed on a defendant for an entire claim.’ Recently, the Delaware District Court,

applying Delaware law and looking to the same authority, ruled that a defendant’s claim in

the nature of recoupment—“the right of a defendant to have the plaintiff's claim reduced or

eliminated because of the plaintiffs breach of contract or duty in the same transaction”—

shifts the burden of persuasion to the defendant in a contract action,’ These cases

recognize that the default rule is flexible and that an allocation of this burden can look to

practical concerns such as policy, fairness and convenience,'”

Several other matters complicate—or are asserted to complicate—this analysis.

Transco filed two proofs of claim based in large part on the same disputed costs. It also filed

a separate request for payment of administrative expense. In the Complaint, Welded objects

to both. It is beyond dispute that ‘Transco has the ultimate burden of proof on both its proof

of claim and its request for administrative expense.'”’ This holds true even when a debtor’s

objection is contained in an adversary proceeding.'”

Further, Transco argues (presumably, regardless of the above discussion) that

Welded has the burden of proof to show that each cost invoiced was reasonable and/or

Schaffer, 546 U.S. at 57 (citing Alaska Dept. of Env’t Conservation v. EPA, 540 U.S. 461, 494 (2004)).

Blattman v. Siebel, Civ. No. 15-530-CFC Consolidated, 2020 WL 475413, at *18 (D. Del. Jan. 29,

2020) (quoting Recoupment, Black’s Law Dictionary (11th ed. 2019)).

6 9 Kenneth S. Broun, et al., McCormick on Evidence § 337 (Robert P. Mosteller ed., 8th ed. 2022);

see also Cline v. Sunoco, Inc. (R&M), Civ. A. No. 6:17-cv-313-JAG, 2020 WL 7246590, at *3 n.6 (E.D.

Okla. Dec. 9, 2020) (claims made under Oklahoma’s Production Revenue Standards Act; court

declining to put burden on plaintiff to prove marketable title and entitled to interest on oil royalties

where issue of marketable title “not legitimately a question.”).

"7 Tn ve Allegheny Int'l, Inc., 954 F.2d 167, 173-74 (3d Cir. 1992).

"8 Empire Radio Partners, Ltd, v, Brothers (In re Empire Radio Partners, Ltd), Ady. Nos. 93-0419DAS,

93-0572DAS, 1993 WL 515832, at *1 (Bankr. E.D. Pa. Dec. 8, 1993).

32

necessary and/or proper because of the nature of the Contract. It cites cases standing for

the proposition that because it is a cost-plus contract, there is an implicit obligation/duty of

Welded to minimize costs. Inherent in 'Transco’s argument is that the nature of the

Contract trumps all.

Finally, Transco invokes and relies upon its audit rights under the Contract in

ultimately refusing to pay Transco, filing its Oklahoma lawsuit, filing its proofs of claim and

pursuing its counterclaims.'” Commentators suggest that when an owner seeks repayment

of costs through an audit or seeks to retain funds it has not paid a contractor, the owner has

the burden of proof. In response to my request for assistance on the intersection between

The complaint in the Oklahoma lawsuit is not in the record so I do not know what causes of

action were asserted. In any event, one would think that Transco, as plaintiff, took on a burden of

proof in that action.

180 Albert Bates, Jr. & Amy Joseph Coles, Audit Provisions in Private Contracts: Which Costs Are Subject

to Audit, Who Bears the Expense of the Audit, and Who Has the Burden of Proof on Audit Claims?, 6 J. Am.

Coll. Constr. Laws. 111, § V.A. (2012).

During contract performance, a Contractor must establish that it is entitled to be paid

under the terms of the contract. The Owner typically reviews Contractor invoices,

approves the portion or portions that are due and payable, and rejects or seeks further

information as to the remainder. Quite commonly the Owner’s architect or other

design professional wiil have first reviewed the Contractor’s payment request and

“certified” it before the Owner receives it. Having reviewed and approved a

Contractor’s invoice for payment, the Owner which later asserts that the invoice was

improperly paid must prove that overpayment.

It is not unusual for an Owner’s accounting staff to be stretched thin on occasion

during the course of a long and complex project; however, an Owner should net

expect the Contractor to prove that it is entitled to keep money voluntarily paid to it

during the course of the project by the Owner. That is not to say that progress

payments by the Owner necessarily constitute a waiver of the Owner’s right to

question the costs after the project through an audit; however, the law does not

support shifting the burden to the Contractor to prove its entitlement to retain money

paid to it by the Contractor during the project. To do so would essentially provide

an Owner with a license to pay its Contractor’s invoices on a periodic basis, sit on its

hands until the project is complete, and then “question” each and every payment

previously made to the Contractor during the Project. Should the Owner decide to

do so, it does so at its own peril and must bear its own burden to recover monies paid

to the Contractor durmg the project.

33

burden of proof and audit rights, Transco relied at oral argument on Olmstead, which does

not address the issue.’

So — where does this leave me? If I can determine the contested cost issues as a

matter of law, then the burden of proof does not matter. But, if I cannot, the burden of

proof may be dispositive.” Accordingly, I will address the burden of proof where necessary

to reach a result and in a specific context.

CHOICE OF LAW

The parties disagree about whether Oklahoma law or Pennsylvania law applies to

this dispute, with Transco advocating for Oklahoma law and Welded advocating for

The decision focuses on what a contractor must do to prove his case. Olmstead Constr., Inc. v.

Otter Creek Invs., LLC, 940 N.W.2d 44, 2019 WL 4678167, at **10 (lowa Ct. App, 2019) (Table):

Keeping detailed records allows the owner to check on the contractor's expenditures, See

Shaw, 38 So. 2d at 918; William Garth Snider, Defamation Claims in Construction Litigation,

Construction Briefings No. 2000-7 (July 2000) (noting an owner can always challenge the

reasonableness of costs incurred). Therefore, any contract requiring an owner to reimburse a

contractor's costs implicitly allows the owner to approve the contractor's accounting system

and audit contract costs and pricing data, See 1 Bruner & O'Connor on Construction Law § 2:26;

see also Dib, 1 Forms and Agreements for Architects, Engineers and Contractors § 8:4 (“An ownet

who lets out a cost-plus job normally requires the contractor to use owner's approved.

accounting system or ‘chart of accounts,’ so that contractor’s records may be readily

audited.”). And if the owner disputes the biiling, the burden is on the contractor to prove

“each and every item of expense.” Joe Bonura, Inc., 419 So. 2d at 29; see also {7A Am. Jur.

2d Contracts § 484.

182 See, e.g., Goldstein v. Denner, 310 A.3d 548, 586 (Del. Ch. 2024) (discussing in the context of

presumptions and “their close cousin—the burden of proof by a preponderance of the evidence”

what occurs when evidence is in equipoise, or when “there is no credible evidence on a topic, or if

there is some credible evidence, but not enough that either side could carry a burden by a

preponderance.”). Alternatively, neither party may win, See Ill Cent. R. Co. v. Midwestern Grain Co.,

308 F, Supp. 323, 324-25 (W.D. Mo. 1969) (Plaintiff sued defendant for outstanding track storage

fees claiming defendant provided special directions which resulted in the fees; defendant

counterclaimed seeking return of overpaid track storage fees alleging plaintiff error caused the

incurrence of the fees. The court concluded that “[t]/he evidence in this case . . . is so lacking in

detail and weight” that neither party proved the cause of the track storage fees. As neither party met

its burden of proof, neither party received a recovery.).

34

Pennsylvania law, A court will only perform a conflict-of-laws analysis if the opposing laws

actually conflict." If the jaws do not conflict, “the conflict is a false one, and the court can

apply the law the parties have selected.”™

The parties do not suggest that Oklahoma and Pennsylvania law differ in most

respects. Both recognize the core contract doctrines of substantial performance and material

breach.’ The main point of contention is whether CASPA applies. Accordingly, the

choice-of-law analysis will be made in that context.

VI. DISCUSSION

A, Welded’s Claims!

1, Subject to Decisions on Certain Specific Costs Set Forth below, Welded

Demonstrated Entitlement to Payment of Its Unpaid Invoices

To prove its claim for breach of contract, Welded must show the existence of a

contract, breach and damages.’*’? Transco contends that because this is a cost-plus contract,

183 Focus Fin. Partners, LLC v. Holsopple, 241 A.3d 784, 814-15 (Del. Ch. 2020); Parks v. Horizon

Holdings, LLC, C.A. No. 2021-0988-SG, 2022 WL 2821337, at *7 (Del. Ch. July 20, 2022).

184 Holsopple, 241 A.3d at 814-15.

185 Compare Sgarlat v. Griffith, 36 A.2d 330, 332 (Pa. 1944) with Collins v. Baldwin, 405 P.2d 74, 81

(Okla. 1965); compare LJL Transp., Inc. v. Pilot Air Freight Corp,, 962 A.2d 639, 648 (Pa. 2009) with

Polymer Fabricating, Inc. v. Emps, Workers’ Comp. Ass’n, 980 P.2d 109, 115 (Okla. 1998). This is also

evident in the parties’ respective filings. A review of the Table of Authorities in Transco’s posttrial

briefs reveals that of the fifty-two cases cited, only seven were decided by courts within Oklahoma or

applied Oklahoma Jaw. While half the cases cited by Welded are Pennsylvania cases, none are cited

for contract principles and most relate to CASPA.

186 Welded also seeks damages under CASPA. Because Welded’s entitlement to such damages

depends, in part, on whether Transco improperly withheld payment of invoices, I will address

CASPA after I have ruled on Transco’s affirmative claims. I will also address Welded’s entitlement

to the final installment of the Fixed Fee later in the opinion.

187 See Cates v, Integris Health, Inc., 412 P.3d 98, 103 (Okla. 2018); 412 North Front St. Assocs,, LP v.

Spector Gadon & Rosen, P.C., 151 A.3d 646, 657 (Pa, Super. Ct. 2016).

35

there is an implicit obligation that expenditures be reasonable. From this, Transco

concludes that Welded has an additional burden to meet its affirmative case; it must show

that the expenditures were “necessary” and “reasonable.”***= Transco contends that Welded

has made neither showing. Welded counters that it is not required to “prove a negative”

and simply must put forth a case that it performed and was not paid. Welded has the better

side of the argument.

The Contract is a cost-plus contract, but it also contains a fixed fee, a formula for

payment for Included Equipment and an Incentive Program, which contemplates that costs

can exceed the Target Goal (estimated cost) and the schedule can extend beyond the target

Mechanical Completion date. It also has extensive provisions and requirements regarding

the relationship between the parties and the types of reporting—both written and oral—that

Welded is required to provide. For example: (1) Transco set the “expectations for schedule,

cost and progress tracking, and the methodology on how to do so” which includes forms of

necessary reports and daily, weekly and monthly meetings,’ (2) Transco has approval

and/or veto power over Key Personnel’” and can require Welded to remove any worker

from the job if Transco determines that the worker “lacks the skill and/or care to perform

acceptable Work”"! and (3) Transco and Welded are required to “work together ahead of

188 Transco Br. 17-18 (“‘Thus, Welded’s burden was threefold; Welded was required. to demonstrate

that the unpaid invoiced amounts were reimbursable costs im accordance with Section VIII, Art. 2

(the components of payment at issue); that they were necessarily incurred; and that they were

reasonable.”).

