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The Florida Court of Appeal for the Fifth District reversed the trial court's imposition of delay damages when the plaintiff's expert "assumed" certain expenses and therefore lacked sufficient factual basis to express his opinions.
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Central Florida Plastering and Development, et al. v. Sovran Constr. Co., Inc.,
679 So.2d 1226 (1996).
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Sovran Construction Company, Inc. ("Sovran") contracted with the Orange County School Board ("School Board") to construct the Cypress Creek High School. Sovran, in turn, subcontracted with Central Florida Plastering and Development Company, Inc. ("CFP") requiring CFP to install lath and stucco panels on the exterior walls and to install ceiling framing in the auditorium. The contract between Sovran and the School Board obligated Sovran to pay to the School Board liquidated damages of $1,000 per day, and Sovran's subcontracts with CFP called for CFP to indemnify Sovran "on account of any such damages and additional costs as a result of delays of CFP."
During construction, when CFP installed the stucco panels, the roofs had not been completed on the buildings. Five months passed before the flashing and parapets were installed, exposing the panels to rain. Eventually, the panels loosened and pulled away from the building. Sovran contended that the nails used to secure the panels were too short. CFP, by contrast, argued that the increased rain absorption caused the panels to pull away.
Before rectifying the panel problem, CFP requested a change order. When Sovran insisted that CFP correct the problem at its own expense, CFP quit the job. Sovran then sued CFP for the cost of repair of the panels and for delay damages.
During the trial, over CFP's objections, Sovran called an expert witness to testify as to the total amount of delay damages. As opposed to using the Eichleay formula or relying on any computer reports to calculate expenses, the expert "assumed" several numbers in reaching his opinion. In particular, because Sovran did not provide the expert with actual figures, he estimated general conditions expenses of $1,500 per day. Similarly, as to main office overhead expenses, lacking hard figures, the expert estimated a figure of $500 per day. Factoring in the $5,000 per day liquidated damages, the expert concluded that CFP was liable for $204,000 of that total. The jury found that CFP breached its subcontract with Sovran and awarded $566,106 to repair the defects and $204,000 for delay damages.
On appeal, citing subsection 90.705(2) of the Florida Statutes (1995), CFP argued that the expert's testimony should have been excluded because it was speculative. That statute provides:
Prior to the witness giving the opinion, a party against whom the opinion or inference is offered may conduct a voir dire examination of the witness directed to the underlying facts or data for the witness' opinion. If the party established prima facie evidence that the expert does not have a sufficient basis for the opinion, the opinions and inferences of the expert are inadmissible unless the party offering the testimony establishes the underlying facts or data.
Reversing the trial court, the appellate court held that plaintiff's expert lacked sufficient factual basis for his opinions regarding Sovran's delay damages. More specifically, because the expert had "assumed" the facts underlying Sovran's costs in the absence of hard figures, such speculative expert testimony should have been excluded.
In dictum, the appellate court also noted that the expert's failure to provide a reasonable basis for apportionment of delay costs between concurrently responsible subcontractors warranted reversal. |
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Federal Circuit Court of Appeals Denies Contractor Recovery Because Alleged "Differing Site Condition" Did Not Exist At Time Of Contract Award.
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Olympus Corp. v. United States,
98 F.3d 1314, 1996 U.S. App. LEXIS 27509 (U.S. Fed. Cir., Oct. 23, 1996).
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Standard "Differing Site Conditions" clause in Government contract requires, as a condition to recovery under that clause, that the alleged differing condition which serves as the basis of the claim must have existed at the time the contract was executed.
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| Olympus Corp. ("Contractor") entered into a construction contract with the United States ("Government") to pave the yard of an engine plant owned by the United States Army. The contract included the standard Differing Site Conditions clause set forth in Federal Acquisition Regulation ("FAR") § 52.236-2 (1995). After the Contractor received its notice to proceed, another independent Government contractor accidently caused an oil spill in certain trenches in the yard which contaminated the soil and prevented the Contractor from paving. Thereafter, the plant employees went on strike, picketing the entrances to the plant and preventing the Contractor from accessing the plant yard.
