CHAPTER 2: CONTRACT LAW
2.1 COGHLIN ELECTRICAL CONTRACTORS, INC. v. GILBANE BUILDING COMPANY. Supreme Judicial Court of Massachusetts (2015).
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a) Hunt Construction Group, Inc., v. Garrett. Indiana Supreme Court (2012).
-This case arises from the construction of Lucas Oil Stadium in Indianapolis, examines whether a substantial set of contractual safety duties exposed the CM to liability to the project workforce for injuries. On the basis of the duties, the Court of Appeals of Indiana held that the injured employee could proceed with a negligence case against Hunt. The appeals court acknowledged that the owner-CM contract contained clauses that emphasized that the various construction contractors were not relieved of their obligations for site safety by the CM’s involvement, that the CM did not control the construction contractors or their means and methods of construction, and that the owner-CM contract was solely for the benefit of the owner. The Court of Appeals concluded that the CM’s contractual safety duties were such it had assumed a duty to workers at the site. Hunt appealed this decision to the state supreme court.
The “limits” that the Massachusetts decision places on the scope of the implied warranty in CMAR appear to be reasonable and unremarkable. Essentially, if a CM’s consultation regarding design result in exposure of a possible defect or similar issue, the issue should be confronted and addressed at that point, for the good of the project. If the CM raises an issue and the A/E and owner choose to ignore it, the implied warranty should apply.
2.2 URS Corp. v. Transpo Group, Inc. United States District Court for the Western District of Washington (2015).
On a design-build high way project, the design builder, Flatiron, withheld payment from the lead design firm, URS, asserting that certain signs that were part of the project failed to meet project criteria. URS in turn withheld payment from the sign consultant, Transpo. Eventually URS sued Transpo, contending that deficiencies in Transpo’s services had resulted in damages of about $1.5million.
In the project formation stage, URS and Transpo entered the teaming agreement for the accomplishment of the work on the project. This teaming agreement have a clause waiving substantial and some damages that are indirect. Consequently, the design work was awarded by Flatiron to URS, and it entered into a subagreement with Transpo on the subject of sign-related services.. As the tribunal launched, the limitation on liability in the teaming agreement applied as a defense to URS’s claim for damages called the court to decide it.
The court then pointed out that whether the damages that URS sought from Transpo were indeed consequential or indirect damages, in whole or in part, was an issue that was not before the court and would need to be determined in a different proceeding.
The court concluded that there are difference between the subject matter of the teaming agreement and the subagreement, the teaming agreement involved pursuit of the work and the subagreement involved the provision of sign-related services. If the subject matter of two contracts is different, the integration clause of second contract will not overrule the first contract by name. The subagreement is not done. The court concluded that because the teaming agreement does not cover the same subject matter as the subagreement, the teaming agreement’s provisions regarding limitations on damages survive and “may be applicable to the URS-Transpo dispute.
The decision is quite unsatisfying even if the court is correct that the teaming agreement provisions survive. The provisions of the limitation is normally apply only to the transgressions to seek an award of the contract.
Both of the teaming agreement and the subagreement might be assumed that they apliesto the same subject matter and it will be sufficient for the standard integration clause to supersede teaming agreement. Expressly naming the teaming agreement and declaring it revoked and superseded can be the ways to avoid the results like the ones shown above.
In the Registration of Engineers Act 1967, the engineer must be qualified to execute his job as a professional engineer, so they need a qualification to prove the profession of him. This case shows the engineers practices that the responsibilities of engineers to meet the criteria of the contractor. However, it is not meant to accept any cases that is too remote and indirect from the work done by engineers to the project.
2.2.3 Relevant Legal Cases
a) Niles-Wiese Construction Co., Inc. v. Westfield Insurance Co. Supreme Court of Minnesota (2013).