189 See JX001.0709-19,

#90 TX001.0829-30.

1 FX001.0024.

36

the Notice to Proceed to jointly determine the execution plan to achieve the lowest capital

cost to build the Project in the allotted schedule.”’” The Contract also specifies, in detail,

what costs are chargeable, and in many instances, the agreed to price.

None of the decisions cited by Transco are remotely in this context. The majority

involve residential or small commercial projects in which the owner places significant—

even complete—trust in the contractor.” And, the trust and confidence placed in the

contactor by the unsophisticated owner is a recurring theme throughout." Interestingly,

many of these cases are based upon oral contracts.”

Moreover, many of the cases cited for the proposition that the majority of courts put

an additional burden on the contractor do not support that position. For example, in Charles

A. Burton, Inc. v. Durkee, the court first ruled (based on an earlier decision) that a contractor

under a cost-plus contractor is entifled to its actual cost—not reasonable costs—pursuant to

JX001.0534.

193 See Knott v. Moore-Lamb Constr, Co., 144 N.E. 697, 700 (Ohio 1924) (noting that the contractor’s

burden is heightened “[e]specialiy . .. where the contractor has refused to allow the owner to have

any supervision over the work, and required him to implicitly trust the contractor[.]”) (quoting Title

Guarantee & Tr. Co. v. Pam, 155 N-Y.S. 333, 337 (N.Y. Sup. Ct. 1915)).

194 See, e.g., Jones v. J.H. Hiser Constr. Co., Inc., 484 A.2d 302, 304 (Md. Ct, Spec. App. 1984) (“The

[owners] were not experts in house construction; [the contractor] was. ... Under the contract the

[owners] were entitled to rely on [the contractor] to protect their financial interests.”),

195 See, e.g., Union Supply Co. v. Morris, 30 P.2d 394 (Cal. 1934); Burdette v. Drushell, 837 So. 2d 54

(La. Ct. App. 2002); Knott v. Moore-Lamb Constr. Co., 144 N.E. 697 (Ohio 1924). See also Charles A.

Burton, Inc. v. Durkee, 123 N.E.2d 432, 443-44 (Ohio 1954) (observing that “in that case [Kxot#] there

was no written contract and there arose a disagreement between the parties as to the terms of the

oral contract. Evidence of the estimated value of the building contracted for was held competent

solely for the purpose of tending to show what the agreed price was. Likewise, evidence of the

reasonable cost of labor and materials was held competent as tending to show what the actual cost

was. ... The Knott case does not announce” the principle “that the builder is entitled to recover his

cost plus his fee only if he proves that it is reasonable.”); Joe Bonura, Inc. v. Hiern, 419 So, 2d 25, 26

(La. Ct. App. 1982} (contractor sues on oral construction contract); Wendel v, Maybury, 75 So, 2d 379

(La. Ct. App. 1954) (contractor sues; no written contract).

37

the contract, In those circumstances, the contractor was only required to meet the owner’s

evidentiary record and then only after the owners produced evidence of contractor’s

negligence or default.° The court’s rationale was that: “There is no established principle in

the law that one who contracts to do certain work for another must disprove his default as a

part of his affirmative case for compensation. In fact the opposite must be the general rule.

Honesty and good faith are always presumed[.]”'”

96 123 N.E.2d at 437-38 (rejecting owner’s claim that contractor had burden to show

reasonableness because of disparity between actual cost and estimated cost given terms of contract;

and when the owners produce evidence of such character as to raise a presumption of

negligence or default on the part of the builder, the latter will be required only to produce evidence

sufficient to balance the state of proof.”) (emphasis added); see also MCM Home Builders, LLC v.

Sheehan, No. 18 CAE 09 0074, 2019 WL 4724682, at *9 (Ohio Ct. App. Sept. 25, 2019) (discussing

Durkee and holding that, after contractor introduced evidence of invoices sent to owners, “[ilt was

the burden of the [owners] to show the costs were erroneous or false.”); Mid-Ohio Mech., Inc. .

Eisenmann Corp., Nos. 07 CA 000035, 08 CA 00012, 2009 WL 3633846, at *9 (Ohio Ct. App. Nov.

2, 2009) (also discussing Durkee: “Proposed Jury Instruction 11 does not accurately state the law

according to Burton If. The instruction does not squarely place the burden of proof on [owner] to

show that the costs billed by [contractor] were erroneous or false. ‘The mstruction further allows the

jury to reduce the amount owed to [contractor] to the amount which would have been appropriate

under a fixed-price contract, which reverts to the ‘reasonableness’ standard which the Supreme

Court expressly rejected for a cost-plus contract in Burton 1.”).

97 123 N.E.2d at 438 (citing 17 Ohio Jurisprudence, 112, Section 89; fraud is not presumed, 17

Ohio Jurisprudence, 113, 143, Sections 91 and 114; negligence is not presumed, 17 Ohio

Jurisprudence, 158, Section 124; and performance of duty is presumed, 17 Ohio Jurisprudence, 98,

Section 77).

It is not clear why Transco cited certain cases. For example, a review of Lofton v. Don J. Trahan, Inc.,

399 So. 2d 818 (La. Ct. App. 1981), shows no reference to the burden of proof on cost-plus

contracts. Rather, the decision revolves around a stipulation between the parties that “placed the

responsibility for performing the job satisfactorily” on the contractor, not the owner. Jd. at 820.

Accordingly, the court did not apply the general rule of law that “the owner must bear the expenses

of correcting the mistakes made in construction on a cost plus contract, uniess it has been agreed to

differently in the contract.” Id. Similarly, Pathe Laboratories, Inc. v. du Pont Film Manufacturing Corp.,

3 F.R.D. 11 (S.D.N-Y. 1943), a nonconstruction case, does not discuss the burden of proof. Rather,

in the context of a motion to quash a subpoena, the court affirms the Master’s ruling that du Pont’s

cost records were relevant to the dispute. Jd at 14. In coming to this conclusion, the court states:

“(t]he contract sued upon is a cost plus contract and the correct rule of law with reference to such

contracts, in an action by the contractor for payment, is that he must show ‘that the moneys which

he claims to have expended were necessarily paid for materials and work upon the job,* * *. If

38

Having read the ctted decisions, to the extent a general theme can be found, it is that

in order to prove its affirmative case, a contactor must itemize each and every cost it seeks

to recover and show that the costs were incurred on the project." It is only when the owner

proves negligence, fraud or bad faith that the contractor must show its fees were

“reasonable” or “proper.”'” Here, Transco asserts Welded failed to properly plan certain

the contractor fails to do this he should only be allowed the reasonable cost and his percentage.’” Id.

(quoting Title Guarantee & Tr. Co. v. Pam, 155 NLY.S. 333, 337 (N.Y. Sup. Ct, 1915)).

98 The contractor’s burden arises when an owner disputes its indebtedness to the contractor. See

American Plumbing Co., Inc. v. Hadwin, 483 So, 2d 169, 171-72 (La. Ct. App. 1986) (“When a

contractor asserts a claim on a cost plus contract and the owner denies being indebted to the

contractor, the contractor has the burden of proving each item of expense in connection with the job

and he must itemize each expenditure made by him.”); Burdette v. Drushell, 837 So. 2d 54, 59 (La. Ct.

App. 2002); Kemer v. Gilt, 296 So. 2d 428, 431 (La. Ct. App. 1974) (“where the owner denies being

indebted to the contractor the latter has the burden of proving each and every item of expense in

connection with the job.”). The contractor’s burden is low. See M. Carbine Restoration, Ltd. v.

Sutherlin, 544 So. 24 455, 459 (La. Ct. App. 1989) (“Presentation of invoices and statements of

accounts, accompanied by proof of payment, is the proper method of proving the costs of

improvements. ... At trial, [the contractor] offered numerous invoices and other documents to

prove the value of the work done on the property. All were marked paid. Therefore, he met his

burden of proving each and every item of expense in connection with the job. The burden therefore

shifted to the [owner] to rebut [the contractor’s] evidence.”) (citations omitted). Contractors can fail

to meet that burden. See Robison v. Madsen, 516 N-W.2d 594, 598 (Neb. 1994) (holding that the

contractor did not meet its burden when the contractor “testified that neither he nor his employees

verified that the items on the invoices had been installed in the [owners’] residence or that the work

on the invoices had been performed. [The contractor] testified that he had reviewed the invoices

generally for accuracy, but that it was possible he had billed the [owners] for items they did not

receive.”); Forrest Constr. Co., LLC v. Laughlin, 337 S.W.3d 211, 223 (Tenn. Ct. App. 2009) (“the

problem is that [the owner] received from [the contractor] a two-foot-thick pile of disorganized

papers, many of which pertained to expenses [the contractor] incurred at other jobs during the same

time period, wholly unrelated to the construction of the [owners’] home.”).

199 Contractors must, of course, perform work in good faith. On a showing of gross negligence or

fraud, the contractor then bears a burden to show the reasonableness of its work. See Knott v, Moore-

Lamb Constr. Co., 144.N.E. 697, 700 (Ohio 1924) (“when it has been shown that the work has been done in

reckless disregard of this obligation [to perform work in good faith], the burden rests upon the contractor

to prove that the moneys which he claims to have expended were necessarily paid for materials and

work upon the job[.]”) (quoting Title Guarantee & Tr. Co. v. Pam, 155 N.Y.S, 333, 337 (N.Y. Sup. Ct.

1915) (emphasis added). See also Hitt v. Smallwood, 133 S.E. 503, 506 (Special Va. Ct. App. 1926)

(“If the aggregate cost upon the face of the account is so excessive and unreasonable as to suggest

gross negligence or fraud, the law would impose upon the contractor the duty of establishing the

bona fides of his performance of the work.”); Shaw v. Bula Cannon Shops, 38 So. 2d 916, 919 (Miss.

1949) (en banc} (affirming a lower court judgment for owner because “[f]here is in the record a great

39

aspects of the Work and was inefficient. But, Transco is suing on breach of contract; it does

not assert negligence, fraud or bad faith. More importantly, there is no evidence to back

such.a contention. Indeed, there is evidence that the ASR Project was run like a “hard bid”

job and that Welded “[was] managing in a proper way.”

