State Highway Administration v. Greiner Engineering Sciences, Inc.

BISHOP, Judge. Greiner Engineering Sciences, Inc., appellee, made a claim against the State Highway Administration (SHA), appellant, for $148,859.80 in delay damages incurred during preparation of construction contract documents for a highway project. Upon denial of its claim, appellee appealed to the Maryland State Board of Contract Appeals 1 (BCA) ⁶²³ which, following a de novo hearing, issued a written decision awarding appellee $111,644.00. The Circuit Court for Baltimore County (Turnbull, J.) affirmed the BCA decision.

ISSUES Appellant asks this Court: I. Whether the BCA erred by rewriting the contract to create an exception to the “no damages for delay” clause for delays not contemplated by the parties; II. Whether the BCA finding that the delay was not contemplated by the parties, based solely upon the testimony of a witness who was not employed by SHA at the time the contract was executed, was supported by competent, material and substantial evidence; III. Whether enforcement of the “no damages for delay” clause was unconscionable; IV. Whether SHA was estopped from relying on the not-to-exceed clause in its contract with appellee; V. Whether appellee’s acceptance of extra work orders totalling $480,843.00 without reserving the right to file a later claim bars such later claim as a matter of law; and VI.

Whether appellee presented legally sufficient proof of damages where the BCA (1) retrospectively qualified as experts three witnesses who gave lay testimony; (2) accepted without analysis appellee’s highly disfavored “total cost” proof of damages; and (3) arbitrarily reduced appellee’s claim by twenty-five percent (25%) rather than dismiss the entire claim. We address only the first and third issues in this opinion. 2 ⁶²⁴ FACTS The findings of fact made by the BCA are not challenged by appellant and consist of the following: 1. On October 5, 1979, appellee entered into a contract (agreement) with SHA to perform final design services for a 3.86 mile portion of U.S. Route 48, east of Orelands Road to west of Bottenfield Road, in Allegany and Washington Counties, Maryland. 2. The scope of services to be provided by appellee was divided into two phases, Phase IV and Phase V. Phase IV included all engineering services required to complete final design including bridge structures and to prepare construction contract plans, specifications and documents for bid advertisement.

Phase V involved all work from advertisement of the project to opening of traffic, including review of shop drawings and any redesign during construction. 3. The basis of payment for Phase IV. services is stated as “cost plus fixed fee” with various amounts payable for specific items and an overall maximum amount payable. The Phase IV payment section specifies: The maximum amount payable to the Consultant under this Agreement, for all Phase IV services performed ... may not exceed Four Hundred Twenty Four Thousand and Two Hundred Sixty Nine Dollars ($424,269) without the express written approval of the Highway Administration. 4. For Phase V services, the Agreement sets forth similar payment limitations and states that the “maximum amount payable” to appellee for the checking of all shop and working drawings “may not exceed Twenty Five Thousand Nine Hundred Twenty Dollars ($25,920) without the express written approval of the Highway Administration” and for all redesign under construction services “may not exceed Three Thousand Nine Hundred Thirty Dollars ($3,930), except where extra or additional work has been properly authorized by the Highway Administra ⁶²⁵ tion.” The maximum amount payable for all Phase V services totalled $29,850. 5.

The basis of payment section of the Agreement concludes with a paragraph entitled “Total Payment”: The total maximum amount payable to the Consultant for all services provided under this Agreement, may not exceed Four Hundred Fifty Four Thousand One Hundred Nineteen Dollars ($454,119) except where extra or additional work has been properly authorized by the Highway Administration. The Agreement also contained a “no-damages-for-delay” clause providing: The Consultant agrees to prosecute the work continuously and diligently and no charges or claims for damages shall be made by him for any delays or hindrances, from any cause whatsoever during the progress of any portion of the services specified in this Agreement. Such delays or hindrances, if any, may be compensated for by an extension of time for such reasonable period as the Department may decide. Time extensions will be granted only for excusable delays such as delays beyond the control and without the fault or negligence of the consultant.

