October 2007

Caddell Construction Co., Inc. v. United States
2007 U.S. Claims LEXIS 285, No. 04-461C, (September 7, 2007)
The United States District Court of Federal Claims held that the design deficiencies alleged by the plaintiff contractor did not rise to the level of a breach of the implied warranty set forth under the Spearin Doctrine.
Plaintiff Caddell Construction Co. (“Plaintiff”) entered into a contract with the Department of Veteran Affairs (the “Government”) to modernize and strengthen the VA Medical center in Memphis, Tennessee. Plaintiff claimed on behalf of its steel fabrication subcontractor, Steel Service Corporation (“SSC”), that the Government provided structural steel drawings that contained conflicts, errors, omissions, and/or inadequate details which resulted in delay and additional costs to SSC.
Continue Reading US Claims Court Explains Limits of Spearin Doctrine – Denies Contractor Recovery Where Testimony Regarding Defective Design Was Conclusory

National American Insurance Company v. United States
No. 2007-5016, 2007 U.S. App. LEXIS 20058 (Fed. Cir. August 23, 2007)
The US Court of Appeals for the Federal Circuit upheld the lower court’s grant of a motion for summary judgment. The Court held that a payment bond surety is equitably subrogated to the rights of the contractor whose debt it discharges, and thus can pursue a claim directly against the government.
The case arose out of a contract between Innovative PBX Services, Inc. (“Contractor”) and the United States Small Business Administration (the “government”) for the replacement of a telephone system at the Department of Veterans Affairs Medical Center. The Contractor subcontracted part of the work to Nortel Communications Systems, Inc. (“Subcontractor”). As required by the Miller Act, the Contractor executed payment and performance bonds in favor of the government with National American Insurance Company (“Surety”) as the surety. After completion of the contract work, the Subcontractor notified the Surety that it was owed approximately $675,000 for labor and materials that the Contractor had failed to pay for. The Subcontractor then instituted a Miller Act claim under the payment bond against the Surety, which the Surety settled. The Surety also notified the government that no addition payments should be made to the Contractor in light of the Miller Act claim and requested that all remaining contract funds be held for the Surety’s benefit. The government, however, did not follow the Surety’s request and made its final contract payment to the Contractor. As a result, the Surety filed a complaint against he government seeking damages of $280,000.
Continue Reading Federal Circuit Court of Appeals Holds that a Payment Bond Surety that Discharges a Contractor’s Obligation to Pay a Subcontractor is Equitably Subrogated to the Rights of Both the Contractor and Subcontractor and May Bring Suit Directly Against the United States

Neshaminy Constructors, Inc. v. Concrete Building Systems, Inc.
2007 U.S. Dist. LEXIS 69197, Civil Action No. 06-1489 (E.D. Pa. 2007)
The United States District Court for the Eastern District of Pennsylvania conducted a bench trial in which the primary question was whether a contract had been formed between a contractor and subcontractor in connection with a project for which the contractor submitted a bid proposal utilizing, in part, the subcontractor’s bid proposal for calculating the total price for the work. Relying on Pennsylvania common law, the Eastern District held that use of a subcontractor’s bid, by a general contractor in the submission of its own bid to the owner, in and of itself is not sufficient to create a binding contract.
Continue Reading Federal District Court in PA Holds Contractor’s Use of Subcontractor’s Conditional Bid Proposal in its Bid to Owner Insufficient to Form Enforceable Contract

Pa. Associated Builders and Contractors, Inc. v. Dep’t of Gen. Servs
2007 Pa. LEXIS 2175 (Oct. 17, 2007)
On October 17, 2007 the Pennsylvania Supreme Court ruled that a lower court decision misinterpreted the state’s Procurement Code and that the Commonwealth Department of General Services (DGS) should be allowed to use a sealed proposal process to procure construction contracts.
In April, 2005, DGS initiated the use of the request for proposal (RFP) process to award construction contracts on larger projects (exceeding $5 million). In October 2005, Associated Builders and Contractors (ABC), a trade association of contractors and subcontractors, filed suit in the Commonwealth Court to enjoin DGS from using the RFP process for construction contracts, asserting that by statute construction work could only be awarded by competitive bidding requiring an award to the lowest competitive bidder. The Commonwealth Court held that the Procurement Code does not extend the RFP process to construction contracts, and, accordingly, enjoined DGS from utilizing the competitive sealed proposal bidding/RFP process on any future construction project under its policy determination. DGS appealed the Commonwealth Court’s decision.
Continue Reading Pennsylvania Supreme Court Reverses Commonwealth Court Ruling Barring Use of RFP Process for Procurement of Construction Work