Welded has met its burden to prove its outstanding costs and expenses under the

Contract. Welded introduced into evidence the underlying invoices, including the unpaid.

invoices, each of which itemizes the estimated and/or actual costs by category and

spread.” The invoices detail the labor force (direct labor costs, Field labor costs), Specialty

Equipment, materials, mats and Subcontractors. Mr. Hood, who approved and signed all

invoices, testified regarding how the invoices were prepared—including the Cash Call

component and the reconciliation component.”” He testified generally with respect to the

compilation, collection and submission to Transco of the backup invoices and

documentation underlying the reconciliation portion of the invoices.** He testified that he

deai of testimony offered by defendant establishing that the jobs were not reasonably supervised and.

that reckless extravagance and waste ran rampant. The overwhelming weight of the evidence

establishes these facts.”); Romine v. Rex Darnall, Inc., 541 S.W.2d 50, 52 (Mo. Ct. App. 1976)

(“Absent some claim on the part of [the owner] indicating [the contractor] was guilty of fraud or

gross negligence, it was not incumbent upon [the contractor] to prove that his charges for labor and

material were reasonable.”). Fraud must be shown to be pervasive. Union Supply Co. v. Morris, 30

394, 396 (Cal. 1934). Mismanagement must be gross. See Dev. v. Dorsey Constr. Co., Inc.,

642 P.2d 954, 955 (Idaho Ct. App. 1982) (“The owners invite our attention to alleged incidents of

mismanagement... in an effort to show that the contractor did not reasonably control costs. We

need not join the owners in second-guessing each of the contractor’s management decisions.”).

200 Schoenherr Dep. 81:23-82:22, Mar. 23, 2021.

20! See PX124, PX140, PX150, PX151, PX182, PX207, PX329, PX394, JX021, IX030, JX034,

IX060, JX067, TX068, JXO71, JX085, JX103 (Cash Call and reconciliation invoices).

202 Aug. 23, 2023 Trial Tr. (Hood) 467:9-469:17.

3 Aug. 23, 2023 Trial Tr. (Hood) 474:5--16,

40

determined what costs to bill based on Section VIII of the Contract. He testified that he

conducted a kickoff meeting in September, 2017, which included instruction on the

reimbursable activities under the Contract and covered all the various components in

Section VII. He walked through the June 2018 Cash Call/March 2018 reconciliation

invoice in detail discussing Union labor costs and the components thereof (e.g., pay,

deductions, per diem, truck allowance, rig pay) and Field Personnel costs, including PTAG

and Bechtel arrangements.”

Mr. Gray, Welded’s cost expert, audited a sample of the invoices to verify whether

the amounts invoiced were accurate according to the supporting documentation.”” He

sampled nine invoices, which included 62% of the total amount invoiced on the ASR

Project, excluding the invoice for the final installment of the Fixed Fee.”* Mr. Gray

testified that this sample size is significantly higher than the acceptable range for an audit of

this type.””

Mr, Gray ultimately reviewed supporting documentation for 100% of the sampie.’"

He did identify one “formula bust” in the spreadsheets and a few “keypunch errors” totaling

205 Aug, 23, 2023 Trial Tr. (Hood) 474:18-480:22; JX14.

206 Aug, 23, 2023 Trial Tr. Good) 505:21-520:8.

707 Aug. 25, 2023 Trial Tr. (Gray) 845:20-24, 362:6-863:6.

208 Aug. 25, 2023 Trial Tr. (Gray) 863:7-863:12.

209 Aug. 25, 2023 Trial Tr. (Gray) 866: 16-22.

210 Aung, 25, 2023 Trial Tr. (Gray) 863:24-865:6 (originally, Mr. Gray identified 99.5% of the

supporting documentation; thereafter, Welded supplied the missing documentation). ‘The backup

documentation was admitted into evidence. By my count, it consists of at least forty-five 3.5”

binders.

41

approximately $1 million, which he then deducted from his calculations.*" Based on his

audit, Mr. Gray concluded that Welded billed Transco $769,572,514 for the period covered

by the Contract.” As Transco paid $693,120,596 for this period, after Mr. Gray’s

additional adjustments for both the identified errors and this court’s rulings on summary

judgment, Mr. Gray concluded that Welded is owed $56,191,3247"

Based on Mr. Hood’s and Mr. Gray’s testimony as well as the admitted exhibits, I

conclude that Welded has met its affirmative burden to show what is outstanding on its

unpaid invoices and thus what it is owed.

2. Transco’s General Defenses Do Not Defeat Welded’s Claims

Transco first argues that Welded has not proven its right to recovery because Welded

did not perform in accordance with the Contract.*“ Transco cites Oklahoma law for the

proposition that “in order to recover upon a contract, the contractor complaining of his

contractee’s nonperformance must first establish his own performance or a valid excuse for

his failure to perform.””” Even accepting this description of the law does not lead to

Transco’s desired result. Transco asserts that Welded failed to perform under the Contract

because Welded’s invoices contained inaccuracies and because Welded failed to timely

submit reconciliation invoices and weekly reports.”"* Transco also asserts that Welded

2 Aug. 25, 2023 Trial Tr. (Gray) 865:6-866:15.

42 Aug, 25, 2023 Trial Tr. (Gray) 867:5-868:22.

43 Aug, 25, 2023 Trial Tr. (Gray) 869:15-872:11.

14 Transco Br. 14.

215 Miller v. Young, 172 P.2d 994, 995 (Okla. 1946).

716 Transco Br, 15-16.

42

breached the Contract by failing to meet the target Mechanical Completion date and by

failing to timely pay subcontractors.?!” Assuming these are breaches of the Contract,

Transco has still not shown that Welded is not entitled to relief.

Oklahoma law recognizes the doctrine of substantial performance. The Oklahoma

Supreme Court has stated that “when a contractor and builder has in good faith endeavored

to comply with the terms of a contract, literal compliance in all details is not essential to

recovery ....”*!® In the same vein: “[s]ince the rule of exact or literal performance has been

relaxed, literal compliance with a building contract is not essential to a recovery thereon, but a

performance thereof in all its material and substantial particulars is sufficient.””'? Oklahoma law

finds a material breach exists where it “(a) defeats the object of the contract or (b) concerns a

matter of such importance that the contract would not have been made if default in that

particular had been expected.”

Welded has substantially complied with the Contract in all material aspects. While

certain of Welded’s reconciliation invoices were untimely,””' those slight delays in providing

the reconciliation were not material breaches excusing Transco’s performance under the

Contract. ‘Fhese breaches were not material as evidenced by Transco’s continued

218 Collins v. Baldwin, 405 P.2d 74, 81 (Okla. 1965).

419 td, (quoting Robinson v. Beaty, 181 P. 941, 942 (Okla. 1919)).

220 Polymer Fabricating, Inc. v. Emps, Workers’ Comp, Ass'n, 980 P.2d 109, 115 (Okla. 1998),

See, e.g,, JX050 (December 2017 reconciliation nine days late when received on February 9,

2018); JX060 (February 2018 reconciliation invoice twelve days late when received on April 12,

2018); JX067 (March 2018 reconciliation invoice five days late when received on May 5, 2018);

JX068 (April 2018 reconciliation invoice eight days late when received on June 8, 2018); JX071

(May 2018 reconciliation invoice thirteen days late when received on July 13, 2018) (note the email

on this exhibit mistakenly refers to the April reconciliation invoice).

43

engagement with Welded despite the delayed reconciliation invoices.” Likewise, that

Transco waited until Welded had achieved Mechanical Completion before withholding

payment despite the late submission of reconciliation invoices evidences a lack of material

breach.

The alleged breach by Welded because of billing inaccuracies is also a nonmaterial

breach. While Transco makes ado about errors in Welded’s invoicing process that led to

inaccuracies, the Contract specifically anticipated these problems. Appendix G provides

procedures by which Welded and Transco were to reconcile disputed verifications of actual

costs. This gives rise to the necessary inference that Transco was verifying actual expenses

and comparing them with Welded’s estimated and actual costs.** The presence of the audit

provision likewise evidences the Contract’s anticipation of billing errors and inaccuracies,

rendering that “breach” by Welded nonmaterial, Additionally, the invoiced amounts have

been refined and cleansed throughout this litigation, resulting in a valuation of unpaid

invoices agreed to by both parties.?*

Transco also asserts that Welded materially breached the Contract by failing to

achieve Mechanical Completion by June 14, 2018.7" Once again, the Contract

22 See Restatement (Second) of Contracts § 202(4) (Am. Law Inst. 1981) (“Where an agreement

involves repeated occasions for performance by either party with knowledge of the nature of the

performance and opportunity for objection to it by the other, any course of performance accepted or

acquiesced in without objection is given great weight in the interpretation of the agreement.”).

223 See also D0356; Aug. 28, 2023 Trial Tr. (Sztroin) 1164:12-1165:18.

24 Aug. 25, 2023 Trial Tr. (Gray) 843:22-24; Aug. 31, 2023 Trial Tr, (Slavis) 1691:11-16 (“I believe

we are in agreement with what’s been billed and what's been paid.”).

225 Transco Br. 23 (citing Mustang Pipeline Co., Inc. v. Driver Pipeline Co., Inc., 134 S.W.3d 195, 199-

200 (Tex. 2004)). Mustang Pipeline involves a contract which specified that time was of the essence.

That is not the case here.

44

contemplates that Welded’s performance might be late when it provides for a disincentive to

Welded for delayed performance.” Accordingly, failure to meet the target Mechanical

Completion date is not a breach, much less a material one.

Finally, Transco argues that Welded materially breached the Contract because it

failed to timely pay certain subcontractors.””’ ‘The Contract specifies “[Welded] shall

promptly and satisfactorily settle and pay all claims and bills” related to the Contract

“unless [Welded] reasonably and in good faith contests the validity and reasonableness of

any such claim or bill.”"* The evidence shows that Welded was behind in paying its

subcontractors.” Once again, the Contract anticipates this possibility. Under the Contract,

Transco can withhold monies related to outstanding claims against Welded by third

parties.° Moreover, because all subcontractors were ultimately paid by Welded’s surety,

Transco has not suffered any damages.”

Welded substantially performed the Contract by constructing and delivering a

working product to Transco. Accordingly, Welded’s alleged breaches of contract do not

relieve Transco of its duty to perform its obligations under the Contract. Moreover, having

26 ¥X001.0835-36, 42-44,

27 Transco Br. 23-24,

428 JX001.0026.

29 Aug, 28, 2023 Trial Tr. (Pometti) 1077:11-15 (admitting that “there was a lot of past due

payables at that point in time[]” when Zolfo Cooper was retained in March 2018).

230 ‘Transco Br. 23; FX001.0043.

31 Ang. 22, 2023 Trial Tr. (Hawkins) 157:22-158:16. In a footnote, Transco also argues that

Weilded’s delay in paying subcontractors was a violation of Oklahoma law. See Transco Br. 24

(citing Okla. Stat. tit. 42, §§ 152-153 (2024); Stevens v. Harris (In re Harris), 49 P.3d 710, 716—-

19 (Okla. 2002). Transco did not bring a cause of action under this statute.

45

determined to continue with the Contract notwithstanding the alleged breaches, ‘Transco’s

remedy is to sue for damages.” It cannot be a reason to withhold payment of legitimate

bills for services provided. Accordingly, Welded has proven it is entitled to payment of its

unpaid invoices subject to Transco’s specific challenges as discussed below.

