Situation

Getting ripped by a bad contract

SteamCo was the majority owner of a co-owned power plant that produced steam. Steam was being purchased by the partner based on a long-standing cost sharing contract. SteamCo felt the current contract no longer reflected current practices and did not capture the full value of steam sold internally to partner.

Synaptic Decisions was asked to assist in upcoming re-negotiation of contract with partner to redefine terms of the contract to an industry standard and recover the full value of the steam being sold.

Approach

Looking at the data

Our approach was to:

  • Model the true steam production cost based on the tested fuel efficiency
  • Analyze historical billing to determine the magnitude of value leakage
  • Recommend changes in the contract terms and contract compliance policy to fully capture the value of the steam being sold

Insights & Recommendations

Under-billing by overestimating

Analysis revealed that partner had benefited from an over-estimate in the fuel efficiency to make steam and had been under-billed since contract’s inception. Furthermore, as fuel prices rose, the magnitude of under-billing increased.

Image

Results

Reconcile the past and change the future

  • Recaptured $8 MM in past under-billings
  • Recommended changes in contract terms & conditions and contract compliance policy to prevent future value leakage