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Long_Intl_Quantum_Damages_Product_Deficiency_or_Performance_Claims

VIEWS: 3 PAGES: 2

									International Experts in Claims Analysis,
Dispute Resolution, and Project Management                                                 L ONG INTERNATIONAL
for Process, Oil & Gas, Power, Industrial Plant,
and Building Construction




OVERVIEW                                            Long InternationalÕs                                       system, economic analysis can quantify the dollar effect
Product Deficiency or Defective Project             Integrated ApproachÉ                                       and strengthen the overall argument by evaluating and
Performance claims hit the “bottom line.” A         Projects are conceived to take advantage of an             eliminating other causes of the loss of the particular
business can not survive if it does not recover     opportunity or solve a problem. Plants or facilities       business sales or market. From an economic
cost and make a profit! When a construction         are planned to meet the needs of the market. Increased     perspective, the following issues need to be considered:
project is delayed, accelerated, the design is      energy, more efficient transportation, improved
                                                                                                                  • The profitability of the plaintiff on
changed, or other events take place that cause      pharmaceuticals, new consumer products, and other
                                                                                                                    similar past projects;
an overrun, the Contractor attempts to recoup       market needs create opportunities to develop a project,
                                                                                                                  • The size of the market for similar products;
all that it expended, or gave up, to complete       make an investment, build a facility, and operate it
                                                                                                                  • The experience and success of
the project. Likewise, the Owner can not pay        for decades.
                                                                                                                    competitors on similar bids;
more than a project “should cost.” Also, a          When events take place that cause the facility to be          • The impact of new technology on
higher than expected Owner’s cost of                delayed in its completion, operate less profitably, or          the market for similar projects;
production, facility rental, etc., will cause the   require abnormal maintenance, claims can result.              • The existence of qualified labor and
Owner’s business to be less profitable. A           Engineers study what caused the delay and what party            supervisors to perform the work; and
deficient product can result in lost sales. The                                          was responsible.         • The financial and/or bonding capacity
quantification and recovery of the correct                                               They may also              to add new work.
damages amount is critical.                                                              determine if
                                                                                                               Together with engineering causation analysis,
Product Deficiency or Defective Project                                                  the production
                                                                                                               technically sound accounting, financial, economic,
Performance claims are not labeled in the Job                                            design was
                                                                                                               and business analyses are required to establish causation
Cost Report or General Accounting Ledgers                                                flawed such
                                                                                                               and eliminate other potential causes of the damages
as “Lost Profits,” “Damages Due to Defective                                             that the product
                                                                                                               at issue. Long International’s joint engineering and
Work,” or “Abnormal Production Equipment                                                 manufactured
                                                                                                               financial/accounting/economic analyses build a strong
Maintenance Costs,” or other similar                                                     is different
                                                                                                               damages foundation that enables the development of
descriptors for such claims. The claims are                                              from what was
                                                                                                               appropriately measured/quantified damages.
determined by cause and effect engineering                                               specified. In
and economic analyses. Cause is based on                                                 both cases,           Leading to Supportable Results.
facts and relevant data often resulting from                                             financial             As described above, damages can arise due to
engineering and economic analysis. Reliable                                              professionals         deficiencies in a product. Whether the product is a
financial, accounting, and economic principles                                           can then answer       facility or an engineered system, damages may include
and methods, utilizing factual information                                               the question          the incremental revenues less costs that would have
regarding the performance or timing of                                                   of financial/         been earned, excluding a party’s actions or inactions,
delivery of the project or product, form the                                             economic impact.      e.g., lost-profits.
basis for damages conclusions. In these cases,      Supports the Foundation                                    Long International’s accounting and financial skills are
a claimant’s actual costs may or may not be         for Financial DamagesÉ                                     used in the analysis of damages to evaluate accounting
the appropriate basis to measure damages.           Product Deficiency or Defective Project Performance        and financial information in context of Generally
The measurement of damages involves                 claims are the result of economic analysis in context      Accepted Accounting Principles (GAAP). These
quantifying the amount of money required            of the facts and circumstances. For example, current       backgrounds enable our professionals to consider the
to put the Contractor, Owner, or other party        and future warranty costs, on-going abnormal               way in which management uses the underlying data
in as good a position as they would have been       maintenance expenses, lost profits, and regulatory fines   to prepare accounting/financial information, evaluate
had the contract been performed according           are damages that can occur because of product              the “costs” in cost estimates and “job cost reports,”
to the specifications, terms and conditions.        deficiency or defective project performance. These         and determine whether claims are for “real” costs
In effect, the damages expert must determine        economic damages may occur from defective                  incurred or based on “standard rates/scheduled costs.”
how the project would have been performed           construction, flawed design, delays in meeting end-        Finally, in the end when a claim is prepared or the
under the contract, and evaluate the impact         customer orders, and regulatory penalties, among           evaluation of a claim is put forth, these same accounting,
of non-performance on the outcome of the            other situations.                                          financial, economic, and engineering professionals
project and, sometimes, on the Owner’s                                                                         know how to present the results of their work in an
