Fluor shareholder sues execs, directors, alleging low bids cost firm billions

Dive Brief:

Alyson Bottoni, an investor in construction and engineering giant Fluor Corp., is suing the company's executives and directors for allegedly hiding Fluor bidding practices that resulted in billions of dollars of losses. The charges leveled by Bottoni against the defendants include violation of securities law, breach of fiduciary duty, waste of corporate assets and unjust enrichment.
Bottoni claims that from 2012 to at least 2018, the executives and directors named in the suit let Fluor "systematically" submit fixed-price, low-ball bids in order to win projects and qualify for bonuses.
The lawsuit alleges that the defendants made several statements to hide this practice, including saying that the company's projects were "in line with expectations" because of bidding practices they characterized as conservative and selective; that the company had effective internal controls and financial reporting; and that its earnings as reported complied with generally accepted accounting principles. Further, Bottoni alleges, when the company took charges on losing projects, the defendants hid from stockholders the extent of its bidding issues.

Dive Insight:

The lawsuit seeks several items, including:

Damages on behalf of the company for losses as a result of the defendants' actions.
Reforms to the way Fluor does business, including more oversight of the bidding and estimating processes.
Stronger financial and accounting controls.
Greater stockholder input into company policies.
A new rule that would allow stockholders to nominate three board members.

When asked for the company's reaction to the lawsuit, Fluor spokesman Brian Mershon told Construction Dive that the company does not provide information on ongoing litigation or court cases.

This type of action is known as a derivative lawsuit, which, said attorney Michael Rune, shareholder at law firm Carlton Fields LLP, is a fairly commonly used mechanism that allows someone with an interest in a company, like a shareholder, to bring a claim against the company itself on behalf of the company.

"If you're a shareholder of a company and you think management is mismanaging the company or has done something improper ... you can bring a suit against your own company to try and correct a wrong," he said.

Without knowing the details of the case, Rune said, he finds it hard to believe that the whole company, keeping in mind the many projects Fluor bids on, has a policy of low-bidding everything. "It doesn't make any sense to me," he said.

Fluor's stock price plummeted by 80% from its January 2014 high of $83.65 per share to its December 2019 low of $16.10 per share, the suit notes. This year, the stock price fell even further, to $3.40 per share on March 18, "representing an evaporation of 95%, or $13.1 billion in Fluor's market capitalization since January 2014," the lawsuit reads.

Despite the company's struggles, the executives who are the defendants in the case reaped millions of dollars in bonuses, directors' fees and stock sales, the lawsuit claims.

One of the focus areas of the lawsuit is the company's power and other large plant business. In September of 2018, Fluor was among companies that warned the developers of large LNG projects that they needed to be more realistic in their cost and delivery expectations.

David Seaton, former Fluor CEO, said that some developers large plants are unrealistic about what it costs to build them in the U.S., while Alasdair Cathcart, president of Bechtel's oil, gas and chemicals business, said that using low bids for these projects was not a wise decision and that contractors and developers should collaborate to achieve "the best possible cost, the best possible schedule and the best possible certainty of outcome."

The lawsuit follows on the heels of a Securities and Exchange Commission announcement that it is investigating Fluor in relation to charge-offs that the company took in the second quarter of 2019. Because of the investigation, the company's 2019 annual report has been delayed. Fluor reported a net loss of $782 million in the third quarter of 2019, an $850 million drop from the third quarter of 2018.