B. Transco’s Affirmative Claims

Transco’s proofs of claim, counterclaims and defenses amount to a series of

contentions that Welded invoiced ‘Transco for categories of costs that Transco was not

required to pay under the Contract. Whether Transco is obligated to compensate Welded

for services and equipment provided on the ASR Project is governed by the Contract. In the

first instance, contract interpretation is a matter of law. The court first looks to the four

corners of the contract to see if the plain language provides an answer to the disputed issue.

If the contract is ambiguous, the court may look to outside evidence. The court may also

look to outside evidence to support its interpretation if it does not derogate from the

contract.

Section VIII of the Contract, titled Compensation, provides the governing language.

Article 1 of Section VIH determines what is properly charged to Transco for construction of

the pipeline:

As full and complete compensation for constructing the facilities and appurtenances

in accordance with the scope of Work, the specifications, the drawings, and the

terms and conditions of this Contract, [Transco] agrees to pay and [Welded] agrees

to accept remuneration set out herein as payment in full. Work shall be paid on an

actual cost-basis in accordance with the components and methods of payment

outlined under Article 2 below.”

See, e.g., Sitlington v. Fulton, 281 F.2d 552, 555 (10th Cir. 1960) (a contract party can choose to

rescind upon counterparties’ breach, but if it does not, it is relegated to a cause of action □□□

damages).

233 TX001.0825.

46

Within this construct, I will address each of the specific items identified by ‘Transco.

Before I do, however, I want to address the defined term “Labor Costs.”

Throughout this adversary proceeding, Welded and ‘Transco (as well as certain experts)

often look to the definition of Labor Costs when addressing what is compensable for Work

performed by NPLA Personnel and Field Personnel. This misuse carried through to the

posttrial briefing.

“Tabor Costs” is not the starting point for a determination of compensation for labor

on the ASR Project. The starting point for that determination is Section VIII Article 2.D.

Paragraph D addresses Welded’s compensation for work by NPLA Personnel, Field

Personnel and Subcontractors.

o Paragraph D.1 provides that Welded is compensated for Work

performed by union labor in accordance with the respective Union

Agreements listed on Exhibit 3.

o Paragraph D.2 provides that Welded is compensated for Work

performed by Field Personnel based on the Rates and Benefits listed

on Exhibit 1.74

© Paragraph D.5 provides that Welded is compensated by Transco for

actual amounts CIF (costs including freight and taxes) invoiced by

Subcontractors.

The term “Labor Costs” does not appear in Paragraph D at all. Rather, it is a

defined term inciuded in Paragraph A.

Labor Costs means i) the actual wage rates and benefits paid to NPLA Personnel

pursuant to the NPLA for actual Work performed, 11) the actual wages and benefits,

in accordance with Exhibit 1 paid to Field Personnel for actual Work performed and

iii) for both i and ii above, to the extent however not already addressed by or covered

under the NPLA with respect to NPLA Personnel, fringe benefits, employee vehicle

rental/pay, travel pay, per diem, fuel pay, payroll taxes and insurance in accordance

234 As set forth infra, Exhibit 1 was subsequently revised/updated as to both rates and labor

classifications when the parties executed the Book Contract Amendment.

AT

with Exhibit 1 actually paid to NPLA and Field Personnel in connection with

payment for actual Work.”

It serves one purpose: to determine the baseline of the Equipment Fee multiplier. ‘The

Equipment Fee compensates Welded for Included Equipment, which includes, for example,

the twenty-four Cat 564 pipelayers and other equipment that Welded committed to the ASR

Project. The Equipment Fee is 50% of the defined term Labor Costs.”

The decision to choose the term “Labor Costs” as the metric for the Equipment Fee

multiplier appears (at least in retrospect) to be a poor decision. If nothing else, it creates

unnecessary confusion as evidenced by this dispute. Here, “little 1” labor as used in Article

2.D is the relevant term for a determination of whether Transco must compensate Welded

for categories of expense paid to NPLA Personnel and Field Personnel. “Capital 1” Labor

Costs has no bearing on this determination. As will be seen, this distinction is critical toa

determination of multiple claims asserted by ‘Transco.

1. Rig Rental Costs Are a Labor Benefit

Transco contends that Welded has improperly invoiced Transco for welding and

mechanic rigs that were supplied by NPLA Personnel. ‘Transco asserts that rig rental costs

are Included Equipment and as such are not separately invoiced, but instead covered by the

Equipment Fee. Welded asserts that rig rental costs are benefits provided for under the

Union Agreements compensable as labor under Section VIII Article 2.D.

235 JX001.0826.

236 The first two components of Labor Costs reflect paragraph D— they reference the actual rates

and benefits paid to NPLA Personnel pursuant to the applicable union agreements (sub i)) and they

reference the actual rates and benefits paid to Field Personnel in accordance with Exhibit 1 (sub ii)).

Subparagraph iii) then adds to union-mandated compensation certain categories of compensation in

accordance with Exhibit | (i.e., “to the extent however not already addressed or covered under the

NPLA.”). In other words, subparagraph iii) expands the categories of compensation included in the

definition of Labor Costs, it is not in any way a limiting factor. See JX001,0826.

48

The Contract specifically references compensation for “rigs” tn two exhibits to

Section VIII, First, Exhibit 1 to Section VIL is a chart of Indicative Wages & Benefits by

Labor Classification.*” Exhibit I reflects that “rig rental” is payable to Master Mechanics,

Welder Foremen, Stewards and Welders “per [the applicable] NPLA.” Second, Exhibit 4

to Section VIII is titled “Benefit Codes.” The attached chart includes in its categories of

“payroll definitions” the following:**

Category Code Description Notes

EARNINGS RIGMT TAXABLE MECHANIC RIG Standard Wages

RENTAL

EARNINGS RIGWT TAXABLE WELDER’S RIG Standard Wages

RENTAL

DEDUCTIONS RIGMN NON-TAXABLE MECHANIC RIG Add to Net

RENTAL

DEDUCTIONS RIGWN NON-TAXABLE WELDER’S RIG Add to Net

RENTAL

The categories contained in Exhibits 1 and 4 are corroborated by the applicable Union

Agreements. For example, the Plumbing and Pipefitting Union Agreement has extensive

provisions regarding rig pay. It provides that “the hourly wage rates, per diem and fringe

benefits” for welders includes rig pay’ and the associated Pre-Fob Agreement sets the rate

at $17.00/hr. wet.2 The Plumbing and Pipefitting Union Agreement also provides that rig

237 Exhibit 1 is titled “Rates and Benefits For Field Personnel.” While NPLA Personnel are not

Field Personnel, the Labor Classifications listed in the attached chart clearly identify union labor.

238 ‘That tig pay is a “benefit” is also confirmed in Paragraph H of Section VIII, which provides that

“(tlhe list of benefits which may apply to personnel who are paid pursuant to the NPLA are defined

and set forth in Exhibit 4.” JX001.0835 (emphasis added).

239 JX001.0904.

40 JX018.0002 (Plumbing and Pipe Fitting Pre-Job Agreement). It also provides that the welder

needs a driver’s license and proof of insurance for his welding rig. Jd.

49

rental is subject to collective bargaining and pegs rig rental to the relevant IRS revenue

procedure:

(B) The Parties agree to treat rig rental rates as a mandatory subject of bargaining

within the meaning of the National Labor Relations Act, with all of the rights and

obligations that attach to such a subject of bargaining.

(C) | Employers who rent rigs from Welder Journeymen who perform work

covered by this Agreement shall pay such Welder Journeymen the maximum hourly

rate determined by the Internal Revenue Service (“IRS”) to be non-taxable pursuant

to IRS Revenue Procedure 2002-41, as periodically increased by the IRS. ‘The

Parties shall agree at the pre-job conference whether the applicable rate shail be a

“wet” rate or a “dry” rate. The rig rate will not be included in calculating total

package annual increase. Payment for the rig rental shall be separate from the check

or other payment for regular payroll.

(D) Ifthe IRS eliminates or issues a procedure or ruling that adversely affects the

favorable tax status of rental payments for welding rigs currently provided for in IRS

Revenue Procedure 2002-41, the Parties agree that they will reopen this Agreement

for the limited purpose of renegotiating rig rental rates.”"

Finally, the characterization of rig pay as a “benefit” is confirmed in Paragraph H of Article

2 which provides that “[t]he list of bexefits which may apply to personnel who are paid.

pursuant to the NPLA are defined and set forth in Exhibit 4.”””

As a benefit, rig rental is properly invoiced to Transco under Paragraph D. It also is

included in the calculation of the Equipment Fee as it is a benefit paid to NPLA Personnel

pursuant to a Union Agreement,

41 $X001.0908 (Plumbing and Pipe Fitting Union Agreement). See a/so JX001.0942 (Plumbing and

Pipe Fitting Union Agreement) (setting Welder Technician rig pay); Rev. Proc. 2002-41, 2002-23

LR.B. 1098.

42 7X001.0835.

243 The Operating Engineers Union Agreement provides that mechanics are required to provide

usable rigs. JX001.0970 (“Mechanics will be required to provide a usable rig which is in full

compliance with federal and state laws as a condition of employment, but will not be required to

furnish special tools as a condition of employment.”). See also PX126.0006 (Operating Engineers

Pre-Job Agreement) (providing for daily truck pay of $65 for groups 1 & 2, $45 for group 3 and $100

per day plus gas for leads and stewards).

50

Transco argues that rig rental is compensable under Paragraph E of Article 2 (not

paragraph D) as Included Equipment.™ Included Equipment is defined as “materials,

equipment, supplies, tool vehicles, machines, offices, office equipment, furnishings,

communications and utilities typically owned, leased and/or provided by contractors

performing work similar to this Work.””* The definition includes an enumerated list of

categories as well as specific equipment listed on Exhibit 2 to Section VIII. Neither

mechanic rigs nor welding rigs appear on either list.

Perhaps recognizing that rigs are not a category of equipment specifically named in

the two extensive lists, Transco argues that rigs are the type of equipment or tools typically

owned, leased or provided by contractors. This position is belied by the NPLAs, which

provide that mechanics “will be required to provide a usable rig”*” and “a Welder

Journeyman who is dispatched to a project as a rig Welder will be required to provide a

usable rig as a condition of the dispatch.”*”” Further, the IRS Revenue Procedure to which

welder rig pay is pegged is premised on the fact that the welder owns the rig and the

244 Transco did not take this position in its October 4, 2018 withholding letter, its Proof of Claim or

its Counterclaims. Transco’s previous position—based on the OGCS audit—was only that rig rental

was improperly included in the Equipment Fee multiplier because it was the provision of equipment

and not for “actual work performed.” 'This new position (that it is not billable at all) appears in Mr.

Slavis’s May and June 2022 expert report, which was issued after Judge Sontchi’s June 8, 2020

decision expressing serious doubt about ‘Transco’s attempt to distinguish between active and passive

Labor Costs. Welded Constr., L.P. v. Williams Cos., Inc. (In re Welded Constr., [.P.), 616 B.R. 649, 665

(Bankr. D. Del. 2020), ECF No. 120.

