Opinion ID: 617714
Heading Depth: 4
Heading Rank: 1

Heading: Agreement Between EMC and GAIC

Text: Neumann agreed that EMC should conduct spill man- agement for GAIC. EMC, thus, effectively contracted to provide its own spill management. EMC would raise the EMC 423 from the canal in order to salvage the ship, correct existing pollution, and avoid further contamination. Per Neumann’s approval, EMC hired SWS to conduct the salvage operation. Neumann and EMC agreed that EMC and SWS would bill GAIC at cost be- cause, as a contractor for GAIC, EMC could not make a profit from conducting spill management on behalf of its own insurer. EMC and SWS proposed to reduce their standard rates by 20% to reflect cost and eliminate profit. SWS would bill only for employee time and not charge separate hourly or daily rates to use machinery and equipment. Dennis Egan agreed not to charge at all for his personal time as salvage master, which he testified would normally cost $1,500 per day. 8 Nos. 11-1266 & 11-1346 GAIC agreed to pay 80% of EMC and SWS’s invoices pending review and approval to ensure that the invoices reflected their true costs. Notably, however, neither party expressly communicated to the other its definition of “cost.” EMC and SWS proceeded with the salvage operation, and the EMC 423 was raised with much of the petroleum still in it. They ultimately transported it to the SWS shipyard. GAIC, again through Meredith Management, retained Global Risk Solutions to review and audit EMC and SWS’s invoices. At least as early as April 2005, Global Risk Solutions expressed concern that it could not verify that EMC and SWS were billing at cost. It communicated to EMC and SWS, via their respective Secretary-Treasurer and Controller, Robin Chanda, that the financial statements submitted did not support the hourly rates they were charging GAIC. Global Risk Solutions informed them that it intended to analyze their costs from scratch. Accordingly, it asked EMC and SWS to recalculate the basis for their charges, including the number of hours of equipment use, Egan’s time, embedded expenses, and support for labor-related charges. EMC and SWS did not provide the requested informa- tion to Global Risk Solutions. In part, they did not do so because they were concerned that any recalculation of the charges would not capture their true costs: due to the terms of billing, they had not been tracking those Nos. 11-1266 & 11-1346 9 details. Although Global Risk Solutions estimated that EMC and SWS’s invoices might exceed their actual costs by at least several hundred thousand dollars, it never obtained sufficient information to establish EMC and SWS’s cost rates.