-The Safety Signs, LLC, who is the subcontractor, furnished the labor and the materials in support of the municipal project of airport in the Owatonna, Minnesota, did not get the payment from the general contractor, Niles- Wiese Construction as he failed and appears to have defaulted on the prime contract and it is gone out of the business. The lawsuit is commenced and the surety raised the defense that is under requirements of the law. The subcontractor failed to satisfy the notice requirement as to the contractor and not entitled to suit on the payment bond. This case is then transferred to the Minnesota Supreme Court.
b) Construction Group, LLC v. Department of Homeland Security. United States Civilian Board of Contract Appeals (2015).
-The contractor sent several letters indicating an intent to submit a claim for additional compensation, contending that a claim was “pending” and complaining that the Coast Guard’s security force had not pursued a subcontractor that allegedly stole copper from the project. The Coast Guard asserted that no legally sufficient claim had ever been submitted and therefore the contract review board did not have jurisdiction.
c) Bell/Heery, a Joint Venture, v. United States. United States Court of Appeals, Federal Circuit (2014).
-The standard federal contract allocated to the design-builder all costs and duties with respect to obtaining construction permits. The design-builder expected to obtain a single-step permit from the New Hampshire Department of Environmental Sciences for “Alteration of Terrain”. The design-builder would excavate the soils and directly transport them to their final location. The federal government had no control over the state permit and did not attempt to intervene or assist the design-builder in obtaining less burdensome permit conditions. The design-builder sought additional compensation from the Government.
The damages sought by the URS from Transpo were indeed consequential or too indirect, in whole or in part, was an issue that was not before the court and would need to be determined in different proceeding. Like many interim court decision, this case is somewhat unsatisfying. It cannot be sure whether they still apply to the dispute even if the court is correct that the teaming agreement provisions survive.
2.3 Otis Elevator Co. v. W.G.Yates ; Sons Construction Co. United States Court of Appeals, Eleventh Circuit (2014).
Expansion of the Huntsville-Madison County Airport (Alabama) baggage-claim area. The architect, Chapman Sisson, prepared drawings and specifications for four new escalators. Escalators come in three nominal step widths: 24 inches, 32 inches, and 40 inches. In each case the actual width may vary by nearly an inch. In addition to nominal width, an escalator’s “rated width” measured from handrail to handrail is also sometimes depicted on drawings. Here, the key drawing used tick marks to show a width of 39.5 inches. During the bidding process Otis Elevator noted that it was un clear whether that dimension was the step width and thus a 40-inch escalator or the rated width and thus a 32-inch escalator. Otis elected to assume a 32-inch step width and did not inquire about the ambiguity during the bid process. The general contractor, Yates, relied on the Otis price in winning the bid competition.
Otis’s shop drawings were apparently clear in showing 32-inch escalators. However, Otis did not call out on the shop drawings that the escalator size was based on an assumption regarding the ambiguous tick mark drawing or request an interpretation of that drawing in an RFI process or otherwise. The architect approved the shop drawings, but did not review submittal details such as dimensions and thus was unaware that Otis and Yates were about to install a medium-sized escalator. During installation, the escalators were generally shrouded, or barricaded, and it was not until completion that the architect had a close look at the escalators and realized they were smaller than the architect had intended. Yates was ordered to remove the noncompliant escalators and replace them with 40-inch units.
After unsuccessful negotiations the issue was formally placed before the architect as a claim to be resolved. In the architect’s judgment, the drawing shoed a step width (39.5 inches) that mandated a 40-inch elevator. Eventually Yates and Otis installed 40-inch escalators, reserving rights against each other. Additional costs were somewhat more than $500,000.
The dispute between Yates and Otis made its way to federal court. The district court ruled in favor of Otis, apparently concluding that the standard was whether Otis’s interpretation of the bidding documents was reasonable and which it is. Yates appealed to the Eleventh Circuit.
The court of appeals held that a subcontractor cannot recover based on a reasonable but unilateral resolution of an ambiguity in the documents, if the subcontractor was aware of the ambiguity and had an opportunity to have it clarified. The court ruled that Otis was obligated to bring the discrepancy to the attention of the owner, and the failure to do so meant that Otis proceeded “at its peril”.
