LEXINGTON, Mass., Aug. 15, 2001 — Raytheon Company said today the cost to complete two Massachusetts power plants abandoned by Washington Group International (WGI) will be $633 million, net of cash receipts, well within the company’s previously announced range of liability.
The estimate is the result of an extensive review of the projects.
As reflected in its Form 10-Q filing with the Securities and Exchange Commission today, the company increased the pretax charge related to the two projects in the second quarter from $125 million to $308 million. The company also said its range of exposure on 15 other guaranteed construction projects — $49 million to $125 million — is consistent with its earlier disclosures.
“We are very confident in the findings of our review and in the plan for completing these projects,” said Phil Le Pore, the Raytheon executive responsible for the company’s engineering and construction operations. “This estimate represents the work plan against which the entire team will measure their performance.”
The development of the estimated cost to complete (ETC) for the Massachusetts projects involved an integrated program management team, staffed by Raytheon, Duke/Fluor Daniel and WGI. The ETC includes input from a number of advisors, including Duke/Fluor Daniel, WGI and Ernst & Young.
The company believes that, relative to the original schedule for the two projects, the construction schedule deteriorated by approximately six months due to WGI’s abandonment. The abandonment resulted in the release of vendors and subcontractors, the demobilization of the job sites and temporary reductions in labor productivity when work was restarted. Raytheon has staffed and scheduled the two projects to recover several months of the schedule slippage and this has been factored into the ETC.
Engineering for both facilities is virtually complete. At this point, the portion of the ETC related to materials is essentially fixed, since the majority of the required materials have already been sourced and priced. Substantially all major subcontracts have been committed. Craft staffing levels, consistent with the construction schedule, have already been achieved. Functional performance testing procedures have been optimized in cooperation with Sithe Energies. Therefore, risks or exposures in the ETC are largely related to craft labor productivity, and the potential impact of further construction delays on schedule damages that are provided for in the contracts with Sithe Energies. Relative to job site performance in the second quarter, construction productivity increased substantially in July.
The projects, an 800-megawatt power plant in Weymouth, Mass., and a 1,600-megawatt power plant in Everett, Mass., are scheduled for completion in 2002. Under the sale agreement for Raytheon’s former engineering and construction business, WGI is required to indemnify Raytheon for all amounts expended by Raytheon to complete the projects, and Raytheon is entitled to full cash reimbursement for these amounts and full recoupment or set-off rights against any WGI claims against Raytheon.
With headquarters in Lexington, Mass., Raytheon Company is a global technology leader in defense, government and commercial electronics, and business and special mission aircraft.