# In Re Stone & Webster, Inc.

> United States Bankruptcy Court, D. Delaware · May 30, 2002 · 279 B.R. 748

URL: https://www.frixlaw.com/law-library/cases/1547888

## Case

- **Full name:** In Re STONE & WEBSTER, INCORPORATED; 1430 Enclave Parkway Corporation; 245 Summer Street Corporation; AEC International Projects, Inc.; Associated Engineers & Consultants, Inc.; Auburn VPS General Corporation; Auburn VPS Limited Corporation; Belmont Constructors Company, Inc.; Commercial Cold Storage, Inc.; DSS Engineers, Inc.; Enclave Parkway Realty, Inc.; Fast Supply Corporation; Gses Holding, LLC; International Engineers and Constructors, Incorporated; Nordic Holdings, Inc.; Nordic Investors, Inc.; Nordic Rail Services, Inc.; Nordic Refrigerated Services, Inc.; Nordic Refrigerated Services, Limited Partnership; Nordic Transportation Services, Inc.; Polar Transport, Inc.; Power Technologies, Inc.; Prescient Technologies, Inc.; Projects Engineers, Incorporated; Rockton Associates, Incorporated; Rockton Technical Services Corporation; Sabal Corporation; Sabal Real Estate Corporation; Saw Consulting Services, Inc.; SC Wood, LLC; Selective Technologies Corporation; Sleeper Street Realty Corporation; Stone & Webster ABU Dhabi (United Arab Emirates), Inc.; Stone & Webster Asia Corporation; Stone & Webster Auburn Corporation; Stone & Webster Bharat, Incorporated; Stone & Webster Binghamton Corporation; Stone & Webster Civil and Transportation Services, Inc., Stone & Webster Construction Company, Inc.; Stone & Webster Development Corporation; Stone & Webster Dominican Republic, Incorporated; Stone & Webster Engineers and Constructors, Inc.; Stone & Webster Far East Technical Services Corp.; Stone & Webster Indonesia Corporation; Stone & Webster Industrial Technology Corporation; Stone & Webster Inter-American Corporation; Stone & Webster International Corporation; Stone & Webster International Projects Corporation; Stone & Webster Italia, Incorporated; Stone & Webster Korea Corporation; Stone & Webster Kuwait, Incorporated; Stone & Webster Overseas Development Corporation F/K/A Stone & Webster Lithuania Corporation; Stone & Webster Management Consultants, Inc.; Stone & Webster Middle East Engineering Services Corporation; Stone & Webster of Argentina Corporation; Stone & Webster of Mexico Engineering Corporation; Stone & Webster Oil Company, Inc.; Stone & Webster Operating Corporation; Stone & Webster Overseas Consultants, Inc.; Stone & Webster Overseas Group, Inc.; Stone & Webster Pacific Corporation; Stone & Webster Power Engineering Corporation; Stone & Webster Power Projects Corporation; Stone & Webster Procurement Corporation; Stone & Webster Puerto Rico, Incorporated; Stone & Webster Saudi Arabia, Incorporated; Stone & Webster Taiwan Corporation; Stone & Webster Technology Corporation; Stone & Webster Wallingford Corporation; Stone & Webster Worldwide Engineering Corporation; SWL Corporation; Stone & Webster Engineering Corporation; And Stone & Webster Michigan, Inc., Debtors
- **Court:** United States Bankruptcy Court, D. Delaware
- **Decided:** May 30, 2002
- **Citations:** 279 B.R. 748; 2002 Bankr. LEXIS 606; 2002 WL 1286138
- **Precedential status:** Published
- **Opinion:** Opinion by McKelvie
- **Judges:** McKelvie
- **Cited by:** 6 later opinions in the Frix Law Library

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## Opinion text

MEMORANDUM OPINION
MCKELVIE, District Judge.
This is a commercial dispute that arises in the context of a bankruptcy action.
Stone & Webster Engineering Corporation (“SWEC”) is a Massachusetts corporation with its principal place of business in Boston, Massachusetts. Stone & Webster Incorporated (“SWINC”) is a Delaware corporation with its principal place of business in Boston, Massachusetts. Stone & Webster Engineers and Constructors, Inc. (“SWE&C”) is a Maryland Corporation with its principal place of business in Boston, Massachusetts. The Stone & Webster companies are affiliated in the following manner. SWINC owns one hundred percent of the shares of SWE & C which, in turn, owns one hundred percent of the shares of SWEC. The court will refer to these three companies collectively as either “the Debtors” or “the Stone & Webster companies.”
Claimant Maine Yankee Atomic Power Company is a Maine corporation with its principal place of business in Wiscasset, Maine. Maine Yankee owns a nuclear power generating facility in Wiscasset, Maine.
This dispute arises from a contract, effective August 31, 1998, that was entered between Maine Yankee and SWEC, whereby Maine Yankee hired SWEC to decommission Maine Yankee’s Wiscasset nuclear power generating facility (the “Decommissioning Agreement”). Pursuant to the Decommissioning Agreement, SWE&C and SWINC executed written guaranties of SWEC’s performance under the Agreement. SWE&C executed its written guarantee of SWEC’s performance at the time that Maine Yankee and SWEC entered into the Agreement, while SWINC executed its written guaranty in December of 2000, in the wake of concerns voiced by Maine Yankee regarding SWEC’s solvency-
On May 4, 2000, Maine Yankee issued a notice to SWEC stating that it was terminating the Decommissioning Agreement based upon SWEC’s insolvency and because SWEC had not adequately performed under the contract. Both purported grounds for termination are provided for under the contract as allowable reasons to terminate the Agreement for cause. Soon thereafter, on June 2, 2000, SWINC, and certain of its affiliates, including SWE&C and SWEC, filed voluntary petitions for bankruptcy relief under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. §§ 101-1330 . Maine Yankee has assumed the role of the contractor on its project, and is currently proceeding with the decommissioning of the power plant.
On August 23, 2000, Maine Yankee filed proofs of claim in the bankruptcy cases against SWEC and against SWINC and
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SWE & C, as guarantors of SWEC’s performance. Maine Yankee’s proofs of claim seek damages from the debtors for SWEC’s breach of the Decommissioning Agreement. On November 16, 2000, the Debtors objected to Maine ' Yankee’s claims, arguing that the court should disallow the claims because Maine Yankee did not properly terminate the Decommissioning Agreement for either insolvency or failure to perform and, in any event, did not have a right to damages for terminating the agreement on account of SWEC’s insolvency.
On February 13, 2001, the court held a one-day non-jury trial to consider Maine Yankee’s claims and certain of the Debtors’ threshold defenses. In an opinion dated July 26, 2001, the court refused to disallow Maine Yankee’s claims.
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However, it did permit SWEC to assert its own claims against Maine Yankee for work performed by SWEC that was uncompensated by Maine Yankee. Any damages proven by SWEC could then be set-off against Maine Yankee’s claims.
In a subsequent memorandum opinion, dated November 21, 2001, the court considered several motions for partial summary judgment that had been filed by the Debtors. The court granted the Debtors’ motion limiting Maine Yankee’s damages claim to the $65 million damages cap set forth in Article 30.2 of the Decommissioning Agreement. The court denied the remainder of Debtors’ motions, which sought summary judgment based on the following affirmative defenses: (i) that Maine Yankee’s damages claim is unripe due to Maine Yankee’s failure to fulfill certain conditions precedent under the Decommissioning Agreement; and (ii) that Maine Yankee’s claim should be barred because it failed to mitigate damages by refusing to accept the tender of performance offered by SWINC and SWE&C.
In order to resolve Maine Yankee’s August 23, 2000 Proofs of Claim, the court held a seven day bench trial between November 26 and December 3, 2001. The principal issues presented to the court included: (i) whether Debtors are liable to Maine Yankee for breach of the Decommissioning Agreement; (ii) what amount of damages, if any, is Maine Yankee entitled to from SWEC for SWEC’s alleged breach of the Decommissioning Agreement; and (iii) what amount of damages, if any, is Maine Yankee entitled to from SWINC and SWE&C pursuant to their guarantees of SWEC’s performance under the Decommissioning Agreement. If it finds that Maine Yankee is entitled to damages, the court must also resolve whether its findings based on the trial are to be used for purposes of allowing Maine Yankee’s claim or for purposes of estimating the dollar amount of Maine Yankee’s future allowable claim.
Closing arguments in the trial were made on April 3, 2002, and the post-trial briefing is now complete. Having reviewed the trial transcript, exhibits, and briefing, this is the court’s decision on Maine Yankee’s Proofs of Claim.
I.
FACTUAL BACKGROUND
The court draws the following facts from the stipulated facts set forth in the pretrial order and from the testimony and exhibits presented during the trial in this case.
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In its case in chief, Maine Yankee called eleven witnesses, including Wayne Norton, Maine Yankee’s current President and its former contract manager and Vice President of Decommissioning; Edward Doubleday, Maine Yankee’s damages expert; Raymond Burke, Maine Yankee’s current Vice President of Decommissioning and the former contracts manager for SWEC on the Maine Yankee decommissioning project; Michael Evringham, Maine Yankee’s current contracts and procurement manager; Todd Smith, Maine Yankee’s project controls manager; David Holbert, Maine Yankee’s logistics project manager for the waste management group; Michael Meisner, Maine Yankee’s former President and current Chief Nuclear Officer; Paul Plante, Maine Yankee’s project manager for cask loading and fuel transfer; James Garvey, Maine Yankee’s director of business integration; Michael Thomas, Maine Yankee’s Vice President and Chief Financial Officer; and Robert Gerber, an environmental consultant who assisted Maine Yankee and SWEC on the decommissioning project.
Maine Yankee also designated portions of deposition testimony from James Bern-hard, the Chief Executive Officer of the Shaw Group, a company that bid on the Maine Yankee project and ultimately acquired the assets of Stone & Webster at a bankruptcy auction, and Jerome Kane, the replacement project manager that SWEC deployed to manage the decommissioning project.
The Debtors called five witnesses in its case in chief, including: Jerome Kane; Weslie Boyea, SWEC’s project controls manager who was assigned to the decommissioning project; Thomas Nauman, a current Shaw employee who used to work for SWEC and drafted the SWEC proposal used to obtain the winning bid for the decommissioning project; Dennis Staats, the Debtors’ damages expert; and James Carroll, the President and Chief Restructuring Officer of SWINC.
The court will summarize the pertinent facts and testimony.
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A.
SWEC’s Bid and the Decommis- . sioning Agreement
1.
SWEC’s Bid
In 1997, Maine Yankee’s nuclear power plant in Wiscasset, Maine ceased operation. At that time, Maine Yankee considered a variety of options for decommissioning the plant. It decided to pursue an approach whereby the plant would be decontaminated and dismantled.
Wayne Norton testified as to why Maine Yankee sought out a contractor to perform the decommissioning task. He explained such an approach would “transfer as much risk to the contractor as possible to help ensure cost control and schedule compliance and the like for completion of that project.” Norton also explained that Maine Yankee determined that it could get a good deal on the decommissioning work. He noted that at the time, the nascent market for decommissioning of nuclear power plants appeared to be growing, making it more likely that a good price could be obtained for the work from contractors seeking to position themselves to be market leaders in the decommissioning industry by successfully completing the Maine Yankee project.
In order to solicit and gather bids from contractors, Maine Yankee developed and issued a Request for Proposals (“RFP”)
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that set forth various terms and conditions required of bidders. Under the RFP, the contractor that was selected would be responsible for restoring the Maine Yankee site to “green field” condition and completing the “decommissioning,” as defined by the Agreement. This would involve, essentially, making the facility safe and ensuring that radioactive or contaminated materials are either removed or shielded so that they pose no risk to either humans or the surrounding environment. Pursuant to the RFP, the contractor would have the ability to decide on the means and methods to carry out their responsibility, subject to the approval of Maine Yankee.
Maine Yankee analyzed the technical, commercial, and financial abilities of the bidders in order to “verify their abilities, adequacy, and capacity” to perform the decommissioning work. The qualified bidders than proceeded to negotiate certain terms and conditions of the RFP based on the bidders’ proposals to do the work. Maine Yankee and the bidders also exchanged a series of questions and answers about the RFP and the bidders proposals. These questions and answers, along with any negotiated changes made to the RFP, were amended into a document called the Amended RFP which was incorporated into the final Decommissioning Agreement.
Maine Yankee ultimately accepted SWEC’s bid, which proposed to decommission the Maine Yankee power plant for a fixed cost of $252 million.
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The SWEC bid was unique in that they proposed a unique way of disposing the above ground concrete from the site, by rubblizing the concrete on site and then burying it within the foundation of the plant on site. At that time, Maine Yankee reviewed the rubblization concept and stated that it seemed to be a “technically sound” way to dispose of the above ground concrete. Later, this process was disallowed by the State of Maine regulatory authorities, when the State determined it would deem the rub-blized concrete “special waste,” and subject its disposal to Maine regulations. This determination has necessitated the costlier off-site disposal of this concrete and has been a point of contention between the parties.
