Last month, I highlighted a project letting in Delaware under the design-build contracting methodology. That case illustrated the need for state highway departments to educate political representatives and the general public about the differences between traditional low-bid contracting and those bidding procedures that are more conducive to innovative contracting methods. This month, I would like to examine another design-build project in Oregon that has gone awry.
Feeling the ancient
In July 2005, the Oregon Department of Transportation (ODOT) awarded a $130 million design-build project to Yaquina River Constructors (YRC), a joint venture between Granite Construction Co. Inc. and Wilder Construction. The project involved design and construction of a new 10-mile route for U.S. 20 between Pioneer Mountain and Eddyville. The new route would essentially create a straight line between the two destinations and would replace an existing highway containing dangerous curves that have been blamed for extremely slow travel and numerous fatal accidents. As with any mountain pass highway project, the U.S. 20 project includes building numerous bridges and doing massive bench cuts and fills. The hilly area was even known to contain approximately one dozen landslides along the new alignment. Yaquina began construction in early 2006 and was slated to complete it in late 2009.
While clearing and excavating for the new roadway, Yaquina contended that it discovered numerous and massive “ancient” landslides, many of which fell at critical locations on the project, including at bridge abutments. Yaquina contended that the landslides constituted differing site conditions and, as of March this year, estimated the cost of stabilizing the landslides at $61 million. Included in that amount is approximately $28 million to cover project overhead costs for the two additional years Yaquina said it will need to complete the project.
In late March, Yaquina officially requested ODOT to terminate the contract due to the enormity of the situation. The parties have since elicited the assistance of the Dispute Review Board (DRB) established by contract for the project, and on July 12, 2007, they reached an agreement whereby ODOT will issue a suspension of work effective Sept. 1, 2007, which will last until at least June 2008 while engineers determine the appropriate remedy for the landslides. ODOT and Yaquina will share the costs of a reduced project staff on the site during the suspension of work and the maintainance the site during the delay.
Meanwhile, concurrently with their efforts to devise an appropriate engineering solution to the landslides, the parties are pursuing their respective legal positions through the DRB, whose decision will be nonbinding on the parties but admissible in any follow-up litigation.
Presumably, the department will argue that geotechnical studies available to all bidders showed the existence of the landslides and that each bidder satisfied itself as to actual conditions by performing its own subsurface investigation. Yaquina, on the other hand, will attempt to show a disparity between the severity of the landslides as depicted in department-issued geotechnical reports and actual conditions. It also might argue that the opportunity it had to discover subsurface conditions was limited by the conditions of the site or the time it had to prepare its proposal.
Regardless of the eventual outcome of the U.S. 20 project dispute, the project stands as a reminder to state highway departments that differing site conditions are a risk on design-build projects just as they have been in traditional design-bid-build contracting.
