US Sixth Circuit Court of Appeals Rules That Change Order Settling All Claims for Changes Did Not Bar Claim for Acceleration Costs

Steel Services Corp. v. Board of County Commissioners
2007 U.S. App. Lexis 30052 (6th Cir. Dec. 27, 2007)

The Cincinnati Reds were building a new baseball stadium. Hamilton County (“County”) awarded Contractor, Steel Service Corp. (“Contractor”), a $33 million dollar contract for the fabrication and erection of the steel superstructure. The start of the Contractor’s work was delayed. The County’s construction manager directed the Contractor to accelerate its work due to the project delays and take extraordinary measures to comply with the contract and schedule. Contractor accelerated and submitted a claim for additional costs incurred by itself and its subcontractors. The County and Contractor executed a change order providing for a provisional payment to be applied against the amount, if any, to which the Contractor was ultimately determined to be entitled in reimbursement of the acceleration costs. Neither party accepted responsibility for the delays in the change order. The change order stated that Contractor had begun implementing extraordinary measure, had incurred additional costs and would continue to do so throughout the course of the project. Construction proceeded.

Several additional change orders were executed thereafter for changes in the work implemented through a Construction Change Directive/ Construction Change Proposal Process. After the ballpark was substantially complete, the parties executed the last change order, Change Order No. 9, which stated that it was a change order settlement for all claims arising out of changes, but reserving all claims either party might have under the contract. The Change Order stated that it “constitute[d] a full, final and complete … settlement with respect to any and all claims… that [the Contractor] had arising out of or relating to the Changes….[and] settle[d] all [Construction Change Proposals] submitted [by the Contractor]….”

The Contractor then filed suit to recover approximately $5 million for additional costs incurred as a result of the extraordinary measures. The County moved for summary judgment and alleged that the claim for additional costs was settled in Change Order 9. Moreover, County asserted that part of Contractor’s claim was a “pass-through” claim for subcontractor costs, which are not recognized under Ohio Law. The District Court granted County’s motion for summary judgment.

On appeal, the United States Court of Appeals for the Sixth Circuit reversed and remanded the District Court’s decision. First, the court found that Change Order No. 9 clearly settled all outstanding “change proposals”, but did not settle outstanding “claims” under the contract. The Court held that the contract differentiated between a claim and construction change proposal. The change proposals addressed specific work changes in the ballpark, but the Contractor’s claim asserted a contractual right for additional compensation for its implementation of the extraordinary measures. In sum, the change order settlement that covered all claims arising out of changes, but did not preclude Contractor’s claim for additional compensation.

Furthermore, the Court disagreed with the trial court’s conclusions regarding the “pass-through” claims and remanded the issue. As an initial matter, the Court noted that the parties’ contract contemplates that Contractor would present its subcontractors’ additional costs to County for compensation. The court also questioned whether Contractor’s claim was a pass-through at all or whether it was contractor simply asserting its contractual rights to additional compensation. However, the Court did not suggest that it depart from Ohio law to the extent that itprohibited pass-through claims.

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