(General Conditions at 2.). 6. The expected duration of Phase IV work was 15 months from the Notice to Proceed, with completion anticipated by March 1981. However, as discussed below, the work at issue (principally Phase IV) was not completed until sometime in the latter half of 1986. 7. An “initiation” meeting for the project was held on December 7, 1979.

At this meeting and shortly after-wards, SHA directed appellee to conduct various studies relating to changes in the scope of the original design work for the related construction project, including reevaluating the horizontal and vertical alignment of the highway, bifurcating part of the roadway and restudying the High German Road alignment because of an adjacent property owner’s objections. Following the Preliminary ⁶²⁶ Investigation on July 22 and 23, 1980, SHA directed appellee to prepare a detour road for the Sideling Hill Creek Structure. In addition, appellee was directed to restudy the Old National Pike profile. 8. In December, 1980, SHA directed appellee to make estimates of cut and fill quantities and to change the roadway median width from 58 to 34 feet. 9.

On January 13, 1981, SHA directed appellee to stop work on the project except for the detour road plan because SHA was experiencing funding uncertainties and was in the process of assessing its options. Appellee resumed contract work at SHA’s direction on January 30, 1981. On March 10, 1981, SHA directed appellee to undertake cost reduction studies. As a result of these studies SHA decided to segment construction of the project into two distinct contracts with appellee providing design services and preparation of contract documents for both. 10.

On January 5, 1982, SHA directed appellee to stop work on everything except the right-of-way plats. This stoppage lasted until September 9, 1982. 11. Subsequently, SHA (again because of funding problems) directed appellee to prepare plans for another construction contract; a contract under which the highway would be designed for limited access. The limited access contract plans were completed in January, 1986; appellee ultimately providing design services for three contracts. 12.

From January 17, 1981 to July 10, 1986, SHA issued five Extra Work Orders (EWOs) to compensate appellee for the extra work performed as partially described above. Appellee developed the man-hours used or estimated to be used for the extra work, negotiated those hours with SHA and signed the EWOs. The EWOs issued to appellee totalled $480,843. 13. On March 14, 1985, appellee submitted a claim to SHA for costs over and above the original contract and EWOs due to “an inordinate number of short term and ⁶²⁷ long term interruptions to the normal progress of work and other time consuming features resulting from SHA direction or decisions.” 14.

By January 21, 1987, the parties had negotiated most of the individual items set forth in the initial March 14. 1985 submission. The only claims remaining as of January 21, 1987 were for “Additional Drawings and Additional Effort Per Drawing”. 15. Appellee calculated the additional drawings claim by subtracting the number of contract drawings it estimated (146) from the number of contract drawings it provided (255) and multiplying this by an estimated number of man-hours per drawing. This resulted in a total of 5,529 hours and a claim of $131,128. 16.

By letter dated June 9, 1987, from the Chief, Bureau of Highway Design, SHA denied appellee’s claim because the man-hour overrun based on contract drawings was “not identifiable as being the result of additional and/or extra work tasks.” 17. On June 22, 1987, appellee appealed the decision to deny its claim to the SHA Administrator. 18. By letter dated August 13, 1987, the SHA Administrator rejected appellee’s request for compensation based on additional drawing efforts. However, the Administrator’s letter indicated that SHA would consider a request for compensation based on documented, auditable accounting information identifying specific tasks relating to extra work efforts. 19.

Appellee submitted its final claim on September 8, 1987 in the amount of $167,000. The final claim departed from the contract drawings overrun approach and was based on the difference between the total man-hours assigned to the original contract work and approved EWOs identifying specific tasks and the total man-hours actually expended on the project through May 29, 1986. This differential resulted in a total alleged overrun of 6,578 man-hours. Appellee claimed the entire hourly overrun resulted from adverse impact on productivity ⁶²⁸ attributable to “man-hours involved in the interruptions to the normal process of preparing the contract documents and also the extensive administration”.

