LAW: The Contractor's Side

Two sides collide over impact costs

Article December 28, 2000
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Over the years I have increasingly been involved in contract disputes caused by a myriad of design problems that were not dealt

Over the years I have increasingly been involved in contract disputes caused by a myriad of design problems that were not dealt with timely by the owner. In almost every case, the contractor’s biggest loss was the impact of the design problems on the unchanged original contract work (impact costs). Contractors seeking to recover impact costs frequently face arguments that they have not given adequate notice and they have not adequately proven their damages. Metropolitan Atlanta Rapid Transit Authority v. Green International Inc., 509 S.E. 2d 674 (Ga. Ct. App. 1998) is a recent case focusing on proof of impact costs.

Green International Inc. and Seaboard Surety Co. (Green and Seaboard) sued Metropolitan Atlanta Rapid Transit Authority (MARTA), seeking damages in the amount of approximately $3.4 million for cost overruns and additional work caused by MARTA’s defective plans and specifications, and MARTA’s failure to correct the errors or administer the contract in a timely fashion. A jury rendered a verdict in the amount of $2.8 million in favor of Green and Seaboard. MARTA appealed.

Trying to avoid disaster

MARTA originally awarded a contract to engage Stolte Construction Co. to build the project. Plans and specifications provided by MARTA were so flawed that even MARTA’s manager of design review characterized the design firm’s performance as a "total disaster." The plans and specifications contained major errors, inconsistencies and design flaws. Stolte began discovering these problems during construction and repeatedly notified MARTA of a potential claim due to deficient plans and asked for assistance. MARTA did not adopt any of Stolte’s suggestions or respond to requests to address the problem. Green and Seaboard also presented evidence that MARTA did not prepare formal change orders in a timely fashion. Stolte experienced "financial strain" as a result of the design deficiencies and MARTA’s failure to correct them. Eventually, Seaboard designated Green to complete the work. The problems with design discrepancies and errors did not improve after Green took over management of the project, but continued right through the end of the concrete work.

According to witnesses, the state of the plans created a "design-as-you-go situation" requiring over 350 written requests for information and clarification, or "RFIs," and over 1,000 new or revised drawings. The witnesses testified that this piecemeal design scheme disrupted planning and coordination of the work, impaired efficiency and caused additional costs. The witnesses recounted numerous specific examples.

Green and Seaboard also presented expert witnesses who conducted a detailed evaluation of the claim, including review of all construction documents, interviews with Stolte and Green personnel, and scheduling and cost analysis. These experts analyzed the claim in terms of the plan deficiencies, the cause of loss of time and efficiency and the value of that loss, allowing adjustments for more appropriate bid costs and expected or customary delays in similar work constructing other MARTA stations over a period of years.

That’s showing ‘em

MARTA contended that some of the corrective work performed by Green was compensated by change orders, that the change orders and RFIs contained waiver language and that Green and Seaboard did not sufficiently distinguish between the claims remaining at trial and those already paid for and released. The court found that Green reserved its right to claim disruption and impact costs caused by the design deficiencies and distinguished between those reserved claims and those already compensated by change order.

Green and Seaboard experts used the methods to calculate damages caused by the design deficiencies, and explained which method produced the most accurate results. MARTA contended that Green and Seaboard had proved damages by the "total cost method" or the "modified total cost method."

The court found that whether or not the "total cost" method was used was irrelevant to the standard of proof of damages under Georgia law. According to the court, just because a contractor’s damages were not all caused by the owner, the contractor is still entitled to recover. To hold otherwise would establish a standard almost impossible to meet and would let the owner off the hook even when it caused a substantial portion of the loss.

The general approach in Georgia is to allow damages to be "estimated with reasonable certainty," despite difficulty in fixing the exact amount. Thus, if a plaintiff can show with reasonable certainty the total amount of damages and the degree to which those damages are attributable to the defendant, that is sufficient to support an award. The court concluded Green and Seaboard had done just that in the MARTA case.

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