45 JX001.0827.

246 JX001.0970 (Operating Engineers Union Agreement).

247 TX001.0908 (Plumbing and Pipe Fitting Union Agreement). Under this agreement,

“Journeyman” includes ali persons seeking employment as welders and includes Stewards.

Foremen are also welders. JX001.0895-96,

51

employer requires the welder to supply the rig as a condition of employment.“ This

Revenue Procedure, which applies only to welding rigs and mechanic rigs, was adopted by

the IRS to provide guidance to the pipeline construction industry on the proper treatment of

amounts paid for rigs.”

In support of its position, Transco points to the testimony of Mr. Pew, Mr.

McDowell and Mr. McNabb. Mr. Pew, Transco’s construction manager, described both a

welding rig and a mechanic rig and testified that they are common on construction pipeline

sites, including the ASR Project. But, he was not asked who typically owns, provides or

leases them and his testimony suggests that the rig is supplied by the welder or mechanic,”

The testimony provided by certain Welded employees is mixed. In one-word responses,

both Mr. McDowell, Welded’s CFO, and Mr. McNabb, manager of project controls,

testified that rigs are typically provided by a contractor on pipeline projects.*! But, the most

fulsome discussion of rigs is more nuanced, Scott Schoenherr, Welded’s general

superintendent, testified (under questioning by Transco’s counsel):

QO: And, similarly, were welding rigs provided by some of the craft union

members?

A: Yes, So-

Q: And.

A: Go ahead.

248 See, e.g., Rev. Proc. 2002-41, 2002-23 I.R.B. 1098, 1100 (Question 3 and Answer 3).

249 ‘The request for this IRS guidance was made at the behest of “representatives of the pipeline

construction industry ....” Rev. Proc. 2002-41, 2002-23 LR.B. 1098.

50 See Aug. 30, 2023 Trial Tr. (Pew) 1583:24-1584:6,

51 Sept. 6, 2023 Trial Tr. (McDowell) 2039:12-15 (referencing McDowell Dep. 115:9-12, Dec. 9,

2020); Sept. 6, 2023 Trial Tr. (McNabb) 2054:14-16 (referencing McNabb Dep. 165:6-9, Nov. 6

2020).

52

Q: I was just going to say, what comprises a welding rig for purposes of a

pipeline project or pipeline construction like this one?

A: So, if you — if you were to look in the PLC, it’s spelled out very, very

well in there, what comprises of that. And, Vl just take a stab at it.

It’s a — it’s a welding — a truck with a welder, you know, with the —a

four-wheel drive crew cab, dually — I mean they’re most generally dually

trucks — not always — but, you know, to carry the machines and the small

tools that they have. Most generally they’re a flatbed dually truck, crew

cab, single cab, you know, equivalent of a 1-ton or % ton pickup.

Q: And I might get this wrong, but is the operators — operators, welders that

provide these welding rigs?

A: So it would be the — so as far as the welding rigs go, that would be the —

it would be the welders. You know, from the — at each — each welder on

the job is supposed to provide a rig and get paid for their rig.

Q: And, was the purpose of the payment to the welders to cover the expense

of the equipment they were providing, i.c. the welding rigs?

A: Yes.

Q: And is that — is it typical that the welders provide their own rigs on these

types of pipeline projects?

A: Most definitely.

Q: And in instances where the welding rigs aren’t provided by the craft labor,

are they typically rented by the contractor?

A: Yes.

Q: And I would presume on pipeline projects such as the ASR project,

welding rigs are used on every project correct?

A: That is correct. *”

Based on the evidence presented, I find that a mechanic or welder typically

owns and/or provides his rig when working on a pipeline construction project

similar to the ASR Pipeline Project. The requirements in the Union Agreements, the

452 Schoenherr Dep. 67:10-68:24, Mar. 23, 2021. Mr. Pew also described the rig as including the

individual welder or the individual mechanic and his respective tools. Aug. 30, 2023 Trial Tr. (Pew)

1584:1-1585:4,

53

adoption of a special IRS revenue ruling for rigs used on pipeline construction

projects and the testimony of Mr. Schoenherr, which I find to be the most credible on

this issue, all lead to this conclusion. It follows, then, that I find that contractors do

not typically own or provide rigs on a pipeline construction project similar to the

ASR Project. At most, contractors provide welding and mechanic rigs when the

mechanic or welder does not. My conclusion is also buttressed by the fact that

mechanic rigs and welding rigs, which are ubiquitous on pipeline construction sites,

are not listed in the extensive and detailed list of Included Equipment.?”

Given these conclusions, rigs can only be Included Equipment under the

Contract if a contractor on a pipeline construction project similar to the ASR. Project

typically leases mechanic rigs and welding rigs. Transco contends that rigs are leased.

based on Mr. Slavis’s reading of the Contract.”* Apparently, both Mr. Slavis and

Transco believe that the use of the term “rental” is definitive. But, Mr. Slavis’s

interpretation of the Contract is not entitled to any weight”’ and Transco provides no

legal authority for Mr. Slavis’s conclusion.

Black’s defines the verb “lease” as “[tlo grant the possession and use of [real or

personal property] fo another in return for rent or other consideration.””* This definition

233 “Tack rigs,” a specialized type of Weiding Rig, is on this list.

454 Mr. Slavis testified that under the NPLA the employers rent rigs from welding journeymen and

that this rig rental is separate from the regular payroll check. Aug. 31, 2023 Trial Tr. (Slavis)

1700:4-12.

45 Mr, Slavis’s position on this point is not based on any experience he might have but simply on

his reading of the Contract, which I have rejected.

256 Tease, Black’s Law Dictionary (12th ed. 2024) (emphasis added).

54

necessarily involves the granting of a property interest—.e., a leasehold interest. The

Union Agreements do not contemplate any transfer of a property interest in the rigs to

contractors. Rather, the mechanic or welder provides his own rig for his own use on a given

day in exchange for compensation set at an hourly rate (either wet or dry).

Because I find that a contractor performing work similar to the work performed on

the ASR Project does not typically own, lease or provide mechanic rigs or welding rigs, I

conclude that these rigs are not Included Equipment.

Accordingly: (1) Transco is not entitled to recover monies previously paid for rig

rental, (2) Welded is entitled to recover the costs of unpaid rig rental detailed in its unpaid

invoices and (3) rig rental is included in the calculation of Equipment Fee.

2. Field Personnel Costs and Exhibit 1

‘Transco presents two separate theories of recovery relating to costs invoiced for Field

Personnel. First, Transco argues that Welded invoiced for workers that did not qualify as

Field Personnel under the Contract, either because they were Home Office Personnel or

because their work was not performed “in the Field.” Second, Transco argues that for

employees properly categorized as Field Personnel, Welded improperly charged for their

service because the rates exceeded Exhibit 1’s rates by more than 7.5%. Transco also seeks

the Equipment Fee markup of these costs.

Welded responds that “Field Personnel” is defined expansively to cover nonunion

employees. Welded also asserts that it informed Transco of updated staffing and rates,

which Transco approved when the Book Contract Amendment was executed.

a. ‘Tvansco cannot recover for rates in excess of Exhibit I because those rates were

updated and approved by Transco

55

Section VIII Article 2.D provides that “[c]ompensation for Work performed by Field

Personnel shall be paid in accordance with the actual wages and benefits paid to Field

Personnel as set forth in Exhibit 1.”

The Original Contract contains an Exhibit 1 to Section VII, titled “Rates and

Benefits for Field Personnel,” which is a chart containing rows of job titles and columns of

rates and benefits. The cover sheet thereto reads:

Company shall compensate Contractor for Work performed by Field Personnel

in accordance with the rates, rate ranges and benefits set forth in this Exhibit.

Contractor shall issue notification to Company before submitting an invoice for

Work performed by any Field Personnel which exceeds the rates or rate ranges

herein. Contractor must seek approval from Company before implementing

any changes to wages and benefits for any Field Personnel member in excess

of 7.5% above the values shown herein for any individual labor classification,

No such increase shall be given retroactive effect.”

Following execution of the Original Contract, the NTP was delayed such that Welded’s

original cost estimate was no longer viable.”” Transco requested a complete re-estimate and

Welded ultimately presented an updated cost estimate of $454 million on August 17, 2017

as reflected in a new Exhibit 8 to Section VIII.? The updated cost estimate includes

detailed staffing plans for Field Personnel priced at current salaries.*“" Transco was aware of

the updated cost estimate and the buildup to it.” Transco accepted the updated staffing

27 JX001.0829.

458 TX001.0499,

29 Aug, 24, 2023 Trial Tr. (Hood) 520:19-521:1.

60 Aug, 24, 2023 Trial Tr. (Hood) 522:17-523:10; PX121; JX001.845.

761 PX121.0035; IX008.0064; Aug. 24, 2023 Trial Tr. (Hood) 524:16-525:11.

762 See Aug. 24, 2023 Trial ‘Tr. (Hood) 528:9-16:

Q: Did Transco know the wages and benefits and salaries were updated since 2016?

A: Yes, That’s one of the — the basis estimate we looked at earlier.

56

plan and revised rates for Field Personnel when it executed the Book Contract

Amendment.”” Because Transco requested, received and approved the updated rates and

Q: And did you and your team tell Transco that directly in your meetings?

A: Yes. That’s part of the presentation, part of the assumptions of the estimate ....

See generally Aug, 24, 2023 Trial Tr. (Hood) 527:7-23; see also Aug. 29, 2023 Trial Tr.

(Sztroin) 1351:11-21:

Q: And you accepted the $454 million number from Welded after it updated its

estimate, true?

A: Yes.

Q: And, that became the central budget for the contract, correct?

A: That’s correct.

Q: And you knew when that became the central budget for the contract, that

Welded was using current salaries and benefits and wages that existed at the time of

this estimate, correct?

A: That’s what the presentation showed, yes.

See generally 1348:19-1351:20 (Sztroin acknowledging Transco’s awareness of current rates).

Aug. 24, 2023 Trial Tr. (Hood) 599:19-600:19:

Q: And this estimate summary doesn’t have a list of labor classifications, correct?

A: Well, this is just a summary page. The details of the estimate would have all the

stabbing [sic] plan with the rates for the people and their names that signed. They had

-- all the details would be behind — for example, this 41 million number in field

management supervision is built up on a stabbing [sic] plan of months worked and

names or positions.

Q: And that detailed estimate that you just described was not incorporated into the

contract in Amendment 1, correct?

A: It’s the backup to this. I mean, by association, I guess, that’s how you get to the

41 number is through the backup.

Q: And that detailed estimate was never provided to Transco, correct?

A: Oh, yes, it was.

QO: The detailed estimate?

A: [I’m sure it was. It was provided back in — in August of 717.

Q: Was it provided through the presentation that you testified about in your direct

testimony? Is that what you're saying?

A: It was provided through — you know, from our project controls guys. All the details

were provided to — to Priya and her team to roll into the baseline of the project. So,

all of that information was available.