In order to decommission a nuclear power plant, there are certain radiological clean-up standards that must be followed. One such standard promulgated by the Nuclear Regulatory Commission (“NRC”) is called a derived concentration guideline limit or “DCGL.” SWEC’s bid proposed that it would seek to clean to a DCGL of 20,000 disintegrations per minute (“DPM”), a level that was lower than that required by environmental regulations. SWEC clarified in its answers to questions, however, that it intended to use the 20,000 DCGL as a guideline to meet the NRC standard of 25 millirem ALARA, rather than as an independent limit.
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2.
The Decommissioning Agreement
Effective August 31, 1998, Maine Yankee and SWEC entered into the Agreement Between Maine Yankee Atomic Power Company and Stone
&
Webster Engineering Corporation For the Decommissioning of the Maine Yankee Power Plant. Pursuant to the Decommissioning Agreement, SWEC agreed to perform certain work and render services, which included the decommissioning of a nuclear power generating facility owned by Maine
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Yankee and located in Wiscasset, Maine, and the construction of a fuel storage installation to store spent nuclear fuel from the power facility (the “ISFSI”). The broad commitment that SWEC made was that it would “perform the Work, including Decommissioning of the Maine Yankee Site, necessary to achieve Green Field, all as further described in the Amended RFP’ and the Contractor’s Proposal,” which were attached and incorporated into the Decommissioning Agreement.
Under the Decommissioning Agreement, SWEC was responsible for completing the project and managing and paying the subcontractors. SWEC was also responsible for the procurement of all necessary licensing and permitting from “regulatory agencies and government bodies having jurisdiction over the Work.” In addition, SWEC was responsible for the development of a project management plan and schedule necessary to complete the project on-time and on-budget. The requirements for the development of the schedule are set forth in Section 11.9 of the Amended RFP, which is attached and incorporated into the Decommissioning Agreement as Schedule C.
As explained by Raymond Burke and James Garvey, section 11.9 requires SWEC to provide the schedule using a scheduling software package called P-3. It must also update the schedule to show progress thereunder. The schedule must delineate the project’s execution, logical constraints on project tasks, durations for tasks, project - milestones, and beginning and completion dates for each task. It must also include dates for licensing activities, interfaces with subcontractors, arrival of personnel, etc. The completion date for physical work was to be April 2004, and the completion date for license termination was to be September 2004.
Pursuant to section 11.9.3.3, the schedule was to be submitted to Maine Yankee within 90 days of the contract’s execution and was subject to Maine Yankee’s approval. SWEC was also to report progress and project status to Maine Yankee, which used the schedule as a project management device. If SWEC deviated from the critical path logic of the schedule or missed a project milestone by more than 20 days, the Agreement requires SWEC to set forth a revised schedule indicating new logic and a plan for recovering the lost time. Moreover, if SWEC is projected to exceed the completion date by more than 6 months, Maine Yankee could take over the project and take reasonable measures to attempt to implement the schedule at SWEC’s expense.
According to the Agreement, Maine Yankee was to compensate SWEC using an earned value concept, under which major elements of work for the project were assigned values, and SWEC was paid those values as it completed those elements. Pursuant to Articles 4.2 and 4.4 of the Agreement, Maine Yankee paid SWEC part of the contract price every month, based on monthly invoices that SWEC submitted for itself and the subcontractors, based on earned value and for reimbursable charges incurred, as those terms are defined in the Agreement. Article 30.1 obligates SWEC to waive any rights to a mechanic’s lien upon payment of services and requires it to obtain written waivers of such liens from the subcontractors. Thus, prior to receiving payments from Maine Yankee, SWEC had to sign lien waivers attesting that it had paid all of the subcontractors working on the project.
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Another contractual requirement, set forth in Article 24A.2, obligated SWEC to procure performance and payment bonds, each in the amount of 15% of the contract price. SWEC obtained the requisite bonds from Federal Insurance Company, each in the amount of approximately $38 million.
Article 11 of the Agreement, entitled “Termination for Cause,” governs Maine Yankee’s right to terminate the Agreement for cause. Article 11.1 provides, in pertinent, part:
11.1 Maine Yankee shall have the right, upon written notice to Contractor, to terminate the Agreement without any further liability to Contractor over and above compensation for Work performed, in the event of the occurrence of any of the following:
11.1.1 insolvency of the Contractor; The first paragraph of the Agreement expressly defines SWEC as “the Contractor.”
Section 11.2 further provides that Maine Yankee may terminate for cause in the event that SWEC- fails to substantially perform or breaches the Agreement. It states that “if [SWEC] fails to substantially perform under the Contract Documents or if [SWEC] materially breaches any of the terms of the Contract Documents ... Maine Yankee shall have the right, without further liability to [SWEC], upon giving contractor written notice and reasonable time to remedy such deficiency, to:” (i) terminate the Agreement, “upon giving an second written notice to [SWEC] of such termination and the basis thereof, if [SWEC] has failed to initiate the remedy in a reasonable fashion” within 30 days of the initial notice; (ii) obtain performance of “the [SWEC’s] obligations from another contractor and recover reasonable excess cost resulting therefrom;” and/or (iii) sue SWEC to enforce the remedies provided “for [SWEC’s] failure to perform as set forth in the Contract Documents.”
Sections 11.3 and 11.4 further provide that:
11.3 A termination under this article shall be effective immediately upon receipt of any written notice as described in Article 11.1 or Article 11.2.1 by the Contractor. The Contractor shall immediately cease Work, commence demobilization of any affected forces and promptly remove from the Site materials and equipment belonging to Contractor which have not been fully paid for by Maine Yankee. If requested to do so by Maine Yankee, Contractor shall promptly transfer title and deliver to Maine Yankee such completed or partially completed and paid for Work and assign any Subcontracts rights as Contractor may have with any third parties for the Work. Contractor shall attempt to promptly settle any liabilities and claims arising out of any resulting termination of subcontracts and orders at no cost to Maine Yankee.
11.4 If the unpaid Agreement funds, including any funds payable to Maine Yankee by reason of letter of credit, performance bond or insurance coverage, fail to compensate Maine Yankee for the total direct damages and costs incurred by Maine Yankee to finish the Work, Contractor shall pay such difference to Maine Yankee within thirty (30) days following receipt of an undisputed
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invoice from Maine Yankee. This obligation for payment shall survive the termination of the Agreement or relevant portion thereof.
Article 30.2 of the Agreement, however, limits Maine Yankee’s recovery for “any and all claims arising out of or in connection with its services” under the Agreement to $65 million, including credits to SWEC for amounts payable under the bonds that Federal Insurance Company had issued.
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B.
The Parent Companies’ Guaranties of SWEC’s Performance
The Decommissioning Agreement also required that SWEC obtain financial security for its performance in the form of bonds and a parent guaranty. As noted above, pursuant to Article 24A.2 of the Decommissioning Agreement, and Addendum No. 3 thereof, SWEC’s performance was guaranteed by SWINC and SWE&C.
Under the terms of each guarantee, SWINC and SWE & C each agreed to “guarantee [SWEC’s] performance of the Agreement up to an amount equivalent to fifty percent (50%) of the Agreement’s unpaid balance of the contract price (as such term is defined in the Agreement) at the time of [SWEC’s] failure to perform the Agreement.”
C.
SWEC’s Performance under the Decommissioning Agreement
According to Norton, problems with SWEC’s performance on the decommissioning project began to occur as early as 1999. The problems can be grouped into the following categories: (i) financial issues at SWEC, whereby SWEC was unable to pay its bills or its subcontractors; (ii) SWEC’s failure to develop an adequate project schedule; and (iii) SWEC’s failure to make adequate progress on the project.
It was at that time, due to concerns about SWEC’s solvency, that Maine Yankee sought and received the parent guarantee memorialized in Addendum No. 3 as described above.
Raymond Burke, for Maine Yankee, testified about the problems SWEC was having on the decommissioning project. Presently, Burke is the Vice President of Decommissioning at Maine Yankee and is responsible for leading the physical demolition of the Maine Yankee site and-rendering it clean. He was previously employed by SWEC and served as the contracts manager on the Maine Yankee project, starting in July of 1999.
Burke reported that at the time he came onto the Maine Yankee project, Chuck Lepisto was the project manager for SWEC. Burke’s assessment of the performance of the SWEC management team was that it was “having its problems in coordinating and executing the work” and was having problems, particularly, in the area of licensing and permitting. Specifically, he testified that “the licensing/permitting side of the project seemed to make gross miscalculations as to what the [regulatory] requirements were from a Maine [state law] standpoint.” He also noted that SWEC did not have anyone on the job site that was knowledgeable and experienced in Maine environmental regulation, that SWEC had a strained relationship with the State of Maine on environmental issues, and that at the time SWEC had entered the contract it was focusing only on federal regulations, such as those by the NRC. These miscalculations resulted in work stoppages due to delays in getting
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appropriate licensing or the unintentional performance of certain physical work prior to obtaining requisite permits for that work.
Burke also testified that in November 1999, Lepisto signed a lien waiver that inaccurately represented that certain subcontractors had been paid when SWEC had not paid them. After that event, SWEC agreed that only its financial executives would sign lien waivers. Last, Burke testified that as of April 2000, SWEC was behind $50,000 in its payments to subcontractors and did not have enough money to pay those subcontractors. By the date of termination, May 4, 2000, SWEC was $1.7 million behind in its payments to subcontractors.
Burke next testified about problems with the schedule. Under the Decommissioning Agreement, SWEC was required to generate and maintain a project schedule, to serve as a basis for project tracking and the earned value payments. Burke reports that as of December 1999, there was still not an approved schedule. The schedules that SWEC had submitted were not resource loaded to include the costs of labor, supplies, etc. Moreover, the schedules were incomplete. To remedy this, SWEC and Maine Yankee employees met in workshops. Burke explained that the workshops were designed to provide SWEC with a better understanding of the complexity and details of the project. After the workshops, Burke states, the number of tasks in the schedule nearly doubled and the completion date of the project was pushed from April, 2004 to sometime in 2005.
Last, Burke testified about the impact of SWEC’s financial difficulties on its ability to manage the project. He stated that the financial difficulties that came to light in April and May of 2000, adversely impacted employee morale, caused a number of employees to resign, and led to tense relations with SWEC’s subcontracts and suppliers.
Jerry Kane was called by the Debtors to testify about the problems at the Maine Yankee project and his attempts to solve those problems. Kane was SWE&C’s Vice President and Director of Nuclear Operations and was also the second SWEC project manager for the Maine Yankee project. He replaced the first manager, Chuck Lepisto, at the request of Maine Yankee, which had expressed dismay with Lepisto’s “lack of leadership and inability to manage the project.”
Kane’s testimony confirms that under Lepisto’s leadership, the project was having numerous problems. He noted that Lepisto had “never run a large fixed price contract [involving liquidated damages on a schedule and] was way over his head.” Kane explained that the Maine Yankee project was not merely a construction project; it involved licensing, engineering, health, physics, and radioactive waste clean-up. While Lepisto was a “good construction site manager,” he had never been involved with a project of this complexity and scale. Kane also explained that the Maine Yankee proposal bid had been prepared by Lepisto and “sold” to the Stone & Webster management “on the premise that it was purely a deconstruction — a construction job in reverse, and that there was very little technical content.”
On or about December 6, 1999, Jim Callahan, the Senior Vice President of the Boston Office of SWINC, received a call from Maine Yankee’s Michael Meisner, who asked Callahan to remove Lepisto. Callahan called upon Kane, who was “the most senior person and most experienced person in running large projects” that SWEC had, to immediately take over the project manager position of the Maine Yankee project. Kane went on to testify
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that when he arrived, he found that SWEC was significantly over-budget in man hours spent with regard to the schedule, that the organization of the project was “dysfunctional,” that it had overspent the entire project contingency, and that it had failed to take into account SWEC’s obligations to comply with Maine regulations. Kane further explained that when he arrived on site, he found that the project was “dys-functionally organized” in that “it was organized by a construction person who felt that all of the other aspects of the project, including cost and scheduling, engineering, contracts, health, physics, RAD waste, licensing, were secondary to the construction effort.” The project was being run only by Lepisto and one manager of construction, without giving proper consideration to management of the numerous technical functions of the project. As a result,
the project was being run in a haphazard manner in that schedules were made at the morning meeting. One of the construction superintendents would say I didn’t get that job done yesterday and then say alright, the job that was scheduled today we won’t do, we’ll finish the one yesterday, or even worse, the job that was supposed to start today, somebody would say I didn’t have the materials or I’m not ready to start the job or didn’t have the work permit or whatever and he, the construction manager, literally would reach out two, • three, four weeks ahead in the schedule, pick a task and say alright, we’ll do this one today, and we weren’t ready, we didn’t have work packages, we didn’t have permits, we didn’t have sketches, we didn’t have a plan.