Appellee presented its claim on a “total cost” basis because due to the alleged numerous interruptions over a long period of time “an estimate for each interruption is very difficult with our retrieval system”. 20. On November 30, 1987, SHA issued a final decision denying appellee’s claim and appellee filed an appeal with this Board on December 28, 1987. 21. Appellee, pursuant to the Board’s Order on Proof of Costs, submitted reduced costs of $151,938.31. Both parties agree that appellee’s books and records reflect an actual adjusted claim figure of $148,859.80.

While SHA does not dispute that appellee’s books and records reflect that appellee absorbed such costs on the project, it objects to appellee’s entitlement thereto on various legal grounds. The Board held that (1) the no-damages-for-delay clause was not intended by SHA to deny appellee reimbursement for such unforeseeable delay; (2) it would be unconscionable to permit SHA to rely on the no-damages-for-delay clause to deny appellee reimbursement; (3) the not-to-exceed clause was not intended to preclude loss of efficiency damages and SHA is estopped from relying on it as a defense; (4) inefficiency damages were adequately established through the testimony of appellee’s witnesses; (5) appellee was entitled to an equitable adjustment. Appellant appealed the BCA decision to the Circuit Court for Baltimore County. The court found that the literal language of the no-damage-for-delay clause bars appellee’s claim, however, the BCA correctly adopted “the better, more modern view” that the “not within the contemplation of the parties” exception applies.

The court then found that there was substantial evidence in the record to support the BCA’s conclusions. ⁶²⁹ DISCUSSION I. The Clause Both parties agree that the central issue in this case is whether appellee’s claim for damages is precluded by the following general condition provided in the pertinent contract: DELAYS AND EXTENSIONS OF TIME 3 The Consultant agrees to prosecute the work continuously and diligently and no charges or claims for damages shall be made by him for any delays or hindrances, from any cause whatsoever during the progress of any portion of the services specified in this Agreement. Such delays or hindrances, if any, may be compensated for by an extension of time for such reasonable period as the Department may decide. Time extensions will be granted only for excusable delays such as delays beyond the control and without the fault or negligence of the Consultant, Appellant contends that the court and the BCA erroneously applied an exception to the objective law of contract interpretation requiring enforcement of the unambiguous no-damages-for-delay clauses. Appellant provides ample authority to support its position that a no-damages-for-delay clause may not be excepted even when an uncontemplated delay in performance of the contract results.

In support of such position appellant argues that Christhilf v. Mayor and City Council of Baltimore, 152 Md. 204 , 136 A. 527 ⁶³⁰ (1927) is dispositive and cites numerous authorities from our sister states. Finally, appellant posits that the “contemplation of the parties” notion is at odds with a system of competition for public contracts, will promote chicanery, and will cause each governmental agency that uses a no-damages-for-delay clause to act at its own peril for failing to explore with each contract bidder all the delays that are contemplated. Appellee responds that Christhilf v. Mayor and City Council, supra, supports application of the exception for delays not contemplated by the parties. In addition, appellee cites numerous opinions from other jurisdictions that recognize exceptions to no-damage-for-delay contract clauses.

Therefore, appellee contends that the record clearly supports the BCA finding that the instant delay was not contemplated by the parties and the damage award was appropriate. 4 It is well settled law that “the order of an administrative agency must be upheld on judicial review if it is not based on an error of law, and if the agency’s conclusions reasonably may be based upon the facts proven.” People’s Counsel v. Maryland Marine, 316 Md. 491, 496-97 , 560 A.2d 32 (1989). “But a reviewing court is under no constraints in reversing an administrative decision which is premised solely upon an erroneous conclusion of law.” Id. The issue of whether Maryland recognizes an exception to the enforcement of no-damage-for-delay clauses is purely a legal question and we are under no constraints in conducting our review. ⁶³¹ The parties’ positions represent the dichotomy of case law on the subject. We will refer to appellee’s position as the “New York approach” and appellant’s position as the “literal enforcement approach.” Each will be analyzed separately. A. The New York Approach The BCA based its decision to award damages on an exception articulated in Corinno Civetta Construction Corp. v. City of New York, 67 N.Y.2d 297 , 502 N.Y.S.2d 681 , 493 N.E.2d 905 (1986).

