Feb 6, 2018 5 min read

A North Dakota construction firm has filed legal documents in three states alleging that MarkWest Energy Partners and its subsidiaries failed to pay it more than $40 million for work it did on four projects for the operator of natural gas processing plants in Pennsylvania, Ohio and West Virginia.

According to documents filed by Bilfinger Westcon Inc. of Bismarck, N.D., it was retained by MarkWest and its subsidiaries between November 2014 and October 2015 to perform construction of natural gas processing projects at four sites. According to Westcon, the total original contract price owed to it for eight projects across the four sites was $105 million, with the largest contract at MarkWest’s Bluestone project in Butler County.

The company’s suits, which seek jury trials, claim it is owed more than $40 million by MarkWest and its subsidiaries. It also seeks punitive damages. Among the charges are breach of contract, fraud, tortious interference with contractual relations and civil conspiracy.

In its filing in Harrison County, Ohio, Westcon said MarkWest Utica failed to pay it $3 million for work it performed at its Cadiz III natural gas processing facility in Cadiz, Ohio.

“While MarkWest Utica unquestionably breached its contract with Westcon, defendants have also engaged in numerous outrageous, willful and malicious actions in order to avoid paying in full for the work performed by Westcon at the facility – and at facilities controlled by other subsidiaries of MarkWest – which in turn gives rise to punitive damages,” the brief states.

According to Westcon, at the Cadiz project, the two companies originally operated to expedite the construction schedule and the work under a process by which change orders to perform work out of the scope of the original contract were often deferred by the parties until the work was performed and then were promptly resolved with payment to Westcon, even though extra work was done without, or prior to, an executed change order.

Westcon claims it later learned through the discovery process in litigation related to two other Westcon-MarkWest projects – Bluestone in Butler County and Mobley in West Virginia – that the Cadiz project was the initial step in what it claims was a larger scheme involving MarkWest and several of its subsidiaries, which it refers to as a “Time & Materials Cap” scheme dating to the summer of 2014, before the Cadiz project began.

Westcon alleges that the company set out to hire contractors on capped price arrangements but then paid “a substantial amount of these outstanding change orders near the end of the Cadiz project … to induce contractors to perform additional work without commensurate compensation.”

According to the filings, the method of payment arrangements occurred at a time when the gas industry boom in the Marcellus was peaking and heading into a downturn. It also coincided with a period in which MarkWest was in negotiations to be acquired by Marathon Oil Corp. subsidiary MPLX LP.

“In its rush to get several potentially lucrative natural gas projects like Cadiz into operation as quickly as possible, Markwest launched this ‘T&M Cap’ model to protect itself and shift the risk from their rush-to-market negligent planning to unwitting contractors such as Westcon,” the filings state.

While acknowledging that MarkWest paid “a substantial amount” of the outstanding change orders toward the end of the Cadiz project, Westcon claims the method was used to induce it to perform work on other major projects for other subsidiaries.

“When MarkWest needed Westcon to undertake work on other subsidiaries’ projects, MarkWest Utica ultimately withheld payments after it had what it wanted – a completed project and commitments from Westcon on three other projects,” the company claims.

It said MarkWest Utica refused to pay retainage at the end of the Cadiz project in September 2015, an amount totaling $1,142,548, and for two other change orders totaling about $1.8 million.

Westcon said that on other projects, in Pennsylvania, West Virginia and at Hopedale, Ohio, the MarkWest subsidiaries that owned the facilities also directed Westcon to perform out-of-scope work, and that Westcon, “relying on similar assurances of future payment, performed the work.”

Westcon claims the companies “did not intend to pay in full for the out-of-scope work and ultimately withheld tens of millions of dollars” from Westcon.

The contractor contends that across the four sites – Bluestone, Mobley, Cadiz and Hopedale – MarkWest caused the contractor compensatory damages in excess of $40 million.

It contended that out-of-scope work at Bluestone was extensive on a project that had a contract value of more than $47 million.

“For instance, the cryogenic processing facility project at Bluestone started with 705 construction documents. It ended with 966 documents with 984 total revisions,” Westcon said.

Westcon claims MarkWest failed or refused to pay any of the $26 million in retention and change orders submitted at Bluestone.

According to the filings, market conditions placed economic pressures on the upper management of MarkWest Midstream and MarkWest, “which resulted in its reluctance to expend additional funds for extra work on these projects.”

According to Westcon, around June and July 2015, at the time it was finishing work at Cadiz and MarkWest began experiencing start-up delays on the Mobley and Bluestone projects, MarkWest was negotiating and eventually agreed to be acquired by Marathon’s MPLX LP unit, and the parties entered into an agreement on July 11, 2015. According to Westcon, the merger agreement prohibited MarkWest and its subsidiaries from making non-emergency capital expenditures in excess of 110 percent of the aggregate capital expenditures contemplated by the company’s plans as of the date of the merger agreement.

Westcon asserts “MarkWest’s rush-to-operation plan for its natural gas facilities was hit with falling market demand and other market pressures which no longer justified its ‘build-quickly-and-at-all-costs’ strategy,” the brief states.

Westcon contends MarkWest concealed the fact it was liable for additional, undisclosed capital expenditures in connection with ongoing projects, in order to preserve its financial stake in the merger and an additional $400 million cash payment from MPLX.

Jamal Kheiry, communications manager for Marathon Petroleum Corp., said Tuesday the company does not comment on pending litigation.