Kane also reported that due to these problems, the relationship with Maine Yankee was “horrible at best.”
Kane testified that upon his arrival, he made a number of changes that resulted in a dramatic improvement in the project. He moved Lepisto off of the project, he placed technically knowledgeable SWEC employees in meetings with Maine Yankee, he realigned the structure of the project by assigning managers for the construction, engineering, and licensing functions, he cut costs, and he set up performance metrics to track performance. Starting in January 2000, Kane also sought to complete a fully integrated detailed schedule and obtain Maine Yankee’s approval thereof.
Kane stated that he could not get the schedule approved because each of Maine Yankee’s project managers had different approaches and wanted the work done in different ways. Kane explains that the workshops between Maine Yankee and SWEC personnel were set up in order to try to get consensus on a uniform approach to planning the work and associated scheduling items. Although SWEC did not ever gain Maine Yankee’s approval, Kane noted that there was a substantial improvement in scheduling areas, with the exception of the licensing area, and the workshops helped SWEC to put together the schedule that they were working when Maine Yankee terminated the Agreement.
Kane stated that his changes were yielding improvements and SWEC was beginning to meet its schedules and cost estimates and to get the project “under control.” For example, SWEC’s percentage of actual versus planned start dates for tasks rose from a “dreadful” 30 percent (70 percent not on schedule) to around 60 percent. He also said that the scheduling was proceeding well, with the exception of licensing matters, which were “under the control of Maine Yankee.” Kane also reports that in January and February, he began to get positive feedback from Maine
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Yankee’s Meisner, Norton, Evringham, and Garvey on the improvements to the project. Kane states that soon thereafter, when SWEC completed the task of removing the steam generators ahead of schedule, Maine Yankee threw them a party to celebrate this success. To reward his workers, based on an earlier promise to give them time off if they beat the schedule, Kane gave the craft laborers and subcontractors a week off with pay. Kane reported that while his bosses at SWEC were displeased, this action was well received by Maine Yankee.
In Kane’s opinion, given the improvements in performance on the project, Maine Yankee’s termination on May 4, 2000 — to the extent it was based on performance issues rather than insolvency was not justified. It was a “180 degree” change from Maine Yankee’s position. Kane observed that although SWEC “was a long way from perfect, [ ] we were improving steadily and we were performing good work.” Kane did express, however, that if it were up to him, he would never have entered into the Decommissioning Agreement because it was a high risk lump sum contract that “onerous to the maximum,” “required [SWEC] to do things that we couldn’t do in a time we couldn’t do them,” and “gave [Maine Yankee] approval of every move that we made.... ”
James Garvey, for Maine Yankee, also testified about schedule issues. Garvey, who drafted the scheduling provisions (section 11.9) of the RFP, which concerns scheduling, reviewed those sections in his testimony, stressing the importance of having an accurate project schedule and noting that an accurate and comprehensive project schedule allows for proper management and projections of cash flow and staffing. He explained that SWEC did not submit a project schedule until February of 2000 and that the schedule it submitted did not comply with the Agreement. It had open ends, inconsistent logic, and failed to identify all of the scope of work. Moreover, he said, the updated versions of the schedule were inaccurate because they continued to show that the project was on track for on time completion, due to an inappropriate “mandatory constraint” that fixed that date in the schedule, instead of letting it logically float based on the completion of all the necessary tasks. Thus, according to Garvey, despite the fact that the schedule had tasks shown as being incomplete until December 2004, the end date still showed up as September 2004.
After Maine Yankee terminated the Agreement, it took over the schedule. In order to use it going forward, Garvey reports that it had to modify the schedule to add an immense amount of detail that SWEC had not included. Moreover, Garvey states that his assessment of SWEC’s performance, based on its earned value, shows that SWEC only earned 75-85% of its projected earned value in 1999 and 80% in 2000, which demonstrates that SWEC was behind schedule.
Weslie Boyea testified for the Debtors about schedule issues. Boyea states that he and Garvey discussed project schedule matters and the earned value system for a period of time. Based on those discussions, Boyea designed a schedule and submitted it to Maine Yankee within 90 days. No one complained it was late. Maine Yankee, however, rejected it. He testified that every schedule that SWEC ever submitted was rejected by Maine Yankee, because the different departments of Maine Yankee always had additional “comments” and criticisms.
Boyea recounted one particular instance, in April 1999, in which Maine Yankee gave SWEC conditional approval of the project schedule, contingent on SWEC accepting certain conditions and responding to a
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number of questions about the schedule. Boyea stated that although SWEC complied with these contingencies, Maine Yankee did not approve the schedule. Instead, Maine Yankee proceeded to engage SWEC in new rounds of questions, submissions, and responses for the majority of the summer. By July 1999, it was Boyea’s understanding that only two deviations were left to be addressed before the schedule was given final approval. Both related to licensing issues, with one relating to the ISFSI.
Boyea states that on the evening of September 1, 1999, Wayne Norton and another Maine Yankee employee came to his office. Norton told Boyea that if he submitted a completed schedule to him that night, Norton would get it approved the following day. Boyea reports that he stayed until 9:00 PM that evening to put the transmittal document together and hand delivered it to Norton’s office that night. Boyea stated, however, that Maine Yankee did not approve that schedule either, due to other “commercial issues” that Maine Yankee subsequently raised with SWEC. Despite the resolution of these issues, Boyea states that Maine Yankee was still expressing concerns with various portions of the schedule. Boyea did acknowledge, however, that Maine Yankee and particularly its contracts manager, Norton, had the right to insist that SWEC keep a schedule for the job with proper logic to manage the project and that SWEC meet the milestones set forth in the Agreement. He also stated that the questions and information sought by Maine Yankee were appropriate in developing a detailed project schedule.
Soon thereafter, Maine Yankee and SWEC decided to adopt the project workshop approach, to facilitate the approval of the schedule. Boyea explained that the project workshop approach was to break the schedule down into various large projects (e.g., major component removal, reactor pressure vessel internal segmentation, licensing, ISFSI, demolition, etc.). Each large project was reviewed in detail by Maine Yankee and SWEC personnel to “go through all the detail and make sure everyone was clear on how the restraints worked, any other detail we needed in there, etcetera.” Boyea reported that the workshops continued through January, February, and March, and were fairly successful. He stated that, as of the date of termination, the final schedule had not been approved because the ISFSI schedule could not be finalized, due to complications in permitting of that portion of the project arising from a lawsuit between Maine Yankee and the regulatory authorities.
7
Boyea stated that under the April monthly progress report, the last schedule SWEC made before termination, the Maine Yankee project was running 66 working days late. He also explained that the faulty mandatory constraint that Garvey testified about, was either an oversight due to the frequent passing back and forth of the schedule between Maine Yankee and SWEC or resulted from corruption in the schedule file caused by his order to turn off the computers on the termination date at a time when multiple SWEC employees were likely working on the schedule. Boy-ea also testified that the schedule enclosed in Kane’s June 20, 2000 letter to Evring-ham shows that the project was projected to be completed on time. He explained that although it “would have been a very aggressive schedule and would have required very good performance on [the part
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of] all parties,” it was an achievable schedule.
D.
Regulatory Issues Affecting the Maine Yankee Project
Throughout SWEC’s performance under the Decommissioning Agreement and the Interim Services Agreement and Maine Yankee’s self-performance of the decommissioning of the Maine Yankee plant, numerous regulatory issues confronted the parties and required changes to the cleanup standards used on the decommissioning project. The parties disputed and continue to dispute whether these changes were within the scope of the work that SWEC agreed to do — and thus are compensable to Maine Yankee — or whether those changes constituted changes to the scope of the work that SWEC agreed to do — and thus are not properly compensable to Maine Yankee. Because the question of which party is to bear the burden for these regulatory issues is central to the parties’ damages dispute, the court will attempt to summarize the factual context for those issues in this section.
Michael Meisner, Maine Yankee’s Chief Nuclear Officer and former President, explained during his testimony that the decommissioning of nuclear plants is heavily regulated by both state and federal regulatory bodies, including the NRC, the Environmental Protection Agency (“EPA”), and the Maine Department of Environmental Protection (“MDEP”). These bodies set forth various standards that regulate the allowable levels of contaminants on the site. As noted earlier, under the Decommissioning Agreement, SWEC was to comply with all applicable regulations and was responsible for securing all necessary licenses and permits to do the work. SWEC was to identify the needs for permits or licenses, prepare the applications, provide it to Maine Yankee for review, and then submit it to the applicable agency to gain approval. Due to the lack of expertise in the SWEC project team in the area of regulations — particularly, Maine regulations and the MDEPSWEC asked Meisner to work with them to help secure the necessary licenses from the agencies. The licensing and permitting process necessarily involves participating in public proceedings, in which regulators and other stakeholder groups question the type of work being done.
1.
Rubblization and the “Special Waste” Issue
As noted above, part of what SWEC proposed in its decommissioning plan was to rubblize (i.e., grind up and compress) the above ground concrete structures and dispose of that rubble on site by burying it in the below ground foundations of the buildings. Kane testified that one of the reasons SWEC won the project was that the rubblization approach allowed them to save money and thus submit a lower winning bid. At that time, Maine Yankee was a strong advocate of that approach and believed it to be technically sound from a public health and safety point of view. The rubblization approach had been used before, and approved by the NRC, but never involved the volume of concrete — 1.4 million cubic feet — that would be involved at the Maine Yankee facility. Moreover, as Maine Yankee’s facility was the only nuclear power plant in Maine, rubblization had never been done in association with a decommissioning in the State of Maine. Nonetheless, in 1998 at the time of the proposal, there was no indication from any regulatory body that the approach would be problematic. To the contrary, both Maine Yankee and SWEC thought that rubblization would be a viable and cost-effective plan.
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In connection with the licensing process, Maine Yankee began releasing draft portions of the decommissioning plan to the public and to regulatory bodies such as the MDEP. By the end of the summer of 1999, it became clear that, while the NRC had no problem with the rubblization approach, the State of Maine was concerned about it and were considering deeming the rubble “special waste” under Maine solid waste law. The determination of whether a waste item constitutes “special waste” is within the discretion of MDEP. Robert Gerber, an environmental consultant who worked with Maine Yankee and SWEC on the decommissioning, explained that the statutes and regulations are configured to give MDEP a “wide band of discretion in labeling something as special waste.” Once the State labels a waste item to be “special waste,” a host of Maine regulations come into play that deal with how that special waste is to be disposed of. Ultimately, towards the end of 2000, MDEP declared that if Maine Yankee proceeded to bury the rubblized concrete on site, it would be declared special waste. By designating materials “special waste,” instead of inert fill, Maine was able to regulate radioactive materials. Meisner reported that Maine Yankee realized that if they buried the concrete on-site, the State would impose additional and perhaps very costly requirements on how the concrete was to be left.
Maine Yankee hired Gerber to try to convince MDEP not to label the concrete rubble as “special waste.” Despite his efforts, Maine Yankee was unable to convince the State of Maine to alter course. On February 23, 2000, the MDEP designated the concrete rubble as special waste. The MDEP did so — -irrespective of the low radioactivity levels of the rubblized concrete due to the significant volume of concrete to be buried and its chemical characteristics, which included the presence of contaminants such as PCBs and lead. Based on this designation and MDEP’s unwillingness to propose a workable process under which they would license the concrete to be disposed of on-site, Gerber recommended to SWEC and Maine Yankee that disposal of concrete on-site, as initially proposed, was no longer feasible.
Soon thereafter, Kane wrote Meisner a letter stating that changing the process from rubblizing concrete and burying it on-site to shipping the concrete off-site was outside the scope of the project and was a substantial cost-increase.
8
SWEC’s position was that they had proposed to rubblize the concrete and leave it on-site, and that MDEP’s actions constituted a change in regulation, a different and new interpretation of the law, and therefore was a contract scope change. They base this position, in part, on one of the answers to questions in the Decommissioning Agreement. Question 196 asks “if the rubblization approach were not accepted by the regulators,” would a scope change be required? SWEC’s answer to that question was that if more restrictive regulations are imposed, subsequent to their proposal, which require a more costly approach, a scope change would be required. Maine Yankee insisted that because SWEC had contracted to meet the State of Maine regulatory requirements and because it was not a new law, but merely a
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new interpretation of a law, it was included in the scope of the work under the Amended RFP of the Decommissioning Agreement. Irrespective of SWEC’s answers to questions in the proposal, the Decommissioning Agreement that the parties entered into did not provide that changes in the
interpretations
of law constituted a change in law under the force majeure clause.
As of the time of termination, this issue continued to be disputed by the parties. After contract termination, on September 27, 2000, Burke prepared a concrete disposal cost study setting forth various options for concrete disposal. The option that they chose based on cost, practicality, and likelihood of regulatory approval was to ship all of the radioactive concrete to a company called Envirocare in Utah and to ship all of the clean concrete to a landfill in upstate New York. The projected cost of that option is $18.4 million and as of the time of trial, Burke estimates that this projection remains accurate.
