Construction Channel

Cases of the Month
Significant Cases and Decisions Impacting the Construction Industry

By:  Ira Genberg
 

December 2003

1.  Recovery of Eichleay Damages for Government-Caused Inefficiencies, Charles G. Williams Constr., Inc. v. White, 326 F.3d 1376 (Fed. Cir. 2003).

* What the Court Considered:  A government contractor completed a contract to improve and repair an Army medical center building 93 days after the contract’s extended completion date.  The contractor sought $98,642 for 330 days of extended/unabsorbed overhead based upon the contractor’s allegations that significant government interference with the contractor’s efficient performance established entitlement to Eichleay damages.  However, the contractor could not demonstrate that it was unable to perform work on the contract on any particular day. 

* What the Court Said:  Because the contractor was able to continue performing the contract, although not in the same way or as efficiently as it had anticipated, the contractor could not recover under the Eichleay formula for unabsorbed home office overhead.

* What the Opinion Means:  Eichleay damages are meant to compensate a contractor for its indirect costs that cannot be allocated to a particular contract for the period during which the government has made contractual performance impossible, while requiring the contractor to remain available to resume performance on short notice.  By contrast, if the contractor remains able to continue performing the contract, albeit in a different order than planned, the contractor is not on standby and cannot cover Eichleay damages.

2.  Disclaimer of “Design Assumptions” in Government Contract, Kiewit Constr. Co. v. United States, 56 Fed. Cl. 414 (Fed. Cl. 2003).

* What the Court Considered:  As part of a lock and dam building project, a government contractor was required to implement an extensive dewatering system.  The contract provided the government’s predrainage design assumptions that formed the basis for the design of the minimum dewatering system, but the contract made clear that the assumptions may or may not be completely valid and that the contractor retained sole responsibility for providing the necessary dewatering system.  The dewatering system failed to provide the expected result, and the contractor was required to excavate additional soil.  The contractor sought an equitable adjustment arising from an alleged Type I differing site condition.

* What the Court Said:  The design assumptions for the dewatering system were not affirmative representations by the government of subsurface conditions at the site.

* What the Opinion Means:  When a government contract expressly disclaims the accuracy of its design assumptions and states that the contractor retains sole responsibility for adequate work under the contract, such design assumptions are not affirmative representations upon which the contractor may reasonably rely for purposes of a differing site condition claim.

3.  Submission by E-Mail of Proposals for Government Contracts, Matter of: Integrated Business Solutions, Inc., 2003 WL 21659403 (Comp. Gen. 2003).

* What the Comptroller General Considered:  A bidder submitted a final proposal revision (FPR) to the National Science Foundation (NSF) for a government contract.  The NSF rejected the bidder’s FPR as late because, although the bidder submitted its FPR by e-mail prior to the submission deadline, the bidder submitted its paper FPR several hours after the submission deadline.

* What the Comptroller General Said:  The NSF properly rejected the bidder’s e-mailed FPR because the NSF’s solicitation did not expressly authorize electronic submissions.

* What the Opinion Means:  The NSF’s Request for Proposals (RFP) incorporated Federal Acquisition Regulation (FAR) 52.215-1, which states that proposals must be submitted using paper media unless other methods (such as facsimile or electronic commerce) are expressly authorized by the solicitation.  Accordingly, if an RFP does not expressly authorize facsimile or electronic commerce submissions, the government may properly reject such proposals as unauthorized.

4.  Subcontractor’s Recovery of Damages Under the “Total Cost Method,” Net Constr., Inc. v. C & C Rehab and Constr., Inc., 256 F.Supp.2d 350 (E.D. Pa. 2003).

* What the Court Considered:  A subcontractor sued a contractor for delay damages, allegedly resulting from the contractor’s mismanagement of the project.  The subcontractor claimed that this mismanagement forced the subcontractor to alter its intended method of performance, which resulted in decreased productivity and increased cost.  However, other factors (such as weather, unsuitable soils, and the subcontractor’s problems with its supplier) also contributed to the project’s delayed completion.  The subcontractor based its claim of damages on a comparison of its actual performance costs with its original estimate.

