CONTACTS 
0201 - Dep Natrl Rscrs & Consvn           406 444 6699 fax 6721
020101 - Ms. Karen Barclay; Director
020102 - Mr. Wayne Wetzel
020103 - Mr. Gary Fritz; Administrator =406 444 6605; Water Resources Bureau
020104 - Mr. Walt Anderson; Hydro Power Section Supervisor =406 444 6659
020105 - Engineering Bureau  fax 406 444 0533
020106 - Ms. Sarah Ann Bond, Esquire
020107 - Department Counsel =406 444 6660; Legal Division

SUBJECTS
Voith Contract Closeout
Engineering Management,
Termination notice, 911119
Communication Manager Planning Test Analyse

0806 -    ..
0807 - Summary/Objective
0808 -
080801 - The Director decided to notify Tudor that it has defaulted on
080802 - its Agreement and will be terminated for cause on December 4, 1991, if
080803 - it does not cure the default.
080804 -
080805 - A second meeting will occur in the afternoon on hiring a replacement.
080806 -
080807 -
080808 -
080809 -
080810 -  ..
0809 -
0810 -
0811 - Discussion
0812 -
081201 - The Department's position on terminating Tudor was reviewed.  Major
081202 - points of consideration were....
081203 -
081204 -  ..
081205 -
081206 -     1.  Grounds to fire Tudor -
081207 -
081208 -         On 911118 reviewed problem that the Engineer failed to require
081209 -         Voith to perform submittal requirements, and was not excused
081210 -         from performing its duty of notice by the State. ref SDS 5
081211 -         9052  This seems to present a breech of trust that cannot be
081212 -         repaired, and so requires hiring a replacement Engineer, as
081213 -         further discussed on 911118. ref SDS 5 ZL4J
081214 -         ..
081215 -         Fundamental Issues...
081216 -
081217 -         If Tudor is not terminated what are the consequences of DNRC
081218 -         carrying on as it has?
081219 -
081220 -             It was represented to the Director that:
081221 -
081222 -             Knowing that Tudor refuses to perform, DNRC may be in
081223 -             breach of its contract with Voith if it fails to terminate
081224 -             Tudor and hire an Engineer to perform the duties of the
081225 -             "Engineer" defined in the Voith contract which specifies
081226 -             Tudor and further indicates a professional entity will
081227 -             represent the Owner to the contractor.
081228 -
081229 -             The Work to complete the Voith contract requires the
081230 -             services of a professional Engineer as set out in the
081231 -             Agreement with Tudor which Tudor is now refusing to
081232 -             perform.
081233 -                ..
081234 -             DNRC requires and the contractor is entitled to the
081235 -             impar- tial opinion of a professional Engineer to
081236 -             determine pend- ing claims and other matters in order to
081237 -             closeout the pro- ject, as set out in the contract between
081238 -             Voith and DNRC.
081239 -
081240 -
081241 -          ..
081242 -         Do facts require or merely permit DNRC to terminate Tudor?
081243 -
081244 -         It was presented to the Director that...
081245 -
081246 -             Since Tudor failed to direct Voith to perform its work in
081247 -             accordance with the contract with the result that at least
081248 -             the speed increaser is now deemed not to comply with the
081249 -             contract by DNRC's experts, then Tudor may not be able to
081250 -             perform the engineering management tasks needed now be-
081251 -             cause to do so will establish its liability.  The tension
081252 -             this could cause between the duty to render impartial pro-
081253 -             fessional opinions and the desire to avoid financial loss,
081254 -             may render Tudor unable to carry out the current work, and
081255 -             therefore imprudent for DNRC to permit them to do so.
081256 -
081257 -                  ..
081258 -                 Examples
081259 -
081260 -                 The Engineer must direct Voith to submit shop drawings
081261 -                 on the speed increaser.  Tudor should have done this
081262 -                 in November of 1987 and thereafter, but did not do
081263 -                 so, ref OF 1 and 2.
081264 -
081265 -                 For it to do so now may be viewed as an admission of
081266 -                 error.  A finding that the shop drawings do not comply
081267 -                 with the contract would show the harm Tudor caused
081268 -                 DNRC and possibly Voith, and that Tudor's notice of
081269 -                 Full Operation Date and Substantial Completion Date
081270 -                 were issued in error to the detriment of DNRC.
081271 -                 ..
081272 -                 Tudor permitted Voith to substitute a "spur" for
081273 -                 a "double helical" gear design without complying with
081274 -                 the applicable contract provisions (GC 6.7.2 & 6.7.3).
081275 -
081276 -  ..