Aug. 29, 2023 Trial Tr. (Sztroin) 1353:4-4:

Q: So Welded’s cost estimate and the buildup to the cost estimate became part of

Amendment 1, right?

A: Yes.

763 Aug, 24, 2023 Trial Tr. (Hood) 529:5-11; JX001.0529-30, 845.

57

benefits in Welded’s revised staffing plan, these revised rates govern charges for Field

Personnel.

Unfortunately, the Book Contract Amendment does not include an updated Exhibit

1 to reflect the revised staffing plan and rates." Nevertheless, based on the evidence

presented, I conclude that Welded charged for Field Personnel consistent with the updated

staffing plan and/or that any charges for Field Personnel in excess of 7.5% of the rates

contained in the Original Contract Exhibit 1 were approved by virtue of the execution of the

Book Contract Amendment.

Mr. Slavis did not testify that the rates charged for Field Personnel were in excess of

the revised rates. Nor did he testify that he even considered the revised rates. Rather, Mr.

Slavis focused solely on the outdated Exhibit 1. He used the payroll database and the

outdated Exhibit I rates to determine on a person-by-person basis the amounts paid to Field

Personnel, which exceeded the outdated Exhibit 1’s rates by 7.5%.” He opined that the

correct amount, when considering the Equipment Fee multiplier, was $1,415,410.2% While

I accept Mr. Slavis’s testimony that Welded invoiced Transco for $1,415,410 in excess of

Exhibit 1, I nevertheless find that Transco cannot recover. As set forth above, the rates on

Exhibit 1 were superseded by the rates supporting the Book Contract Amendment. Thus,

Mr. Slavis’s analysis is inapposite.

At oral argument, Transco’s counsel made two arguments. First, counsel seemed to

suggest that Exhibit 1 could only be changed through a contract amendment. But, Exhibit 1

64 JX001.0838 (including only cover page).

765 Aug. 31, 2023 Trial Tr. (Slavis) 1713:17-1714:6.

266 Aug. 31, 2023 Trial Tr. (Slavis) 1714:7-12.

58

provides only that Welded must seek approval of any changes to wages and benefits for

Field Personnel that exceed 7.5%. It does not provide that any such approval must be the

subject of an amendment to the Contract.” The testimony is clear that Transco knew of the

buildup to the $454 million revised estimate, including rates for Personnel, and approved it.

Second, counsel argued that because the Book Contract Amendment did not include

the updated staffing plan in a revised Exhibit 1, any revised rates were not approved and the

original Exhibit 1 continues to govern. This is a misreading of the Book Contract

Amendment, which states: “Section VIII shall be replaced in its entirety with the attached

revision.” In the Book Contract Amendment, some of the Exhibits to Section VIII (like

Exhibit 1) contain only the cover sheet; others are complete. A literal reading of this

provision would mean that those Exhibits without a referenced backup schedule would be

blank. In the case of Exhibit 1, it would result in no specified rates and benefits for Field

Personnel. Transco does not take the position that it owes nothing for this labor, rather, it

defaults to the Exhibit 1 in the Original Contract. I reject this reading. The evidence is that

the revised rates were approved and compensation under the Contract is on an actual cost

basis. Further, the $454 million cost re-estimate is specifically included in the Book

Contract Amendment as Exhibit 8 to Section VIII. Finally, I heard no testimony to suggest

that Transco thought tt was not obligated to pay current rates for Field Personnel.

b. Transco is entitled to recover only $264, 960 for labor not compensable as Field

Personnel

267 “This is exemplified by Welded’s ability to generally change wages and benefits without notice to

the Company. JX001.0503 (“Wages and benefits shown above are indicative as of February 1, 2016

and are subject to change without notice to the Company. Contractor will seek approval from

Company for any changes to wages and benefits for Field Personnel in excess of 7.5% above values

shown herein for any individuai labor classification.”).

268 1X001.0529 (emphasis added).

59

Article 2.A defines Field Personnel as “any Contractor direct employees and/or

Agency Personnel,” excluding Home Office Personnel,*”” who perform Work in the

Field.”?" Essentially, being “in the Field” means being on-site in Pennsylvania as

compared to being in Welded’s Perrysburg, Ohio office. ?”

As above, the starting point is Article 2.D, which provides that “[c]ompensation for

Work performed by Field Personnel shall be paid in accordance with the actual wages and

benefits paid to Field Personnel as set forth in Exhibit 1.”*”* Again, relying on Exhibit 1,

Mr. Siavis identified the labor classifications of each nonunion personnel invoiced by

Welded.?“ He then looked at the payroll database to identify the job of nonunion personnel

Agency Personnel are employees hired to supplement Welded’s direct workforce. JX001.0827.

270 “Fome Office Personnel” encompasses Welded’s executive management team as well as other

direct employees in the following categories: human resources, controller, facilities, equipment,

information security and technology, project controls, quality, contract administration, business

development and estimating and labor relations. JX001.0826.

27 F¥X001.0826.

22 JX001.0825. “Field” is defined as

any Company Work site where the pipeline is to be installed, including any and all

Company controlled or provided access roads, staging areas, valve sites and

compressor stations associated therewith and any Company-approved site associated.

with the Work including Contractor yards, Subcontractor yards, mat yards, satellite

yards and pipe yards.

23 ¥X001.0829.

24 Aug. 31, 2023 Trial Tr. (Slavis) 1706:14-23,

60

and compared it to those listed in Exhibit 1.?” Through this process, Mr. Slavis identified

twenty-seven job titles that do not appear to be related to those listed on Exhibit 1.7”

Additionally, Mr. Slavis analyzed whether an individual worked “in the Field.” For

this, he reviewed the payroll database and identified individuals billed as Field Personnel

that did not receive a per diem; he reasoned that if an employee does not receive a per diem,

he works in the Home Office rather than the Field.” Mr. Slavis quantified this category of

overbilling at $176,640 plus $88,320 in the corresponding Equipment Fee charge.

Once again, Mr. Slavis starts from an improper place. As I have already found,

Exhibit 1 was revised as to both staffing and rates. Here, he ignored the updated staffing

plan. Mr. Hood credibly testified that the new detailed staffing plan contained new

positions and accounted for all the Field Personnel positions that were eventually mvoiced

to Transco.” Accordingly, to the extent Transco seeks to recover money based on unlisted

positions, it fails.

75 Aug, 31, 2023 Trial Tr. (Slavis) 1706:14-1707:6.

Aug, 31, 2023 Trial Tr. (Slavis) 1708:23-1709:4, 1832:16-1833:11.

27 Aug. 31, 2023 Trial Tr. (Slavis) 1834:23-1835:12.

28 Aug. 24, 2023 Trial Tr. Hood) 598:23--599:9:

QO: And you did not submit a request for approval in advance of billing that to Transco

as provided — or as required by Note 1, correct?

A: Well, I guess, as I said before, this entire list was subsequently changed by the new

list people, the new rates that would have went into the amendment. So, there’s a new

list and new rates.

Q: So, the information set forth on Exhibit 1 was not utilized in any way by Welded

in its billing to Transco, correct?

A: Not in this format, no. This Exhibit 1 was from past history. It was revised in the

new estimate.

See also Aug. 24, 2023 ‘Trial Tr. (Hood) 599:19-600:25.

61

Nonetheless, the Contract provides that to qualify as Field Personnel one must work

“in the Field.” Iam convinced that whether an employee received a per diem is, absent

evidence or explanation to the contrary, indicative that the employee did not work in the

Field (regardless of whether a classification appears on the original Exhibit 1 or the updated

staffing plan). Weided provided no evidence to counter this assertion; rather, Welded

simply elicited from Mr. Slavis an acknowledgement that the definition of Field Personnel

does not reference per diem.’?” This is not enough.

Accordingly, Transco is entitled to recover $264,960 for improper charges for Field

Personnel.”

3. PTAG Fees Generally and Rates in Excess of 7.5%

Project Talent Acquisition Group (“PTAG”) is a well-known staffing agency in the

pipeline construction business that provides individuals for roles as “technical engineers,

project managers, safety guys [and] quality reps.””*' Welded hired some Field Personnel

2 Aug, 31, 2023 Trial Tr. (Slavis) 1835:4-12.

280 While Mr. Slavis did not differentiate between improper charges in paid invoices versus

outstanding invoices, because of the outcome here, where Transco still owes Welded under the

Contract, this failure to differentiate does not make a difference.

2! Aug. 24, 2023 Trial Tr. (Hood) 519:9-12.

62

from PTAG.” In exchange for supplying personnel, PTAG received a fee.”* Welded

passed the costs from PTAG (including the fee) through to Transco without any markup.”

Transco asserts two overbillings with respect to PTAG personnel. First, Transco

contends that $765,084 (inclusive of an Equipment Fee charge) of the amounts biiled for

PTAG Field Personnel was an “agency fee,” or premium, not properly chargeable under the

Contract. Second, Transco asserts that $811,935 Gnclusive of an Equipment Fee charge) of

the amounts charged for PTAG personnel exceeded the rates listed on Exhibit 1 by more

than 7.5%.

Welded responds generally that PTAG personnel labor is reimbursable under the

Contract. On Transco’s first contention, Welded does not direct me to any specific

provision allowing it to pass through an “agency fee,” rather it simply argues that Transco

has failed to identify any PTAG agency fee charged to it. On Transco’s second contention,

Welded, again, argues that Exhibit 1 is the incorrect starting point because ‘Transco agreed

to the revised rates for Field Personnel in the Book Contract Amendment.

Under the Contract, Welded may hire Agency Personnel, such as those hired from

PTAG, to work on the ASR Project.” Agency Personnel are also directly referenced in the

definitions of both Home Office Personnel and Field Personnel. Aside from these

#8 Aug, 24, 2023 Trial Tr. (Hood) 519:13-19; D0325; D0326; JX040.009-78.

783 Aug. 24, 2023 Trial Tr. (Hood) 520:4-8:

Q: Would you have any agency personnel if you didn’t pay the agency for its people?

A: Well, the agency’s — the agency’s got to make something. They’re not going to be

in business without receiving some monetary amount.

See also Aug. 25, 2023 Trial Tr. (Gray) 896:3-8.

4 Aug, 24, 2023 Trial Tr. (Hood) 519:20-520:3.

28 JX001.0827.

63

references, Agency Personnel are not generally discussed elsewhere in the Contract.

Neither does the Contract separately address Welded’s compensation when using Agency

Personnel,

a, The Contract does not permit passing through an “Agency Fee”

Field Personnel” are compensated under Section VUI Article 2.D and Exhibit 1,

which I have already found was revised in connection with the execution of the Book

Amendment Contract. Notwithstanding the revision, nothing in the original Exhibit |

allows an agency fee to be part of the wages and benefits billed to ‘Transco, Unlike

categories of staff and rates, Welded did not provide any testimony that this additional

category of fees was included in its buildup to the new cost estimate in the Book

Amendment Contract, I will not, therefore, conclude that the revised staffing plan and rates

include this additional category of fees.