2.
The Clearir-Up Standards Issue
As noted above, the NRC promulgates various standards to regulate the clean-up of radiologically contaminated sites. These standards are expressed in “milli-rem plus ALARA.” As various witnesses explained, the millirem figure measures the level of allowable radioactive dose that a resident farmer who lives on the site would receive in a year’s time from all sources on the site, including soil, groundwater, growing and eating crops and livestock, etc. ALARA means “as low as reasonably achievable.” Thus, ALARA requires the site to be cleaned up to an even stricter standard than that expressed by the millirem figure, if a lower millirem dosage can be achieved in a reasonably cost-effective manner. The NRC clean-up standard at the time of the Decommissioning Agreement was 25 milli-rem plus ALARA.
. Under the base proposal of the Amended RFP of the Decommissioning Agreement, which was priced at approximately $250 million (and later amended to $252 million), SWEC was to perform the decommissioning in a manner that achieved Green Field and fulfilled all the requirements of the contract documents. The Amended RFP defined “Green Field” as below the 25 millirem plus ALARA NRC standard. In SWEC’s proposal, it noted that it sought to achieve radioactivity levels of 20,000 DCGL,
9
in order to give Maine Yankee the confidence that SWEC would be able to achieve the required 25 millirem plus ALARA limit. A number of SWEC’s witnesses noted that one can calculate DCGLs far greater than 20,000 dis-integrations per minute, while still achieving 25 millirem plus ALARA.
Thomas Nauman testified that the 20,-000 DCGL was simply a guideline limit and not a contract requirement. Rather, SWEC committed to the 25 millirem limit as the required standard.
His conclusion is supported by the contract documents. First, in response to Maine Yankee’s Question 86 during the bidding process, SWEC stated that the 20,000 DCGL value was “not intended to be construed as a release limit,” but clarified that it was intended to calculate DCGL values “commensurate with the stated release goal of 25 millirem/year.” SWEC also stated, in response to Question 2, that “decontamination efforts will remediate any remaining radioactive mate
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rial present to established DCGL values commensurate with the site radiological release goal of 25 mihirem/year.” SWEC’s answers to Maine Yankee’s questions are incorporated in the Decommissioning Agreement as Schedule 1.
Second, the Amended RFP defined “decommissioning” as “all activities necessary to achieve Green Field ... including] without limitation decontamination, dismantlement, removal and disposal of materials ... all activities and approvals necessary to design and build the .... ISFSI ... at the 25 mR + ALARA or other standard as may be established pursuant to a Change .... ” The 25 mR + ALARA standard is also referenced in sections of the contract defining the work scope of the decommissioning.
Moreover, in addition to the base proposal, SWEC was required to include in its offer proposal information responsive to seven “mandatory alternatives,” which Maine Yankee defined as “variations on the Base Proposal which Maine Yankee believes may have a material impact on the Base Proposal Price.” One such mandatory alternative, number six, asked SWEC to provide an adjusted base proposal price assuming that the standard for achievement of Green Field is 15 millirem plus ALARA.
10
instead of the 25 millirem standard of the base proposal. SWEC’s response, attached as Appendix F to the Decommissioning Agreement, indicated that depending on when it was notified of the change in standards, the total contract price increase would range from $3.9 to $6.3 million. Nauman testified that meeting a stricter standard was more costly because it required additional decontamination work on the surface of the concrete, additional soil removal, and additional surveys.
In early 2000, new legislation was passed in Maine that requires the cleanup levels to be reduced from 25 millirem plus ALARA to a 10 and 4 millirem plus ALARA (“the 10/4 standard”). Under this standard, the maximum dosage that a resident farmer living, working, and eating from the land could receive from all sources was 10 millirem. Of that 10 milli-rem maximum dosage, only a 4 millirem dosage can come from groundwater. Prior to the passing of this legislation, Maine Yankee had been in negotiations relating to standards issues with the State of Maine regulators, legislators, and other stakeholder groups. According to Michael Meisner, Maine Yankee ultimately agreed to accept the 10/4 standard, that was later passed into law, in order to head off even stricter pending legislation that would have vastly increased the costs of decommissioning.
On September 29, 1999, Maine Yankee sent SWEC a letter requesting SWEC to provide an estimate of the cost and schedule impact to the project if the standard were reduced to meet the 10/4 standard and a DCGL level of 5000. As Maine Yankee’s negotiations with the State continued, they requested estimates from SWEC based on a host of different assumed standards. Over the course of the next few months, SWEC and Maine Yankee exchanged correspondence relating to various cost estimates and pricing options. Ultimately, in February 2000, SWEC delivered to Maine Yankee a detailed cost estimate for moving to a 10/4 standard of $11 million.
At that time, however, the parties began to dispute whether moving to a 10/4 standard was within the scope of the existing Decommissioning Agreement, or whether it was an out-of-scope change that would
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require additional compensation. Maine Yankee, through an April 10, 2000 letter from Michael Evringham, stated that it was Maine Yankee’s understanding based on a report generated by Gerber that the current scope of work coupled with “certain administrative controls” would support the 10/4 standard. SWEC disagreed, stating that “the new legislation defining the radiological release criteria of 10 mR/ year and 4 mR/year [is a] change in the scope of work ■... [that] require[s] additional compensation” to be made to SWEC. In a subsequent letter by Evring-ham responding to SWEC, dated May 17, 2000, Evringham stated that:
Maine Yankee agrees that remediation to support a 10 mR/year and 4 mR/year groundwater site release differs from the defined scope of work in the now .terminated Contract Agreement. However, it seems highly likely that the State’s regulation of SWEC’s plan to rubblize concrete would have resulted in SWEC achieving the lower standard in any event .... Moreover, it was SWEC’s failure to properly plan for and address the regulatory requirements with respect to its plan to rubblize that compelled Maine Yankee to take action.
Thus, as of termination of the Decommissioning Agreement, and to this day, the parties continue to dispute whether this change is a compensable change under the contract.
E.
Maine Yankee’s Termination of the Decommissioning Agreement
1.
SWEC’s Alleged Failure to Perform
On November 18, 1999, Maine Yankee sent SWEC a letter giving formal notice of default under Article 11.2 for failure to perform under the Decommissioning Agreement. Maine Yankee stated that SWEC “failed to substantially perform its obligations with respect to the performance of the Work and is in material breach of the terms of the [Decommissioning Agreement]” and demanded that SWEC take action to remedy the deficiencies in its performance. Maine Yankee identified a number of breaches that supported its conclusion that SWEC had failed to perform under the Agreement: (i) SWEC’s failure to pay its subcontractors and suppliers for work previously performed; (ii) SWEC’s failure to provide properly filled out lien waivers (according to Maine Yankee, the lien wavers erroneously represented that all of its subcontracts had been paid in full for the work); and (iii) the notice that one of SWEC’s major subcontractors was considering suspending all work as a result of SWEC’s failure to pay in a timely manner. Further, Maine Yankee requested information about the possibility that SWEC and its parent corporations may have been insolvent. Maine Yankee withheld payment of SWEC’s October invoice until SWEC provided evidence that it would cure the alleged breaches.
On November 30, 1999, in response to the November 18, 1999 letter, Maine Yankee and SWEC entered into Addendum No. 3 of the Decommissioning Agreement. By that agreement, SWEC agreed to provide corrected lien waivers and certified statements from certain suppliers for overdue amounts and to meet periodically with representatives of Maine Yankee. Further, SWEC had to provide lien waivers “from all subcontractors whose contract/order price on the date of the invoice was greater than $100,000 and from all other Suppliers whose contract/order price on the date of the invoice is greater than $250,000.” In exchange, Maine Yankee agreed to make payment to SWEC no more than one business day after receipt of the revised hen waivers and certifica
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tion. On December 1,1999, Maine Yankee wire-transferred most of the money due under the November 4 and 5, 1999 invoices.
On February 7, 2000, Maine Yankee sent SWEC a letter containing the subject line: “RE: ISFSI Cask Material Procurement and Fabrication, SWS-MY-000309.” The ISFSI cask is a containment area for spent fuel storage. The letter details Maine Yankee’s concerns about the cask and SWEC’s failure to create and distribute a detailed project schedule as required by the Decommissioning Agreement. On March 28, 2000, Maine Yankee sent a letter to SWEC detailing further concerns about the lack of a schedule for Reactor Vessel Internals Segmentation (“RVIS”) activities. The letter describes the need to integrate the RVIS activities into the main project schedule.
Despite these concerns, from October 1999 through March 2000, SWEC continued to submit invoices to Maine Yankee pursuant to the Decommissioning Agreement. Maine Yankee paid the amount due under these invoices. The parties continued to perform their respective obligations under the Agreement until May 2000.
2.
SWEC’s Insolvency
In the Pretrial Order the parties stipulated that on May 1, 2000, and at all times thereafter, SWEC was “insolvent” within the meaning of Article 11.1(1) of the Decommissioning Agreement and within the meaning of 11 U.S.C. § 101 (32)(A).
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By the year 2000, Maine Yankee was having serious concerns about SWEC’s solvency. Michael Thomas of Maine Yankee testified that one of his job responsibilities was to track the financial condition of SWEC. In connection with that, he reported that at the end of April 2000, he received a copy of a press release issued by SWINC, which detailed the increasingly troubled financial condition of SWINC.
Thereafter, Thomas attended a meeting in Boston with officials of the Stone
&
Webster companies. According to Thomas, “as the meeting developed, it became clear that Stone
&
Webster was in a very serious financial condition ... [and] the seriousness continued to impress me during the course of the meeting.” Thomas realized that Stone
&
Webster was considering bankruptcy and that it was struggling to meet the project payables for the Maine Yankee project at the SWINC level. In fact, SWINC’s James Carroll testified that during that meeting, there was an exchange between Maine Yankee’s bankruptcy counsel, George Marcus, and the Stone & Webster executives in which Marcus asked if Stone & Webster was contemplating bankruptcy. Carroll replied that they were considering all avenues. Marcus explained that Maine Yankee did not want to become involved in a bankruptcy as an executory contract, which could be assumed and assigned to another contractor in the bankruptcy proceedings.
Thomas reported his concerns as to the financial condition of the Stone
&
Webster companies to the Board of Maine Yankee in a memorandum on May 1, 2000. On that date, Maine Yankee sent a letter to SWEC regarding SWINC and SWEC’s financial situation. In the letter, Maine Yankee asserted that it had notified SWEC in the November 18, 1999 letter of potential breaches of the Agreement and advised SWEC that Maine Yankee might
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terminate the decommissioning agreement because of SWEC’s potential insolvency. Further, Maine Yankee stated: “This past weekend’s press release and the news reports about Stone & Webster, Inc., demonstrate that, despite your attempts to improve your financial situation, SWEC remains insolvent.” Maine Yankee also informed SWEC that it “remains in default of the [Decommissioning Agreement] and its efforts to cure since the November 18 letter have not remedied. the material breaches of contract.” Although Maine Yankee did not terminate the contract, it reserved the right to do so.
3.
Maine Yankee’s Termination of the Decommissioning Agreement
On May 4, 2000, Maine Yankee sent SWEC an official notice of termination under Article 11 of the Decommissioning Agreement. According to that letter, Maine Yankee terminated the Agreement because of SWEC’s insolvency and SWEC’s failure to cure the defaults identified in the November 18, 1999 and May 1, 2000 letters. Specifically, Maine Yankee stated that SWEC had not provided an acceptable project schedule, had not made adequate progress in completing the work, had not obtained the necessary regulatory approvals, had not administered the work, had failed to provide adequate assurances of its ability to complete performance, and had failed to pay its subcontractors and suppliers as required by the Decommissioning Agreement. At the time of the termination, Maine Yankee had paid SWEC approximately $58 million in earned value payments under the Decommissioning Agreement.
Also on May 4, 2000, SWEC sent to Maine Yankee its monthly invoice for April 2000 in the amount of $6,328,314. SWEC did not provide the required lien waivers from the subcontractors with the invoices and admits it had not paid the subcontractors at the time. In fact, Burke testified that on the morning of May 4, 2000, he voided lien waivers that Carroll had signed (indicating that the subcontractors had been paid), because, he stated, “they were not correct” — the subcontractors had not all been paid — and he didn’t want to repeat the mistake with the lien waivers made in November, 1999. Burke testified that as of April 30, 2000, SWEC was $50,000 behind in payments to subcontractors, but by the time of termination that amount had risen to $1.7 million. Burke also testified that according to the project accountant, he did not expect to get any money from the company in the near term to help it meet its payment obligations.
On May 9, 2000, SWEC sent a letter to Maine Yankee regarding the May 4, 2000 termination notice. The letter detailed grounds under which SWEC would continue to provide services on the Maine Yankee project until June 30, 2000.
