Federal Circuit Affirms Absence of Differing Site Condition But Remands for Delay Claim

Mary C. Oswell collection, Bonita Museum,
available at http://sunnycv.com/southbay/exhibits/water.html 

The case Meridian Eng'g Co. v. United States, No. 2017-1584, 2018 WL 1386147, at *10 (Fed. Cir. Mar. 20, 2018) concerned a dispute between the federal government and a contractor related to the construction of flood control structures and the relocation of a sewer line in Chula Vista near San Diego, California.  After starting work, the contractor encountered "subsurface organic/unsuitable material” and “a layer of dripping saturated dark clay material under which a clean layer of sand is producing water.”  As a result the parties modified the contract - selecting larger pipes, reinforced concrete, more soil investigation, but to no avail.  The project was terminated after further structural failures.  The contractor then sought extra costs for what it deemed a Type I differing site condition ("DSC") and for delay costs for inclement weather. The Court of Federal Claims denied the claims and the contractor appealed to the United States Court of Appeals for the Federal Circuit.  The Appeals Court reviewed for "clear error."

Under this federal contract, a Type I DSC claim arises when the subsurface or latent physical conditions at the site differ materially from those indicated in the contract documents.  The Appeals Court recounted that typically whether "a contract contained indications of a particular site condition is a matter of contract interpretation." Id.  As part of its burden of proof, the contractor needed to show it acted as "a reasonable contractor [when] reading the contract documents as a whole [and] interpret[ing] them as making a representation as to the site conditions.”  Besides reliance on the contract and proof of damages, the contractor also needed to prove that “the actual site conditions were not reasonably foreseeable to the contractor with the information available to the particular contractor outside the contract documents” as well. Id.  The Appeals Court agreed with trial court's conclusion that the saturated soil conditions were reasonably foreseeable from the contract documents.  In particular, the contract stated that the worksite was located on a floodplain and the descriptions of the incorporated boring logs expressly stated that "variations may exist in the subsurface between boring locations."  The court also emphasized that "actual conditions at the site indicated such [saturated] conditions" and the contractor was charged with knowing information that could be gleaned from a pre-bid site visit.  The court found important that there was no testimony from the contractor otherwise regarding the actual conditions.

For the contractor's part, it argued that the contract had identified the areas of the project as "hard unyielding material.”  But the Appeals Court was unpersuaded in the face of disclaimer contract provisions noting "unstable material" and boring logs that were determined to indicate otherwise. The contractor also balked that trial court found that an "independent soils investigation" was something a reasonable contractor would have performed.  Again the Appeals Court disagreed concluding that the underlying decision actually did "not impose an improper requirement for investigation." Lastly, the Appeals Court disposed of the contractor's argument that the agreed-to modifications to the contract served as admissions by the government that a Type I DSC existed because "a contractor is not entitled to the benefit of any presumption arising from the [CO]'s decision." Id.

Although the contractor did not prevail on the DSC claim, the Appeals Court did breathe new life into the delay claim for having to work in inclement weather.  The trial court had dismissed this claim as well on account of an "accord and satisfaction" as a result of contract modifications. However, the Appeals Court disagreed noting that the contract modification did not represent a meeting of the minds to dispose of these inclement weather delay claims especially in light of the government's actions post-modification - requests for estimates, draft modifications with these claims included, offer to review further documentation.  Accordingly this delay claim was remanded for further hearings.

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The author, Katharine Kohm, Esq. is a committee member for The Dispute Resolver.  She practices construction law at Pierce Atwood, LLP in Providence, Rhode Island.

