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North Pac. Erectors, Inc. v. State, Department of Administration

Supreme Court of Alaska

September 6, 2013

NORTH PACIFIC ERECTORS, INC., Appellant,
v.
STATE OF ALASKA, DEPARTMENT OF ADMINISTRATION, Appellee

Appeal from the Superior Court of the State of Alaska, Third Judicial District, Anchorage, William F. Morse, Judge. Superior Court No. 3AN-09-09085 CI.

Paul J. Nangle, Paul J. Nangle & Associates, Anchorage, and Terry R. Marston II, Marston Legal, PLLC, Kirkland, Washington, for Appellant.

David T. Jones, Senior Assistant Attorney General, Anchorage, and Michael C. Geraghty, Attorney General, Juneau, for Appellee.

Before: Fabe, Chief Justice, Winfree, Stowers, Maassen, and Bolger, Justices.

OPINION

Page 496

FABE, Chief Justice.

I. INTRODUCTION

This appeal arises from a contract dispute between North Pacific Erectors, Inc. and the Alaska Department of Administration. North Pacific and the Department contracted for a renovation and asbestos removal project in the Juneau State Office Building. After work began, North Pacific requested additional payment for the asbestos removal, claiming there was a differing site condition that made the project more labor-intensive than it had expected. The Department denied the differing site condition claim, and North Pacific filed an administrative appeal. A hearing officer recommended that North Pacific was entitled to additional compensation. But the hearing officer's recommendation was rejected, and a final agency decision was issued denying North Pacific's claim for additional compensation. North Pacific challenged the agency decision in superior court, arguing that the agency decision was procedurally flawed and incorrectly resolved the contract issues. The superior court affirmed the agency decision.

North Pacific appeals the superior court's judgment, arguing that it has a valid differing site condition claim, that the Department breached its duty to disclose information about the project, and that the agency decision was procedurally flawed. We conclude that even if North Pacific could prevail on its differing site condition claim or its procedural claims, North Pacific's failure to comply with the express provisions of the contract requiring the contractor to keep records of

Page 497

all damages would bar recovery. We therefore affirm the superior court's decision affirming the agency decision.

II. FACTS AND PROCEEDINGS

A. Facts

1. Bidding process

In 2006 the Alaska Department of Administration solicited a bid for asbestos abatement and the renovation of one floor in the Juneau State Office Building. The Department's bid solicitation notified potential bidders that they were responsible for investigating the project site. The bid solicitation provided that by submitting a bid, the contractor represented that it had " visited and carefully examined the site and is satisfied as to the conditions to be encountered in performing the Work." At a prebid meeting, the Department provided an opportunity for contractors to visit the project site. One bidder visited the project site. It is uncontested that North Pacific and its subcontractor did not visit the job site or participate in the prebid meeting before bidding on the contract. Contractors would not have been able to see the pan deck surface [1] at a site visit, however, because fireproofing was still covering the pan deck at the site. But some other areas of the pan deck were uncovered in the State Office Building. The Department reported to the hearing officer that it was normal practice to show a contractor any part of a job site or site condition upon request and that if there had been such a request it would have set up an inspection of the exposed pan deck surface.

North Pacific was the successful bidder for the renovation and asbestos abatement project. The contract between North Pacific and the Department included the same site investigation provision as the bid solicitation, which provided that the contractor had " visited and carefully examined the site and is satisfied as to the conditions to be encountered in performing the Work." The contract also contained detailed provisions establishing procedures for measuring and documenting damages and maintaining cost records of claims for additional compensation.

North Pacific hired a subcontractor for the asbestos abatement. Once work began, North Pacific asserted that its asbestos abatement subcontractor was entitled to additional compensation beyond the contract price for the project. North Pacific claimed that the asbestos removal was significantly more difficult and time-consuming than it could have foreseen because the pan deck surface was dimpled rather than smooth.

2. Dispute

After the subcontractor began work on the project, its project manager made a note in his daily report about the dimpled pan deck surface and described the cleaning process for the " indentations" and " prot[ru]sions" in the pan deck that " cost[] us considerable time." The workers had to use toothbrushes to clean the bumpy surface, but the contractor's daily report did not contain any time estimate for the additional cleaning efforts. The hearing officer found that " [t]his [initial] entry [was] the only entry . . . made in the daily reports relating to the embossed pan deck." By contrast, the subcontractor repeatedly referred to other problems in the daily reports, including problems with air pressure and containment, foam that failed to expand, and issues with metal flashing.

The subcontractor notified North Pacific about the pan deck problem, and North Pacific then transmitted the information to the Department, requesting additional compensation. The Department denied the initial request for additional compensation.