I reject Welded’s argument that Transco’s failure to identify the exact amount of the

agency fee means none was charged. As shown above, Mr. Hood testified that Welded

passed through all PTAG charges. But, Welded is correct that Mr. Slavis did not directly

quantify the fee, using instead a proxy to make an approximate calculation. Mr. Slavis

relied on an email containing PTAG’s standard transition fee for circumstances in which

Welded sought to hire a PTAG employee directly.’ This fee is the cost Welded would pay

286 Mr. Slavis’s calculations with respect to PTAG employees only implicate Field Personnel and

not Home Office Personnel.

1)0325.0002; Aug. 31, 2023 Trial Tr. (Slavis) 1715:5-10:

A: What we have here is an email exchange that had with it a supporting schedule of

by individual, a fee to be charged for that individual. So what we did is we took —

again, they had a different percent for each person — we took the percent that was

allocated to that individual and used that as a proxy for the fee that was billed for these

people.

64

to permanently hire a PTAG employee and transition that employee away from PTAG,7*

Mr. Slavis applied the relevant percentage to each PTAG-supplied employee to arrive at his

estimate of $510,056 as the Agency Fee (plus the Equipment Fee of $255,028).

I am not convinced that this proxy is the best substitute for the Agency Fee as a

transition fee serves an entirely different purpose. Nonetheless, my review of the PTAG

invoices” does not permit me (or anyone else) to determine the Agency Fee nor did

Welded present any evidence or other approximation of the fee charged by PTAG.™ As the

only evidence I have of the Agency Fee is from Mr. Slavis, I accept his number. The

alternative would be to disallow all compensation sought for PTAG Agency Personnel,

which is not relief that Transco sought nor would it be fair. Accordingly, I conclude that

Welded has overbilled for Agency Fee in the amount of $765,084.

db. Welded can charge rates in excess of 7.5%

Transco’s claim for wages paid in excess of 7.5% greater than Exhibit 1 fails for the

same reasons it did before. I have already found that the rates set forth in Exhibit 1 were

updated as part of the Book Contract Amendment. Because Transco sought and approved

rates different from Exhibit 1, Transco cannot now complain about those rates.

Accordingly, Transco’s second claim related to PTAG compensation is denied.

4. Bechtel Labor Costs

Similar to PTAG, Welded used employees of affiliate Bechtel Oil, Gas and

Chemicals, Inc. (“Bechtel”) to perform certain Work on the ASR Project. Specifically,

289 See, é.g., JXO40.0009-78.

Apparently, neither Welded nor Transco sought this information from PTAG.

65

Bechtel seconded employees to Welded pursuant to that certam Request for Services

(effective January 1, 2017) as per a Continuing Services Agreement dated as of May 29,

2015,”

First, Transco contends that it does not owe Welded $4,342,365 (inclusive of the

Equipment Fee) for services actually performed by Bechtel-seconded employees on the ASR

Project because Bechtel wrote off the underlying invoices for those services. If those costs

were not “paid” by Welded, the argument goes, then Transco has no obligation to pay

them. Second, ‘Transco contends that $107,634 (inclusive of the Equipment Fee) of the

Bechtel invoices that were paid included a 1.5 multiplier, which is not for actual wages or

benefits delineated on Exhibit 1 and so are not compensable under the Contract.

Welded counters that Transco is responsible for payment for the services of Bechtel-

seconded employees regardless of payment of the underlying invoices. It also argues that

the 1.5 multiplier is to compensate Bechtel for benefits provided to seconded employees.

Bechtel-seconded employees were hired pursuant to a staffing agreement to

supplement Welded’s workforce.”? As such, they are Agency Personnel and their services

are compensable as Field Personnel pursuant to Section VII Article 2.D, Exhibit 1 and the

updated staffing and rates buildup supporting the Book Contract Amendment. Except as

discussed below, Transco does not argue that the rates charged are inconsistent with or

exceed the listed rates. Rather, Transco’s main argument is that because Welded did not

22 This is an entirely new claim having not been asserted in either Proof of Claim or Transco’s

counterclaims.

23 Aug, 24, 2023 Trial Tr. (Hood) 517:11-18; see also TX007.

66

actually pay certain Bechtel invoices as they came due, Welded cannot charge Transco for

these services.

Bechtel invoiced Welded $3,381,735.56 over the course of the ASR. Project.”

Ultimately, Welded paid $486,825.67 in the ordinary course, leaving a balance of

$2,894,909.89.* Thereafter, and as part of a Settlement Agreement executed by Welded,

the Official Committee of Unsecured Creditors in the Welded bankruptcy case, numerous

Bechtel entities, including Bechtel Oil, Gas and Chemicals, Inc., and certain McCaig

entities,’ the Bechtel entities resolved all of their claims against Welded and its estate. The

resolution included a payment by the Bechtel and McCaig entities of $2 million to the estate

and the grant of reciprocal, general releases among all parties. In particular, the Bechtel

entities waived any and all claims of any nature that had been or could be asserted against

Welded and its estates. This Settlement Agreement (defined as the Plan Settlement

Agreement) was approved by the Court as part of confirmation of the Amended Chapter 11

T2045.

92045.

26 McCaig holds certain partnership units in Welded. Complaint 3.

67

Pian of Welded Construction, L.P. and Welded Construction Michigan, LLC.?”’

Thereafter, Bechtel wrote off the unpaid invoices for its seconded employees.””

Based on the Settlement Agreement’s broad releases and the testimony of Welded’s

CRO, Frank Pometti, I find that Bechtel was compensated for its claims related to the

seconded employees. Bechtel’s claim against Welded for unpaid invoices related to the

ASR Project was released through the Settlement Agreement and chapter 11 plan.”” As the

Settlement Agreement states, the releases were provided for good and valuable

consideration. The Settlement Agreement also enabled the confirmation of a plan.

Accordingly, I find that the Bechtel invoices do not remain unpaid; rather, they were settled

as part of a compromise. Thus, Transco’s argument is not well taken.

Transco’s second argument regarding the Bechtel 1.5 multiplier is a closer call.

Transco seeks to claw back $107,634 from Welded invoices dated August 5, September 12

and October 9, 2017 based on Mr. Slavis’s calculation.*” The sole basis for Mr. Slavis’s

27 Aug. 28, 2023 Trial Tr. (Pometti) 1054:20-1058:2; PX529.0082:

Effective as of the Agreement Effective Date, the Partner Settlement Parties, on behalf

of themselves and any person or entity claiming by or through the Partner Settlement

Parties, except as provided in section 8 below, (i) waive any and all claims and/or

requests for payment, whether administrative, priority or unsecured in nature, that

have been, could have been, or could be asserted by the Partner Settlement Parties (or

any person or entity claiming by or through the Partner Settlement Parties) against the

Debtors and their Estates... .

PX529.0080 defines Bechtel as one of the “Partner Settlement Parties.” These were incorporated

into the Plan at PX529.0072-73, 76. The sole exception does not relate to the ASR Project or

‘Transco.

28 Aug, 23, 2023 Trial Tr. (Wall) 431:13-433:23; Sept. 6, 2023 Trial Tr. (Slavis) 1870:9-1871:8;

D2045.

‘I'hat Bechtel wrote off amounts for claims it had already released does not affect my finding.

TD)2047U,

68

“opinion” is that he viewed the multiplier as nonchargeable because it “was a markup that

went directly to Bechtel” and was not paid directly to an employee.*' He testified that: (1)

the testimony he heard during the trial “clarified” that position for him and (2) the

documents he looked at “appear to have benefits in it and then markup after that.’”°" His

view, therefore, is that if a benefit is not directly paid to an employee in a weekly paycheck,

it is not compensable.

During the trial, Mr. Hood testified that the multiplier was used to provide benefits

(such as 401(k), vacation and paid time off) to the seconded employees, not as profit or a

markup fee to Bechtel. His testimony is supported by the Bechtel invoices that delineate

in broad terms the categories of labor charged to Welded. The categories include standard

and overtime wages, other wages (i.e., double/triple overtime, incentive payments,

temporary assignments, living allowance, goods and services, housing and transportation

allowances, statutory compensation, per diems, relocation allowance, wages and shift

premium), payroll additives, multiplier amounts (1 and 2), markup and fee. While the

1 Aug. 31, 2023 Trial Tr. (Slavis) 1720:10-25. Mr. Slavis’s testimony was not based on any

specialized knowledge, but simply his read of the Contract and view of the evidence.

32 Aug. 31, 2023 Trial Tr. (Slavis) 1720:10-25.

383 Aug. 25, 2023 Trial Tr. (Hood) 702:11-22:

Q: And with regard to the Bechtel multiplier that we have heard about, the 50 percent

multiplier, that amount was not paid to you, Mr. Hood, on your wages and payroll

additives, correct?

A: In a-—in a roundabout way, some of it could have been through — you know,

because that — that multiplier, again, covers a lot of —a lot of things like — like vacation

time, like, you know, paid time off, holidays, 401(k) benefits, so — so that — they’re not

paid directly in a — in a — in a weekly paycheck, but they are employee benefits. And

that’s — that’s — that’s — the multiplier 1s how that is recouped.

69

Bechtel invoices include charges in the multiplier columns, there is no charge for either a

markup or a fee.™

Treject Mr, Slavis’s conclusion and, based on the evidence presented, find that the

Bechtel multiplier is to pay for benefits to seconded employees. Unlike the PTAG agency

fee, the Bechtel multiplier is not a markup or a fee, but rather a way to charge for benefits.

The question, therefore, is whether the multiplier is properly chargeable to Transco. I

conclude that it is. The distinction drawn by Mr. Slavis/Transco is not internally

consistent. Nowhere else does Transco challenge benefits/pay not paid directly to

employees. For example, Welded billed Transco for state and federal taxes as well as health

and welfare benefits; Transco does not take issue with these charges. Further, these types of

benefits are on Exhibit 1 to Section VIII and, as already stated, I accept the testimony that

the Book Contract Amendment contains updated rates and benefits.

As Field Personnel, wages and benefits paid for services provided by Bechtel

seconded employees are chargeable under the Contract. These charges are also Labor Costs

which attract the Equipment Fee. This conclusion comports with the underlying principle

of the Contract that Welded is paid on an “actual cost-basis.”*

5. General Liability Insurance

Transco asserts that Welded billed Transco for general liability insurance costs that

the Contract allocates to Welded. Welded responds that general liability costs are a

34 Because neither Mr. Slavis nor Transco referred to an admitted exhibit number, I reviewed

Bechtel invoices in other months to determine what was invoiced. In each instance, the form of

Bechtel invoice was the same and reflected no charge for markup or fee. See, eg., JX021.0439;

JX030.0030.

35 JX001.0825.

70

compensable cost under Section VIII of the Contract. The parties direct my analysis to

Sections I and VIII of the Contract,

Section I of the Contract, titled “General Contract,” contains provisions on a myriad

of topics from the definition of Work to confidentiality to force majeure and damages.

