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HomeMy WebLinkAbout2009-1387 HRI, INC., : IN THE COURT OF COMMON PLEAS OF PLAINTIFF : CUMBERLAND COUNTY, PENNSYLVANIA : : V. : : : NEWVILLE BOROUGH WATER : AND SEWER AUTHORITY, : DEFENDANT : 09-1387 CIVIL TERM IN RE: PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT AND DEFENDANT’S MOTION FOR SUMMARY JUDGMENT BEFORE HESS, P.J. AND MASLAND, J. OPINION AND ORDER OF COURT Masland, J., June , 2011:-- Before the court are the motion for partial summary judgment filed by Plaintiff, HRI, Inc., and the cross motion for summary judgment filed by Defendant, Newville Borough Water and Sewer Authority. After extensive briefing by the parties and argument en banc, we grant Plaintiff's motion and deny Defendant's motion. I. Background This matter is a contractual dispute arising from Plaintiff's construction of a water and sewer main extension for Defendant. Defendant had entered into an 1 agreement with Key Real Estate, LLC (Key) to extend water and sewer service to one of Key's warehousing developments. In return, Key secured funding in the form of grant money and low-interest municipal loans for the project and agreed to pay off the loan and cover any other project expenses. 1 Key Real Estate, LLC is not a party to this litigation. 09-1387 CIVIL TERM Prior to entertaining bids on the project, Defendant commissioned a geophysical study of the proposed construction site. Relevant here, the study recommended Defendant implement a sinkhole remediation plan due to the potential presence of sinkholes in the construction area. The study also warned Defendant that the "survey data ... will only represent the estimated geologic conditions along this alignment. ... We recommend that if any 'questionable' areas are observed in the ER survey data, confirmation borings be drilled at those locations ...." Hillis-Carnes Report (April 29, 2007) at 4. No such borings were conducted. After the study, Defendant issued bid specifications and Plaintiff successfully bid on the project and entered into a contract, drafted by Defendant, to construct the sewer and water main. In the course of construction, the instant pay dispute arose due to the unexpectedly high volume of sinkhole remediation. The contract had specified a unit price of $500 per cubic yard for any sinkhole remediation and required Plaintiff to receive prior approval from Defendant's agent before any sinkhole remediation work. Every time Plaintiff encountered a sinkhole it waited for Defendant's agent's authorization before engaging in any remediation efforts. Upon completion of the sinkhole remediation work, Plaintiff submitted payment requests which were initially approved by Defendant's Engineer. The difficulty arose when the funder of the project, Key, reviewed the costs associated with sinkhole remediation and found those costs to be excessive. Thereafter, it contacted Defendant and Defendant's Engineer, who -2- 09-1387 CIVIL TERM then rescinded the most recent payment authorization and sought a downward modification in the sinkhole remediation unit price. Plaintiff refused the request and demanded payment in full at the original unit price as the work had already been completed. Because no agreement could be reached, Plaintiff filed the instant lawsuit to which Defendant has responded and filed a counterclaim seeking to recoup the amount it has allegedly already overpaid for sinkhole remediation billed at the original unit price. For the following reasons, we conclude that the plain language of the contract precluded Defendant from retroactively lowering the unit price, unilaterally or otherwise. In essence, Defendant failed to avail itself in a timely manner of the contract's unit price modification provision and is therefore bound by the original contractual terms. As Plaintiff has observed all contractual formalities throughout and completed the project to Defendant's satisfaction, Plaintiff is entitled to payment in full according to the original unit price of $500 per cubic yard of sinkhole remediation. II. Discussion The fundamental rule in construing a contract is to ascertain and give effect to the intention of the parties. Sun Co. Inc. (R&M) v. Pennsylvania Turnpike Com'm, 708 A.2d 875, 878 (Pa. Cmwlth. 1998). The intention of the parties must be ascertained from the document itself, if its terms are clear and unambiguous. Id. A contract is ambiguous if it is reasonably susceptible of different constructions and capable of being understood in more than one sense. Id. A determination of whether a contract is ambiguous is a question of law. Id. -3- 09-1387 CIVIL TERM Nonetheless, we construe any ambiguous language in the contract "against the drafter and in favor of the other party if the latter's interpretation is reasonable." Jay Twp. Authority v. Cummins, 773 A.2d 828, 832 n.3 (Pa. Cmwlth. 