Baker Heavy & Highway, Inc. v New York State Thruway Auth.

[*1] Baker Heavy & Highway, Inc. v New York State Thruway Auth. 2006 NY Slip Op 52710(U) [26 Misc 3d 1204(A)] Decided on January 30, 2006 Ct Cl Hudson, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on January 30, 2006
Ct Cl

Baker Heavy & Highway, Inc., Claimant,

against

New York State Thruway Authority, Defendant.



105620



For Claimant:

Fox, Charles & Kowalewski, LLP

By: Laurence I. Fox, Esq.

For Defendant:

Hon. Eliot Spitzer

New York State Attorney General

BY: Arthur Patane, Esq., Assistant Attorney General

Michael E. Hudson, J.

The above claim was filed February 19, 2002 in the name of Claimant Baker Heavy & Highway, Inc. ("Baker"), to recover damages arising from the performance of certain steel cleaning and painting work by its subcontractor, Marine Steel Painting Corp. ("Marine Steel"), as part of a road rehabilitation project during 1998 and 1999. That work was conducted under a public improvement contract, Contract No. D 212421, between Baker and Defendant New York State Thruway Authority ("Thruway Authority"), dated February 3, 1998. It is Claimant's contention that engineering representatives acting on behalf of the Thruway Authority compelled Marine Steel to perform cleaning and painting work beyond that required under the contract and good construction practice, and in so doing delayed completion of the project beyond the date contemplated. The claim seeks to recover $827,829.61 in increased costs due to the additional work demanded, plus $41,986.31, representing a penalty deducted by reason of the delay in Marine Steel's completion of its work, after Defendant refused to extend the time for performance under the agreement.

On February 7 and 8, 2005, the matter proceeded to trial. By stipulation of the parties in open court, proof at trial was limited to an issue raised by the Thruway Authority as an affirmative defense in its verified answer filed March 29, 2002, namely whether Claimant, through Marine Steel, had complied with specified disputed work provisions set forth within the contract, and if not, whether Defendant had waived enforcement of those provisions. In the [*2]course of the trial Claimant called two witnesses, Leon Hatzipetros and Mike Varvakis,[FN1] both employees of Marine Steel, with Mr. Hatzipetros serving as that corporation's vice-president, and Mr. Varvakis a quality control and safety supervisor. Defendant, in turn, called one witness, William Martin, Jr., an employee of KTA-Tator Engineering Services, Inc. ("KTA-Tator"), an engineering subconsultant on the project. A total of 51 exhibits also were introduced into evidence.[FN2] At the conclusion of proof I reserved decision to allow for the submission of post-trial memoranda as requested by counsel. Now, having weighed the testimony of the three witnesses, and after reviewing the exhibits and memoranda, I will deny and dismiss the claim, finding as follows.

Baker is a Pennsylvania contractor, apparently authorized to do business in New York. In February of 1998 it entered into a contract with the Thruway Authority for the rehabilitation of the "Niagara Viaduct" section of Interstate I-190 in the City of Buffalo, an area of elevated roadway approximately one mile in length. That agreement, Contract No. D212421 (Claimant's Exhibit 6) was subsequently approved by the Attorney General and State Comptroller on February 17, 1998 and March 19, 1998, respectively. By express reference that agreement also extended to certain "Contract Documents," including a two-volume "Proposal" (Claimant's Exhibit 3), "Standard Specifications" (Claimant's Exhibit 4) and "Addendum No. 1" (Claimant's Exhibit 4-A). An engineering firm, Bergmann Associates, served as the manager or head consultant on behalf of the Thruway Authority in the performance of the agreement. Another engineering firm, KTA-Tator, was retained as a subconsultant to Bergmann Associates, and became responsible for the monitoring and inspection of the steel painting activities at issue herein.

Baker itself did not perform the steel cleaning and painting work required under the contract. Instead, on January 27, 1998 the contractor entered into a subcontract (Claimant's Exhibit 7) for that work with Marine Steel, a domestic corporation founded in 1984, which specializes in the cleaning and painting of steel structures. That subcontractor is the true party in interest in this matter, and has filed this claim in the name of the contractor pursuant to the terms of a Liquidating Agreement dated January 14, 2002 (Claimant's Exhibit 9). In that agreement Baker assigned its rights to pursue this claim to Marine Steel in satisfaction of any remaining obligations to that subcontractor for the painting work it performed on the project.