081277 -
081278 -                 Tudor's failure to perform the contract requirement
081279 -                 for establishing that the speed increaser was built
081280 -                 correctly, and the continued failures of various
081281 -                 systems, as manifested by the continually expanding
081282 -                 punch list, means that all Voith submittals must be
081283 -                 reviewed to determine how much of the remaining work,
081284 -                 if any, was properly approved by the Engineer.  The
081285 -                 performance of this task would directly show Tudor's
081286 -                 liability to DNRC for a potentially massive job of
081287 -                 re-work to meet the contract requirement.
081288 -
081289 -                 Thus, much of the Engineering Management work remain-
081290 -                 ing inherently entails developing evidence that may
081291 -                 result in Tudor's liability to DNRC and others.  Under
081292 -                 these circumstances it would be difficult for Tudor to
081293 -                 render impartial professional services for DNRC even
081294 -                 if competent engineers were assigned.
081295 -
081296 -
081297 -          ..
081298 -         Mitigation: Cost of Firing Tudor
081299 -
081300 -         The only basis to retain Tudor is for it to assign new
081301 -         personnel who were not involved in Tudor's prior errors.  If
081302 -         Tudor can demonstrate with competent evidence that it can do
081303 -         the work in a professional manner, then it would be much less
081304 -         expensive than hiring another Engineer.  The likelihood of
081305 -         this happening seems very remote, however the direct cost of
081306 -         hiring, mobilizing, and informing a new Engineer will be very
081307 -         significant.  The cost of the lost time may be even greater.
081308 -         Contract closeout of disputes with Voith may be further
081309 -         complicated by hiring a new Engineer.  DNRC will claim these
081310 -         costs against Tudor, however there is always a risk in any
081311 -         litigation regardless of the merits of the case.
081312 -
081313 -
081314 -          ..
081315 -         Detailed Discussion
081316 -
081317 -         a.  Summary
081318 -
081319 -             Sarah summarized the positions for firing Tudor immediate-
081320 -             ly and on giving additional notice for Tudor to cure its
081321 -             default, discussed under "Mitigation" above.
081322 -
081323 -             Sarah presented background causing DNRC's reasonable
081324 -             reliance on Tudor's expertise and representations begin-
081325 -             ning with the Definitive Project Report, its Agreement
081326 -             with DNRC for project management services, and how Tudor
081327 -             may have breached its duty to DNRC.
081328 -
081329 -  ..
081330 -
081331 -         b.  Background
081332 -         c.  Contract/Agreement provisions (see citations throughout)
081333 -         d.  Facts of breach
081334 -         e.  DNRC contributory fault/exposure
081335 -
081336 -             The Director inquired with respect to Tudor's defenses.
081337 -
081338 -             Tudor's November 18, 1991 letter was discussed as summar-
081339 -             izing Tudor's position that DNRC intends to sue Tudor,
081340 -             that DNRC has not told Tudor to perform, that DNRC has
081341 -             recently changed Tudor's duties, that DNRC has not com-
081342 -             plained about Tudor's personnel, that the speed increaser
081343 -             is warranty work, that work under its current Agreement is
081344 -             minor and should be done under a new Agreement in which
081345 -             Tudor is held harmless for its errors.
081346 -
081347 -  ..
081348 -
081349 -             The Department finds that Tudor's position is not support-
081350 -             ed by the record, that Tudor has been notified of DNRC's
081351 -             findings and has not furnished information to support its
081352 -             position or refute DNRC's findings. (see DNRC letter of
081353 -             November 12, 1991 ref DIP 4, and ref SDS 6).
081354 -
081355 -  ..
081356 -
081357 -         f.  DNRC's efforts to avoid/cure breach
081358 -
081359 -             Sarah explained DNRC's consistent efforts to encourage and
081360 -             demand that Tudor perform its Agreement (see for example
081361 -             ref SDS 2 - 3, and ref DIP 1 - 3).  Such efforts have been
081362 -             hindered by Tudor's failure to disclose an apparent uni-
081363 -             lateral and improper contract change it may have either
081364 -             permitted or conspired with Voith to avoid submitting
081365 -             speed increaser shop drawings and other contract require-
081366 -             ments under the rubric that contract "Manual requirements
081367 -             can be deferred and deleted..." (see also ref OF 1 for
081368 -             Pre-Award Meeting Minutes Sep 10, 1987, item #08: Clari-
081369 -             fication of Substitutions).
081370 -             ..
081371 -             Within the past few weeks the Department has found
081372 -             evi- dence supporting earlier suspicions that Tudor did
081373 -             not carry out the submittal and approval contract
081374 -             requirements (see ref OF 2 and DIP 7 & 8).
081375 -
081376 -  ..
081377 -
081378 -         g.  Mitigation
081379 -
081380 -             See para f above, and "Mitigation" above.