* What the Court Said:  The subcontractor could not recover its damages because it was attempting to prove its damages by the total cost method, a technique strongly disfavored by courts.

* What the Opinion Means:  A subcontractor may not hold a contractor entirely responsible for the total cost of the subcontractor’s lost productivity and extra costs when a project is delayed.  Instead, the subcontractor must distinguish losses based upon a contractor’s project mismanagement from losses that the subcontractor suffered due to other factors, such as its own contract performance problems or unexpected site conditions.

5.  Excusable Delay Based Upon High Peak Water Flow, Fraser Constr. Co. v. United States, 57 Fed. Cl. 56 (Fed. Cl. 2003).

* What the Court Considered:  The Army Corps of Engineers (Corps) awarded a fixed-price contract for dredging a river.  Elevated water impeded the contractor’s work during the course of the project but, the Corps refused to grant the contractor an extension of time based upon the high water flows.  By adjusting its equipment and scheduling, the contractor completed the work by the contractual deadline, but incurred a cost much higher than the contract price.  The contractor claimed that the Corps had constructively accelerated the work schedule by refusing to grant a time extension for an excusable delay based upon the high water from the river.

* What the Court Said:  The contractor should have anticipated the problems encountered due to high peak water flow; therefore, the resulting delay was not excusable and the contractor was not entitled to an extension of time.

* What the Opinion Means:  According to the contract, a delay was excusable if it arose from unforeseeable causes beyond the control and without the fault or negligence of the [c]ontractor.  An occurrence is not unforeseeable merely because the probability of such occurrence is low.  Because hydrological records indicated that peak water flows, such as the one experienced in this case, could be expected once every five years, the contractor was charged with foreseeing and protecting against the possibility of such occurrence.

6.  Exclusivity of Recovery Under Workers’ Compensation Statute, Valencia v. Freeland and Lemm Constr. Co., 108 S.W.3d 239 (Tenn. 2003).

* What the Court Considered:  As a result of a construction company’s continuing and known safety violations, a construction trench collapsed, causing the death of a construction worker.  The worker’s family sought tort damages, in addition to benefits under the workers’ compensation statute, alleging that the employer’s conduct made the employee’s death substantially certain.

* What the Court Said:  An employer is not liable in tort outside of the workers’ compensation law framework if its conduct made an employee’s injury “substantially certain;” instead, the employer will only be liable when it acted with “actual intent” to injure the employee.

* What the Opinion Means:  Tennessee’s workers’ compensation statute provides the exclusive remedy for employees seeking relief from employers for injuries occurring in the course and scope of employment, unless the employee can show that the employer actually intended to cause injury.  Proof of gross or criminal negligence is insufficient to meet the standard.

7.  Reciprocal Waiver of Insured Loss Under AIA B801/CMa, Best Friends Pet Care, Inc. v. Design Learned, Inc., 823 A.2d 329 (Conn. App. Ct. 2003).

* What the Court Considered:  A construction manager hired a design consultant, then executed the AIA 801/CMa construction management agreement with an owner for construction of a pet care facility.  During construction, the project was destroyed by a fire that allegedly ignited because the boiler in the facility was not installed with the proper clearance from the flooring.  The owner’s insurance company reimbursed the owner for its loss, then sought subrogation against the design consultant.  Although the construction management agreement contained a reciprocal waiver of subrogation provision, the insurer claimed that the design firm’s allegedly negligent conduct predated the signing of the construction management contract and, therefore, the design firm should not receive the benefit of the waiver of subrogation provision.

* What the Court Said:  The reciprocal waiver of insured loss provision prohibited the owner’s insurance company from seeking subrogation from the design consultant. 