2001). A. Sinkhole Remediation The contractual provisions relevant to sinkhole remediation are as follows: 5.26 PAY ITEM NO. 25 - GEOTECHNICAL - SINK HOLE REMEDIATION, AS DIRECTED A. Payment will be at the Contract unit prices stone backfill (including excavation), low-slump Portland cement, geotextile material and bentonite furnished and installed as directed by the Geotechnical Consultant. B. Unit prices will include all costs associated with performing the work and the disposal of any waste materials, traffic control and all restoration. C. Contractor is reminded the [sic] when a sink hole is encountered that he will stop work in that area and allow the Geotechnical Consultant time to evaluate the area. The Geotechnical Consultant has two (2) hours to respond to the call from the Engineer to arrive at the site. Pl.'s Appendix 2, Bid Form Addendum No. 1, July 20, 2007 at ¶5.26 (emphasis added). The relevant Unit Price for Sinkhole remediation was set at $500.00 per cubic yard with an estimated quantity of twenty cubic yards. Pl.'s Appendix 2, Bid Form Addendum No. 1, July 20, 2007, Bid Schedule, Item 25(a). During construction, Plaintiff encountered substantially more sinkhole remediation than had been anticipated by the original unit price agreement. Ultimately, Plaintiff performed 227.50 cubic yards rather than the initial estimate of 20 cubic yards. Pl.'s Appendix 3, Application and Certification for Payment No. 5. However, it remains undisputed that every time Plaintiff encountered a -4- 09-1387 CIVIL TERM sinkhole, it waited for and received the approval of Defendant's agent to go forward with its remediation efforts. B. Application for Payment At project completion, Defendant's Engineer initially certified Plaintiff's application for payment in all respects, including all sinkhole remediation costs. The Contract describes the Engineer's certification as follows, in relevant part: ENGINEER's recommendation of any payment requested in an Application for Payment will constitute a representation ... based on ENGINEER's on-site observations of the Work in progress ... and on ENGINEER's review of the Application for Payment and the accompanying data and schedules that the Work has progressed to the point indicated; that, ... the quality of the Work is in accordance with the Contract Documents ... and that the CONTRACTOR is entitled to payment of the amount recommended. Pl.'s Appendix 1, Contract 3, Art. 14.5 (emphasis added). The Engineer may, refuse to recommend any such payment, or because of subsequently discovered evidence or the results of subsequent inspections or tests, nullify any such payment previously recommended to such extent as may be necessary in ENGINEER's opinion to protect OWNER from loss because: ... 14.7.3 the Contract Price has been reduced because of Modifications .... Pl.'s Appendix 1, Contract 3, Art. 14.5 - 14.7.3 (emphasis added). Here, Defendant contends that after her initial certification of the application for payment, the Engineer was notified by Key of the unit price modification provision in the original contract. Then, after consulting with Key and the Board, she instituted a unilateral unit price reduction from $500 per cubic yard to $50 per -5- 09-1387 CIVIL TERM cubic yard; reducing the previously agreed upon price by a factor of 10. C. Unit Price Modification Defendant contends the General Contracts unit price revision provision gave it the authority to refuse payment for sinkhole remediation at the originally contracted price. The contract provides: A change of unit prices may have to be negotiated when changes of work involve: 10.5.1 An increase or decrease in a pay item that exceeds 15% of the original bid quantity and total dollar changes of that bid item is [sic] significant. 10.5.2 An alteration in design and/or alteration, either vertical or horizontal, in location which causes a substantial change in: (1) Character of Work (2) Type of Construction (3) Type of excavated materials encountered. 10.5.3 The CONTRACTOR or OWNER shall notify the ENGINEER and the other party to the Contract in prior to the performance of any work writing under this paragraph for which the CONTRACTOR or OWNER feels a change of unit prices is necessary but unissued. Pl.'s Appendix 1, Contract 3, Art. 10.5 (emphasis added). The Contract further states: Where the quantity of Work with respect to any item that is covered by a unit price differs materially and significantly from the quantity of such Work indicated in the Contract Documents as defined in paragraph 10.6, an appropriate Change Order shall be issued on recommendation of the ENGINEER to adjust the unit price. Pl.'s Appendix 1, Contract 3, Art. 11.9 (emphasis added). Here, we note there is -6- 09-1387 CIVIL TERM no paragraph 10.6 in the Contract. Defendant contends this is merely a typographical error that instead should be read to refer to article 10.5. We agree, but it does not dissuade us from our ultimate conclusion that the purported change order was ineffective and therefore a nullity. The plain language of Article 10.5.3. requires that any unit price modification negotiations must be initiated "prior to the performance of any work" subject to the modification. Defendant argues that, according to reason and justice, we cannot