The court of appeals also held that the parties to the contract had submitted to the authority of the architect as a “third-party expert” for resolution of disputes. This concession to the authority of the architect flowed down to Otis. The court concluded that the decision of the architect was meant to be binding and final, like an arbitrator’s decision and that because there was no indication of fraud or gross mistake on the architect’s part when it determined that the design called for a 40-inch escalator, “the district court should not have set aside the third-party expert’s architect’s binding interpretation.
The bidders and the contractor seek clarification of any apparent ambiguities. They also require that shop drawings call out deviations from the requirements of the contract documents, arguably this suggests the need for contractor to point out underlying ambiguities. The Eleventh Circuit’s support of the duty to seek clarification and the transfer of risk if clarification is not sought.
The Eleventh Circuit’s high degree of deference to the decision of the architect is greater than the deference established in favor of engineer as decision maker. Engineer’s decision are “final and binding” but may be appealed. The appeal is to be considered on its merits without mandatory deference to the engineer.
In the Registration of Engineers Act 1967, the engineer must be qualified to execute his job as a professional engineer, so they need a qualification to prove the profession of him. Besides, an engineer’s responsibilities include that the decision making with their professional knowledge required in the field.
2.3.3 Relevant Cases
a) Saratoga at Toms River Condominium Association, Inc. v. Menk Corporation. Superior Court of New Jersey, Appellate Division (2014).
-Menk was the developer and design builder of this large condominium project, built in the mid 1990s. The architect retained by Menk drafted a design that required a “ground water investigation” to determine if waterproofing would be needed, before commencing with masonry foundations, basements, crawl spaces and steps and provided that the buildings be wrapped in “Tyvek Building Paper or equal”. Years later, when some of the condo buildings experienced water problems, the condo association pursued claims against Menk and some of its subs.
b) Zachry Construction Corp. v. Port of Houston Authority. Texas Supreme Court (2014).
-Zachry contracted to construct a wharf for the Port of Houston for $62 million. The wharf was to include a large concrete deck supported by piers, and would be 1660 feet long. Zachry devised an innovative work plan under which it would use dredged soils and a freeze wall to allow Zachry and its workforce to work in the dry. Zachry then need another cutoff wall to accommodate changes then he informed the Port. However 2 weeks later, the Port denied permission to build the cutoff wall, apparently out of concern that the freeze sustem would jeopardize the integrity of existing pier structures. Zachry protested that this was an unpermitted intrusion on its freedom to use its preferred means and methods of construction. The jury then found that the delay was caused by the Port’s “arbitrary and capricious conduct, active interference, bad faith and/or fraud”, and that the NDD was inapplicable. An intermediate appellate court reversed the jury decision and holding that the claim was barred by the NDD clause.
c) Advanced Waste Services, Inc. v. United Milwaukee Scrap, LLC. Court of Appeals of Wisconsin (2015).
-United Milwaukee Scrap buts and processes scrap metal from industrial sources and construction demolition projects. Advanced Waste Services recycles oily wastewater such as that generated by United Milwaukee Scrap and sells the extracted oil. Wastewater from United Milwaukee Scrap contained PCBs that contaminated Advanced’s recycling facility and its recycled oil products according to Advanced. Advanced alleged that United Milwaukee had failed to disclose tje presence of PCBs in its oily wastewater and was responsible for the costs of the contamination. United Milwaukee Scrap called on its commercial general liability carrier to provide defense and coverage. The insurer declined, citing the policy’s total pollution exclusion. United Milwaukee Scrap brought the insurance company into the lawsuit as a third-party defendant. The trial court granted the insurance company summary judgment based on the pollution exclusion and the issue was appealed to the court of appeals.
In this case, the contractor and the bidders seek the clarification of any apparent ambiguities. They require that shop drawings call out deviations from the requirements of the contract documents and arguably this suggests the need for contractor or its subcontractor to point out underlying ambiguities. The subcontractor cannot recover based on a reasonable but unilateral resolution of an ambiguity in the documents if the subcontractor was aware of the ambiguity and had an opportunity to have it clarified. As an engineer in this case, the decision of engineer must be “final and binding” but it may be appealed. Therefore, the responsibility of an engineer plays an important role in this case.