In June of 1998 Marine Steel commenced its cleaning and painting work. In so doing the subcontractor started at the north end of the viaduct and proceeded south, along one lane of the divided roadway, working in increments of one or two "spans," sections of steel between the [*3]viaduct's vertical supports. Sanding, priming and painting activities occurred within "containment," temporary enclosures positioned around those sections of the steel structure to trap sandblasting debris and paint.[FN3] The enclosures would be removed and repositioned after work on an area had been completed and approved. Representatives of KTA-Tator would conduct a separate inspection after each stage of the process. As a result sandblasting and the various painting stages — one primer and three finish coats — would each follow inspection of the prior work activity. Surface cleaning approval was based on a recognized standard of "near white blast cleaning," measured on visual assessments of the steel spans for removal of lead-based paint and mill scale staining. Paint integrity, in turn, was inspected for both thickness and adhesion, based upon tests performed after each coating. I accept that as Marine Steel's work progressed along the viaduct during the summer and fall of 1998, KTA-Tator approved each stage of contract performance upon each repainted segment before the subcontractor was permitted to move on to another adjoining section.

In late November of 1998 Marine Steel suspended its painting activities for the season, with the expectation of resuming work in the spring of 1999. Over the winter of 1998-1999 questions arose concerning the quality of some of the painting work that had been completed and approved. After being advised of the dispute by an unidentified representative of Baker, Leon Hatzipetros of Marine Steel met with Len Pasquale from KTA-Tator in approximately February or March of 1999, and together they inspected the areas in controversy from the ground. From the limited scope of that inspection Mr. Hatzipetros believed at that point only a few sections of the steel structure needed to be reworked. Thereafter, in the course of a March 23, 1999 "kickoff meeting" for the 1999 painting season in which Mr. Hatzipetros and Mike Varvakis of Marine Steel met with personnel from KTA-Tator, Baker, Bergmann Associates and the Thruway Authority, the painting subcontractor agreed to perform all remedial work to repair areas of 1998 repainting that KTA-Tator found unacceptable in its later reinspections of the work (see Claimant's Exhibit 10). However, in the two months that followed Mr. Hatzipetros changed his position as KTA-Tator required additional remediation of the 1998 work. In a letter to Baker dated May 24, 1999 (Claimant's Exhibit 11), the subcontractor's vice-president urged that Marine Steel not be responsible for the entire cost of complying with KTA-Tator's revised demands, particularly in that inspectors from that entity had previously approved the work in question. I accept that the amount of rework demanded by KTA-Tator as the 1999 painting season progressed exceeded that anticipated by Mr. Hatzipetros in his early spring review of a few select spans with Mr. Pasquale.

In his letter of May 24, 1999 (Exhibit 11) Mr. Hatzipetros further advised Baker that "[s]tarting today we will be keeping records of all costs associated with work performed last year and inspected and approved on a daily basis," and requested that the contractor "[p]lease notify the proper authorities of this decision and advise." The next day Baker informed Bergmann Associates that Marine Steel intended to dispute the rework of its 1998 activities (Exhibit 12 [meeting minutes of May 25, 1999]). That notification became formalized in Baker's letter of May 28, 1999, to Michael Atwell of Bergmann Associates (Exhibit 14), in which the contractor [*4]noted that Marine Steel "will submit force account for said extra work' according to Section 109-05 of the Standard Specifications."[FN4] Upon receipt of that notice on or about May 28, 1999, Mr. Atwell advised William Martin, Jr., the KTA-Tator inspector assigned to monitor Marine Steel's work during 1999,[FN5] that he should anticipate that force account records would be provided by the subcontractor, and that he should pay close attention to assess the accuracy of those records.

The Atwell notification was not the first notice Mr. Martin received regarding Marine Steel's dispute of the rework that KTA-Tator was demanding. Some two days earlier, on May 26, 1999, Mr. Varvakis presented him with a force account for claimed extra work performed by the painting subcontractor on that date. Mr. Martin attached that record to his daily inspection report for May 27, 1999, then forwarded that report to Bergmann Associates as part of his daily routine (see Exhibit B, tabbed sheet [Bergmann Associates Inspection Report No. 15 (May 16, 1999 through May 31, 1999)]).

A significant discrepancy exists between the testimony of Mr. Martin and that of Mr. Varvakis concerning the total number of force accounts tendered in late May and early June of 1999. According to Mr. Martin, the May 26 summary was the only such document provided to him by a Marine Steel representative. The inspector denied the receipt of similar records for May 27, 28 or June 2, 3 and 4, 1999 (see Claimant's Exhibit 15, Defendant's Exhibit A). He also denied that the purported signatures on those six forms were his signatures. Mr. Varvakis, in contrast, testified that the inspector signed all six forms in his presence, but refused to accept Marine Steel's tender of any force accounts after May 26, 1999. For reasons that follow I credit Mr. Martin's testimony on the issue.

