failure to comply with HVAC Chiller Maintenance Contract


Claim at Issue: 

This matter involves a claim by a railroad against a global HVAC manufacturer/contractor ("HVAC Vendor") in which the railroad sought the recovery of damages totaling $401,955.7. The railroad's agreement with the HVAC Vendor required it to maintain five centrifugal HVAC chillers in "peak operating condition." The chillers were necessary to provide climate control for the railroad's data center. Unfortunately, they were often not maintained as required and, at times, were completely inoperable.

Key Legal or Factual Issues: 

  • Whether the HVAC Vendor's poor maintenance caused the chillers to malfunction or if the equipment was at the outer edge of its expected life such that replacement would have been required regardless of the failure of the HVAC Vendor to properly service the units;
  • Whether the railroad properly mitigated its damages and provided an opportunity to the HVAC Vendor to cure, despite ultimately barring this vendor from the jobsite;
  • Whether the repairs performed by the company hired by the railroad to repair the chillers satisfied American Society of Heating, Refrigerating, and Air-Conditioning Engineers ("ASHRAE") standards; and
  • Whether the railroad's claims were time barred under applicable law.

Case Summary:

The railroad and HVAC Vendor entered into services contracts which required the HAVC vendor to provide "full maintenance" to five centrifugal chillers located in two railroad facilities. Because these facilities are critical to the railroad's operations, the contracts required the "guaranteed operation" of the chillers. Despite this requirement, the HVAC Vendor 1) failed to prepare a service plan for maintenance of the chillers, 2) failed to track the performance of the chillers over time, and thus had no personal knowledge of whether the chillers were operating at peak operating condition, and 3) failed to perform monthly inspections and timely repairs. The HVAC Vendor also used technicians who did not have the requisite experience.

The railroad terminated the HVAC Vendor and engaged another company to take the actions necessary to bring the five chillers into peak operating condition. The railroad paid the replacement vendor $401,955.75 to properly service the chillers. KCM was engaged to recover this payment. We initially engaged an expert who wrote the ASHRAE standards for chiller maintenance to conclusively demonstrate why the HVAC Vendor's performance was deficient from a technical standpoint. We developed evidence to show how those failures resulted in the chillers operating far below peak performance. We also worked to defeat a statute of limitations defense raised by the HVAC Vendor by applying the continuing breach doctrine.

The HVAC Vendor argued that some repairs were unnecessary because the parts replaced had not reached the end of their useful life. We argued that there is a significant risk associated with leaving a part that is already at the outer limit of its accepted tolerance in place, and that the cost of waiting for the component to fail before re-opening the chiller a second time would be substantially greater than resolving the issue at the time of the repairs.

These efforts resulted in the HVAC Vendor increasing its settlement offer by over 150%, and ultimately, a favorable settlement for the railroad.