Question

Fact Situation:

You are the Senior Project Manager for Wackinsmack, Inc., the general contractor on the prime contract for the construction of a new waste water treatment plant for Dimwit County DPW. The Contract Price has grown to $115 million after Dimwit made adjustments to the scope of the Work and issued the appropriate Change Orders. Wackinsmack’s contract with Dimwit is based on the ConsensusDOCs, CD 200, “Owner/Prime Contractor” Form.

You have successfully negotiated the subcontract with Acme Mechanical, Inc. for $41 million, for the mechanical work, which does not include dewatering, and which provides for Wackinsmack to give lifting services for Acme at no cost. Acme has executed the subcontract, ConsensusDOCs, CD 750, “Prime/Subcontractor Subcontract.” In general, Acme’s subcontract consists of Wackinsmack’s standard subcontract form (ConsensusDOC CD 750) and is “complete, per plans and specifications” for the mechanical work on the Project, except for the exclusions you’ve negotiated, as identified above.

Over the course of construction, a number of events occur, which have caused Wackinsmack and its subcontractors extra cost and time to complete the work affected by the events.

In addition to the undisputed contract adjustments, Dimwit County has issued a number of additional Change Orders, which have provided for specific cost and time adjustments for certain items of changed work, and upon which Wackinsmack has “signed off.”   Where appropriate, Wackinsmack has “passed down” Change Orders to its subcontractors affected by the changes. As issued, the Dimwit Change Orders all contain language to the effect that the Change Order represents a complete and final resolution of all costs and time affects associated with the change, including direct and indirect costs.

Dimwit has refused to issue Change Orders for other work, claimed to be “extra” by Wackinsmack. Included in the pile of refused change orders, are two “Field Directives” issued by Dimwit’s Engineer (Ithinkican Engineering Consultants, Inc.) which the Owner feels are not changes to the Contract’s scope; a claim for Differing Site Conditions (DSC), which Dimit says Wackinsmack should have known about when bidding; and, the discovery of hazardous “contamination” in the excess excavated soil materials which has to be trucked off the site and disposed of in a Class II landfill (which Dimwit feels is Wackinsmack’s contractual responsibility).

The accumulation of changes, including those for which Dimwit has not agreed, has resulted in delays to the project. Wackinsmack failed to achieve Substantial Completion of the work by the Contract End Date (as adjusted by approved change orders). As a result Dimwit has assessed liquidated damages against Wackinsmack for late completion. Wackinsmack has, in turn, assessed Acme for 35.6% of the liquidated damages, based on Acme’s proportionate share of the prime contract price (ie. $41 million/$115 million).

One of the disputed Work Orders involves the direction by Ithinkican, to relocate a significant portion of the process piping (work performed by Acme) to avoid conflicts with other elements of the mechanical systems. Ithinkican has advised Dimwit that this work was part of the contractor’s “methods and means” responsibility and is not an extra. Ithinkican feels that since Acme has BIM capability it was up to Acme to identify conflicts (ie. clashes) in the piping system. Acme made the changes, and performed the work, and now claims $350,000 in extra costs and delay (which is yet to be determined because of the myriad of other changes, some approved, and others not approved).

The DSC conditions involved conflicts with existing underground utility lines (the County’s sanitary and storm sewer lines, and the main power feeds to the site, provided by Detroit Edison). The utility lines were not shown in their actual locations on the contract drawings and as a result, conflicted with excavation on the site. In some instances, the utilities had to be relocated to avoid the conflicts. In the case of the Edison lines, which are buried, they weren’t shown at all on the contract documents. Ithinkican and Dimwit defend against the claim by arguing that Wackinsmack failed in its duty to visit and inspect the site prior to the bidding, and if there were irregularities in the drawings then Wackinsmack should have notified the Engineer and Owner in writing of the problems, prior to submitting bids. Because Wackinsmack failed to do those things, its claims have been waived.

As to the hazardous materials contaminating the site soils (the contamination was not disclosed by the contract documents) Ithinkican and Dimwit defend on the basis that ownership of excess materials on the site “is the contractor’s” and that the contractor is obligated to remove and dispose of the excess material in a legal manner. Accordingly, Dimwit has refused to issue a change order for the disposal of the contaminated soils because the Contract requires Wackinsmack to remove and dispose of it. Thus, Wackinsmack should have made provisions to dispose of the hazardous materials at a Class II landfill as part of its bid. It is noted that the contamination was caused by Dimwit’s disposal, on site, of contaminated ash from the incinerator before construction started . The incinerated ash looks like fine grained brown sand and was intermixed with the existing “clean” soils on site.

You may assume that Wackinsmack conducted a pre-bid inspection of the site; attended the mandatory pre-bid meeting; and, submitted written notices of the differing site conditions and hazardous materials. No formal written notice was submitted regarding the pipe conflicts, however, because of the significant changes that had to be made, Acme, Wackinsmack, Ithinkican and the Owner’s representatives had a number of meetings to discuss the conflicts and work out plans to avoid them. Subsequently, shop drawings were submitted, showing the adjustments, and approved by Ithinkican.

QUESTIONS

   As to the Work Order issued by Ithinkican to relocate some of the process piping, (15       Points)

1.         Does the Work Order constitute a material change to the work? Why or why not?                         (5 Points)

2.         Does the Owner’s Engineer, under the terms of the Contract, have the authority to                         issue an order which affects cost and/or time without Dimwit’s approval? Why or                         why not? (5 Points)

3.         Is Dimwit bound by Ithinkican’s Work Order to Wackinsmack? Why or why                                 not? (5 Points)

Answer 1