Dispute over subcontractor’s obligations complicates roadway project

Feb. 2, 2022

This column published as "Defining Scope" in February 2022 issue

Scope is the tension in a fixed-price relationship.

Understandably, higher-tier parties want lower tiers to have the broadest possible scope to flow down all risks. At the same time, it is equally understandable that lower-tier parties strive to define their scope of work carefully and strictly to better balance risks. Here, the sub reasonably tried to focus and define its scope of work, but its pre-agreement efforts were incomplete.

In 2017, a public owner engaged a contractor to design and build a 2.5-mile elevated roadway extending an existing expressway. The project included two 15-ft lanes with inside and outside 6-ft to 12-ft shoulders supported by 60 piers, each with a foundation secured by four drilled shafts.

The contractor engaged a designer who, in turn, engaged a subcontractor for geotechnical investigations. Several agreements created the chain of relationships and obligations: an RFP and prime contract between owner and contractor, a subcontract between contractor and designer, and a geotechnical subcontract between designer and subcontractor. Each lower-tier agreement attempted to incorporate terms and conditions of the higher-tier agreements.

When an owner’s representative asserted that some of the sub’s services did not conform to the RFP requirements, a dispute arose between designer and its geotech sub. The designer insisted the owner was right. The sub argued its scope of work was sufficient to satisfy the geotech subcontract. The designer hired a third-party to perform work that the sub considered was outside its scope. The designer sued the subcontractor in AECOM Technical Services Inc. v. Professional Services Industries Inc., Case No. 8:18-cv-2981, U.S. District Court, Middle District of Florida (December 29, 2021).

The dispute between the designer and sub involved how many and what kind of borings were required to investigate the subsurface conditions. The designer (and owner) relied upon the RFP in arguing that one pilot hole was required for each of the four drilled shafts required for each of the 60 piers (totaling 240 pilot holes). The sub agreed that a grand total of 240 drilled shafts were required and that 60 pilot borings were necessary—one for each of the 60 piers. But, the sub disagreed that the other 180 pilot borings were within its scope of work. The RFP required “pilot borings for each shaft location.” In its bid, the sub had proposed only one pilot boring for each of the 60 piers. Resolution of the dispute depended on whether the sub had agreed to follow the RFP or was the sub only responsible for the 60 pilot borings proposed in its bid.

From the top of the contractual chain down, the RFP and the prime contract required a grand total of 240 pilot borings. Under the design subcontract, the designer “assumes toward [contractor] all of the obligations and responsibilities that [contractor] assumes towards [owner] . . . insofar as applicable to the Design Services to be provided by [designer].” Under the geotech subcontract, the sub agreed to perform the “geotechnical field exploration and laboratory testing as described in the [sub’s proposed] Scope of Services.” But, the sub had proposed only one pilot boring per pier; so, the sub is so-far-so-good in its scope-defining mission. Moreover, the geotech subcontract included a provision “expressly reject[ing]” incorporation of any other terms or documents into the geotech subcontract.

However, other provisions of the geotech subcontract conflicted with the sub’s anti-incorporation efforts.  First, the geotech subcontract provided that the sub “assume[d] toward [designer] all of the obligations and responsibilities that [designer] assume[d] toward [contractor].” Second, the sub agreed that where there was an inconsistency or conflict, the terms of the design subcontract controlled over the geotech subcontract. Finally, the geotech subcontract provided that if there is a conflict or inconsistency between the geotech subcontract and design subcontract, then “the more stringent provision shall apply.”

Fundamentally, a court will look for the parties’ intent by giving meaning to all parts of the agreement and strive to reconcile seemingly inconsistent parts. Here, the court reasoned that the sub’s efforts to avoid incorporation created a conflict with the other provisions. To resolve this conflict, the court followed the order of precedence clause, which dictated following the more stringent and broad incorporation of the design subcontract over the anti-incorporation provision of the geotech subcontract.

The court agreed with the designer that the geotech subcontract sufficiently incorporated the design subcontract, which incorporated the RFP. Despite the sub’s efforts to reduce its risk by focusing its scope, the sub was obligated to and had wrongfully refused to perform the disputed work.

About The Author: Straw is a partner with Kraftson Caudle, PLC, a law firm in McLean, Va., specializing in heavy-highway and transportation construction. Straw can be contacted via e-mail at [email protected].

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