First, despite some inconsistency in the inspector's testimony as to the exact name that he used in signing business documents, I accept Mr. Martin's statement that he would have signed his name with the suffix "Jr.," which was absent on signatures on the force accounts in issue, since his father William Martin, Sr., also worked for KTA-Tator, although not on the project in question. Second, it did not appear plausible that the KTA-Tator inspector would sign his name to a force account, and in so doing effectively acknowledge receipt of that document, while at the same time refusing to accept that paper. Further, Mr. Martin had no authority to reject the force account records for May 27 through June 4, or any similar documents. To the contrary, Mr. Atwell of Bergmann Associates had advised him that he was to expect to receive those documents, and was to closely review them for excess charges. In addition, since his responsibility was to review and forward those documents, Mr. Martin would have had no independent reason to reject those forms. Moreover, in weighing credibility I have considered that Mr. Martin and KTA-Tator have no real interest in the outcome of this matter, whereas Mr. Varvakis and Marine Steel possess a critical interest in this litigation. I also am influenced by [*5]Mr. Varvakis's admitted and understandable lack of recollection of details of the incident, which occurred more than five years before trial.

The physical inconsistencies between the tendered and retained copies of the May 26, 1999 force account also weigh on Mr. Varvakis's testimony on the issue. I find it disturbing that the summary that Mr. Martin received on May 26 differs from that later propounded by Marine Steel in several respects. The copy of the document that Marine Steel retained not only includes Mr. Martin's alleged signature, but also the later addition of three extra lines of equipment, as well as a recitation of the hours for which numerous items of equipment were used, all without explanation from Mr. Varvakis during rebuttal.

Lastly, I reject Marine Steel's argument that a listing of discussion points for a weekly progress meeting on June 8, 1999, corroborates its contention that Mr. Martin had refused to accept force account records. Those minutes (Claimant's Exhibit 16) reflect that the Thruway Authority, Baker, and Bergmann Associates discussed several matters relating to Marine Steel during that conference, extending to a planned meeting with the subcontractor on June 9, 1999, to address five matters, including "force account documentation." While Marine Steel urges that the notation supports that KTA-Tator had been rejecting its records, in my view the entry more likely evidences an affirmative concern regarding the subcontractor's compliance with that contractual provision. Without question, however, the notation demonstrates that Marine Steel possessed the ability to address force account matters with Bergmann Associates directly, and not rely solely upon contact with KTA-Tator. To the extent that the subcontractor has urged that the Thruway Authority should have produced Mr. Atwell to address such matters, under penalty of an adverse evidentiary inference, it appears that if Bergmann Associates had raised the question in a meeting with Marine Steel on June 9, 1999, the subcontractor itself should have been able to address the instructions it had received from the Thruway Authority's representative.

In light of the above I find that Marine Steel only tendered a single force account record to Mr. Martin, on May 26, 1999. Thereafter, the subcontractor chose not to tender daily records to anyone concerned until July 10, 2000, when it forwarded its claim to Baker (see Claimant's Exhibit 25 [letter from Marine Steel to Baker enclosing claim]). The next day, July 11, 2000, Baker tendered that claim and daily force account records to Bergmann Associates (see Defendant's Exhibit A).

Claimant's failure to comply with the reporting provisions of the contract is fatal to its claims for extra work and delay damages. It is well established that strict compliance with the notice and damage documentation terms of municipal construction contracts is a condition precedent to recovery for such causes of action (see A.H.A. Gen. Constr. v New York City Hous. Auth., 92 NY2d 20, 30-31 [1998], rearg denied 92 NY2d 920 [1998]; Sicoli & Massaro v Niagara Falls Hous. Auth., 281 AD2d 966 [2001]). Such notice and reporting requirements are not intended as a trap for a well meaning but unwary contractor, but rather also designed for the protection of the public. "These provisions, common in public works projects, provide public agencies with timely notice of deviations from budgeted expenditures or of any supposed malfeasance, and allow them to take early steps to avoid extra or unnecessary expense, make any necessary adjustments, mitigate damages and avoid the waste of public funds. Such provisions are important both to the public fisc and to the integrity of the bidding process." (A.H.A. Gen. Constr., 92 NY2d at 33-34). [*6]

Here, without question Addendum No. 1, sections 105-14 and 109-05, set forth specific procedures for Baker to follow when such disputes arose. Regardless of whether Baker itself was to act on behalf of Marine Steel in disputing Defendant's work requirements, or the subcontractor was authorized to act directly, section 105-14 (A) made clear that the subcontractor did not possess a right of recovery for disputed work greater than that provided to the contractor. Section 20 of the subcontract (Claimant's Exhibit 7) similarly noted that Marine Steel was bound to Baker to the same extent that Baker was bound under the initial contract to the Thruway Authority. Thus, any right of recovery by Baker directly, or by Marine Steel as its assignee, necessitated compliance with the disputed work provisions of the contract addendum.