  

 

Substantial Completion or Final Acceptance? 11th Circuit Rules Statute of Limitations had Run on Supplier's Bond Claim

The timing of bond claims is the focus of the dispute in Devin Strickland v. Arch Insurance Company which was recently ruled upon by the Eleventh Circuit Court of Appeals. The plaintiff was Devin Strickland (Strickland), a supplier of sand to Douglas Asphalt Paving Company (Douglas) on a Georgia Department of Transportation (GDOT) road improvement project.  Douglas held a contract with the GDOT that included GDOT’s standard specifications which required: 1) the Contractor to provide repairs to the work until final written acceptance by GDOT; and 2) furnish documentation of payment to all material suppliers. Defendant Arch issued a payment bond to Douglas in 2003.  In 2007, the GDOT found Douglas to be in default and terminated its contract thus forcing Arch to hire a third party to complete the balance of the work.  Strickland did not provide any materials for the project after Douglas was terminated.

GDOT determined the work was substantially complete in August of 2010 and the following month a final inspection was performed which generated a punchlist for the third-party contractor to complete. The punchlist was completed in September of 2011 and Arch requested GDOT accept the project for maintenance citing the project had been 1) open to unrestricted traffic; 2) punchlist items were complete; and 3) all outstanding payments had been settled.  In February 2012, an area GDOT engineer requested that GDOT accept maintenance responsibilities which was granted in March 2012 retroactively to September of 2011.  Arch received semi-final payment in July of 2012.

In September 2012, Strickland sent a demand letter to Arch on Douglas’s payment bond.  Arch acknowledged the claim and requested further documentation which went unanswered by Strickland.  In 2014, Strickland learned from a GDOT engineer that the project was about to be closed and it needed to file any claims immediately, which Strickland did in August of 2014.  In September of 2014, GDOT issued its letter of final acceptance stating the project had been accepted since April 2012.

At trial, the court granted summary judgement for Arch due to Georgia’s one year statute of limitations having run on Strickland’s bond claim.  Strickland appealed.

The Court of Appeals began its analysis by pointing to the Georgia statute that states “[n]o action can be instituted on payment bonds or security deposits after one year from the completion of the contract and the acceptance of the public works construction by the proper public authorities.” O.C.G.A. § 13-10-65.  Additionally, the Court defined the start of the one-year period as “[commencing] at the completion of the actual construction work and acceptance thereof by the public authority.” U.S.F. & G. Co. v. Rome Concrete Pipe Co., 353 S.E.2d 15, 16 (1987)

Strickland presented three arguments to the Court.  The first was that the project was not completed until 2014 because GDOT’s standard specification contained language that a contractor had a repair requirement until final written acceptance of the work, which happened in September of 2014. Strickland’s second argument was that a genuine dispute of material existed due to the GDOT engineer’s email to Strickland that stated the project had “not received final acceptance and approval.” Finally, Strickland argued that the statute of limitations had not run on the payment bond and it remained in “full force and effect” until every supplier on the project was paid by the contractor.  The Court rejected each of these arguments.

Strickland’s first argument was rejected by the Court because it determined the project was substantially completed in 2010 when Arch requested GDOT’s final inspection and when the punch list items were completed in September 2011.  By any interpretation of Georgia’s definition of project completion, Strickland was outside of the one year statute of limitations when it filed its bond claim.

The Court further ruled that the GDOT engineer’s email to Strickland in 2014 stated the project had not received final acceptance and approval, but the engineer was only referencing final “written final acceptance.”  The two year gap between Archer’s semi-final payment in 2012 and final acceptance in 2014 was explained by GDOT because it was awaiting and processing test results before it could complete the project, a GDOT administrative function.  Georgia’s definition of completion of “actual construction work” does not rely upon such administrative functions.

Finally, Strickland’s third argument that the statute of limitations on the bond had not run because it had not been paid was rejected by Court.  The Court found that such an interpretation would make a statute of limitation meaningless because the limitations period would never start running so long as a supplier had not been paid.

The Court affirmed the lower court’s ruling that the statute of limitations had run on Strickland’s bond claims.

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The author, Brendan Carter, is a contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law.  He is the Director of Industry Advancement & Labor Relations with the AGC of Massachusetts based in Wellesley, MA.  He may be contacted at 781.786.8916 or carter@agcmass.org.