Sinclair & Winston Mr. Carter, vice president of supply for Moren Corpora- Mr. Carter was anxious to assure early safe operation of tion, had just received a legal opinion from Sinclair & the line. He was not sure on how to proceed with recovery Winston regarding the cross arm failure on a new power of additional costs since three different suppliers had par- line. Moren had run into major problems during the ticipated in the project. erection phase of the new ornamental tubular poles, andCROSS ARM PROBLEMS At the time of the cross arm failure, it was not clear what caused the problem. Only after extensive engineer- ing tests that lasted almost three months was the prime cause found. Had the conductors been strung immediately or had the insulators been installed, as had been normal practice in all other tubular steel pole erections in this country, failure of the arms within a month of installation would not have occurred. However, the tests also showed that a long-term failure would occur because of galloping of the lines. Mr. Carter had advised all three suppliers involved of the difficulties as soon as they arose. All three expressed concern and all claimed their part of the job could not have been responsible and that all work had been done to specifications. All offered their assistance and gave a number of suggestions throughout the research phase. All of the work on the lines was halted until the reason for the failure was clear. Once the real cause was found, engineering was able to make recommendations for repair and strengthening that would prevent recurrence of the same difficulties (see Exhibit 1). Purchasing had obtained preliminary estimates showing an additional cost of about $5.4 million. SINCLAIR & WINSTON Mr. Carter had written a letter to Moren's legal firm, Sinclair & Winston, summarizing the situation to date. Sinclair & Winston met with Mr. Carter five days later and confirmed their statements in this meeting by letter the following day (see Exhibit 2). Twenty-six months had passed since the beginning of the three-year project (see Exhibit 3). Moren Corporation was facing tremendous demand pressures for more power and simultaneously had not received particularly favor- able treatment with rate increase requests. Mr. Carter was not sure where the extra funds to repair the cross arms would come from. The very high demand for capital in the corporation made it imperative that every avenue be explored to recover the extra costs to be incurred on the line. Workers had expressed fear about working near and with the poles. Since on-time completion and safety were also both of the highest priority, Mr. Carter wondered what action to take next. EXHIBIT 1 Moren Corporation, Transmission Engineering Department Re: Replacement of Henry Nelson Company345 kV Cross ArmsAddisonSmitheldMesa Valley It is required that all the groundwire and conductor cross arms on the line be removed and replaced with modied or new cross arms. It is the purpose of this correspondence to review the problems that have occurred and to outline a specific specication for the handling of these damaged cross arms. We will also continue the procedures for the installation of new cross arms on poles already erected and on new poles that have not been erected. Through an extensive engineering research program, it was determined that the existing Nelson Company cross arms have low fatigue properties. First, the existing cross arm will fail by low velocity wind induced (aeolian) vibration, which can cause a fatigue failure in less than a month. Second, the cross arm can fail by fatigue over a period of approximately 15 years by the continuing reversal of stresses due to the galloping of the conductors. The problem of aeolian vibration can be resolved by the use of dampening devices mounted on the ends of the cross arms. Examples would be the use of insulator strings on the conductor cross arms and stockbridge dampers on the groundwire cross arms. The problem of designing for galloping requires the reduction of the stress level at the weldment ofthe cross arm shaft to the cross arm base plate. This can be accomplished by the use of stiffener bars on existing cross arms that have been fabricated but not erected. it can be accomplished on the damaged arms by the use of new thicker baseplates for the conductor cross arms. On new cross arms to be fabricated, there will be some of both of the types previously described. Summary of estimates Damaged arm repair: 1,310-Structures Canadian $1,492,504 Nondamaged arm repair: 1,245-Structures Canadian 929, 176 3,007-Hendy Nelson 1,256,860 Contractor-remove and replace 1,280,000 Research costs 400,000 Total $5,358,540EXHIBIT 2 Sinclair 3: Winston Attorneys and Counselors Mr. John Carter Vice President of Supply Moren Corporation Dear Mr. Carter: Re: 345 kv' Transmission Pole Failures This is to conrm our opinion as expressed at the meeting held in your ofce on Monday. fits you will recall, two basic legal matters were discussed, to wit the possible bases ofliability of the three parties involved and whether the company would jeopardize its rights by proceeding to repair the poles without first consulting any of those parties. Concerning the letter, if the company is entitled to recover from anyone, it can reasonably expect to recover the cost of correcting the problem. The cost of doing so must be reasonable, and the repair must also be reasonably likely to correct the problem. In other words. you cannot recover for a "gold plating" job, nor can you recover the cost of a repair that does not correct the problem. This right to recover is not aected by a failure to negotiate in advance with any party against which a claim might be made. If. however, any such party is consulted in advance of the commencement ofa repair program and is given a chance to participate in determining the repair to be used, the chances of later being required to defend either the necessity of that repair or its cost would be greatly reduced. With respect to the liabilities of each party, the contracts and related documents have been reviewed in detail on the basis ofthe company's