I accept Claimant's argument that Baker's letter of May 28, 1999 satisfied its notice requirements under the contract addendum. However, I reject its assertions regarding the further obligation to satisfy the addendum's reporting mandates. Section 109-05 (C) (1), required that a daily written summary of claimed force account work done on the contract be delivered to the engineer in charge "not later than closing time on the day following that for which the work is reported." Despite Baker's representation to Bergmann Associates in its letter of May 28, 1999 that Marine Steel "will submit force account records for said extra work' according to Section 109-05 of the Standard Specifications," neither the contractor nor the subcontractor complied with that condition precedent to recovery. As noted, I reject the assertion that its noncompliance was the result of Mr. Martin's refusal to accept those records.

To the extent that Marine Steel contends that Bergmann Associates and Defendant failed to follow the dispute resolution provisions set forth in Addendum No. 1, section 105-14 (A) (3), such noncompliance would not have relieved the contractor and subcontractor from the obligation to prepare and tender daily force account records pursuant to section 109-05 (C) (1). That contractual responsibility could only be avoided where Defendant's noncompliance with its obligations under the agreement affirmatively impaired Baker's and Marine Steel's ability to comply with their daily force account tender obligations. "[T]he relevant inquiry is not simply one of the [public corporation's] bad faith or negligence in the performance of the contract but additionally whether the alleged misconduct prevented or hindered [the contractor's] compliance with the notice and reporting requirements" (A.H.A. Gen. Constr., 92 NY2d at 31). While it appears that Bergmann Associates did not respond to Baker's dispute notice in the manner contemplated under section 105-14 (A) (3), that failure in no way hindered Marine Steel from tendering daily force account records, as represented by Baker in its May 28, 1999 letter.

I similarly reject Claimant's assertion that the disputed work requirements set forth within sections 105-14 and 109-05 did not constitute conditions precedent to the causes of action for extra work or delay-related damages. In addressing time-related disputes section 105-14 (A) (2) provides that

[s]trict compliance with the notice provisions of this Section and compliance with the recordkeeping provisions of this section and § 109-05, Extra, Force Account Work, Dispute Compensation and Recordkeeping, shall be an essential precedent condition under the contract provisions to any recovery of time related damages by the Contractor whether it be under the contract provisions, court actions and proceedings or otherwise.

Thereafter, in addressing disputed work, section 105-14 (C) requires that [*7]

[d]uring the progress of such disputed work, the Contractor and Engineer shall keep daily records and make reports of all labor, material and equipment used in connection with such work and the cost thereof as specified in § 109-05C, Force Account Reports.

That clause concludes with the direction that the [f]ailure by the Contractor to promptly notify, in writing, the Engineer, the Regional Director, and the Commissioner of its contentions relative to any dispute or to maintain and furnish force account reports for disputed work shall constitute a waiver of the disputed work claim.

In much the same manner as in A.H.A. Gen. Constr., supra, the above provisions "require the contractor to promptly notice and document its claims made under the provisions of the contract governing the substantive rights and liabilities of the parties. They are therefore conditions precedent to suit or recovery" (A.H.A. Gen. Constr., 92 NY2d at 30-31). Having failed to comply with the daily record tender provisions of the agreement, without waiver or impairment of that contractual obligation, the claim must fail under the affirmative defense raised by the Thruway Authority.

Based upon the foregoing, the claim is dismissed. The Clerk of the Court is directed to enter judgment accordingly.

Buffalo, New York

January 30, 2006

Michael E. Hudson

Judge of the Court of Claims Footnotes

Footnote 1: Mr. Varvakis also offered brief rebuttal testimony.

Footnote 2: Exhibit 15 (certain force account records), Exhibit 17 (a transmittal letter from Bergmann Associates enclosing a KTA-Tator report of June 21, 1999) and Exhibit 58 (a Bergmann Associates report regarding the claim), were offered for limited purposes of claimed tender of notice, and not for the truth of the substantive allegations set forth therein. In addition, there is a discrepancy between the transcript and minutes as to whether Exhibit 35 (a Marine Steel letter of July 10, 2000 to Baker, enclosing a claim for rework) is in evidence. The exhibit is so marked, and I will deem it to have been received in evidence.

Footnote 3: A portion of the disputed rework performed in 1999 instead was performed outside of any containment, using vacuum-equipped hand tools to control residue (see Claimant's Exhibit 10).

Footnote 4: A "force account" is a document that records labor and equipment charges for work claimed to be beyond the terms of a contract.

Footnote 5: Mr. Martin commenced his inspection duties on behalf of KTA-Tator in 1999. The name of the inspector assigned to monitor Marine Steel's work during 1998 was not disclosed in the limited trial.