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Thelen LLP
A subcontractor sued a general
contractor and its surety, seeking additional compensation for unforeseen
conditions encountered during dredging. The contractor
and its surety removed the matter to U.S. District Court. They brought a third
party claim against the New Orleans Port Authority for indemnification of the
subcontractor’s claim and for delay damages allegedly arising during
construction of a cargo wharf complex on the Mississippi River. The contractor
claimed that delays during dredging had a ripple effect that delayed the whole
project by a year.
The subcontractor settled and
dismissed its claims. The surety then dismissed its claims. The Port Authority
counterclaimed against the contractor, Traylor,
for liquidated damages. In a bench trial, the District Court rejected both
claims. On appeal, the 5th U.S. Circuit Court of Appeals affirmed. T.L.
James & Co.,
Inc. v. Traylor Bros., Inc., 294 F.3d 743 (5th Cir. 2002).
The District Court reasoned
that the contract adequately advised bidders of “unknown
infrastructures” at the site, including steel and timber piles removed
to the mudline during demolition of an old structure to make way for the new
wharf. The contract referred bidders to the Port Authority’s map and
drawing room for more detailed maps of existing conditions. And, it charged
bidders with information that could be reasonably learned from a pre-bid site
inspection. The District Court concluded that the contractor had a duty to
investigate and to review the information available at the Port’s office.
Because the contractor failed to satisfy these duties, the court rejected its
claim for damages.
In analyzing Traylor’s claim of inadequate disclosures in the plans
and specifications, the District Court adopted the elements set out by the
Federal Circuit Court of Appeals in Stuyvesant Dredging Co. v. United States, 834 F.2d 1576, 1581 (Fed. Cir. 1987). To obtain an equitable adjustment for
changed conditions, the “conditions actually encountered in the field
must have been reasonably unforeseeable based on all of the information
available at the time of the bid.” In addition, the contractor must establish that “it
reasonably relied on the contract and related materials and that it suffered
damages as the result of the material difference between the expected and encountered
conditions.”
On appeal, the contractor argued
that the Port knew of the obstructions but failed to advise the contractor,
causing the project substantial delays. The
contractor denied it had any duty to investigate, claiming that it had every
right to expect that all information necessary to bid on the project was included
in the bid package. Relying on industry custom, the contractor claimed that
it had no obligation to base its bid on anything other than the plans and specifications
provided by the Port in the bid package -- including the contractor’s
own knowledge.
The appeals court rejected this argument and affirmed the trial court decision.
The appeals court found that
the obstructions were referenced in contract documents and were reasonably
discoverable by searching the Port’s archives.
It held that Traylor had an express duty under the contract to visit the site
and investigate. The court distinguished cases cited by the contractor involving
contractors encountering unknown conditions. Those cases did not involve contract
language warning the contractor of the obstructions to be encountered.
The appeals court also rejected
Traylor’s unjust enrichment claim. The
court reasoned that the Port received what it had bargained for, as did the
contractor. Moreover, the Port Authority had agreed to compensate the contractor
with an allowance of up to $100,000 for re-locating or re-building infrastructures
that were not shown on the plans, that materially varied from the plans or
that could not reasonably be discovered by the contractor through a pre-bid
site inspection. To recover for unjust enrichment, Louisiana law requires that
there be no other remedy at law. The court found that the allowance constituted
such a remedy at law.
The court also rejected the
contractor’s other theories of recovery.
Claims based on the Port’s implied warranty of the plans and specifications
were rejected because the contractor failed to follow the construction sequence
set out in the contract. Alleged changed soil conditions were deemed to be
de minimus. Finally, by failing to give notice as required by the contract,
the contractor forfeited its right to seek additional compensation for an allegedly
excessive number of pile cut-offs, the court held. The lack of notice denied
the Port the chance to track costs and delays.
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-369-7229 or at pwberning@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
©2004 Thelen LLP
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