May 1, 1999
By Stephen A. Melcher
Marv Fabyanske and Steve Melcher, attorneys with Fabyanske, Westra & Hart, P.A., recently obtained a $2.5 million dollar arbitration award against the State of North Dakota’s Department of Transportation for Morgen & Oswood Construction of Great Falls, Montana. The award was the largest ever against the NDDOT and arose out of a differing site condition on a project for the construction of a bridge across the Yellowstone River near the North Dakota-Montana border.
The Yellowstone River Bridge was being constructed as a replacement for the original bridge which had been built in the 1950’s. Morgen & Oswood would learn half-way through the project that bedrock had caused the contractor substantial difficulties during construction of the original bridge. When designing the pier footings for the Yellowstone River Bridge, however, the NDDOT evidently did not take into account the difficult subsurface conditions it had discovered during the construction of the original bridge. The footings for the Yellowstone River Bridge were designed to be supported by piling driven approximately 60 feet deep. Had the NDDOT utilized its knowledge of the subsurface conditions, it would have recognized the need for an alternative design, such as drilled shaft footings.
In addition to failing to make use of the knowledge gained from the original construction, the NDDOT failed to perform a reasonable soils investigation when it designed the Yellowstone River Bridge. ASSHTO standards require that at least one soil boring be performed at each proposed pier location. The NDDOT did not do a single boring at any of the proposed pier locations. It performed one boring near the west abutment, one near the east abutment, and only two borings for the entire span of seven piers between the abutments.
Moreover, the NDDOT failed to make proper use of what little information it gained from the two riverbed soil borings it did perform. The NDDOT did not include the geotechnical consultant’s boring logs or geotechnical report in the bidding documents. Worse yet, the NDDOT misrepresented the geotechnical data reported by the consultant concerning soil resistances that would be encountered during the installation of the in-water piers. The consultant’s boring log for one of the two riverbed soil borings indicated that those soils had blow counts as high as 200 bpf. The highest blow count represented by NDDOT was 100 bpf, only half the resistance reported by the geotechnical consultant. This may explain why the NDDOT engineering department failed to take the actual soil resistances into account when designing the pier footings.
The NDDOT awarded Morgen & Oswood an $8.9 million contract in July 1996 to demolish the original bridge and construct the Yellowstone River Bridge. The new bridge was to be supported by three on-land and four in-water concrete piers, and construction of the in-water piers would be the principle critical path activity during the first year of the project.
Following the contract award, Morgen & Oswood proposed that the pier design be changed from cast-in-place concrete to precast concrete because weather and annual environmental restrictions would hamper construction of cast-in-place piers from January through mid-July. Conversely, precast concrete piers could be constructed year round. Although the precast concrete piers would cost Morgen & Oswood more in terms of labor and materials, the benefit to both the NDDOT and Morgen & Oswood of shortening the time period for construction would more than offset the added expense. Morgen & Oswood was willing to construct the project using precast piers at no additional cost to the NDDOT. It was Morgen & Oswood’s hope that this value engineering proposal would provide a unique opportunity to demonstrate the advantages accruing from a partnering relationship.
Upon receiving the notice to proceed in July 1996, Morgen & Oswood promptly mobilized and began work. The initial critical path activities were the installation of an earthen causeway and cofferdam for the construction of Pier 4 (the westernmost in-water pier), and the installation of a steel workbridge and cofferdam for the construction of Pier 7 (the easternmost in-water pier).
The causeway for Pier 4 was constructed in early August 1996, and Morgen & Oswood began driving the cofferdam sheet pile for Pier 4 in early September 1996. During the very first day of driving the cofferdam sheet pile, however, Morgen & Oswood encountered soil resistances much higher than anticipated. Instead of the maximum 100 bpf indicated in the NDDOT’s plans, Morgen & Oswood typically encountering soils with resistances as high as 400 bpf or more. The hardness of the soils made conventional driving of sheet pile impracticable. Morgen & Oswood suspended the Pier 4 cofferdam installation to permit the NDDOT to review the subsurface conditions and confirm the existence of a differing site condition.
