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W.M. Schultz Construction, Inc. v. Vermont Agency of Transportation

Supreme Court of Vermont

December 7, 2018

W.M. Schultz Construction, Inc.
Vermont Agency of Transportation

          On Appeal from Transportation Board Vanessa Kittell, Chair

         William Alexander Fead of Fead Construction Law, PLC, South Burlington, and John W. Dreste of Ernstrom & Dreste, LLP, Rochester, New York, for Plaintiff-Appellee.

          Thomas J. Donovan, Attorney General, Eleanor L.P. Spottswood and Toni Hamburg Clithero, Assistant Attorneys General, Montpelier, for Defendant-Appellant.

          PRESENT: Reiber, C.J., Skoglund, Robinson, Eaton and Carroll, JJ.

          SKOGLUND, J.

         ¶ 1. The Vermont Agency of Transportation (VTrans) appeals from the Transportation Board's order granting judgment to W.M. Schultz Construction, Inc. in this contract dispute. The Board concluded that Schultz encountered "differing site conditions" in carrying out its bridge-construction project and that it was entitled to an equitable adjustment for costs it incurred as a result. VTrans appeals, arguing that the Board misread the contract materials and otherwise erred in granting judgment to Schultz. We affirm.

         I. Facts

         ¶ 2. The record indicates the following. Schultz entered into a contract with VTrans in December 2013 to replace four bridges destroyed by Tropical Storm Irene. Three bridges were completed without incident. This dispute concerns the fourth bridge, referred to as "Bridge #19." The Bridge #19 project involved the construction of a single-span steel-girder bridge over the White River in Rochester, Vermont. The west abutment was to be placed on a deep pile foundation and the east abutment (Abutment #2) was to be placed on ledge.[1] The work was to begin in April 2014 and be completed in a single construction season.

         ¶ 3. After engaging in exploratory drilling, Schultz discovered what it considered "differing site conditions," i.e., subsurface physical conditions that were materially different than those described in the contract plans and specifications. Schultz's claim concerned the elevation of the subsurface bedrock or ledge associated with Abutment #2. According to Schultz, the assumed rock elevation of 802.5 feet for the bottom of the bridge footing as shown on VTrans' plans was in fact drastically irregular and much lower in some areas than shown. Schultz argued that the uneven elevation required it to change the specific means and methods required for the installation of a cofferdam from what had been originally estimated in its bid pricing-a sandbag style cofferdam-to a steel-sheet pile cofferdam.[2]

         ¶ 4. Schultz filed a claim under the contract's differing-site-conditions provision, which states:

(a) During the progress of the work, if subsurface or latent physical conditions are encountered at the site differing materially from those specified in the Contract or if unknown physical conditions of an unusual nature, differing materially from those ordinarily encountered and generally recognized as inherent in the work provided for in the Contract, are encountered at the site, the party discovering such conditions shall promptly notify the other party in writing of the specific differing conditions before they are disturbed and before the affected work is performed.
(b) Upon written notification, the Engineer will investigate to determine if the conditions materially differ and will cause an increase or decrease in the cost or time required for the performance of any work under the Contract. The Contractor will be notified of the Engineer's determination, whether or not an adjustment of the Contract is warranted. If an adjustment is warranted, the Contract will be modified in writing accordingly. Any adjustment made will exclude loss of anticipated profits.
(c) No Contract adjustment that results in a benefit to the Contractor will be allowed unless the Contractor has provided the required written notice.
(d) No Contract adjustment will be allowed under this clause for any effects caused on unchanged work.

         As VTrans notes, this project was funded in part with federal aid and the inclusion of this standardized differing-site-conditions provision was required under 23 C.F.R. § 635.109, with the exception of subdivision (d), which is optional.[3]

         ¶ 5. "The purpose of the Differing Site Conditions clause is to allow contractors to submit more accurate bids by eliminating the need for contractors to inflate their bids to account for contingencies that may not occur." H.B. Mac, Inc. v. United States, 153 F.3d 1338, 1343 (Fed. Cir. 1998). This clause:

makes it clear that bidders are to compute their bids, not upon the basis of their own preaward surveys or investigations, but upon the basis of what is indicated and shown in the specifications on the drawings. The clause should induce the bidder not to consider such contingencies as the latent or subsurface conditions, for which the Government has assumed responsibility.

Foster Constr. C.A. v. United States, 435 F.2d 873, 887 (Ct. Cl. 1970) (quotations omitted) (discussing history and purpose of differing-site-conditions clause).

         II. Legal Standard Employed Below

         ¶ 6. Both VTrans and the Board evaluated Schultz's differing-site-conditions claim under the so-called Stuyvesant test. To be entitled to an equitable adjustment under this test, a contractor must prove by a preponderance of the evidence that:

(1) "the conditions indicated in the contract differ materially from those it encounters during performance";
(2) "[t]he conditions actually encountered" were "reasonably unforeseeable based on all the information available to the contractor at the time of bidding";
(3) "it reasonably relied upon its interpretation of the contract and contract-related documents"; and
(4) "it was damaged as a result of the material variation between the expected and encountered conditions."

Stuyvesant Dredging Co. v. United States, 834 F.2d 1576, 1581 (Fed. Cir. 1987) (citations and quotations omitted).[4]

         ¶ 7. The first Stuyvesant element is a "threshold" question-the contract must contain "some identification of the conditions to be encountered at the site." Renda Marine, 509 F.3d at 1376. While there need not be "express representations as to the nature of conditions, . . . at least insofar as subsurface or latent conditions are concerned, there must be reasonably plain or positive indications in the bid information or contract documents that such subsurface conditions would be otherwise than actually found in contract performance." Pac. Alaska Contractors, Inc. v. United States, 436 F.2d 461, 469 (Ct. Cl. 1971); see also Stuyvesant, 834 F.2d at 1581 (outlining same standard).

         III. Agency Decisions

         ¶ 8. Applying this test, VTrans' Construction Engineer denied Schultz's claim. He found no material difference between the conditions described in the contract and those encountered by Schultz at Abutment #2, and ...

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