On May 10, 2000, the parties entered into the Interim Service Agreement, under which SWEC continued to work on the decommissioning on a temporary basis. That agreement ran from May 4, 2000 to June 30, 2000 and laid out terms “to mitigate the damages and adverse consequences of an abrupt or inefficient demobilization at the Maine Yankee site as a result of [the May 4, 2000 termination notice] and other contested issues among the parties .... ” In essence, the parties agreed to perform as they would have under the Decommissioning Agreement for the duration of the Interim Service Agreement, except that the payment structure under the Interim Services Agreement was completely modified. SWEC agreed to continue work on the decommissioning based on a modified schedule approved by Maine Yankee. Whereas under the Decommissioning Agreement, Maine Yankee
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paid SWEC on an earned value basis and SWEC would then be responsible to pay the subcontractors, under the Interim Services Agreement, Maine Yankee paid charges and reimbursable costs directly to the subcontractors and paid SWEC on a cost reimbursement basis.
Thus, after termination, pursuant to the Interim Services Agreement, all subcontractor bills then due and owing were submitted for payment to Maine Yankee. Maine Yankee agreed to pay $5,100,789.36 to subcontractors, suppliers, vendors, and consultants for goods and services provided prior to May 1, 2000, and in exchange SWEC agreed to provide the appropriate lien waivers with respect to all work in the April 2000 invoices. Despite these modifications and concessions, the parties expressly stated that they retained their rights under the Decommissioning Agreement.
4.
SWINC and SWE&C’s Purported Tender of Performance
On May 30, 2000, Maine Yankee’s contracts manager, Michael Evringham, sent a letter to Ken Jenkins, assistant general counsel for both SWINC and SWE&C. In that letter, Maine Yankee demanded that SWINC & SWE&C “honor and fulfill their obligations guaranteeing the performance of [SWEC] under its agreement with Maine Yankee .... ” Evringham testified that he did not expect SWINC and SWE&C to be able to fulfill those obligations, but sent the letter to reserve his rights as to the guaranties.
Evringham ' received a response to Maine Yankee’s demand on behalf of both SWINC and SWE&C by letter the following day. The letter was signed by Jerry Kane, who had been in charge of the Maine Yankee project since December, 1999. Evringham testified he did not know or understand how or whether Kane was related to or in a position of authority with the parent companies. Kane’s May 31, 2000 letter disputed whether SWEC’s obligations under the Agreement were terminated and refused either to “admit or deny liability for any ‘damages and costs’ arising from the termination[,] particularly because no ... bill of costs has been tendered.” The letter went on state, however, that
the Guarantors want to work with all parties to mitigate the damages for whomever may ultimately be liable. The Guarantors are ready, willing, and able to complete the obligations of the Contract Agreement, and the Guarantors hereby tender their performance to complete the work of the Guaranteed.
In closing, Kane requested Maine Yankee’s acceptance of this “tender” and stated that SWINC and SWE&C considered “themselves discharged from any further obligations under the Parent Guarantees” if Maine Yankee did not accept the tender.
Wayne Norton testified that within days of receiving the letter from SWINC and SWE&C, Maine Yankee learned that those companies were also expecting to file for bankruptcy. Norton explained that because the parent companies had already or were about to join SWEC in insolvency and no one from SWINC or SWE&C ever attempted to explain or give assurances to Maine Yankee that they could perform the scope of work required under the Decommissioning Agreement, Maine Yankee did not consider these “tenders” to be serious tenders of performance. He indicated that Maine Yankee did not investigate whether SWINC or SWE & C could perform, because it did not delineate between the financial capacity of SWEC, SWINC, or SWE&C.
Both Norton and Evringham explained why Maine Yankee would not want its major contractor to be bankrupt or insol
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vent. First, the nuclear decommissioning arena is a very public one. If its decommissioning contractor were in bankruptcy, Maine Yankee could be subjected to heightened public scrutiny from regulators and other interested parties, called stakeholder groups, questioning whether the decommissioning effort is proceeding in the most careful manner from an environmental and safety perspective or merely proceeding in the least expensive manner. Second, dealing with subcontractors, suppliers, and the contractor’s employees becomes very difficult when the contractor does not have the ability to pay those parties on time. Third, performance would be difficult if certain assets are sold and key employees leave the contractor’s employ. Fourth, in bankruptcy the Decommissioning Agreement, as an executo-ry contract, could be assumed and assigned to a contractor that is not up to Maine Yankee’s standards. For these reasons, the Decommissioning Agreements included provisions that allowed Maine Yankee to terminate the agreement for cause upon the contractor’s insolvency or bankruptcy.
It is the Debtor’s position that SWINC and SWE&C could have complied with their tender of performance. In this regard, Carroll testified for the Debtors that SWINC was solvent in late May and early June of 2000, and remained solvent until the First Day Filings of its bankruptcy on June 2, 2000. At the time SWEC was operating on site at the Maine Yankee project under the Interim Services Agreement, and Maine Yankee had made it clear to the Debtors that they were contemplating bringing damages claims against them. Carroll reported that after the termination of SWEC, SWINC made efforts to regain control of the Maine Yankee project in hopes of minimizing Maine Yankee’s damages claims against it. First, SWINC entered into an agreement with a company called Jacobs Engineering Group, which intended to buy substantially all of the assets and liabilities of SWINC, including all of its non-rejected executory contracts. As part of the agreement, Jacobs extended a $50 million line of credit to SWINC. Ultimately, it was the Shaw Group — and not Jacobs — that purchased the assets and liabilities of Stone & Webster in a bankruptcy auction. Prior to the auction sale in which Shaw bought the Debtors, however, the Debtors were also trying to make arrangements with Shaw to acquire the Maine Yankee project in a deal where Maine Yankee would agree to waive its claims against the Debtors. In that deal, which was never consummated, the Debtors contemplated contributing a certain amount of money towards Shaw’s purchase.
Carroll confirmed, on cross-examination, that during the late May — early June time frame he reported to the Board that SWINC was having severe liquidity problems, and that if they had not received the line of credit from Jacobs they may not have had enough cash to pay its bills that were coming due. Indeed, SWINC’s bankruptcy filings on June 2, 2000 stated that the sale of its assets and liabilities, at the time contemplated to be to Jacobs, would be necessary to allow SWINC to continue as a going concern.
F.
Stone & Webster’s Bankruptcy and Maine Yankee’s Claims
On June 2, 2000, SWINC, and certain of its affiliates, including SWE&C and SWEC filed voluntary petitions for bankruptcy relief. On August 23, 2000, Maine Yankee filed a proof of claim in this case against SWEC. At the same time, Maine Yankee filed nearly identical proofs of claim for $78.2 million against SWINC and SWE&C, based on their guarantees.
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In addition to the instant litigation against the Debtors, Maine Yankee has also proceeded against SWEC’s bonding company, Federal Insurance Company, in Federal District Court in Maine, to recover amounts under the payment and performance bonds.
See Federal Ins. Co. v. Maine Yankee Atomic Power Co.,
183 F.Supp.2d 76 (D.Me.2001). Maine Yankee had put Federal on notice of the termination of the Decommissioning Agreement, but Federal had denied Maine Yankee’s request for payment. As noted above, the parties recently have settled this suit. Under the settlement, Federal is going to pay Maine Yankee $38.1 million under the performance bond and $5.8 million under the payment bond.
Due to the court’s prior ruling that Maine Yankee’s claims are limited by the $65 million damages cap in the Decommissioning Agreement and due to settlement recoveries in the amount of $44 million that Maine Yankee has obtained from Federal Insurance concerning this matter, Maine Yankee now seeks $21 million in damages jointly and severally from the three Debtor entities.
G.
The Shaw Group Bid for the Maine Yankee Project
Norton, Kane, and Shaw’s CEO, Jim Bernhard, testified about the Shaw Group’s bid for the Maine Yankee decommissioning project.
In July 2000, Norton and Meisner received a phone call from Bernhard, the CEO of the Shaw Group. Kane, now employed by Shaw, reported that he was on the line on Bernhard’s end. Shaw was one of the new suitors — and the eventual winning bidder — for Stone
&
Webster’s assets in their bankruptcy proceedings. Bern-hard, who has the reputation of being a deal maker, proposed a settlement agreement whereby Shaw would take over a slightly modified scope of work for completing decommissioning in exchange for $30 million more than Maine Yankee had agreed to pay SWEC (minus what Maine Yankee had already paid to SWEC) and an agreement that Maine Yankee would waive its claims against Federal Insurance and the Stone & Webster companies. He wanted to make a quick deal with Maine Yankee instead of going through the conventional bidding process to get the work. This conversation lasted roughly five minutes.
Bernhard testified during his deposition that he had doubts as to whether they would have executed a deal even if Maine Yankee had said yes to his proposal, because “this was a huge document we were expected to sign and we were never going to sign it.” He also confirmed that his offer included a requirement of releasing claims against Stone
&
Webster and Federal. He also stated that his offer did not contemplate simply substituting a new price, but taking the same terms and conditions to which SWEC had agreed. Rather, he wanted to change some of those terms and conditions.
After the phone call, Meisner instructed Norton to explore the details of a deal with Shaw. The parties exchanged correspondence, with Norton writing to Bernhard’s assistant Tim Barfield to “respond to the proposal that Jim made to resolve various outstanding issues and disputes among SWEC, Maine Yankee, and Federal by having the Shaw Group complete the decommissioning of the Maine Yankee site in Wiscasset, Maine.” Thereafter, Barfield forwarded to Maine Yankee Shaw’s first written term sheet for the purpose of negotiating a deal. The term sheet expressly stated that it was not an offer that could be made binding by acceptance. It carried an increased price of $56 million, a number
*775
of scope exclusions,
12
and an express provision requiring Maine Yankee to “reach[ ] a resolution of all issues between it and Federal Insurance Company ... including without limitation, Maine Yankee’s rights to compensation under the performance and payment bonds issued by Federal.” Reluctant to waive its claims or change the scope of the decommissioning project, Maine Yankee ultimately turned the deal down, but invited Shaw to engage in its rebid process along with a number of other contractors.
H.
Maine Yankee’s Postr-Termination Self-Performance of the Decommissioning
During the Summer of 2000, Maine Yankee reissued RFPs to a number of contractors, including Bechtel, Cianbro, and Shaw.
13
Independent of soliciting bids from outside contractors, Maine Yankee also prepared its own estimate of what it would cost to assume the contracting responsibility for itself and self-perform the decommissioning. This self-performance estimate was weighed against the incoming bids from contractors to determine whether to hire a new contractor to complete the work or whether it should self-perform. Maine Yankee hired Scientech as a consultant to help it to develop its self-performance bid and to select between the various contractor bids and its self-performance bid.
At the request of Norton, Maine Yankee’s project controls manager, Todd Smith, developed the self-performance estimate. He testified that he included labor costs, the remainder of negotiated subcontractor work, and costs to complete all the sub-projects necessary to clean the site (e.g., above grade concrete disposal, RCRA closure plan, scabbling of below grade concrete, etc.). The self-performance estimate calculated a total cost to complete the decommissioning project of approximately $325 million, excluding contingency.
14
Smith estimated the contingency at $12 million, by applying 15% to the remaining work and then adjusting downward based on certain risk assessments. Thus the total self-performance estimate that was compared to the contractor bids was $337 million.
By that time, the market for nuclear decommissioning had changed dramatically. Whereas at the time Maine Yankee entered into the Decommissioning Agreement with SWEC, the anticipated number of decommissioning projects led to interest by bidders to land a large high-visibility decommissioning project, by Fall of 2000, the market had waned. Plans to decommission a number of plants had been aborted. Accordingly, Maine Yankee was “uncertain as to whether or not the market was going to provide ... an opportunity to have a cost-effective turn-key contract as [it] had [with SWEC].” Some contractors failed to respond with a bid, and Maine Yankee received only a few bids on the decommissioning work. Of those that responded, the Shaw Group’s bid was deemed technically unacceptable, because
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Shaw would not accept the full work scope and sought to exclude a number of issues, including licensing and RCRA closure. The remainder of the bids were not as cost-effective as Maine Yankee’s estimate for the cost of self-performance. According to Edward Doubleday, who was employed by Maine Yankee as a consultant to help evaluate the bids, “the self-performance was clearly the choice ... The nearest [technically qualified] bid, I believe, without looking at the details was about a hundred million [dollars] more than the self-performance estimate.”
Because Maine Yankee decided that the self-performance option was the cheapest solution, it elected to implement that solution instead of hiring another contractor to manage the work. Under the self-performance plan, Maine Yankee would step into SWEC’s place and manage the project and the subcontractors. Maine Yankee employed a number of consultants from a company called Entergy, including Raymond Burke, to help run the project. It set up an organization, headed by Burke, to fill the role of contractor and carry out the dismantling and decontamination work. SWEC’s existing subcontracts were assigned to Maine Yankee pursuant to the provisions of Article 11.3 of the Decommissioning Agreement. Maine Yankee assumed SWEC’s role in managing all of the then-existing subcontracts and in entering into new subcontracts and change orders to complete the decommissioning work. Smith reports that Maine Yankee is currently tracking its budget and is on schedule to complete the project six months later than the Decommissioning Agreement.
