Exploding Pipeline (Construction) and Differing Site Conditions

We are witnessing an explosive growth of newly constructed pipelines to carry shale oil and natural gas.  This is a tremendous opportunity for contractors looking for new markets to grow revenue.  Because pipeline construction is happening in many areas for the first time in decades, for many contractors it is probably  the first time they have worked a pipeline construction project.  However, this is not the case for the owners of the pipelines.  They are seasoned pipeline construction veterans who have been building pipelines for years.  Their contracts reflect the battle scars of past disputes and shift as much risk as possible to the contractor.

Pipeline construction clearly involves a lot of digging.  Where there is digging, there is the unknown of what lies in and below what is being dug.  To address this risk, pipeline owners will include in their contract a differing site conditions clause.  Generally, these clauses disclaim any warranty or representation as to what you will encounter once you start excavation and shift the risk to the you if what you encounter is different than what the contract (or bid) documents represented you should expect to encounter.  When a differing site conditions clause like this appears in your contract, you cannot recover additional costs because you encountered conditions that you did not expect, like addition or different rock, soil, or (as the case below) existing pipeline crossings.   (This is not typically the case for projects performed for the federal government )

El Paso Field Services v. Mastec North America, involved the construction of an underground gas pipeline.  El Paso’s bid package showed only 280 “foreign crossings” (crossings of other existing pipelines along the proposed pipeline right of way) when there were actually 794.   Mastec sought compensation for the additional costs associated with encountering the 594 additional crossing.  The contract, however, contained several sections that broadly addressed differing site conditions and that shifted the risk entirely to Mastec causing the court to deny Mastec’s claim.

If pipeline construction is a new field for you, be aware of what your contract says about differing site conditions.

Philadelphia Based Gas Group Forms

A new trade organization called the Delaware Valley Marcellus Association has formed.  According to the Association’s web page

The Delaware Valley Marcellus Association acts as a new business conduit between gas development companies operating in the Marcellus Shale and the Philadelphia region’s rich trove of potential business partners. Founding members of the association include KPMG LLP,Duane Morris LLP, ModSpace, and Gregory FCA. The Association will foster a spirit of mutual collaboration that we believe will lead to business opportunities and added value for all.

The association will also serve as this region’s voice of reason, promoting responsible gas development and demonstrating the direct positive impact that responsible Marcellus development has on the economy here in the Delaware Valley.

The association will meet regularly to discuss business opportunities and to brainstorm initiatives that will promote responsible Marcellus Shale development. Marcellus Shale players from around the country will be invited to attend meetings and connect with Association members, and inform the group as to current issues in the industry. The group will actively educate the local market as to the financial and economic opportunities and serve as a positive voice in the Delaware Valley for responsible Marcellus Shale development.

Membership in the group is free for a limited time and the Association’s initial meeting will take place at the Union League on June 12, 2012 at 8 a.m.

Seems like more and more folks are realizing that the economic benefits of gas drilling cannot be ignored no matter where you are located.  From a contractor’s perspective, there are countless opportunities in this area and smart contractors will learn how their firms can work on projects related to gas drilling and pipeline construction as well as the construction of gas fired power plants.