A recent article written by our President/Founder Bill Perry was published in November 2019's Construction Journal, a monthly publication of CIM ("Construction Industries of Massachusetts, Inc."). The article was a Report on the Appeal of Judlau-White JV of the Chief Engineer’s Denial of Claim.
By: William Perry, P.E., President / Founder Perry Associates, LLC
Co-Author: Michael P. Sams, Esq., Kenney & Sams, P.C.
The Project – Contract #85015 - Replacement of Two Bridges on Revere Beach Parkway/Route 16: The Woods Memorial Bridge over the Malden River and Bridge No. M-12-017 over the MBTA
The Parties – Owner: Massachusetts Department of Transportation General Contractor: Judlau-White JV
Subcontractor: Saugus Construction Steel Supplier: A.R.C. Enterprises, Inc.
The Dispute – MA DOT applied a steel price adjustment credit to the contract which Judlau-White, Saugus and A.R.C. disputed on the basis of being contractually unsupported.
In 2015, the Massachusetts Department of Transportation (“the Department”) and Judlau-White JV entered into Contract #85015 which provided for replacement of two bridges on the Revere Beach Parkway/Route 16. The bid documents for the project contained a Notice to Contractors section which provided information about the project to prospective bidders, including a statement that the contract contained price adjustments for steel. The Notice to Contractors listed base prices for those items of steel subject to price adjustment.
The plans and specifications for the project required the use of Grade 50W structural steel in replacing the two bridges. However, the Notice to Contractors did not include a base price for Grade 50W. The Notice to Contractors included base prices for other types of steel, including for example, Grade 50 steel.
The Department has an internal process for establishing and updating base prices for different types of steel on a monthly basis, which is based on the steel mill price lists and the producer price index published by the US Department of Labor, Bureau of Labor Statistics; however, such base prices are not accessible to bidders unless they are included in the bid documents. In other words, if the Department did not include the base price in the bid documents—as was the case here—there was no way for the bidders to know what base price the Department would use for a price adjustment.
For the months of January, February, and November 2016, the Department calculated price adjustments for the required Grade 50W structural steel used on the project, which resulted in a total credit to the contract in the amount of $128,749.69. Although there was no base price for Grade 50W steel listed in the Notice to Contractors, the Department calculated the price adjustment for the Grade 50W steel, using a base price of $0.48/pound, which was the base price listed in the Notice to Contractors for Grade 50 steel.
The $128,749.69 credit was eventually applied by the Department to Judlau-White’s contract, and subsequently passed from Judlau-White through to Saugus; and ultimately credited against amounts owed to A.R.C. Enterprises, Inc. (“A.R.C.), the steel supplier.
Application of the credit is disputed
After being made aware of the Department’s intentions to adjust the contract price for a steel price adjustment, and prior to its issuance, A.R.C. appealed to the Department to reconsider its position. Within its appeal letters, A.R.C. cited the relevant contract provisions and provided examples of other contracts that had similar contractual ambiguities, for which the Department had not applied steel price adjustments. A.R.C. also provided information regarding, among other things, the physical differences between Grade 50 and 50W steel, attempting to further show why the price adjustment credit was inappropriate. Despite the additional information A.R.C. provided, the Department applied the credit it had calculated and adjusted the contract price by $128,749.69.
At this stage in the process, A.R.C. engaged Perry Associates, LLC to assist A.R.C. with structuring, articulating and further supporting its request for the Department to reverse its application of the steel price adjustment credit.
In December 2016 A.R.C. submitted an updated package, requesting that the Department reconsider its position and further articulating and supporting its primary arguments that:
The applicable statute M.G.L. c. 30, Section 38A, states that a base price needs to be listed in the bid documents when a project is advertised, for each material subject to a price adjustment. In this case, the Department failed to include a base price for Grade 50W steel. A.R.C. argued that this fact, and the applicable statutory language, prohibits the Department from taking a credit on contract materials for which no base price was included in the contract.
There are physical differences between Grade 50 steel and Grade 50W steel, which results in different base prices. Thus, the base price for one type of steel should not be used to calculate a price adjustment for another type of steel.
In January 2017, the Department’s District Highway Director (DHD), rejected A.R.C.’s request for reconsideration, noting that:
The contract provisions state that price adjustments apply to “all structural and reinforcing steel”
Although the Department agreed that a base price for Grade 50W was not included in the Notice to Contractors, that the normal bidding process allows for questions to be asked, and that no question was asked regarding this issue, which would have been the proper forum for clarifying this the Department’s “obvious error.”
The Contractor appealed, centering the dispute over the $128,749.69 credit that the Department applied to the Contract, based on a price adjustment for Grade 50W Steel, which lead to implementation of the Department’s three-step claim resolution process
Disputing the DHD’s rejection of A.R.C.’s request for reconsideration, A.R.C. subsequently filed its Notice of Claim in February 2017, and proceeded to Step 1.
In April 2017, a meeting was held with the Department, Judlau-White, Saugus and A.R.C. in which the Notice of Claim was discussed. Subsequent to the meeting, and in conjunction with the Department’s District Claims Engineer (DCE), the DHD again rejected the claim, reiterating its prior argument that that price adjustments apply to “all structural and reinforcing steel”, but also noting that the price adjustment provisions are mandatory, and that there are no “opt-in or opt-out” provisions.
The Chief Engineer provides the Department’s written denial of the claim that the price adjustment for Grade 50W Steel was improper, based on the determination made by the Claims Committee
As A.R.C. continued to dispute the DHD’s rejection of its claim, A.R.C. subsequently filed its written request for determination by the Department’s Claims Committee and proceeded to Step 2. In September 2018, the Department’s Chief Engineer provided the Claims Committee’s determination. The Committee had denied the claim and based its denial on the following:
The applicable statute M.G.L. c 30, Section 38A. As to the statute, the Committee stated that it requires that the Department make steel price adjustments and that the Department does not have the authority to waive these requirements.