                                                    Long International’s identification of cause and the
business. The measurement of Product Defi-                                                                     understandable way to the decision-making audience.
                                                    linking of cause with effect can form the framework
ciency and/or Defective Project Performance         within which engineers and financial professionals         Whatever the case, the claim must be carefully analyzed
damages is complex, requiring careful causa-        work together to analyze damages. Additionally,            to determine that causation is solidly associated with
tion analysis from an engineering perspective       financial professionals may isolate the “cause” and        the effect, and that the damages are properly measured.
combined with issues of business operations,        engineers can confirm that the cause does not result       Long International’s experienced engineers and financial
economics, and accounting.                          from some other problem.                                   professionals provide an integrated approach for
Long International provides a combined                                                                         superior claim analysis.
                                                    For example, when the loss of business results from
approach to damages quantification, integrating     product deficiencies that engineering analysis deter-      While often complex, such economic damages often
its engineering, accounting, and financial          mines is the result of faulty construction of new          are significantly greater than the underlying
professionals.                                      technological designs of a temperature control conveyer    construction claim!
                                                    Projects are conceived to take advantage of an                  increased production cost, increased cost to sell,
                                                    opportunity or solve a problem. The decision to                 additional material handling cost during production,
                                                    make an investment is made. A facility is planned,              increased warranty costs, or even lost sales.
                                                    and contracts to develop and build the project are
                                                                                                                    Finally, the combining of financial, business, and
                                                    let. The business is intended to return a targeted
                                                                                                                    engineering perspectives also is important in
                                                    profit and operate for decades. That is the Project
                                                                                                                    developing and evaluating whether damages are
                                                    Life Path.
                                                                                                                    compensable even when “consequential damages”
                                                                                                                    are excluded in the contract. Specifically, our
                                                    The Project Life Path
                                                                                                                    combined analysis can evaluate whether the damages
                                                    The Project Life Path may not be a smooth journey.              follow as a necessary consequence of the contract
                                                                                                                    breach…or are “foreseeable.”
                                                    The journey may include production that does
                                                    not meet the specifications that were originally                In that regard, our engineers can help assess whether
                                                    set, i.e., production that results from a flawed                increased maintenance effort, for example, would
                                                    specification that was developed by the design                  necessarily flow from a given design flaw. Our
                                                    engineer working from a proprietary process of                  financial/accounting professionals can, likewise,
                                                    the “engineering firm.”                                         opine whether the types of costs that are claimed
                                                                                                                    are costs that necessarily result from the extra
                                                    The journey may include the defective construction
                                                                                                                    maintenance efforts claimed. Legal counsel may
                                                    of pneumatic production casting systems, resulting
                                                                                                                    then argue that “foreseeable” damages should not
                                                    in decreased product throughput.
                                                                                                                    be excluded as consequential damages.
                                                    Or, the construction project may be delivered one-
                                                                                                                    Damages are often claimed for economic losses
                                                    year late.
 j0316919.jpg                                                                                                       beyond the increase in the cost to construct. While
                                                    Long International has the engineering, accounting,             damages that are more than “increased cost to
                                                    financial, and economic professionals to evaluate               construct” may be harder to identify and are generally
                                                    the Owner’s claims of product deficiencies and                  not captured in the Contractor’s or Owner’s books
                                                    defective project performance. Claims deriving from             and records as “claimable costs,” they may be
The Project Life Path of                            deficient production and defective construction,                significant and, in the end, determine whether the
                                                    among other causes, requires expert engineering                 project is financially successful. Long International’s
                                                    analysis to establish technical cause and effect. With          integrated engineering and financial approach to
some construction projects                          the technical cause and effect foundation established           construction claim analysis is critical to a complete
                                                    by engineers, the financial and economic analysis               analysis of compensable Product Deficiency or
is not always a smooth                              can address the financial impact, whether that is               Defective Project Performance claims.


journey.
                                                  START        SPECIFICATION            LATE              DEFECTIVE                   OWNER               OFF-SPEC
                                                                 PROBLEM              DELIVERY          CONSTRUCTION              INTERFERENCE            PRODUCT




                                                    THE PROJECT LIFE PATH SCHEMATIC                                                                          COMPLETION

      L ONG INTERNATIONAL
           Long International, Inc. • 10029 Whistling Elk Dr. • Littleton, CO 80127-6109   •   (303) 972-2443   •   Fax: (303) 972-6980   •   www.long-intl.com

								
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