Meanwhile, the workbridge for Pier 7 was also being constructed during August and September 1996. While driving H pile for the workbridge, Morgen & Oswood again encountered soil resistances much higher than anticipated. Morgen & Oswood asked the NDDOT to review these subsurface conditions to confirm the existence of a differing site condition at the Pier 7 workbridge as well.
Ironically, Morgen & Oswood and the NDDOT had been conducting a partnering workshop earlier in the same week that Morgen & Oswood initially encountered the differing site conditions. When faced with these first significant issues on the project, however, the NDDOT began to adopt an adversarial posture and the partnering process quickly deteriorated. The NDDOT did not engage in an open dialogue and work with Morgen & Oswood in a spirit of cooperation to promptly acknowledge the differing site conditions and determine the best course of action. To the contrary, the NDDOT essentially became mute. Seemingly unwilling to admit the existence of the differing site conditions, the NDDOT: (1) unreasonably delayed its determination; (2) ultimately acknowledged differing site conditions only in isolated areas; and (3) refused to pay all but a small fraction of the incurred costs.
Moreover, the NDDOT refused to participate constructively in an effort to select the best course of action in light of the differing site conditions. Evidently, the NDDOT had determined early in this process that it would be best served by taking the position that the differing site conditions were either non-existent or limited in scope. It appeared as if the NDDOT took this position in order to disclaim any financial responsibility for the additional costs caused by the differing site conditions, as well as evade its obligation to help select the best course of remedial action. The NDDOT’s mantra became: “Try whatever you want, Morgen & Oswood. The risk of failure is entirely yours. If a technique you try does not work, you will certainly not be paid for it. Even if a technique does work, we may not pay you the additional costs you incur implementing the technique.” Far from providing Morgen & Oswood with any protection from financial exposure, the NDDOT’s posture would ultimately cost the NDDOT approximately $1.5 million.
The NDDOT’s [non-]decision-making process drew out over a period of months, essentially bringing the critical path activities to a halt. Morgen & Oswood ultimately completed the workbridge and, by the winter of 1996-1997, had partially installed the cofferdams for Piers 4 and 7 by pre-drilling the rock. At this point, however, it became clear to Morgen & Oswood that blasting was the only method which might permit full installation of the cofferdams and construction of the pier footings as originally designed. The NDDOT’s approval of blasting took several months. By January 1997, faced with the strong possibility that March ice flows would severely damage these temporary materials, Morgen & Oswood was forced to remove the workbridge and partially-installed cofferdams for Piers 4 and 7. As a result, no substantial progress on Piers 4 and 7 could begin until the annual environmental restrictions period expired in mid-July 1997.
Through the summer of 1997, the parties continued to disagree over the existence and extent of the differing site conditions. In June 1997, Morgen & Oswood and the NDDOT met in what Morgen & Oswood anticipated would be an effort to bring a reasonable closure to the differing site conditions issues. The NDDOT did not budge from the unreasonable position it had staked out, however, and ended the meeting by informing Morgen & Oswood that it would like to pursue an “amicable termination.” It became apparent that the NDDOT had predetermined it would rather terminate Morgen & Oswood’s contract and start anew with a different contractor than honor its contract and negotiate an equitable adjustment.
In July 1997, Morgen & Oswood again asked the NDDOT to meet and resolve the differing site conditions issues. Marshall Moore, director of the NDDOT, disingenuously responded that the NDDOT did not believe there were any unresolved issues which required a decision. Morgen & Oswood reiterated the unresolved issues in an August 1997 letter to Mr. Moore and proposed three options to resolve them: (1) permit Morgen & Oswood to complete the Project and negotiate an equitable adjustment to the contract amount and schedule; (2) permit Morgen & Oswood to complete the Project and submit the differing site conditions issues for prompt and binding resolution by a neutral third party; or (3) negotiate a fair and equitable convenience termination.