During Evringham’s testimony, he reported that it was his responsibility to manage all of the subcontracts for Maine Yankee going forward. The remaining decommissioning work involved a number of projects including moving spent fuel to the ISFSI, waste disposal, site remediation, demolition, and radiation protection. Evr-ingham testified about Maine Yankee’s decisions to enter into certain subcontracts and change orders, such as with a subcontractor called NAC to complete “pool to pad” work relating to the ISFSI fuel canisters. Paul Plante, Maine Yankee’s project manager for cask loading and fuel transfer, also testified about Maine Yankee’s decision to enter into the subcontract with NAC. Plante also testified about Maine Yankee’s costs on fuel canisters. Under the Agreement, SWEC was obligated to provide canisters to store spent fuel based in an amount corresponding Maine Yankee’s estimate of the amount of spent fuel.
David Holbert was the logistics project manager in the waste management group at Maine Yankee. He testified about Maine Yankee’s self-performance in the waste disposal area. Holbert reported that Maine Yankee assumed responsibility for a number of waste management contracts that SWEC had entered into prior to termination. Maine Yankee also entered into several waste management subcontracts itself after termination. Holbert testified that he prepared waste disposal forecasts on a component-by-component basis, based on actual waste streams on the Maine Yankee site, in order to project the total waste disposal costs.
Nauman testified for the Debtors on these topics. He reviewed a number of the change orders entered into by Maine Yankee, and concluded that by entering into these change orders Maine Yankee increased the scope of work beyond the scope that SWEC had been obligated to perform under the Agreement. These included, for example, costs for change orders relating to canisters to store spent fuel for the ISFSI project, RCRA costs, and costs relating to scabbling of concrete.
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On cross-examination, however, Nauman confirmed that his understanding of the scope of the work that SWEC was obligated to perform was — in a number of instances — not consistent with the contract documents. In particular, while Nauman stated that it was his understanding that SWEC only had to provide a four fuel canisters to fulfill its obligations, the Agreement requires SWEC to provide all such goods, services, and materials as may be required to perform the work and provides that SWEC is only entitled to a change order for out-of-scope work if the amount of spent fuel in SWEC’s inventory exceeded the spent fuel represented in the inventory that Maine Yankee had prepared.
15
II.
DISCUSSION
The court will structure its analysis of the legal issues presented by the trial into two sections. First, the court will discuss whether Maine Yankee properly terminated the Decommissioning Agreement. If it did, SWEC is liable for damages for its breach of the terms of the Decommissioning Agreement. Next, the court will discuss damages and determine what portion, if any, of Maine Yankee’s claims should be allowed.
16
A.
Liability Issues
Maine Yankee bases its right to terminate on two provisions of the Decommissioning Agreement for cause. Article 11.1.1 gives Maine Yankee the right to terminate the agreement in the event of the insolvency of SWEC. Article 11.2 gives Maine Yankee the right to terminate the agreement “in the event that SWEC fails to substantially perform or breaches the Agreement.”
1.
Did Maine Yankee Properly Terminate the Decommissioning Agreement Under Article 11.1.1 for SWEC’s Insolvency?
The parties have stipulated, both in the pre-trial order and at trial, that SWEC was insolvent as of May 1, 2000, and at all times thereafter. The pre-trial order, in ¶ 6 of the section entitled “Statement of Facts Which Are Stipulated and Require No Proof,” states that “[o]n May 4, 2000, and at all times thereafter, SWEC was ‘insolvent’ within the meaning of Article 11.1(1) of the Decommissioning Agreement and within the meaning of 11 U.S.C. § 101 (32)(A).” The Debtors also conceded the fact of SWEC’s insolvency at trial, and do not waver from this position in their post-trial briefing.
Nonetheless, the Debtors argue that Maine Yankee did not prove “the alleged insolvency” at trial, and thus contend that termination under Article 11.1.1 was improper. Debtors thus contend that the
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insolvency of SWEC cannot be the basis for any damages under the Agreement.
The essence of Debtors argument is as follows. Even though SWEC was expressly defined as the “Contractor” in the Agreement, whose insolvency triggers Maine Yankee’s right to terminate the Agreement, Debtors argue that Maine Yankee’s course of dealing under the Agreement has established that the entire “Stone and Webster” organization — not just SWEC — was the “Contractor” under the Agreement, because Maine Yankee treated all of “Stone & Webster,” as the Contractor. The testimony of James Carroll, the president and chief restructuring officer of SWINC, established that “SWINC has always been solvent,” despite having “liquidity problems” and difficulties making the May 5th and 12th 2000 payrolls. Debtors reason, therefore, that because Maine Yankee made no showing that “Stone
&
Webster” was insolvent, Maine Yankee’s termination for insolvency was improper.
While the Debtors are correct, as a matter of law, a course of dealing can be used to construe ambiguous contractual language,
see Blue Rock Indus. v. Raymond Int'l, Inc.,
325 A.2d 66, 78-79 (Me. 1974), the contractual language at issue here is not ambiguous. The Decommissioning Agreement clearly states that the “Contractor” is SWEC. Accordingly, it is SWEC’s insolvency — and not that of any other Stone
&
Webster entity — that gives rise to Maine Yankee’s right to terminate the Decommissioning Agreement under Article 11.1.1. Based on Debtor’s stipulation, SWEC’s insolvency is a fact that needs no proof at trial. Since no one disputes that SWEC was insolvent at the time Maine Yankee terminated the Agreement, the court finds that Maine Yankee properly terminated the Agreement under that section. Based on the court’s earlier ruling, in its July 26, 2001 memorandum opinion, Maine Yankee may collect damages under Article 11.4 based on its proper termination under Article 11.1.
2.
Did Maine Yankee Properly Terminate the Decommissioning Agreement Under Article 11.2 for SWEC’s Failure to Perform?
The court will next consider whether Maine Yankee may also collect damages under Article 11.4 based on its termination under Article 11.2 for SWEC’s performance failures.
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Article 11.2 of the Decommissioning Agreement permits Maine Yankee to terminate the Agreement if SWEC breached any material terms of the contract or failed to “substantially perform.”
At trial and in its post-trial briefing, Maine Yankee focuses on three independent grounds that it asserts justified its termination of the Decommissioning Agreement for failure to perform under Article 11.2. First, Maine Yankee points to SWEC’s failure to pay its subcontractors and suppliers, as required by section 4.2 of the Decommissioning Agreement. Second, Maine Yankee claims that SWEC failed to develop an acceptable project schedule, as required by section 11.9 of the Amended RFP. Last, Maine Yankee argues that SWEC failed to make adequate
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progress in completing the project, as required by Article 29.5.1 of the Agreement.
The court will consider each of these grounds in turn.
a.
Failure to Pay Subcontractors and Suppliers
The court notes at the outset that it appears that Maine Yankee’s termination of the Decommissioning Agreement was motivated in large part due to SWEC’s insolvency and financial problems. SWEC’s failure to pay subcontractors and suppliers flows directly from its declining financial condition. Although it is related to SWEC’s financial condition, under the Decommissioning Agreement, the failure to pay subcontractors and suppliers constitutes an independent breach of the Agreement.
Under sections 4.2 and 30 of the Decommissioning Agreement, SWEC was obligated to pay its subcontractors and to obtain written hen waivers. Maine Yankee focuses on two instances where it alleges SWEC breached this requirement. First, in November 1999, SWEC breached this obligation when it submitted inaccurate lien waivers indicating that SWEC had paid certain subcontractors when, indeed, they had not. While SWEC concedes that this “problem” did occur, it points out that it was an isolated incident that was promptly corrected.
Second, by the termination date, May 4, 2000, SWEC was $1.7 million behind in paying its subcontractors and did not expect to be able to pay those debts. This is confirmed by the testimony of Burke and Carroll. Carroll further testified that even if Maine Yankee had paid SWEC’s May 4 invoices for $6.2 million which it was not obligated to do until SWEC submitted the lien waivers confirming that the subcontractors and suppliers had been paid SWEC would have used the money to meet its payroll, rather than using the money to pay the subcontractors and suppliers. While conceding that by May 4, 2000, SWEC was $1.7 million behind in payments to its subcontractors, SWEC urges the court to conclude that the $1.7 million amount overdue to subcontractors was nevertheless not material because it represented only 0.67% of the overall contract amount of $252 million.
While it is hyperbole to suggest that SWEC exhibited a pattern of not paying its subcontractors and suppliers, the record it clear that its increasing financial difficulties caused it to fail to pay its subcontractors in a timely manner as of the termination date. Moreover, as of May 4, 2000, SWEC could not pay the subcontractors when due nor could it give assurance of its ability to pay those subcontractors in the future.
The court cannot accept SWEC’s argument that the $1.7 million amount owed as of the termination date was immaterial. In this instance, materiality cannot be determined by comparing the amount owed to the overall contract amount. If this were the metric used to determine materiality, very few breaches could be considered material in any contract of this magnitude. Moreover, a close reading of the Decommissioning Agreement, however, demonstrates that such an approach would be inconsistent with the parties’ agreed upon obligations and understanding of materiality under the contract.
The original Agreement specified that SWEC would certify timely and full payment to all subcontractors whose subcontracts exceeded $1 million. After SWEC’s first failure to pay subcontractors in November 1999, SWEC agreed to put in place mechanisms to ensure that subcontractors would be paid timely going forward. Thus, the parties amended the
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Agreement to provide for tighter controls by requiring SWEC to certify timely payment in full on all subcontracts in excess of $100,000.
The $1.7 million amount owed as of the termination date included a number of subcontracts and was well in excess of the $100,000 materiality limit of the Agreement. As Maine Yankee notes, the $1.7 million represents over 25% of the $6.2 million project invoice for SWEC’s April services. Under the Agreement, the court cannot conclude that failing to pay that amount when due is immaterial. Thus, the court concludes that SWEC’s failure to pay the subcontractors was a material breach of the Decommissioning Agreement.
Whether termination was independently warranted under other two grounds is a closer question. The court next will turn to scheduling and progress matters.
b.
Failure to Develop an Acceptable Project Schedule
Numerous witnesses for both sides stressed the importance of a detailed project schedule for effectively managing projects of this size and complexity. It is also clear that the development of a comprehensive project schedule was a major substantive requirement of the Agreement. As stated by Norton in his March 16, 2000 letter to Kane, an acceptable schedule ensures that “the project can move forward with the proper tools to support logical decision making and problem identification.” Section 11.9 of the Amended RFP sets forth detailed specifications for SWEC’s development of a schedule that reflected each task necessary to complete the work and, including all licensing and permitting tasks, and their associated resource requirements. Under the Agreement, the project schedule was required to be based on “true logic,” include the projected completion dates for tasks and the overall project, and avoid “misleading imposed dates.”
The parties do not dispute that during the time that SWEC was the contractor on the Maine Yankee project, SWEC never developed a project schedule that was accepted and approved by Maine Yankee. They only dispute which of the parties was to blame for this failure. Maine Yankee points to the fact that SWEC never developed an acceptable project schedule as proof that SWEC breached its obligations under the Agreement, while SWEC maintains that the reason a schedule was never agreed upon is because Maine Yankee unreasonably rejected countless SWEC schedules, making it impossible for SWEC to comply with its contractual obligation.
SWEC argues that the record, particularly the testimony of Boyea, demonstrates Maine Yankee’s project schedule requirements were ill-defined and capriciously applied and that every time SWEC sought to resolve the scheduling problems, and was assured by Maine Yankee that only one more change was required, Maine Yankee would come up with new hurdles and issues. SWEC also points to the relative success of its workshop program in gaining piecemeal approval of all but one portion of the schedule, the ISFSI.
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In response, Maine Yankee points out that, despite SWEC’s machinations to the contrary, no schedule that SWEC had submitted — including the resubmitted schedules for which SWEC purportedly
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had satisfied two particular conditions for approval — ever fully complied with the requirements of Section 11.9. Maine Yankee also underscores that Garvey testified that even as late as May 2000, after the workshops, the schedule still contained logic problems that masked the fact that the project was close to nine months behind, was not resource loaded, and lacked a number of work activities, including licensing and permitting tasks. Maine Yankee also notes that even after termination SWEC continued to add required detail to the schedule and that Maine Yankee itself had to add a significant amount of detail, particularly in the areas of ISFSI, RCRA closure, and concrete disposal, after it took responsibility for the schedule in connection with its choice to self-perform.
It is clear that Maine Yankee demanded great attention to detail in the schedule, when reviewing the SWEC schedule submissions for approval. However, Maine Yankee was entitled to demand that, in order to gain its approval, SWEC’s schedule strictly comply with the many requirements of section 11.9 of the Agreement. Aside from the fact that Maine Yankee was within its rights to demand compliance with the schedule, it was also reasonable to do so in light of some of the problems on the work site that stemmed from problems with the schedule. For example, witnesses described a number of occasions where activities were performed before requisite permits were obtained. SWEC had problems meeting its obligations in connection with licensing and permitting issues throughout the project.
