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

> United States Bankruptcy Court, D. Delaware · February 4, 2025

URL: https://www.frixlaw.com/law-library/cases/10793946

## Case

- **Court:** United States Bankruptcy Court, D. Delaware
- **Decided:** February 4, 2025
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10793946

## How later opinions describe it (automated extraction)

- 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[.]”

## Opinion text

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).

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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 i

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10793946. Public record. Not legal advice.