The Contractor timely notified the Government regarding the delays caused by both the contamination and the strike and requested a time extension and price adjustment. The Government granted the entire time extension requested, but granted only a small portion of the $108,000 claim for additional costs. The Contractor filed the present lawsuit seeking to recover all of its additional costs.
The Contractor relied exclusively on the contract's Differing Site Conditions clause as the basis for its entitlement to recovery. In essence, the Contractor claimed that both the contamination and the strike were differing site conditions, unforseen at the time the contract was executed, which entitled it to recover its increased costs. The Government moved for summary judgment arguing that to recover under the Differing Site Conditions clause, the alleged differing condition must have existed at the time the contract was executed. The Court of Federal Claims granted the Government's motion for summary judgment and the Contractor appealed.
In affirming the lower court, the Federal Circuit Court of Appeals reviewed the history and underlying purposes of the Differing Site Conditions clause and concluded that although the clause is a risk shifting device, it does not shift the risk of all unanticipated adverse site conditions from the Contractor to the Government. The primary purpose of the clause is to foster more accurate bidding by encouraging contractors not to inflate their bids to include the costs of assessing possible adverse subsurface conditions. In light of this purpose, the court held that only those risks related to conditions existing at the time of bidding are shifted to the Government. The court also noted that a reasonable and prudent contractor would have been familiar with this long standing limitation on the Differing Site Conditions clause to cover only those conditions that existed at the time the contract was executed.
In addition to the temporal limitation regarding the alleged differing site condition, the court also noted that the Differing Site Conditions clause applies only to "physical" conditions at the work site, and not to actions of third parties which deny a contractor access to the work site, such as the soil contamination and strike in the present case. The court denied the claim in its entirety because the Contractor relied on no other provisions of the contract to impose liability for its increased costs on the Government. |
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The Supreme Court of Alaska held that a contractor's failure to comply with the contractual notice provisions barred its claim as a matter of law.
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Neal & Co., Inc. v. City of Dillingham and CH2M Hill Northwest, Inc.,
923 P.2d 89 (Alaska 1996).
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| In February of 1987, the City of Dillingham ("City") solicited bids for the construction of a sewerage facility, which would include two lagoon ponds. CH2M Hill ("Hill"), the City's engineer and on-site representative, had completed a geotechnical survey and data summary, which was provided to interested bidders. Neal & Company, Inc. ("NCI") was declared the low bidder at $2,059,991 and began excavation on June 6, 1987.
During the summer of 1987, NCI encountered water bubbling through sand lenses, which could possibly impair the integrity of the lagoon, allowing sewage to escape. NCI's project superintendent discussed the issue of water permeable sand lenses with Hill's representative. A Hill geotechnical engineer visited the project the week of July 27, 1987. NCI contended that the geotechnical engineer's visit was scheduled because of the project superintendent's discussion. By contrast, the City and Hill maintained that the visit had been previously scheduled.
NCI filed suit against the City for, inter alia, the alleged differing site conditions relating to excavation of materials above the pond floor. The City moved for partial summary judgment on NCI's differing site condition claim, and NCI moved for partial summary judgment, seeking to establish the sufficiency of its notice of differing site conditions.
Resolution of the summary judgment motions turned on the application of the Differing Site Conditions clause. Paragraph 4(a) of the Contract between the City and NCI required written notice for a claim. NCI acknowledged that it did not provide timely written notice of any differing site condition, but alleged that the timely actual notice to the City was sufficient under the notice clause.
Citing federal, as opposed to state, common law, the Alaska Supreme Court noted that notice will be "considered sufficient if it was clear and it alerted or should have alerted the City to the fact that NCI believed it had encountered differing site conditions." In this vein, NCI argued that the City was on notice (through Hill) when its project superintendent met with Hill's geotechnical engineer and took a soil sample.