North Pacific next filed a claim pursuant to the contract's differing site conditions clause. The clause provided:

The CONTRACTOR shall promptly, and before such conditions are disturbed (except in an emergency as permitted by paragraph 6.19), notify the Contracting Officer in writing of: (1) subsurface or latent physical conditions at the site differing materially from those indicated in the Contract, and which could not have been discovered

Page 498

by a careful examination of the site, or (2) unknown physical conditions at the site, of an unusual nature, differing materially from those ordinarily encountered and generally recognized as inherent in work of the character provided for in this Contract. The Contracting Officer shall promptly investigate the conditions, and if the Contracting Officer finds that such conditions do materially so differ and cause an increase or decrease in the CONTRACTOR's cost of, or time required for, performance of this Contract, an equitable adjustment shall be made and the Contract modified in writing accordingly.
. . . In the event that the Contracting Officer and the CONTRACTOR are unable to reach an agreement concerning an alleged differing site condition, the CONTRACTOR will be required to keep an accurate and detailed record which will indicate the actual " cost of the work" done under the alleged differing site condition. Failure to keep such a record shall be a bar to any recovery by reason of such alleged differing site conditions. The Contracting Officer shall be given the opportunity to supervise and check the keeping of such records.

The contract expressly required that the contractor keep an " accurate and detailed record" of the actual cost of work performed under the alleged differing site condition:

If the CONTRACTOR believes additional compensation or time is warranted, then he must immediately begin keeping complete, accurate, and specific daily records concerning every detail of the potential claim including actual costs incurred. The CONTRACTOR shall provide the DEPARTMENT access to any such records and furnish the DEPARTMENT copies, if requested. Equipment costs must be based on the CONTRACTOR's internal rates for ownership, depreciation, and operating expenses and not on published rental rates. In computing damages, or costs claimed for a change order, or for any other claim against the Department for additional time, compensation or both, the contractor must prove actual damages based on internal costs for equipment, labor or efficiencies. Total cost, modified total cost or jury verdict forms of presentation of damage claims are not permissible to show damages.

(Emphasis added.) After considering numerous exhibits, including the contract, bid documents, and a construction report, the Department's procurement officer found that North Pacific was not entitled to additional compensation under the differing site conditions clause.

B. Proceedings

North Pacific brought an administrative appeal of the procurement officer's decision. While this matter involves a contract between North Pacific and the Department of Administration, AS 36.30.625(a) dictates that the Department of Transportation and Public Facilities hears construction contract appeals. [2] The Department of Transportation and Public Facilities Chief Contracts Officer Mark O'Brien designated a hearing officer to hold a hearing and prepare a recommended decision. Alaska Statute 36.30.675 provides that the " hearing officer shall recommend a decision to the . . . commissioner of transportation and public facilities." [3] Under the statute, the commissioner has the broad authority to " affirm, modify, or reject the hearing officer's recommendation in whole or in part," or " remand the matter to the hearing officer." [4]

This case primarily involves five underlying decisions: (1) the hearing officer's initial recommended decision; (2) the Department of Transportation and Public Facilities's decision to remand the case to the hearing officer; (3) the hearing officer's recommended decision on remand; (4) the Department of Transportation and Public Facilities deputy commissioner's final decision; and (5) the superior court's decision.

1. Initial hearing officer recommendation

The hearing officer concluded that there was a differing site condition entitling North

Page 499

Pacific to additional compensation. Even though the subcontractor " did not segregate its labor costs," and its " expert utilized a method of requesting damages which is prohibited by the contract," the hearing officer " decline[d] to enforce strictly the construction contract limitations" because he found that the Department " should have disclosed this condition [of the pan deck surface] to all bidders." The hearing officer also explained that the " contract contemplates when differing site conditions are discovered, the Contracting Officer and the parties will seek to make a resolution at that time during the contract performance," concluding that both parties failed to follow " the requirements of the contract to resolve the dispute over the differing site conditions during performance of the contract." The hearing officer recommended that North Pacific was entitled to an award of $158,821 for " cost overruns attributed to the embossed pan deck."

2. Agency remand of the hearing officer recommendation

The Department of Transportation and Public Facilities remanded the hearing officer's recommended decision, explaining that " the recommended decision fails to address a number of fundamental issues bearing on liability and damages." [5] On remand, the agency instructed the hearing officer " to reconsider this matter in light of relevant legal principles and to issue a revised decision conforming to applicable law." In particular, the agency directed the hearing officer to address the site inspection clause, which provided that the contractor had " visited and carefully examined the site and is satisfied as to the ...


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