No evidence shows that Maine Yankee demanded anything of SWEC but strict compliance with SWEC’s obligations under the scheduling provisions of the Agreement. Despite the anecdotal evidence regarding Maine Yankee’s unreasonableness, no witness for SWEC could confirm that the schedules it submitted for approval ever included the level of detail required by the Agreement.
Early schedules that SWEC submitted did not include all of the licensing and permitting tasks, was not resource-loaded, and included false logic. The new SWEC project management team headed by Kane recognized these shortcomings and implemented a series of workshops beginning in January 2000 in hopes of getting an approved schedule. While it is clear that the workshop program did help the parties to get on the same page on scheduling matters, it did not bring SWEC into compliance with section 11.9. Despite SWEC’s efforts, the final SWEC schedule still did not include all work activities, particularly in the area of licensing and permitting, and lacked sufficient details. The consistent inability of SWEC to develop the schedule in this area can be attributed in part to the original mismanagement of Lepisto and in part to SWEC’s inexperience with State of Maine regulatory issues.
Moreover, when the details were later added to the schedule, the updated schedule did not reflect the true completion date for the project of July 7, 2005, due to an inappropriate logical constraint that fixed the completion date to the original project irrespective of scheduling logic that compelled a later completion date. While there is contradicting testimony about how this inappropriate constraint was entered into the schedule, the court cannot credit Boyea’s speculation that this was the fault of either Maine Yankee or a technical computer problem. Such evidence does not convince the court that it was Maine Yankee’s fault that the constraint was entered. Under the Agreement, the ultimate responsibility for the schedule lay with SWEC.
Developing a schedule to the level of detail required by the Agreement for a
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project as complicated as the Maine Yankee decommissioning was truly a herculean task. Despite SWEC’s efforts, it was a task that SWEC never completed. While the record indicates that but for SWEC’s financial problems and impending bankruptcy, it is unlikely that Maine Yankee would have terminated SWEC based on the schedule issues alone, Maine Yankee was technically within its rights to terminate the Agreement for cause due to inadequacies in the schedule.'
c.
Failure to Make Adequate Progress
Maine Yankee contends that a third independent basis for terminating the Decommissioning Agreement for cause was that SWEC failed to make adequate progress in completing the decommissioning work. Under Section 29.5.1 of the Decommissioning Agreement, SWEC was obligated to complete the work in accordance with the milestone schedule provided in Section 4E.1 of the Agreement. That provision required SWEC to complete the physical work of the project by April 30, 2004.
Maine Yankee points to a number of evidentiary bases to support its contention that SWEC failed to meet its obligation to make adequate progress completing the work. First, the April 28 schedule update reflects that as of just prior to termination, SWEC was projecting that the physical work would be completed by January 5, 2005. Second, Kane’s testimony and a number of exhibits demonstrate that as of December 1999 the project was “significantly” behind schedule and over budget. Maine Yankee contends that despite some improvements, SWEC’s performance under Kane was only marginally better. To support this contention, Maine Yankee notes that according to SWEC’s April, 2000 monthly report SWEC had earned only $20.8 million of the planned $25.7 million (approximately 80%) during the 2000 calendar year. The April 2000 monthly report also reflects that during the month of April, SWEC started only 48% of the tasks and completed only 53% that were intended to be started and completed that month. Last, Maine Yankee notes that these inadequacies when combined with SWEC’s financial difficulties at the time and commensurate deterioration of employee morale, loss of job site personnel, and difficulties with subcontractors confirms that SWEC breached its obligations to make adequate progress towards completing the work.
In response, SWEC contends that it did make adequate progress in the work. While it acknowledges that “performance lagged in 1999,” it points to SWEC’s improvements in progress under Kane as support for its position. SWEC also highlights the portions of Kane’s testimony that confirm that Maine Yankee executives praised Kane’s work and expressed “delight” with his progress. SWEC also points to its 80% earned value rate in the year 2000 as a relative improvement over its 70% rate for 1999. Last, SWEC notes that the April 2000 monthly report is misleading because SWEC’s failure to start and finish otherwise scheduled activities was impacted by actions directly attributable to Maine Yankee. First, SWEC’s schedule was being impacted by the lawsuit between Maine and Maine Yankee. Second, April was the month that Kane, with Maine Yankee’s strong approval, had given his craft workers and subcontractors a week off to rewards them for their early completion of one of the tasks.
SWEC’s performance must not merely be judged relative to their admittedly poor performance in 1999. Rather, SWEC’s performance should be judged based on their obligations under the Decommission
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ing Agreement. The fact that prior to the arrival of Kane, the project was saddled with numerous problems and was admittedly over budget, behind schedule, and poorly managed supports Maine Yankee’s assertion that overall performance under the contract was not adequate.
While SWEC’s performance may have been improving under Kane, the fact remains that the work was not progressing as quickly as it was required to under the milestone schedule in the Agreement. Although Kane testified that Maine Yankee executives expressed delight that the project was finally beginning to progress in an adequate manner, the court does not view these statements as absolute expressions of satisfaction, but as expressions of relative satisfaction in comparison to SWEC’s performance in 1999 under Lepisto. The documentary evidence demonstrates that as of the termination date, SWEC had already failed to earn 20% of its projected value during the 2000 calendar year. Schedule documents and Maine Yankee correspondence throughout late 1999 and early 2000 further indicate that Maine Yankee did not agree that work at the project was progressing in a satisfactory manner.
It is clear that, in 2000, the relationship between SWEC and Maine Yankee was improving and SWEC’s performance, relative to its earlier performance, was also improving. Despite these improvements, as of the termination date, SWEC was still having problems progressing with the work at the Maine Yankee site and were still substantially behind schedule. The court need not speculate whether if Maine Yankee had not terminated the Agreement, the improvements implemented under Kane would have brought SWEC into compliance or substantial compliance with the Agreement from a progress perspective in the future. As of the termination date, the improvements had not done so— SWEC was behind schedule on the work and was not performing adequately as of May 2000. With the specter of SWEC’s increasing financial difficulties, and the corresponding inability to pay subcontractors and to retain its own employees, Maine Yankee had no reason to think that SWEC’s performance would improve to an acceptable level.
Just as with the scheduling issue, the factual record on the work progress seems to indicate that but for SWEC’s financial problems, Maine Yankee may not have considered termination of the Agreement on these grounds alone. Nonetheless, based on the fact that SWEC was behind schedule and was earning far less than the expected earned value at the time of termination, Maine Yankee was within its right to terminate SWEC on this ground.
B.
Damages Issues
Having found that Maine Yankee has established liability for breach of the Decommissioning Agreement and has properly terminated the Agreement under both sections 11.1 and 11.2, the court now turns to assess the proper amount of damages that shall be paid to Maine Yankee. Maine Yankee seeks damages from SWEC based on its breach of the Decommissioning Agreement and seeks damages from SWINC and SWE&C under the terms of their guarantee’s of SWEC’s performance. As noted earlier, SWINC and SWE&C each guaranteed SWEC’s performance “up to fifty percent (50%) of the Agreement’s unpaid balance of the contract price,” should SWEC “fail[] to perform the Agreement.”
1.
Did Maine Yankee Fail to Mitigate Damages?
As a threshold matter, Debtors contend that Maine Yankee is not entitled
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to damages from SWEC, because it failed to mitigate damages in numerous ways.
See Ludington v. LaFreniere,
704 A.2d 875, 879 (Me.1998) (discussing duty to mitigate damages). Bearing in mind that the Debtors have the burden of proof on the affirmative defense of failure to mitigate, see
Doughty v. Sullivan,
661 A.2d 1112 , 1122 n. 14 (Me.1995), the court will consider each of these in turn.
a.
Did Maine Yankee Fail to Mitigate Damages By Not Retaining SWEC?
The Debtors first argue that Maine Yankee failed to mitigate because it should have retained SWEC after termination to complete the work. Specifically, the Debtors contend that the parties’ agreement to continue the project under the Interim Services Agreement demonstrates that Maine Yankee was interested in retaining SWEC. Debtors also argue that SWEC’s ability to perform at that time was bolstered by the improvement in SWINC’s financial condition, due to a $50 million line of credit procured from the Jacobs firm. Debtors conclude that Maine Yankee’s failure to retain SWEC, even if insolvent, boosted the damages that Maine Yankee now seeks.
Having found that Maine Yankee was entitled to terminate the Decommissioning Agreement due to SWEC’s breach, it would make little sense to then conclude that in order to fulfill its duty to mitigate damages, Maine Yankee should not have terminated SWEC in the first instance. As explained by several Maine Yankee witnesses, the insolvency of its contractor was a ground for termination under the Decommissioning Agreement, because insolvency and bankruptcy of a contractor running a large nuclear decommissioning project is undesirable for a multitude of reasons. Where Maine Yankee terminated SWEC for cause under the Decommissioning Agreement, in part due to of its insolvency, the court will not require Maine Yankee to rehire or retain SWEC under a theory of mitigation of damages. Rather, the court must ensure that Maine Yankee made reasonable efforts to mitigate the damages that it may recover from SWEC.
Furthermore, the record does not establish that SWEC would have had the financial wherewithal to perform under the Agreement going forward. The Interim Services Agreement was only a temporary work around that kept the project moving and gave Maine Yankee time to consider what would be its best option for completing the project. By changing the nature of the parties’ payment obligations under the Interim Services Agreement, SWEC was able to carry on despite its financial instability and cash flow problems, while Maine Yankee was able to ensure that the project would continue to move forward until it could figure out how to replace SWEC with another arrangement in the nature of the Decommissioning Agreement.
b.
Did Maine Yankee Fail to Mitigate Damages By Unreasonably Rejecting the Guarantors’ Tender?
SWEC next argues that Maine Yankee failed to mitigate damages by unreasonably rejecting the tender of the guarantors of SWEC’s performance, SWINC and SWE&C. In a similar vein, SWINC and SWE&C argue that their liability as guarantors should be discharged because SWEC unreasonably refused their tenders of performance such that the guarantors suffered a loss.
See St. Paul Fire & Marine Ins. v. City of Green River, Wyo.,
93 F.Supp.2d 1170, 1178 (D.Wyo. 2000) (collecting cases);
Restatement (Third) of Suretyship & Guar.,
§ 46 (1995) (were the relied-upon tender is an offer by
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the guarantor to perform a task rather than merely pay money the guarantor is discharged only to the extent that the guaranteed’s refusal both is unreasonable and causes a loss).
Maine Yankee informed SWEC that is was terminating the Agreement for cause on May 4, 2000. A few weeks later it sent a letter to SWINC and SWE&C demanding that the parent guarantors “honor their obligations to Maine Yankee under the two Parent Guarantees.” On May 31, 2000, Maine Yankee received a letter signed by Kane. The letter stated that the Guarantors “can neither admit nor deny liability for any ‘damages and costs’ arising from the termination,” but states that they “are ready, willing, and able to complete the obligations of the Contract Agreement, and ... hereby tender their performance to complete the work of the Guaranteed.” The letter closes by stating that “if this is not acceptable to Maine Yankee, the Guarantors consider themselves discharged from any further obligations under the Parent Guarantees.” Maine Yankee did not accept this tender and disputes whether the May 31, 2000 letter was a tender at all.
Maine Yankee contends that the Debtors failed to prove that Maine Yankee’s refusal of the tender was unreasonable, that it caused a loss, or that a tender was even made. First Maine Yankee questions the tender itself. It notes that the signatory to the May 30, 2000 letter sent to Maine Yankee purporting to tender performance was Jerome Kane, who was not authorized to bind SWINC. Next, Maine Yankee argues that the tender itself was ambiguous as to what exactly SWINC and SWE&C would do, and did not tender performance under the Decommissioning Agreement. While the letter indicates that the guarantors would complete the work, it did not state it would do so under the terms of the Decommissioning Agreement. The testimony of Kane and Carroll indicate that the Debtors contemplated that they would either continue to perform under the Interim Services Agreement or assign the agreement, through the bankruptcy process, to another firm such as Shaw or Jacobs. Last, Maine Yankee contends that even if a valid tender were made, it was reasonable to reject the tender, given that SWINC and SWE&C were themselves on the brink of bankruptcy.
The Debtors advance a number of reasons why they believe that Maine Yankee’s rejection of the parent guarantor’s tender was unreasonable. They first note that the tender of performance was clear. Kane had authority to bind the companies as an officer of SWE&C and was told by the companies’ legal counsel to send the tender. Next, they note that the tender was given under the Decommissioning Agreement, and it was thus unambiguous that the tender of performance was under that Agreement and not the Interim Services Agreement. Debtors point to Kane’s testimony indicating that “he would have preferred to go forward with the [Decommissioning Agreement]” rather than “perform under the self-contained self-sufficient model of the [Interim Services Agreement].”