Corinno Civetta consisted of the consolidated appeals by four different contractors, each of whom had their claims for delay damages dismissed on the basis of an exculpatory clause contained in the contracts. All four contractors argued that the exculpatory clause does not apply to uncontemplated delays. The City responded that under the broad exculpatory clause contained in the contracts, all claims for delay damages are barred unless deliberate and intentional misconduct is established. The Court of Appeals concluded that: A clause which exculpates a contractee from liability to a contractor for damages resulting from delays in the performance of the latter’s work is valid and enforceable and is not contrary to public policy if the clause and the contract of which it is a part satisfy the requirements for the validity of contracts generally.

The rule is not without its exceptions, however, and even exculpatory language which purports to preclude damages for all delays resulting from any cause whatsoever are not read literally. Generally, even with such a clause, damages may be recovered for (1) delays caused by the contractee’s bad faith or its willful, malicious, or grossly negligent conduct, (2) uncontemplated delays, (3) delays so unreasonable that they constitute an intentional abandonment of the contract by the contractee, and (4) delays resulting from the contractee’s breach of a fundamental obligation of the contract. ⁶³² Corinno Civetta, supra 502 N.Y.S.2d at 685-86 , 493 N.E.2d at 909-10 (Citations omitted). Focusing on the exception for uncontemplated delays, the Court explained the rationale as follows: The exception is based on the concept of mutual assent. Having agreed to the exculpatory clause when he entered into the contract, it is presumed that the contractor intended to be bound by its terms.

It can hardly be presumed, however, that the contractor bargained away his right to bring a claim for damages resulting from delays which the parties did not contemplate at the time. Id. Appellee also refers this Court to City of Seattle v. Dyad Construction, Inc., 17 Wash.App. 501 , 565 P.2d 423 (1977) wherein a contractor entered into a contract with the City which barred the recovery of monetary damages. The “UNAVOIDABLE DELAYS” clause in the contract provided for a time extension when the contractor is delayed by the act, neglect or default of the City.

The trial court denied Dyad recovery for the delays and found that the time extensions were its exclusive remedy. The Washington Court of Appeals conducted a lengthy review of the Washington cases construing delay clauses and found the following: The decisions have uniformly held that if an extension of time for performance is provided for in the contract as the remedy for delay caused by the owner, the contractor is precluded from recovering damages because the contingency of delay has been foreseen and provided for. However, the tenor of the reported opinions has shown a recognition that extenuating circumstances may exist and an acknowledgement that there are limitations on the rule____ [D]elay clauses are to be strictly construed because of the harsh results that may flow from their enforcement, delays may be so substantial as to be beyond the reasonable contemplation of the parties, and delays may be so large that they devastate the planned cost and time structure upon which the contractor based ⁶³³ his bid____ [Tjhere is in every construction contract an implied term that the owner will not hinder or delay the contract, and that if the delay caused by the owner brought about new conditions which the contractor should not have been required to have discovered or anticipated, then the contractor is entitled to damages as well as to an extension of time. Dyad, supra 565 P.2d at 432-33 .

The Court held that the factual situation in Dyad dictated that Dyad be awarded damages as well as an extension of time for performance because the delay was not contemplated by the parties, the delay was unreasonable in duration, and it resulted in part from the active interference of the City with the work of the contractor. As indicated by appellee, there is no dearth of jurisdictions recognizing the exception for uncontemplated delays. See E.C. Ernst, Inc. v. Manhattan Const. Co. of Texas, 551 F.2d 1026, 1029 (5th Cir.1977), pet. for