read this contractual provision to require it to invoke its unit price renegotiation rights before it could know that the sinkhole remediation costs would exceed 15% of its original bid quantity. We disagree. The Contract, drafted by Defendant, expressly protects Defendant from unknown, runaway sinkhole remediation costs by requiring Plaintiff to immediately stop work upon discovery of a sinkhole and to wait for the arrival of Defendant's agent to inspect and approve further work. See Pl.'s Appendix 2, Bid Form Addendum No. 1, July 20, 2007 at ¶5.26(c). There is no dispute that Plaintiff rigidly adhered to this requirement and the record is replete with the written field reports recorded by Defendant's agent prior to the authorization of any sinkhole remediation work. See Pl.'s Appendices 15, 17-18, Hockenberry Field Notes. These reports provided Defendant with extensive, contemporaneous documentation of the circumstances and volume of the ongoing sinkhole remediation efforts. Conceivably, had Defendant not decided to forgo recommended confirmation borings, it would have been apprised of the nature and extent of the sinkhole concerns before any remediation had -7- 09-1387 CIVIL TERM commenced. Defendant cannot claim unfair surprise, nor can it escape the fact that Plaintiff adhered to all contractual formalities and precautions regarding the sinkhole remediation and it is entitled to payment therefor. Defendant's attempt to unilaterally modify the unit price after the completion of the work and certification of the application for payment is a nullity as it is contrary to the unambiguous language of the contract. To the extent that Defendant argues the contract terms are ambiguous where Article 11.9 appears to make a unit price change order mandatory and Article 10.5.3 requires negotiation prior to completion of any work subject to a unit price modification, we resolve any alleged ambiguity against Defendant, as drafter, and in favor of Plaintiff's reasonable interpretation of the contract. Jay Twp. Authority, 773 A.2d at 832 n.3. Plaintiff's interpretation is both reasonable and equitable. It would be fundamentally unfair to permit Defendant to wait until work has been completed and only then attempt to unilaterally reduce the sinkhole remediation unit price by a factor of 10. Even if Defendant only sought to initiate a unit price modification negotiation, with the work already completed, Plaintiff's negotiating position would be completely emasculated; an inequitable situation expressly prevented by the requirements of Article 10.5.3. IV. Conclusion In sum, Defendant acknowledges that the quality of Plaintiff's work was "[s]uperb" and that Plaintiff completed its work in accordance with its contract-- including the disputed sinkhole remediation work. Pl.'s Appendix 7, Potzer Deposition, at 19. Though the sinkhole remediation greatly exceeded initial -8- 09-1387 CIVIL TERM estimates, Defendant was at all times on notice of the ongoing work, and had the opportunity to halt that work at any time to renegotiate the unit price associated with sinkhole remediation. It did not do so. Instead, Defendant continually reauthorized the sinkhole work and then certified Plaintiff's application for payment for that work. At this point, Plaintiff was entitled to prompt payment. See Pl.'s Appendix 1, Contract 3, Art. 14.4 ("OWNER shall, within ten days of presentation to him of the Application for Payment with ENGINEER's recommendation pay CONTRACTOR the amount recommended."). Now, because Defendant has identified no legitimate reason to retroactively modify or rescind the Engineer's recommendation, Plaintiff is entitled to payment in full for the disputed sinkhole remediation costs in accordance with the originally contracted unit price amount. For all these reasons, Plaintiff's motion for partial summary judgment is granted. Defendant's motion for summary judgment is denied. ORDER OF COURT AND NOW, this day of June, 2011, upon consideration of the motion for partial summary judgment filed by Plaintiff, the motion for summary judgment by Defendant, extensive briefing, and argument thereon, Plaintiff's GRANTEDDENIED motion is and Defendant's motion is . By the Court, Albert H. Masland, J. -9- 09-1387 CIVIL TERM David B. Consiglio, Esquire For Plaintiff Theodore A. Adler, Esquire For Defendant :saa -10- HRI, INC., : IN THE COURT OF COMMON PLEAS OF PLAINTIFF : CUMBERLAND COUNTY, PENNSYLVANIA : : V. : : : NEWVILLE BOROUGH WATER : AND SEWER AUTHORITY, : DEFENDANT : 09-1387 CIVIL TERM IN RE: PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT AND DEFENDANT’S MOTION FOR SUMMARY JUDGMENT BEFORE HESS, P.J. AND MASLAND, J. ORDER OF COURT AND NOW, this day of June, 2011, upon consideration of the motion for partial summary judgment filed by Plaintiff, the motion for summary judgment by Defendant, extensive briefing, and argument thereon, Plaintiff's GRANTEDDENIED motion is and Defendant's motion is . By the Court, Albert H. Masland, J. David B. Consiglio, Esquire For Plaintiff Theodore A. Adler, Esquire For Defendant :saa