Division I, Section 5.04 of the contract documents. As to this section of the contract documents, the Committee, stating that the Contractor should have noticed the base price for Grade 50W steel was omitted in the bid documents, that the Contractor did not ask for clarification of the error in the bid documents, and cannot take advantage of any apparent error or omission in the plans or specifications. The Committee viewed the Department’s error as an “obvious” one.
The claim proceeds to the Department’s Administrative Law Judge
As A.R.C. disputed the Department’s Claims Committee’s rejection of its claim, A.R.C. subsequently filed a Statement of Claim to the Office of the Administrative Law Judge (ALJ) and proceeded to Step 3.
At this stage, A.R.C. engaged the law firm of Kenney & Sams, P.C. (“K&S”) to provide legal assistance in support of its pursuit of the claim, further bolstering its legal arguments, and presenting the case during the hearing.
Within the Statement of Claim and subsequent filings, K&S addressed and rebutted the Claims Committee’s position. Specifically, K&S argued, among other things, as follows:
The Department is bound by the clear and unambiguous terms that are set forth in the bid documents. Here, the terms set forth in the contract documents were clear and unambiguous: there was no base price for Grade 50W steel and only for other types of steel, including Grade 50.
To the extent there was any ambiguity in the contract documents—which A.R.C. refuted—the ambiguity had to be construed in A.R.C.’s favor based on applicable principles of contract interpretation under Massachusetts law. In other words, to the extent the contract documents were ambiguous as to the Department’s ability to impose a credit on Grade 50W steel (which was not listed in the contract documents), the language needed to be construed against the Department, not against A.R.C.
The Department cannot unilaterally alter the terms of the bid documents, again based on applicable principles of contract law in Massachusetts.
The Department’s failure to include a base price for Grade 50W steel in the contract documents was not an “obvious error” in the project’s plans or specifications. Indeed, the Committee had taken the position that the Contractor knew that Grade 50W steel was required on the project but did not seek clarification of an obvious error through a bidder’s question. The Committee further stated that the requirements of Division I, Section 5.04 of the contract documents, indicated that the Contractor could not take advantage of an apparent error or omission. K&S rebutted the Committee’s position, highlighting among other things, the following: the project was bid on July 14, 2015. The lack of the required base price for Grade 50W steel was not discovered by A.R.C., Saugus or the JV prior to the bid date. In fact, it was also apparent that none of the other project bidders discovered the missing Grade 50W base price as there were no related question submitted by any of the project bidders. It was not until the fall of 2016, over one year after the bid date, when the Department expressed its intention to withhold a credit, that A.R.C., Saugus and the JV became aware of the issue.
In October 2018 the Department issued new Contract Special Provisions, in recognition of the conflicts and ambiguities within the previous provisions.
Neither A.R.C., Saugus nor the JV, can be held responsible for errors they had not discovered prior to the bid. In addition, neither A.R.C., Saugus nor the JV can be held responsible for errors made by the Department or the project designer, Stantec.
In short, although A.R.C. did not dispute that the Department could not waive a statutory requirement set forth in M.G.L . c. 30, Section 38A, the statute did not give the Department cart blanche rights to impose credits on materials that were not specified in the contract documents as subject to a credit. Here, in making its adjustment, the Department stepped outside the bounds of the Contract, which is unacceptable.
Based upon the Statement of Claim, additional filings and the testimony heard from both parties, the Administrative Law Judge recommended that the Contractor’s appeal be allowed, and the Department return the credit of $128,749.69 back to the Contract. This recommendation was subsequently approved and issued by Secretary Pollack.
The ALJ ruled that the Department failed to include a base price for Grade 50W steel in the bid documents, as required by M.G.L. c. 30, Section 38A. However, and despite this failure, the Department calculated and applied a price adjustment for Grade 50W steel using a base price included in the Contract for a different type of steel. The ALJ subsequently concluded that the Department’s position is inconsistent with the Contract terms and the requirements of the statute. The ALJ further stated that bidders are entitled to rely on the integrity of the public bidding process and the presumption that the Department, which is charged with statutory compliance, has complied with all statutory requirements.
Why is this important for all CIM members?
This case demonstrates that when arguing a dispute within a legal arena, the contract provisions will be strictly interpreted. As with all contracts, the parties are responsible for complying with its provisions. Within Massachusetts, as with many states, there are also state statutes that govern public construction projects and impose certain obligations on the parties. Professional and legal assistance is often the key to successful resolution of disputes—regardless of whether it is a complex dispute, or a dispute that may appear as a simple “no brainers”.
In this case, the Department failed to meet its statutory requirement of including a base price for each material subject to price adjustments. Accordingly, the Contract provisions did not allow the Department to take a steel price adjustment credit on a grade of steel that it had not identified in the contract documents as subject to a price adjustment. The Department was not justified in stepping outside the bounds of the contract, without an amendment or change order.
This case also demonstrates the importance of the bidder’s entitlement to rely on the integrity of the public bidding process and the presumption that the awarding authority has complied with all of the statutory requirements it is obligated to follow. All bidders must be allowed to base their bids on a complete set of plans and specifications, ensuring that all bids have a common basis and can then be evenly and fairly compared to each other to determine the lowest responsive bid. This is what ensures the “fairness” in the process. If bidders are required to anticipate and incorporate requirements outside of the published plans and specifications, awarding authorities would have the upper hand and an unfair competitive advantage over bidders—and bidders would have no way of understanding which bids incorporate which requirements, making a fair comparison virtually impossible.