The Court rejected the City's argument. More specifically, the Court found that the geotechnical engineer's focus was on the integrity of the lagoon floor caused by possible sand lenses, not the consistency of the materials to be excavated. Further, the soil sample came from below the lagoon floor, which indicates that Hill was concerned about the lagoon floor as opposed to the difficulty of the excavation. Accordingly, the Court held that the City (through Hill) did not have actual notice of the differing site condition, and granted the City summary judgment because of NCI's failure to comply with the contractual notice provisions. |
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Seventh Circuit Rules That Forum Selection Clause In Construction Contract Is Enforceable Under Illinois Law.
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Roberts & Schaefer Co. v. Merit Contracting, Inc.,
99 F.3d 248, 1996 U.S. App. LEXIS 28280 (U.S. Ct. of Appeals, 7th Cir.).
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Contract between the parties contained an enforceable forum selection clause, even though the actual written agreement was signed by only one of the parties; therefore, suit brought in Illinois state court pursuant to the forum selection clause, was not removable to Federal Court.
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| Roberts & Schaefer Co. ("Contractor") was awarded a contract to design and build a new coal storage facility for the 84 Mining Company. Contractor in turn subcontracted with Merit Contracting, Inc. ("Subcontractor") to perform demolition, excavation and other construction work for the project. The formation of contract between Contractor and Subcontractor, and the terms of that agreement, are key to the court's decision in this case. Contractor initially asked
Subcontractor to submit a bid to perform the construction services for the project. Contractor provided a "bid package" prepared by the owner to Subcontractor and, based on the information provided in the bid package, Subcontractor submitted a bid of $1.775 million. This bid was ultimately accepted verbally by Contractor. At Contractor's direction, Subcontractor proceeded with the work. Thereafter, Contractor sent Subcontractor a letter confirming its purchase order for the construction work. The letter briefly described the work and listed a price of $1.775 million. The letter also stated that the confirming purchase order documents would be forwarded to Subcontractor as soon as they were complete. Subcontractor submitted an invoice for over $150,000 and Contractor paid the invoice by check.
Contractor then sent Subcontractor a purchase order and several accompanying documents ("Purchase Order Documents"). These documents included the "General Notes and Conditions" which contained terms relating to scheduling, payments, risk of loss, and the choice of law and forum selection provision at issue in the case. The documents also included a "Sub-Contract Agreement" that had been signed by Contractor, but Subcontractor never signed that document. Later, Contractor sent Subcontractor three revised pages of the purchase order reflecting certain changes to the concrete volume and liquidated damages provisions that had been discussed between Contractor and Subcontractor.
The Subcontractor continued to perform its work on the project but the project completion date was delayed. Ultimately, Contractor filed suit against Subcontractor in the Illinois state court alleging that Contractor and Subcontractor had entered into an agreement defined by the terms of the Purchase Order Documents and that disputes had arisen between the parties related to delays and increased costs on the project. Subcontractor removed the case to federal court based on diversity of citizenship and thereafter filed a motion to dismiss for lack of personal jurisdiction. According to Subcontractor, it did not have the required "minimum contacts" with Illinois to subject it to the jurisdiction of the Illinois state court, or a federal court in Illinois applying Illinois law. The Contractor filed a motion to remand the case back to the state court based on the forum selection clause contained in the Purchase Order Documents.
The federal district court found that the forum selection clause never became part of the parties' agreement and, therefore, refused to remand the case to state court and dismissed the suit for lack of personal jurisdiction because Subcontractor lacked sufficient minimum contacts with Illinois. On Appeal, the Seventh Circuit Court of Appeals reversed the district court and remanded the case to the state court.