Maine Yankee asserts that it is unclear from the performance tender whether Kane was authorized to tender performance of the Agreement and whether the letter indeed offers to perform under the Decommissioning Agreement. The court is not convinced, that based on these arguments alone, Maine Yankee could disregard the letter. If it had reason to consider the tender seriously, Maine Yankee could easily have ascertained whether Kane had the authority to bind the guarantors and what exactly his letter was offering. That said, despite Kane’s expressed
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“preference” to continue under the Decommissioning Agreement it is unclear to the court that the Debtors were financially able to do so. But given the circumstances, these arguments are academic. Assuming that Kane’s letter did constitute a tender of performance, the court nonetheless finds that Maine Yankee did not unreasonably decline the tenders. Maine Yankee’s rejection of any tender from SWINC or SWE&C was eminently reasonable in light of the provisions of the Decommissioning Agreement and the Debtors financial situation at the time.
In order to assess whether Maine Yankee’s rejection of the tender was unreasonable, the court must examine the situation confronting Maine Yankee at that time, in late May 2000 and analyze the events that took place from Maine Yankee’s perspective. Before entering into the Decommissioning Agreement, Maine Yankee conducted a careful bid selection process to choose a qualified contractor to do the decommissioning. Norton explained the many valid reasons a it wanted to have a financial strong contractor in charge of decommissioning its nuclear power plant. At the end of April, SWINC itself publicly announced that it would be restating its financials, selling its assets, and seeking bankruptcy protection. SWEC failed soon thereafter, as SWEC and SWINC managed their cash flow together. At the end of May, SWINC sent Maine Yankee its “tender,” stating that it could and would “complete the work of the Guaranteed.” When it received that letter, Maine Yankee knew that SWINC was contemplating bankruptcy, a condition that in and of itself was a breach of the very Decommissioning Agreement that SWINC was saying it would perform. Two days after it sent the letter, the Stone & Webster companies filed for bankruptcy.
As the court noted in its November 21 opinion, the filing of bankruptcy just days after the tender made it “unclear whether either SWINC or SWE&C could have satisfied their guarantor obligations and successfully mitigate Maine Yankee’s damages ....” From Maine Yankee’s perspective, it was more than fair to conclude that the letter from Kane was a hollow offer for performance that could not be taken seriously, given that being in bankruptcy was itself a breach of the Decommissioning Agreement.
Maine Yankee’s termination of the Agreement was itself largely motivated by SWEC’s insolvency and the desire to avoid the bankruptcy process. Based on the terms of the Decommissioning Agreement, Maine Yankee was within its rights to terminate SWEC for insolvency and was similarly within its rights to reject tenders made by its parents based on its assessment of those companies’ financial weakness and prospects of bankruptcy. Accordingly, the court will not require that Maine Yankee accept the tender of SWINC and SWE&C, companies that were in similarly poor financial condition, in order to mitigate damages or reserve their rights under the guarantees.
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c.
Did Maine Yankee Fail to Mitigate Damages By Unreasonably Rejecting Shaw’s Offer?
SWEC also argues that Maine Yankee failed to mitigate damages by declining Jim Bernhard’s offer, made on behalf of the Shaw Group, to take over the scope of the decommissioning agreement for $30 million above SWEC’s contract price.
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In essence, Debtors argue that Maine Yankee should have accepted Shaw’s offer and unreasonably failed to do so. Therefore, according to the Debtors, Maine Yankee’s damages should be limited to $30 million, which is less than the amount that Federal Insurance has agreed to pay to Maine Yankee on its bonds.
In opposition, Maine Yankee responds that Shaw never made a legal offer. Moreover, even if one assumes that an offer were made, Maine Yankee contends that Debtors have failed to prove that Maine Yankee was unreasonable in attempting to negotiate against that offer and in ultimately deciding to decline Bernhard’s proposal. Thus, Maine Yankee argues, its failure to consummate a satisfactory agreement with Shaw was not a failure to mitigate damages.
To constitute an “offer” a proposal must be sufficiently defined as to manifest a willingness to enter into a bargain, such that the offeree would understand that its assent to that bargain is invited and will conclude the bargain. Restatement of Contracts § 24; 1 Williston on Contracts §§ 4.4, 4.18;
see also Searles v. Trustees of St. Joseph’s College,
695 A.2d 1206, 1211 (Me.1997) (“it is necessary that the offer shall contain all the terms of the contract to be made”). Rather than characterize the Maine Yankee Shaw’s proposal as an “offer,” Maine Yankee characterizes the Shaw proposal as a “feeler” for a settlement agreement and a proposal for a new arrangement with Maine Yankee on different terms and conditions. Maine Yankee contends that Bernhard’s proposal was lacking, because it left as unspecified what changes there would be to the scope of the work from the scope of work that SWEC had agreed to perform under the Agreement. Moreover, Maine Yankee contends that the terms of Shaw’s proposal required a global resolution of all disputes between Maine Yankee, Federal, and the Stone & Webster companies, which Maine Yankee did not want to accept. Both of these aspects of the proposal had to be further negotiated and more fully defined.
The trial testimony and exhibits establish that Bernhard made a proposal to Meisner and Norton that involved Maine Yankee paying Shaw an additional $30 million over and above the unpaid amount to SWEC under the decommissioning project in exchange for Shaw completing the decommissioning project. The parties dispute, however, turns on (i) whether the Shaw proposal contemplated altering the scope of the work that Shaw would perform and altering the Agreement under which it would perform the Work, and (ii) whether the Shaw proposal was contingent on the Maine Yankee agreeing to waive any claims it may have had against the Stone & Webster companies and Federal Insurance. There was, to some degree, conflicting testimony on these matters.
The Debtors rely on the testimony of Bernhard, Meisner, and Kane to establish that Bernhard’s proposal was a clear offer, that it involved substantially the same scope of work that SWEC had agreed to perform, and that it was not contingent on
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Maine Yankee’s agreeing to waive its claims against SWEC and Federal. The Debtors point out that during his deposition, Bernhard was asked about the offer:
Q: Now, if at the conclusion of your communication that you have talked about with Meisner in July, 2000, Meisner had said, “Bernhard, I accept, we have an agreement,” what would you have understood to be the terms of that agreement?
A: We would go out do the contract, collect our receipt, and get an extra 30 million dollars.
Q: What contract?
A: The contract to do the work subject to the negotiation of some terms and conditions, the scope of the work. The only scope differential was one not that existed between us, Shaw and Maine Yankee. It was one that had existed already. Instead of arbitrating at the end whether concrete was in or out, we just wanted to clarify it right then.
Moreover, Debtors highlight that Meisner testified that Shaw “could take the work, you know, the old Stone & Webster scope of work, add around $30 million to do it and continue the project.” As for whether the proposal was conditioned on Maine Yankee’s waiver of its claims against Federal, Kane testified that Federal was not mentioned in the first phone call between Bernhard and Meisner. Debtors state that is further confirmed by Norton’s letter and his notes of the July 14 telephone call, neither of which indicates that a release of Federal was required.
Contrary to the Debtors’ assertions otherwise, Norton’s trial testimony and Bern-hard’s deposition testimony establish that Bernhard’s proposal did contemplate a global resolution of Maine Yankee’s dispute with Federal and SWEC. Bernhard stated that it was his understanding that “if we finished the job for 30 million dollars, there wouldn’t be any claims by Federal to Maine Yankee, there wouldn’t be any claims by the [Stone & Webster] estate to Maine Yankee, and there wouldn’t be any claims to Maine Yankee to both parts [sic].” This confirms that part of Bernhard’s objective was to settle any legal claims arising from the dispute under the Decommissioning Agreement. Norton’s letter to Barfield, which was drafted immediately after his conversation with Bernhard, also characterizes Bernhard’s proposal as one “to resolve various outstanding issues and disputes among SWEC, Maine Yankee, and Federal by having The Shaw Group complete the decommissioning of the Maine Yankee site....” Norton testified that throughout the negotiation process, he continued to understand that Maine Yankee’s term sheet was conditioned on Maine Yankee’s resolution of all claims between Maine Yankee, Federal, and SWEC.
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Given that to agree to the Shaw Group’s proposal, Maine Yankee would have had to waive its claims against SWEC and Federal (or settle those claims for less than Maine Yankee believed they were worth), it was not unreasonable of Maine Yankee to try to negotiate with Shaw to drop this requirement and to accept as much scope of work as possible. When this failed, it was not
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unreasonable of Maine Yankee to decide not to enter the agreement with Shaw at that time.
In addition, given the complexity of any agreement to decommission the Maine Yankee facility, Bernhard’s oral proposal was not well-defined enough to constitute an offer that Maine Yankee could be expected to accept immediately. The statement from Bernhard that Debtors rely upon to establish that the offer was clear, itself includes that caveat that the proposal was “subject to the negotiations of some terms and conditions.” It would unrealistic to presume that Maine Yankee would simply accept Bernhard’s telephone proposal without further negotiating the terms to get a complete understanding of the parameters of the deal. Given the level of detail and complexity involved in the decommissioning project, Maine Yankee’s course of conduct in affairs regarding the decommissioning project (i.e., the detailed bidding process, the Decommissioning Agreement itself, its careful contract management of SWEC, etc.) suggests that it would first take great care in exploring the parameters of the deal. In negotiating and discussing the deal, that is just what Maine Yankee did.
The court finds that Maine Yankee did not unreasonably decline any oral offer from Shaw, because the details of that proposal were not well defined enough to constitute an offer that Maine Yankee should have reasonably accepted and because doing so would require that Maine Yankee immediately drop or resolve its claims against Federal. Thus, even if the oral proposal were sufficiently detailed to constitute a legal offer, it would have been reasonable for Maine Yankee to discuss the deal in more detail.
Having determined that Maine Yankee did not unreasonably reject Bernhard’s oral proposal, the court will next focus on the subsequent negotiations between Maine Yankee and Shaw to determine whether it was unreasonable, based on those negotiations, for Maine Yankee not to have arrived at some agreement with Shaw to take over the decommissioning project. The record shows that Maine Yankee, through Norton’s correspondence to Barfield, promptly responded to Bern-hard’s proposal by immediately forwarding proposed terms and inviting further discussion. Their correspondence culminated in Barfield forwarding to Norton a term sheet, for negotiation purposes only.
Maine Yankee raises two reasons, why, from its perspective, it was reasonable not to accept the Shaw Group’s offer. First, as discussed above, their offer carried with it the requirement of a global settlement. Second, the Shaw Group did not want to take on the same scope of obligations that SWEC had undertaken in the Decommissioning Agreement. It is unclear to the court that Shaw Group ever offered or contemplated offering to take on all of obligations of the Decommissioning Agreement. To the contrary, Bernhard himself made clear, in his deposition, that the deal he was proposing was never one where Shaw would take on the “huge document” that was the Maine Yankee/SWEC contract. He stated that “our offer was not to take the same terms and conditions as previously negotiated by Stone & Webster and just substitute an additional price. That was not the offer-” Kane’s testimony confirmed this much. At a number of points during his deposition, Bernhard confirmed that the $30 million price did not cover the same scope of work as in the Decommissioning Agreement. Given Shaw’s unwillingness to accept the full scope of obligations under the Decommissioning Agreement and Maine Yankee’s requirement that it be able to manage the project in a detailed manner, it is not
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surprising that the parties never came to an agreement.
In evaluating how to proceed post-termination, Maine Yankee did not ignore the Shaw Group’s proposal. Nor did it unreasonably reject that proposal. Rather, the evidence shows that Maine Yankee entertained the Shaw Group’s proposal and attempted to negotiate a satisfactory agreement with Shaw, but ultimately concluded that Shaw’s requirement that it waive its potentially valuable claims against Federal and SWEC was too onerous. Nothing in the record indicates that this business decision was unreasonable.
Moreover, the court is not convinced that even the final Shaw proposal (as embodied in the written term sheet) contemplated taking on the same scope of work and obligations that SWEC had in its Decommissioning Agreement. That document indicates that Shaw wanted to shift the risk of regulatory delays as well as other costs onto Maine Yankee. The Shaw deal did not simply contemplate taking over the SWEC scope of work; it was a new agreement that allocated risks differently. For the reasons identified, deciding not to consummate a deal with Shaw was a reasonable business decision.
In sum, the court does not find that Maine Yankee’s failure to come to an agreement with Shaw was a failure on its part to mitigate damages. Maine Yankee’s subsequent actions confirm that it was simply trying to secure a contractor to handle the same scope of work for the best possible price. It determined that the best way to meet that goal is to engage in a re-bid process, by which it solicits bids from a number of contractors and chooses from among the competitive bids and its own self-performance bid. While Maine Yankee determined that accepting the Shaw Group’s proposal was not in its best interests, it invited the Shaw Group to particip

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/1547888. Public record. Not legal advice.