Article 8 requires that Welded carry certain types of insurance throughout the Contract

period.” Article 8 then enumerates several types of insurance required by Transco,

including Worker’s Compensation and Employer’s Liability, General Liability, Pollution

Liability and Excess Liability policies.*°’ With one exception not relevant here, the

Contract also provides that 'l’ransco must be an additional insured on all policies and that

the “policies will respond as primary to any other insurance available to” Transco. Article

8 also provides that “[a]ll costs and deductible amounts will be for the sole account of

Contractor.”*” Finally, Section I also directs the court to look to Section VIII to determine

compensation for Work under the Contract.*"°

66 JX001.0014 (“Contractor will carry or cause to be carried and maintained in force throughout the

entire term of this Contract... insurance... . ‘The limits set forth below are minimum limits and

will not be construed to limit Contractor lability. All costs and deductible amounts will be for the

sole account of Contractor.”).

7 TX001.0015-18.

JXO01.0015.

3 T have already found this language to be awkward. Welded Constr. L.P. v. Williams Cos., Inc. (In re

Welded Constr,, L.P.), Adv. Pro. No. 19-50194, 2023 WL 4853146, at *6-7 (Bankr. D. Del. July 28,

2023), ECF No. 394.

310 TXO01.0009,

71

Section VIII of the Contract dictates Welded’s compensation for Work under the

Contract.*"" General liability insurance appears here in Exhibit 4.°” Specifically, general

liability insurance is listed and characterized as an “employer paid benefit” as this excerpt

from Exhibit 4 shows: *"

Category Code Description Notes

Earnings ER4AKF Manual 401K FUND Employer Paid Benefits

Earnings ERANN Manual Annuity Employer Paid Benefits

Earnings ERAPP Manuai Apprenticeship Employer Paid Benefits

Earnings ERBEN Manuai Retiree Benefits Employer Paid Benefits

Earnings ERDNT Non-Manual Paid Dental Employer Paid Benefits

Earnings ERGLB General Liability Insurance Employer Paid Benefits

Earnings ERGTL Non-Manual Group ‘Term Life/AD&D Employer Paid Benefits

Earnings ERHW Manual Hé& W (Hourly) Employer Paid Benefits

Earnings ERHW1 Manual H&W (%) Employer Paid Benefits

It is surrounded by other common “empioyer paid benefits” like dental, vision, life

insurance and 401K matching.* Additionally, the term “insurance” is found in the

definition of Labor Costs. “Labor Costs” includes “fringe benefits, employee vehicle

rental/pay, travel pay, per diem, fuel pay, payroll taxes and insurance in accordance with

Exhibit 1 actually paid to NPLA and Field Personnel i connection with payment for actual

Work.’35

Prior to trial, Transco moved for summary judgment on this issue. Relying on the

language in Section I of the Contract, as well as the definition of Fixed Fee*"® in Section

34 JX001.0825.

312 Section VII's Paragraph H contains a miscellaneous provision instructing that Exhibit 4 is

incorporated into Section VHI and that Exhibit 4 is a list of benefits which may apply to NPLA

personnel, JX001.0835.

313 JX001.0512.

314 JX001.0512-13.

315 JX001.0826 (emphasis added).

316 “Fixed Fee” is defined to cover:

72

VII, Transco sought judgment as a matter of law. Welded contested Transco’s motion,

relying on Section VIII and Exhibit 4. I denied Transco’s summary judgment motion

because I concluded that the Contract was ambiguous on whether general liability insurance

costs were reimbursable. I expected the parties to present evidence at trial to resolve this

ambiguity.

Only Transco adduced any evidence on general liability insurance at the trial.*?’

First, Mr. Slavis testified that Welded did in fact bill for the cost of general liability

insurance as part of payroll.7!* Second, he testified that general liability insurance covers

bodily injury and property damage for third-party claims (i.e., nonemployee claims) while

worker’s compensation insurance covers claims by employees.*” Third, he testified that in

his experience with other cost-plus contracts, general liability insurance is a home office

cost.*2° When asked whether he had ever seen general liability insurance costs “paid to” an

employee, Mr. Slavis responded no.*”? Nevertheless, Mr. Slavis admitted that he does not

(i) Contractor cost and expenses attributable to Contractor’s Home Office overhead.

and. management in connection with the Project; (ii) profit payable to Contractor in

connection with the Project; and (iii) all income, revenue, rates, overtime, premium

pay, taxes, benefits and expenses (including any business, travel, or living expenses) in

connection with Work performed by Home Office Personnel.

JX001.0825.

317 Welded did not adduce any testimony from Scott Gray along the lines it submitted in opposition

to summary judgment.

318 1)2047L (Mr. Slavis’s schedule backup of nearly 2,800 pages identifying General Liability

Insurance costs charged per employee per week); Aug. 31, 2023 Trial Tr. (Slavis} 1711:1—5; see also

Aug. 24, 2023 Trial Tr. (Hood) 504;10-505:2 (explaining the labor recap of an invoice). No one

produced evidence of how other required insurance coverages were (or were not) billed to ‘Transco.

319 Aug. 31, 2023 Trial Tr. (Slavis) 1709:16-1710:25.

320 Aug. 31, 2023 Trial Tr. (Slavis) 1711:1-13; see D2047L (Schedule 6.1).

Aug, 31, 2023 Trial Tr. (Slavis) 1712:1-6.

73

know whether the amounts charged to Transco for general liability insurance were actually

“paid to” the employees.”

Transco also cites to a board book from October 26, 2016.2 The cited section reads:

Welded SG&A spend has historically not included property casualty and

liability insurance, an expense that will reach ~$4M this policy year. This

spend has been buried in General Equipment, Leases, and repairs in the past.

In 2017, this spend will be shown as a component of SG&A."

Based on the language of the Contract and this evidence, Transco contends that,

fundamentally, general liability insurance is overhead and not “paid to” an employee.

Thus, it is not compensable under the Contract.

Welded does not point to any new evidence from trial. Rather, Welded points to

Proof of Claim Number 636 to show that Transco previously only contested the Equipment

Fee portion of insurance costs and did not oppose the actual payment for general liability

insurance.*”” Based on the language of the Contract and this evidence, Welded contends

that Transco’s newly developed claim was waived as it does not appear in the proof of claim

322 Aug. 31, 2023 Trial Tr. (Slavis) 1711:17-25:

Q: So, when you say, “to me, it’s not a benefit paid directly to employee,” right, in

your review of the payroll information here, the underlying data, were you able to

confirm whether or not that was money that was paid to these employees?

A: I don’t know that it is directly paid to the employee, but it’s listed in their payroll

build-out, But I don’t have checks to see, but I would imagine it wasn’t because it’s

not-

33 Exhibit D0029 was one subject of Welded’s Motion in Limine regarding documents related to its

cash management system. I previously admitted this exhibit for a limited purpose. Aug. 23, 2023

Trial Tr. (Hawkins) 300:5-302:22. ‘Transco now seeks to use it to support its argument regarding

general liability insurance. Because I find that the cited portion is, arguably, relevant to the issue,

and because I find that it is not being admitted for the reasons opposed in Welded’s Motion in

Limine, I also admit the cited portion of Exhibit D0029.

34 1)0029.0012.

35 See Transco Claim 636.

74

or counterclaims. And, in any event, Exhibit 4 explicitiy contemplates payment of general

liability insurance as a benefit and, as it appears in the Compensation section, trumps the

more general language in Section 1.

Based on the Contract, I conclude that general liability insurance may be billed to

Transco. Mr. Slavis’s testimony that general liability insurance is to cover third-party

injuries that occur in the Field (rather than injuries occurring in the Home Office) suggests

that this coverage is project-specific. This conclusion is also bolstered by the requirement

that Welded obtain general liability insurance coverage for the benefit of the ASR Project,

including Transco. Because it is not solely for the benefit of Welded or Home Office

Personnel, general liability insurance does not fit naturally in the definition of Fixed Fee,**

which is the means to recover for expenses attributable to Home Office overhead. Rather,

as Welded notes, general liability insurance is specifically referenced on Exhibit 4 as an

employer-paid benefit. Further, because Transco requires Welded to obtain general liability

insurance and this is a cost-plus contract, common sense as well as Section VIII permit the

cost to flow through to Transco.

While Mr. Slavis testified as to his experience with cost-plus contracts, he did not

expound upon any particular provisions in those contracts, including those such as Exhibit

4, Further, Transco’s reference to Welded’s board book is unhelpful as I have been

provided no context and Transco cites me to one paragraph of’ a twenty-three-page

#6 Fixed Fee is “the . . . $50,500,000 lump sum fixed fee price, payable to Contractor in installments

as further set forth in this Contract, covering all: (4) Contractor cost and expenses attributable to

Contractor’s Home Office overhead and management in connection with the Project; (11) profit

payable to Contractor in connection with the Project; and (iii) all income, revenue, rates, overtime,

premium pay, taxes, benefits and expenses (including any business, travel or living expenses) in

connection with the Work performed by Home Office Personnel.” JX001.0825.

75

document. While the final sentence of the cited paragraph notes that, going forward,

Welded will account for general liability insurance in its SG&A category, I have no

evidence on why Welded is choosing to categorize it that way. Moreover, the first two

sentences appear to indicate that, prior to 2017, Welded did not categorize general liability

insurance as overhead. I note (almost parenthetically) that the Original Contract was

executed in August 2016, before Welded moved generai liability insurance costs to SG&A.

Finally, I am unconvinced that a benefit is only compensable if directly “paid to” the

employees.’ Field Personnel and NPLA Personnel under the Contract receive many

benefits that are not “paid to” them directly. Exhibit 4 lists several, including employer-paid

medical, non-manual vision and non-manual paid dental that are listed as “employer paid

benefits” and are presumably not paid directly to the employees.** Nevertheless, Transco

has not argued, nor could it credibly, that such benefits are noncompensable under the

Contract.

Accordingly, I conciude that Welded can charge Transco for general liability

insurance under the Contract and given the definition of Labor Costs, general liability

insurance is included in the calculation of Equipment Fee.”

327 See Aug. 31, 2023 Trial Tr. (Slavis) 1711:1-25 (“But to me, it’s not a benefit paid directly to the

employee; it’s paid by the main company.”).

328 FX001.0512-13.

29 The Contract determines this issue. But, this would not be the first construction contract to

permit reimbursement of general liability insurance. See Olmstead Constr., Inc. v. Otter Creek Invs.,

LLC, 940 N.W.2d 44, 2019 WL 4678167, at **6 (owa Ct. App. 2019) (“It is important to carefully

define which construction costs incurred by the contractor are to be reimbursed. It is typical to

provide reimbursement for wages paid for labor and taxes; benefits; insurance costs based on those

wages; rented equipment; subcontract costs; insurance costs; bonding costs; building permit costs;

costs of contractor-owned equipment (which can be controversial to determine); and costs of

ma

This text is long and has been trimmed here. Open the source document for the complete record.