The appellate court first noted that under Illinois law, a forum selection clause is enforceable except in certain exceptional circumstances. The primary question on appeal was whether the forum selection clause in the Purchase Order Documents ever became part of the parties' contract. Subcontractor argued that the contract was formed when Contractor accepted its bid and that the terms of the contract were those set forth in the bid package. Subcontractor never signed the document which incorporated the forum selection clause and claimed it never accepted the terms of that clause. The Contractor, on the other hand, argued that Subcontractor's continued performance of the work on the project constituted acceptance of the terms set forth in the Purchase Order Documents. Contractor also argued that it and Subcontractor entered into a similar subcontract agreement, which contained the same forum selection clause, a year before the present transaction.
The court, examining all the facts surrounding the parties' negotiations and performance, found that the Subcontractor's conduct demonstrated that it performed the work according to the terms embodied in the Purchase Order Documents. The court noted that the Subcontractor took steps to notify Contractor in writing of delays in construction consistent with the procedures outlined in the Purchase Order Documents. The court specifically noted that the notice given by Subcontractor could not have been made pursuant to the terms of the bid package because the bid package contained no timetable for the completion of the work. In sum, the Contractor was able to demonstrate that the Subcontractor conducted itself as if it believed the terms of the purchase order documents represented the parties' agreement. Because the forum selection clause was included in the agreement, the federal appellate court remanded the case to state court. |
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Seventh Circuit holds that Indian tribe agreed to waive sovereign immunity.
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Sokaogon Gaming Enterprise Corp. v. Tushie-Montgomery Assocs, Inc.,
86 F.3d 656, 1996 U.S. App.LEXIS 13399 (7th Cir. June 5, 1996).
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District Court erred in granting summary judgment in favor of Indian tribe on grounds of tribe's sovereign immunity; by signing contract with explicit arbitration clause, tribe agreed that it could be sued.
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| An Indian tribe building a casino entered into a contract for design services with Tushie-Montgomery Associates, Inc. ("TMI"). TMI had done considerable work on the project and had received a partial payment of $150,000, when new tribe leadership decided to repudiate the contract. TMI claimed that it was still owed more than $400,000 for services rendered, and attempted to invoke the arbitration provisions of the contract to resolve the dispute.
The tribe claimed that it could not be forced to arbitrate because it had not waived its sovereign immunity. In addition, the tribe claimed that the contract was illegal because it had not been approved by the Bureau of Indian Affairs, and that the tribe was therefore entitled to the return of the $150,000 already paid. TMI went forward with the arbitration without the tribe present, and obtained an award of $500,000, which it sought to have affirmed in state court. Meanwhile, the tribe brought an action in federal court seeking to recover its $150,000.
The district court granted partial summary judgment in favor of the tribe, finding that the tribe had not waived its sovereign immunity and therefore could not be forced to arbitrate. Before addressing the issue of whether the tribe was also entitled to repayment of the $150,000, the district court certified the sovereign immunity question for an immediate appeal to the Seventh Circuit.
TMI based its argument that the tribe had waived its sovereign immunity on the language of the contract's arbitration clause, which stated, in relevant part, that "claims, disputes or other matters [arising out of or related to the contract] shall be subject to and decided by arbitration in accordance with the [rules] . . . of the American Arbitration Association," that the agreement to arbitrate "shall be specifically enforceable in accordance with applicable law in any court having jurisdiction," and that "judgment may be entered upon [the arbitration award] in accordance with applicable law in any court having jurisdiction thereof."
In addressing the effect of the arbitration clause, the court first noted that although the law requires an "explicit" waiver of sovereign immunity before finding that an act of Congress was intended to override tribal sovereign immunity, the same considerations do not apply when considering whether the tribe itself has waived its immunity by entering into a contract. Rather, in the contractual context, it would be paternalistic to assume that, in the absence of an "explicit" waiver, Indians entering into contracts cannot understand whether or not they are waiving their sovereign immunity rights.