Meanwhile, Morgen & Oswood continued to perform the contract without any commitment from the NDDOT to compensate it for its efforts. Following the end of the environmental restrictions period in mid-July, Morgen & Oswood promptly drilled and blasted the soils for the Pier 4 cofferdam. By mid-August 1997, Morgen & Oswood had remobilized and set up the cofferdam material and began driving the Pier 4 cofferdam sheetpile for the second time. Morgen & Oswood was also busy preparing to blast the soils for the next in-water pier. It was at this point that the NDDOT abruptly announced its termination of Morgen & Oswood.
In August 1997, the NDDOT unilaterally terminated Morgen & Oswood’s contract. Subsequently, in an act which can only be described as bizarre, the NDDOT gave Morgen & Oswood and its surety a written ultimatum: if Morgen & Oswood did not waive all claims against the NDDOT for wrongful termination, the NDDOT would, ex post facto, convert the convenience termination to a default termination and assert a claim against Morgen & Oswood for excess completion costs. Faced with the NDDOT’s default threat and the risk of impairment to its surety credit, Morgen & Oswood agreed to limit its prospective claims against the NDDOT to costs associated with the differing site conditions.
In the arbitration which followed, Morgen & Oswood sought to recover the added costs it had incurred while trying to build the project according to the faulty original design. Conversely, the NDDOT alleged it had overpaid Morgen & Oswood and that no further money was owed. The arbitration hearing spanned ten days and included sixteen witnesses. Although the NDDOT listed Director Marshall Moore, Deputy Director Ray Zink, West Region Engineer Francis Ziegler, and Williston District Engineer Walt Peterson as potential witnesses, none of them testified in the NDDOT’s defense. The arbitrators’ $2.5 million award in favor of Morgen & Oswood was a sharp rebuke to the position taken by the NDDOT during the project and in the arbitration.
With the award to Morgen & Oswood, the Yellowstone River Bridge will cost the NDDOT (and ultimately taxpayers) about $5 million more than the originally slated $8.9 million price tag. Specifically, previous payments by the NDDOT to Morgen & Oswood totaled just over $4 million. In addition, the NDDOT paid another contractor $7 million to complete the project. The arbitration award of $2.5 million, along with an additional $500,000 the NDDOT is estimated to have paid for experts, consultants and legal fees in its defense, brings the total to approximately $14 million. Morgen & Oswood estimates that the NDDOT would have saved $1.5 million if it had chosen to negotiate an equitable adjustment to the contract instead of termination.
The firm congratulates Marv Fabyanske, Mark Westra, Greg Spalj, Dean Thomson, Kyle Hart, and Tom Tucci on recognition by their peers as “Minnesota’s Super Lawyers of 1999.”
Marv Fabyanske, founder and shareholder of Fabyanske, Westra & Hart, P.A. will serve on the faculty panel at the 1999 Construction Law Symposium. Mr. Fabyanske’s topic is entitled “Design Build in Minnesota: How and Why it Works.” The seminar is scheduled for June 10, 1999, at the University Club of St. Paul. The cost is $45.00. For more information call Janny Grice at the MSBA, 612-278-6305.
Another shareholder of FW&H, Greg Spalj, will serve on the faculty panel of the one-day seminar “Minnesota Construction Law: Can This Job be Saved?” Greg’s topic at the seminar, designed for all construction professionals, will be “A Perspective on Partnering – Has it Helped to Save the Job?” Tuition for the seminar, held at the Sheraton Minneapolis Metrodome, on June 17, 1999, and is $189 for a single registrant. For more information call 1-800-678-3940.
Marv Fabyanske will also be speaking at a seminar organized by Federal Publications entitled Concentrated Course in Construction Contracts and his topic is “Bonds, Liens and Insurance.” The seminar is scheduled for July 19-23, 1999, in Hilton Head, South Carolina, and is $1,100 for a single registrant. For more information call 1-800-922-4330.
This discussion is generalized in nature and should not be considered a substitute for professional advice. © FWH&T