Court Ruling on Pipeline Dispute Warns Contractors Against Using Work Stoppages to Gain the Upper Hand in Negotiations

Court Ruling on Pipeline Dispute Warns Contractors Against Using Work Stoppages to Gain the Upper Hand in Negotiations
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A Texas court set an important precedent for contract law recently when it held that U.S. Pipeline, Inc. was responsible for ignoring its contract and abandoning a job to protest a dispute.

U.S. Pipeline was contracted to construct a portion of Energy Transfer LP’s Rover Pipeline. The natural gas pipeline, which was completed in 2018, runs 713 miles from the Ohio/West Virginia border to Michigan.

According to court filings and legal analysis, much of the dispute between the two parties revolved around which company was to pay to fix a botched restoration project that resulted in a series of small landslides or “slips.” Tensions further escalated when U.S. Pipeline wanted to recategorize and increase the charges for work that had already been invoiced by U.S. Pipeline and paid for by Energy Transfer.

Both matters were already clearly addressed within the existing contract, which was specific and carefully defined. In fact, the contract between U.S. Pipeline and Energy Transfer was negotiated and fine-tuned over the course of two years.

While the project continued, the two companies engaged in dispute resolution to resolve their differences, but they failed to come to terms on a solution.

At one point, Energy Transfer offered U.S. Pipeline $55 million to set the issues aside and complete the work. U.S. Pipeline rejected the offer and instead decided to pack up, go home and sue Energy Transfer.

The company’s mic-drop backfired.

U.S. Pipeline was awarded a small fraction of the more than $100 million the company sought in damages, additionally, the court ordered that U.S. Pipeline pay Energy Transfer’s attorneys’ fees and court costs.

The Houston-based state District Court’s decision indicated that U.S. Pipeline’s walkout came across as more of a case of ignoring the terms of the contract and choosing to hold its labor for ransom, rather than a good faith effort to solve a problem.

Further, the case established that walking off a job should be the last resort for a contractor, rather than a tactic to protest an agreed-upon contract or a scheme to unfairly extract money from a project owner.

While the decision is a victory for Energy Transfer, it has much wider ramifications. It affirms the notion that contracts are the ultimate authority during a dispute. The case also serves as a warning to contractors that work stoppages or walking off the job should be avoided when possible.  

The case highlights the importance of the contract negotiation process, as well as the consequences of failing to properly understand the contents of the contract once the document is signed.

U.S. Pipeline’s lawyers and upper management apparently did not anticipate issues that could arise during the project. The company also clearly failed to understand, or refused to accept, its responsibility related to a number of issues clearly covered within the contract.

As a result, the outcome of the case reads like a guide of “what not to do” when it comes to creating and abiding by a contract.

Perhaps most importantly of all, the court decision will force contractors to carefully consider the ramifications of walking off a jobsite during a dispute.

Before engaging in a work stoppage, contractors must take into account the wording of their contract, as well as state and federal laws related to the abandonment of work.

While contractors may view stopping work as a way to create leverage during a dispute, it is often a losing proposition. The potential legal ramifications of a work stoppage, alongside the multitude of other options available for resolving disputes, should encourage contractors to avoid abandoning a worksite. And the outcome of this case will only make it less likely that any benefit will come of a contractor walking off a worksite.

U.S. Pipeline’s devastating fiasco, in which the company paid a hefty price for flouting its contract then rejecting an eight-figure settlement, should serve as a cautionary tale for other companies considering work stoppages and abandonment.

 

Drew Johnson is a government watchdog and energy policy expert who serves as a Senior Fellow at the National Center for Public Policy Research.



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