Nevertheless, the court found that even if the proper inquiry was "whether the language of the arbitration clause might have hoodwinked an unsophisticated Indian negotiator into giving up the tribe's immunity from suit without realizing he was doing so," it would be "implausible" and "condescending" to find that the tribe did not realize the import of the arbitration clause in this case. "The arbitration clause could not be much clearer. It says that if there is a dispute under the contract it must be submitted to arbitration and that the arbitrator's decision is final and is enforceable in court. No one reading this clause could doubt that the effect was to make the tribe suable." The court rejected the tribe's contention that the only acceptable waiver would be one stating that "The tribe will not assert the defense of sovereign immunity if sued for breach of contract," noting that the United States regularly waives its sovereign immunity by creating a right to sue, rather than making an affirmative statement that it will not raise a sovereign immuity defense.
Finally, the court distinguished cases considering the question of whether a mere reference to the American Arbitration Association Rules is sufficient to constitute a waiver of sovereign immunity because the Rules provide for judicial enforcement of arbitration awards. Here, the arbitration clause itself conferred the right to sue and to enforce arbitration awards in court, and no reference to any source outside the contract was necessary. Accordingly, the partial summary judgment in favor of the tribe was reversed on the ground that the tribe had waived its sovereign immunity by agreeing to the arbitration clause. |
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Federal Circuit Court Of Appeals Addresses Definition Of "Claim" Under The Contract Disputes Act.
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Ellett Constr. Co., Inc. v. United States,
93 F.3d 1537, U.S. App. LEXIS, August 26, 1996.
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A settlement proposal in response to a termination for the convenience of the Government is a non-routine claim subject to the jurisdiction of the courts pursuant to the Contracts Disputes Act, provided that the settlement proposal ripens into a claim after negotiations have reached an impasse.
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| James M. Ellett Construction Company, Inc. ("Contractor") entered into a contract for the construction of a logging road with the United States ("Government"). The Government ultimately terminated a part of the contract for its convenience. The Contractor submitted both a "request for equitable adjustment" for changed work and a "settlement proposal" to resolve the termination for convenience. The Federal Circuit Court of Appeals ultimately held that both the request for equitable adjustment and the settlement proposal were "claims" under the Contract Disputes Act ("CDA") and therefore the Court had jurisdiction to hear the dispute.
To reach its decision, the court relied on its recent opinion in Reflectone, Inc. v. Dalton, 60 F.3d 1572 (Fed. Cir. 1995), which addressed the definition of a "claim" under the CDA. The Reflectone Court held that a "non-routine" request for payment did not have to be "in dispute" in order to be considered a "claim" under the CDA. The Reflectone case requires that the non-routine request for payment be (1) a written demand or assertion, (2) seeking as a matter of right, (3) the payment of money in a sum certain.
The Ellett court had little trouble ruling, under the Reflectone decision that the Contractor's request for equitable adjustment was a claim under the definition announced in Reflectone. The more significant part of the opinion is the analysis of the settlement proposal and whether it constituted a claim under Reflectone. The court found that the termination settlement proposal met all three of the Reflectone requirements and further held that a settlement proposal, by its nature, was "non-routine" as that term is used in Reflectone.
The court went on, however, to state that not every non-routine submission constitutes a claim because, under the CDA, a claim must be submitted to the contracting officer for a decision. The court acknowledged that when a contractor submits a termination settlement proposal, it is for the purpose of negotiation, not for a final decision. Under the terms of the contract's Termination for Convenience clause, the parties agreed to attempt to reach a settlement in the event of a termination for convenience. The Court held that, "Once the negotiations reached an impasse, the proposal, by the terms of the FAR and the contract, was submitted for decision; it became a claim." The Court noted that the Contractor, after waiting approximately one year for a decision on its settlement proposal, wrote the contracting officer and demanded that it accept its proposal. The court found that the negotiations had reached an impasse and that the settlement proposal had ripened into a claim. |
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Federal Circuit clarifies narrow scope of Torncello and proper standard for reviewing termination for convenience.