081381 -
081382 -             Walt asked about the propriety of soliciting proposals
081383 -             from other Engineers to take over Tudor's work before
081384 -             Tudor is fully terminated.  It was concluded that in light
081385 -             of Tudor's conduct DNRC must protect itself by immediately
081386 -             investigating the availability of other engineers in order
081387 -             to minimize the cost of delay should Tudor persist in its
081388 -             refusal to perform.
081389 -
081390 -  ..
081391 -
081392 -         h.  Applicable law
081393 -
081394 -             Sarah cited applicable cases which support recovery for
081395 -             DNRC against Tudor.
081396 -
081397 -             It was explained that DNRC is not required to give Tudor
081398 -             any further notice, but may terminate immediately.  The
081399 -             distinction between terminating a personal services
081400 -             Agreement and a construction contract like Voith's was
081401 -             explained.
081402 -
081403 -              ..
081404 -             Tudor's Job Record
081405 -
081406 -             A critical need upon termination will be to obtain the
081407 -             project documents Tudor created but which it must deliver
081408 -             to DNRC within 30 days of termination.  The termination
081409 -             letter will demand such documents.  Tudor may be uncooper-
081410 -             ative because the record may show Tudor's liability.  The
081411 -             Department needs to be prepared to issue notices that if
081412 -             critical information is absent from the record Tudor sub-
081413 -             mits, then the Department will assume it is not in the
081414 -             record and will object to its use by Tudor in any subse-
081415 -             quent legal action as a defense of Tudor's performance,
081416 -             and Tudor will be liable for the reasonable cost required
081417 -             to prepare such information by the new Engineer.
081418 -
081419 -  ..
081420 -
081421 -         i.  Exposure if Tudor is not terminated
081422 -
081423 -             Sarah explained that if Tudor is not terminated Voith may
081424 -             sue DNRC for failing to provide a competent professional
081425 -             Engineer (see Article 2 of Agreement between DNRC and
081426 -             Voith dated October 14, 1987).
081427 -
081428 -  ..
081429 -
081430 -         k.  Options
081431 -
081432 -             The Director considered:
081433 -
081434 -             1.  Take no action with respect to Tudor
081435 -             2.  Enter into a new Agreement with Tudor
081436 -             3.  Terminate Tudor immediately
081437 -             4.  Demand Tudor perform its Agreement or be fired by
081438 -                 Dec 4, 1991
081439 -
081440 -             See "Fundamental Issues" above for discussion.
081441 -
081442 -  ..
081443 -
081444 -         l.  Conclusion
081445 -
081446 -             The Department will advise Tudor it must submit a plan to
081447 -             carry out the remaining work of its Agreement, as set out
081448 -             above, by December 4, 1991 and if it does not do so, it
081449 -             will be terminated for cause.
081450 -
081451 -             DNRC will commence vigorous efforts to locate and hire a
081452 -             replacement Engineer so that if Tudor refuses to perform
081453 -             its agreement, a transition can occur as rapidly as pos-
081454 -             sible to avoid delay damages to all parties.
081455 -
081456 -             Discussions on this effort will occur in a follow up
081457 -             meeting in the afternoon.
081458 -
081459 -
081460 -          ..
081461 -         Outside opinions (Lamb)
081462 -
081463 -         The Director asked that the Department obtain written support
081464 -         from its outside consultant on this action.
081465 -
081466 -
081467 -     2.  Option paper on Voith
081468 -
081469 -         Owing to the time devoted to the Tudor matter, this issue
081470 -         which may present even greater difficulties, was not
081471 -         discussed, but will be taken up separately.
081472 -
081473 -         ..
081474 -     3.  CPM showing Broadwater closeout tasks (and assignments).
081475 -     
081476 -         The Deputy Director and DNRC's project manager will meet today
081477 -         to apply the decision taken today into the project CPM for
081478 -         evaluating DNRC's exposure and planning for hiring a new
081479 -         Engineer, per recommendations at ref SDS 1 line 123.
081480 -
081481 -            [See follow up at ref SDS 8 line 43.]
081482 -
081483 -  ..
081484 -
081485 -     4.  Engineering analysis of Tudor failures
081486 -
081487 -         a.  Report from Geartech showing Speed Increaser failure is
081488 -             pending.
081489 -
081490 -         b.  Report from Maritech on vibration problem is pending.
081491 -
081492 -         c.  Report from Welch on Contract review is in the record at
081493 -             ref OF 1 & 2
081494 -
081495 -  ..
081496 -
081497 -     5.  Procurement report on authority for hiring replacement
081498 -
081499 -         This was presented for further review this afternoon, ref DIP
081500 -         3.
081501 -         ..
081502 -     6.  DNRC organization structure
081503 -     
081504 -         Discussion of the impact on and need for organizational
081505 -         adjustments resulting from Tudor's refusal to carry out its
081506 -         job was deferred to the afternoon meeting. ref SDS 5 0900
081507 -
081508 -