United States: U.S. District Court In Georgia Considers Effect Of Releases Submitted With Applications For Payment, Notice Requirement As To Extra Work And Defective Specification Claims And No-Damage For Delay Provision

Last Updated: June 10 2013
Article by James M. Kwartnik

United States of America ex rel Duncan Pipeline, Inc. v. Walbridge Aldinger Co. 2013 U.S. Dist. LEXIS 45982 ( S.D. Ga. Mar. 29, 2011)

This action arose out of a subcontractor's claim for additional compensation for extra work.. Walbridge Aldinger Co. ("Walbridge"), general contractor for the U.S. Army Corps of Engineers on construction project at Fort Stewart in Georgia (the "Project"), entered into a subcontract with Duncan Pipeline, Inc. ("Duncan"). Pursuant to the subcontract, Duncan was to supply labor and material for the Project's water distribution system. Duncan began its work in August 2009, and shortly thereafter, Walbridge ordered work that Duncan considered to be outside the scope of the subcontract, including installation of bell restraints, additional excavation work, and remobilization of crews because of interferences encountered during excavation. Duncan performed the allegedly extra work in August and September 2009, and submitted a bond claim to Walbridge and its surety in May 2010.

Walbridge rejected the claim, citing multiple provisions in the subcontract. First, under the terms of the subcontract, Duncan was not entitled to assert a claim for damages due to loss of productivity or inefficiency ("no damage for delay"). Second, the subcontract stated that extra work, including work that deviated from the drawings and specifications, was compensable only if Duncan first obtained written authorization from Walbridge. Further, in order for Duncan to be compensated for changed work, it was required to provide notice and a written proposal to Walbridge within fourteen days or receipt of the direction to perform the changed work. Third, Duncan was obligated to, and did, provide unconditional waivers of claims with its payment applications.

With respect to the waiver issue, the District Court for the Southern District of Georgia, applying federal law, noted that Miller Act payment bond claims may only be waived in a writing executed after the work is furnished by the person whose right is waived. Furthermore, it must be clear that the waiver is intended to apply to payment bond claims. Here, Duncan "waive[d]...rights against payment bonds and claims arising from the improvements ... cover[ing] all amounts due for contract improvement[s]." The Court concluded that the waivers executed by Duncan were ambiguous. Although the releases clearly applied to "rights against any payment bonds", it was not clear that the extra work claims constituted "claims arising from improvements" or "contract improvements". Therefore, the Court denied Walbridge's request for summary judgment based on the waivers.

With respect to the notice issue, the Court, applying Michigan law, concluded that, despite Duncan's arguments to the contrary, the fourteen day notice requirement in the subcontract was mandatory and applicable to these claims. And, the Court rejected the Duncan's argument that it provided adequate notice under FAR Part 52.243.4, a notice provision incorporated by reference into the subcontract. Duncan argued that courts interpreting FAR Part 52.243 have held that it requires written notice of claims to be provided "before such time that the Government would suffer if not apprised of the facts", so that if "the contracting officials have knowledge of the facts or problems that form the basis of the claim and are able to perform necessary fact-finding", then the Government is not prejudiced. Duncan contends that Walbridge had knowledge about and was looking into Duncan's claims in August 2009. The Court found little support in the record for this contention. Moreover, the Court noted that, in this case, Walbridge, and not the Government, allegedly had notice of the possible claim.

Duncan argued, in the alternative, that the contractual time limits should be ignored in light of the defective specifications provided to Duncan. Specifically, Duncan argued that because it was entitled to an equitable adjustment as a result of having to perform extra work due to defective specifications, it did not have to submit written notice of its claims. Under federal law, in order to recover an equitable adjustment for costs incurred due to defective specifications, the subcontractor must show that it relied on the defect, and the defect was not patent or obvious. The Court accepted this argument, concluding that summary judgment as to the equitable adjustments was not appropriate because genuine issues of material fact existed regarding the propriety of the specifications related to the extra work.

Finally, with respect to the no damage for delay provision, the Court noted that under Michigan law, which applied here, exculpatory clauses that limit damages in construction contracts are subject to an exception where the damages were not of the kind contemplated by the parties. Because there remained genuine issues of material fact as to the equitable adjustment argument presented by Duncan, a factual issue also existed as to whether the parties anticipated the type of conditions found at the project and whether those conditions were reasonably foreseeable when the parties negotiated the no damage for delay clause. Therefore, the Court concluded that summary judgment on these grounds was not proper.

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