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Krygoski Constr. Co., Inc. v. United States,
94 F.3d 1537 (Fed. Cir. August 1, 1996).
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Government need not show "changed circumstances" in order to justify convenience termination; rather, termination is proper in absence of bad faith or abuse of discretion.
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| The Army Corps of Engineers entered into a $414,696 contract with Krygoski Construction Company, Inc. ("Krygoski") for the demolition of an abandoned Air Force airfield and missile site. The work included some asbestos abatement, and estimated quantities of the materials that contained asbestos were included in the contract, along with unit prices for removal of different categories of asbestos-containing materials.
Upon surveying the site prior to demolition, it was discovered for the first time that the tile and flashing in one of the buildings to be demolished contained asbestos. Although the contract did not contain a unit price for such materials, Krygoski offered to apply the same unit price it had bid for removal of asbestos tank and duct insulation, $8.78 per square foot. At the quantities estimated by the Corps, the removal of the newly-discovered material would add approximately $320,000 to the $414,696 contract.
Because the proposed price increase exceeded 33% of the original contract price, the contracting officer considered the price increase to be a cardinal change. He terminated the contract under the termination for convenience clause, in accordance with the Corps' policy regarding changes of this magnitude, so that the contract could be reprocured competitively under the Competition in Contracting Act.
Upon rebidding, Krygoski was no longer the low bidder, and the work was awarded to a different contractor. Krygoski sued in the Court of Federal Claims, alleging that the Corps had breached its contract with Krygoski by terminating for convenience. Relying on language in Torncello v. United States, 231 Ct. Cl. 20, 681 F.2d 756, 772 (1982) which required a change in the circumstances of the bargain or the expectation of the parties in order to justify a convenience termination, the Court of Federal Claims held that the termination was improper. In the alternative, the court found that the termination was improper under the bad faith/abuse of discretion standard set out in Kalvar Corp. v. United States, 211 Ct. Cl. 192, 543 F.2d 1298, 1301-02 (1976), cert. denied, 434 U.S. 830 98 S. Ct. 112 (1977). Krygoski was awarded damages plus interest, including anticipatory lost profits.
On appeal, the Federal Circuit reversed. The Court first traced the case law and historical setting in which convenience termination developed. It then cited the rule that developed that "[w]hen tainted by bad faith or an abuse of contracting discretion, a termination for convenience causes a contract breach." 94 F.3dd at 1541 (citing, among other cases, the
Kalvar decision). The Court emphasized the heavy burden of overcoming the presumption that the Government acts in good faith.
The court then turned to a discussion of the Torncello case, in which the Navy entered into a contract it never had any intention of keeping, and then attempted to terminate for convenience. The Court noted that in Torncello, although the existing bad faith Kalvar test would have required a finding that the termination was improper, a plurality of judges articulated a new and broader "changed circumstances" test as a basis for their decision.
Next, the Court discussed the recently-enacted Competition in Contracting Act ("CICA"), Pub. L. No. 98-369, 98 Stat. 1175 (codified as amended in scattered sections of 10, 31 and 41 U.S.C.) noting that it permits a liberal convenience termination standard and that it requires rebidding of where modifications outside the scope of a contract occur. Finally, the Court cited several of its post-Torncello decisions in which it applied a bad faith standard rather than a "changed circumstances" test.
Relying on all these authorities, the Federal Circuit held that the court below had erred in applying the "changed circumstances" test to the contracting officer's decision to terminate after discovery of the additional asbestos at the airfield site. The Court clarified that the scope of Torncello is extremely limited, stating that "Torncello applies only when the government enters a contract with no intention of fulfilling its promises." 94 F.3d at 1545.
Analyzing the contracting officer's decision to terminate in this case under the bad faith/abuse of discretion standard exemplified by Kalvar, the Federal Circuit found that the contracting officer had acted properly in terminating the contract. The Court held that the magnitude of the change in the expected quantity of asbestos provided ample justification for a competitive rebidding under CICA. Accordingly, the case was reversed and remanded for a calculation of convenience damages only. |
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