ndings that the cause of the damage to the pole arms was wind vibra tion, which can be substantially avoided by dampening the arms with conductors, rather than letting the bare arms stand. As stated at the meeting, the bases for potential liability of each party can be set out. and the company can then assess the value ofeach on the basis of the known facts. McTaggart Construction Company performed its services pursuant to a detailed contract that covered the work to be done but did not provide any specic rights or remedies for a situation like the one now faced. In order to recover from McTaggart, whether on a theory of breach of contract or of negligence, it will be necessary to show that in erecting the poles, McTaggart did not exercise the degree of care, skill, and diligence that a reasonably competent contractor, purporting to be able to erect poles and lines, would have exercised. The McTaggart contract does not, in our opinion, impose any burden on McTaggart for engineering or design adequacy. its for Henry Nelson Company. their contract consists of a purchase order with detailed specifications attached thereto. There are no commercial terms, such as warranties, in the contract that relate directly to the arm failure problem. There are, however, four {4) possible bases oflia bility, which are i. Faulty design.'This would require that Nelson be shown to have had general design responsibility and that the current problem is a result offaulty design. The principal problem in this area is that the contract appears to give Nelson the burden of designing to Pettigrew associates" specications only. 2. Breach afwarranty: If Nelson had reason to know the use to which the poles would be put and to know that l'vloren was relying on Nelson's skills and ability to produce a product t for that purpose, then there would be in the contract an implied warranty that the poles would be fit for the purpose for which they were intended to be used. The primary weakness here is that the poles may well be t for their ultimate intended use, and it would be necessary to show that Nelson knew or had reason to know that the poles would be erected and left standing without conductors 3. Failure to detail assembly procedures: Section 14 of the Pettigrew specication indicates in part that \"the Vendor shall provide sketches indicating assembly procedures and the most desirable attach- ment points for raising the structures.\" With the benefit of hindsight, it can be argued that this includes the responsibility to direct that the arms be hung with conductors, although there seems to be general agreement that this is not necessarily what 14 was intended to cover. 4. Failure to campy with the National Electrical Safety Code: Twentyfour of the Pettigrew specications reduire compliance with the NESC, and it appears that here may be some basis for asserting that Nelson did not comply. This depends, as I understand it, largely upon whether the relevant section of the NESC can be construed as covering poles erected without conductors. Finally, as regards Pettigrew Associates, the company has a contract pursuant to which Pettigrew is selected ". . .to perform the engineering and design services in connection with {the} Addison- Smitheldlvlesa Valley 345 k'vr Transmission Line Project." Article 1 provides that Pettigrew will . . furnish complete project administration for coordinating and expediting the Work" and is to perform services . . of the highest professional character. . with Pettigrew being . . fully responsible to Maren for the correctness of the engineering design and related data . . which included pole design. In addition, Pettigrew evaluated all bids, including designs offered, and recommended the award to Henry Nelson. If it can be shown either that the engineering design and related data were not correct or were not of the highest professional quality, then the company should have a sound cause of action against Pettigrew. I might add that the term "incorrect" can readily be construed to include omissions. As for the professional quality ground, it would be necessary to introduce expert testimony or evidence, or both, to establish that a top-duality engineer would have at least considered the wind vibration problem. Depending on the facts that you are able to establish, the company may have a cause of action against one or more of the parties involved. We would be pleased to assist you further, should you so request, in progressing any claim the company may wish to make. EXHIBIT 3 Moren Corporation Timetable for the New Addison-Smithfield-Mesa Valley Power Line Year 1 March Management approves use of ornamental tubular steel poles for the 140-mile line. April-July Preliminary work and search for engineering consultant. August Pettigrew Associates selected as consulting engineers to prepare pole specifica- tions, line layout, and assist in selection of manufacturer and erection. Year 2 March Pettigrew Associates submit pole specification and line layout. April-July Engineering and purchasing evaluation of manufacturing of poles for the first half of the line. July Henry Nelson selected as the pole manufacturer. June-September Engineering and purchasing evaluation of foundation and erection contractors. September McTaggart Construction chosen for both foundation and erection of the new line. October Delivery of test poles by Henry Nelson. Tests prove poles meet specifications. January Installation starts. New poles draw favorable employee and public attention. February 20 Henry Nelson completes manufacture of poles for Addison-Smithfield section. February 24 First cross arm failure noted. Purchasing notifies all three suppliers. All deny blame February 26 All project work halted. Year 3 March-April Continuing pole cross arm failures. Engineering searches for causes. May 11 Engineering determines reason for failure. May 25 Purchasing determines repair costs. May 25 Mr. Carter sends memo to Sinclair & Winston for a legal opinion. May 30 Sinclair & Winston representatives meet with Mr. Carter. May 31 Letter from W. N. Sinclair confirming legal opinion. Year 4 April 30 Project deadline