Central Ceilings, Inc. v. Nat’l Amusements, Inc.,
70 Mass. App. Ct. 172, 873 N.E.3d 754 (Sept. 18, 2007)
National Amusements, Inc., entered into a contract with Old Colony Construction Corporation for the construction of National’s cinema theater complex. Old Colony subsequently entered into a subcontract with the plaintiff, Central Ceilings, Inc., for a portion of the construction of the Project. Although delays made meeting the original completion date next to impossible, National stressed to Central its strong desire to have the theatre complex open for the Labor Day weekend. In response, Central made it clear to National that meeting such an aggressive completion date would require it to accelerate the work schedule. In addition, since Old Colony was experiencing cash flow problems and owed Central a substantial sum of money for work already completed, Central demanded assurances from National that it would be paid for its work before it would continue with the accelerated work on the Project. As a result, one of National’s agents orally agreed to pay Old Colony’s obligations to Central. Thereafter, Central completed its work and achieved substantial completion by August 25.
Continue Reading Massachusetts Court Holds Owner’s Oral Promise to Pay Subcontractor Enforceable Under Main Purpose Exception to Statute of Frauds

PSEG Power New York, Inc. v. Alberici Constructors, Inc.
2007 U.S. Dist. LEXIS 66767 (N.D. NY. September 7, 2007)
During the course of litigation arising out of a contract for the construction of a combined-cycle power plant between the principal contractor Alberici and PSEG, an e-discovery dispute arose around the production of email. In response to Alberici’s request for documents including email and any email attachments, PSEG produced over 211,000 pages and a disc containing email, but not the email attachments. Later it was discovered that during the process in which PSEG’s vendor downloaded the emails for production, the tie between the email and its corresponding attachments was broken, making it very difficult to determine which attachment belonged to which email. However, the raw data remained intact. Around the same time, and before the close of discovery, PSEG moved for summary judgment. The District Judge struck the motion sua sponte, stating that the motion was to be renewed after discovery had been completed and the parties had consulted with the magistrate judge.
Continue Reading Federal District Court in NY Orders Owner to “Re-Do” Electronic Production of Email Including Corresponding Attachments at Its Own Expense

ACE Constructors, Inc. v. U.S.
2007 U.S. App. Lexis 22309 (Fed. Cir. September 19, 2007)
The US Court of Appeals for the Federal Circuit upheld a contractor’s claim for additional compensation due to differing site conditions.
ACE Constructors, Inc. (“Contractor”) entered into a contract with the United States Army Corps of Engineers (“Government”) to build a structure designated as the Ammo Hot-Load Facility, at Biggs Army Airfield at Fort Bliss in El Paso, Texas. The project included construction of a loading area for cargo planes, various roadways, buildings, a storage pad, a loading apron, and a taxiway for airplanes. The site contained hills and other terrain that needed to be excavated, leveled, and filled. The bid solicitation materials included architectural drawings and engineering specifications prepared for the government by the engineering firm of Crawford, Murphy & Tilly, Inc., which plans were incorporated into the contract.
Continue Reading Federal Circuit Court Of Appeals Upholds Claim For Differing Site Conditions

BEGL Construction Company, Inc. et al. v. Los Angeles Unified School District and Star Insurance Com
154 Cal.App.4th 970; 2007 Cal.App. LEXIS 1432 (2007)
In August 2000, the Los Angeles Unified School District (the “District”) entered into a public works construction contract with BEGL Construction Company, Inc. (“BEGL”) for a seismic retrofit of the Science Building at its Los Angles Center for Enriched Studies (“LACES”) and demolition and reconstruction of the LACES West Arcade. Because the project was a public work, BEGL was required to post a performance bond and a payment bond. Subsequently, after BEGL commenced performing work, the West Arcade was removed from the scope of the contract.Continue Reading California Court Upholds Recovery of Lost Profits Due to Impaired Bonding Capacity

South Texas Electric Cooperative v. Dresser-Rand Company
2007 U.S. Dist. Lexis 66345 (S.D. Tex. Sept. 7, 2007)
Plaintiff, South Texas Electric Cooperative (“STEC”) contracted with Defendant, Dresser-Rand Company (“Dresser”) for the design and construction of a steam turbine unit. As part of the contract, Dresser was required to provide equipment, materials and field services free from defects in material and workmanship. Moreover, the equipment had to meet certain performance specifications.Continue Reading US District Court in Texas Denies Summary Judgment to Contractor on Theory That Owner Waived Defect Claim, But Enforces Limitation of Consequential Damages