* What the Opinion Means:  The reciprocal waiver of insured loss provision incorporated by reference into AIA B801/CMa prohibits subrogation against the parties to the construction management agreement, as well as their subcontractors, architects, consultants, agents, and employees, regardless of the timing of the work, the timing of the hiring of any such party, or the timing of the loss.  All that is required for the waiver of insured loss provision to apply is that the party seeking protection hold the appropriate status, such as a consultant, agent, or employee, as specified by the provision. 

8.  Application of “Bodily Injury” Exclusion to All Insureds, Hayner Hoyt Corp. v. Utica First Ins. Co., 2003 N.Y. App. Div. LEXIS 6913 (N.Y. App. Div. 2003).

* What the Court Considered:  As required by a construction contract, a contractor was named as an additional insured on its subcontractor’s comprehensive general liability and property damage policy.  The policy contained an exclusion stating that no coverage was provided for “bodily injury to an employee of an insured if it occurs in the course of employment.”  When the subcontractor’s employees were injured while working on the project, the contractor argued that it was entitled to defense and indemnification from the insurance company in the personal injury lawsuits.

* What the Court Said:  The “bodily injury” insurance exclusion prohibited the contractor from obtaining a defense or indemnification from the insurance company.

* What the Opinion Means:  A policy exclusion for bodily injury to an employee of “an insured” applies to all insured parties, including an additional insured, where the employees that suffer the personal injury are employees of “an insured,” such as the subcontractor in this case.

 
9.  Owner’s Liability to Architect Based Upon an Implied Contract, Van De Walle & Assocs., L.L.C. v. Buseman, 665 N.W.2d 84 (S.D. 2003).

* What the Court Considered:  Despite the lack of a formal written contract, an architect provided architectural services to an owner for approximately two years.  During this time, the architect sent invoices to the owner but was never paid.  Nonetheless, the owner used the architect’s drawings and other work to apply for a bank loan to finance the project.  When the project did not receive financing, the owner scrapped the architect’s work and built the project based upon work from another architect. 

* What the Court Said:  The owner was required to pay the architect for its services based on an implied contract between the parties. 

* What the Opinion Means:  “[W]hen a party confers a benefit upon another party who accepts or acquiesces in that benefit and it is inequitable to receive that benefit without paying therefore, a contract will be implied between the parties.”  Here, the owner received a benefit from the architect’s services because the owner used the architect’s work in an application for a HUD-guaranteed loan.  The owner’s failure to (1) contest the architect’s bills, (2) instruct the architect to stop performance, or (3) inform the architect that someone else was responsible for the bills eliminated any doubt as to whether the owner acquiesced in the services from the architect.  Finally, it would be inequitable for the owner to retain the benefit without paying the architect.

10.  Parties Entitled to Recover on Payment Bond, Extrusions, Inc., Win-Vent Div. v. Nat’l Grange Mut. Ins. Co., 824 A.2d 439 (R. I. 2003).

* What the Court Considered:  A supplier supplied windows to a subcontractor for a school construction project.  When the subcontractor petitioned for bankruptcy while still owing payments to the supplier, the supplier sought recovery on a payment bond issued by the surety of the “construction manager” on the project.  The construction manager argued that the supplier was not a proper claimant under its payment bond because an addendum to the construction manager’s contract with the owner limited the scope of its payment bond only to construction management services, rather than the full contract price, and required all subcontractors to provide their own bonds.

* What the Court Said:  The payment bond was a traditional bond that expressly guaranteed payment of any party providing labor or materials to the project and the bond failed to incorporate the limiting language of the underlying contract.  Accordingly, the supplier could recover under the bond.

* What the Opinion Means:  When a payment bond fails to limit the scope of its coverage to construction management services, any subcontractor or supplier may sue on the bond.  Describing a party as a construction manager rather than as a general contractor in the underlying contract documents will not void this result.

Ira Genberg is a Senior Partner at the Smith, Gambrell & Russell, LLP law firm in Atlanta, Georgia, and also General Counsel for Associated Owners & Developers (AOD), McLean, Virginia. For more information or if you have any questions, contact us at: hlk@constructionchannel.net.