DGS v. Bryan Mechanical, Inc. - 2155 & (Majority Opinion)

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IN THE COMMONWEALTH COURT OF PENNSYLVANIA Department of General Services, Petitioner v. Bryan Mechanical, Inc., Respondent Bryan Mechanical, Inc., Petitioner v. Department of General Services, Respondent BEFORE: : : : : No. 2155 C.D. 2007 : : : : : : : No. 2159 C.D. 2007 : : : Argued: May 6, 2008 HONORABLE ROCHELLE S. FRIEDMAN, Judge HONORABLE RENà E COHN JUBELIRER, Judge HONORABLE JAMES GARDNER COLINS, Senior Judge OPINION NOT REPORTED MEMORANDUM OPINION BY SENIOR JUDGE COLINS FILED: May 22, 2008 Before this Court are cross-appeals, one filed by the Commonwealth of Pennsylvania, Department of General Services (DGS) at Docket No. 2155 C.D. 2007, and one filed by Bryan Mechanical, Inc. (BMI) at Docket No. 2159 C.D. 2007, from the October 25, 2007 order entered by the Board of Claims (Board). DGS appeals from the Board s award to BMI for additional labor costs with respect to four change orders and the Board s award of attorney fees in connection with BMI s claim for additional labor costs. BMI appeals from the Board s denial of its claim for additional compensation based upon what it avers to be DGS failure to issue complete and accurate drawings resulting in the omission of necessary piping, which in turn caused BMI to sustain damages. BMI also avers that it is entitled to an award of penalty interest on its claim relating to Change Orders Nos. 18-22 considering that the Board found that DGS had acted in bad faith. The following events underlie these cross-appeals. BMI is a mechanical and plumbing contractor which installed certain plumbing systems in a chemistry building built for the Pennsylvania State University. On or about January 25, 2002, BMI and DGS entered into Contract No. DGS 800-235.33, Phase 2 ( Contract ) for the sum of $3,637,000.00, relating to the plumbing work on construction of a chemistry building on the University Park campus of the Pennsylvania State University in Centre County, Pennsylvania ( Project ). The Contract required BMI to perform its work in accordance with the specifications and drawings prepared by DGS. The Contract did not require BMI to perform any design work and did not permit BMI to supplement or modify DGS design. It is undisputed that the Contract plans included errors and omissions. The principal controversy in this matter involves the Project s drawings, which include floor plans (i.e. a view perspective looking down at each floor) and riser diagrams (i.e. a side or elevation view of all floors) depicting the various piping systems to be constructed in the building. The floor plans included in the drawings show the location of vent piping for the sanitary waste system (SV piping) in the first through fifth floors of the building, but do not depict the 2 location of the SV piping in the basement. Additional floor plan drawings show the location of vent piping for the laboratory waste system (LV piping) on the fifth floor, but do not depict the location of the LV piping in the basement or on the first through fourth floors. LV and SV piping are used to vent gases from the laboratory waste and sanitary waste drain systems, respectively. All the floor plans failed to indicate the routing and sizes of the LV and SV piping. However, in the riser diagrams included in the drawings, both vent systems (LV and SV) are depicted on all floors. The riser diagrams are referred to in the floor plans as providing piping sizes, but are not drawn to scale and do not provide proper routing information for the LV and SV piping systems. On March 8, 2002, BMI, shortly after having begun its work under the Contract and during its process of creating shop drawings, issued RFI 28 to the Project architect (also referred to herein collectively with the Project engineer as the Professional ). RFI 28 queried whether vent piping was required in the basement or the first through fourth floors of the building. The Project architect responded the same day by referring BMI to drawing P5.11, the sanitary waste riser diagram, which showed LV piping in the basement and on the first through fourth floors of the building. On May 28, 2002, BMI issued RFI 97 to the Project architect inquiring whether SV piping was required in the basement of the building. On June 14, 2002, the Project architect responded by again referring BMI to drawing P5.11, which showed SV piping in the basement of the building on the riser diagram. On March 17 and 26, 2003, BMI submitted requests for change orders for the LV and SV piping work referenced in the Project architect s response to RFI 28 and RFI 97, respectively. On June 11, 2003, DGS denied both change 3 order requests, taking the position that the work at issue was reflected in the Contract documents. As a result, BMI brought a claim before the Board against DGS as the purchasing agency under the contract, seeking $490,780.52 in total damages for two alleged breaches of contract. First, BMI asserts that DGS failed to include in certain contract plans the piping configuration for sanitary vent piping and for laboratory vent piping, that DGS directed BMI to install this piping, and that BMI is now entitled to $401,722.31 in additional compensation for the extra work it performed beyond the scope of its Contract. Second, BMI asserts that DGS paid BMI only 70% of the compensation to which BMI is entitled for extra work performed pursuant to Change Order Nos. 18 to 22. BMI claims $89,058.21 in damages for this breach of contract, a figure representing the remaining 30% of the payments to which BMI insists it is entitled. In addition, BMI seeks payment of interest, statutory penalties and attorney fees. In support of its claim before the Board, BMI claimed that total costs (with markups) for installing the LV and SV piping amounted to $401,722.31. BMI first contended that there is only one reasonable interpretation of the Contract and asserts that, because the LV and SV piping were missing from the Contract floor plans, this work was not part of BMI s obligations under its Contract. BMI also argued that under a specifications contract, bidders are expected to bid the design provided by DGS and are not permitted to supplement or modify that design. According to BMI, bidders would have no way of knowing whether the omitted services were an error or an intentional omission and that bidders were entitled to rely on the representations in a specifications contract. A.G. Cullen 4 Construction, Inc. v. State System of Higher Education, 898 A.2d 1145, 1156 (Pa. Cmwlth. 2006). To further substantiate this argument, BMI offered testimony that industry standards and contract language alike required the plans and specifications provided by an owner in a specifications contract such as the present one to be 100% complete. BMI s expert also asserted that where the riser diagrams differed from the floor plans with regard to the venting systems, BMI was fully justified in ignoring the riser diagrams (except for pipe sizing). In this regard, BMI pointed to General Note No. 1 on the floor plans, which states: Location of laboratory and building service piping provides for routing of DCW, DHWS, DHWR, DIS, DIR, NG, N2, HV, CA, LW, LV, SW and SV piping for each individual floor. Refer to the P5 series drawings for pipe connection sizes. Contractor shall field coordinate the location of all piping with the work of other trades and the building structure. BMI averred that it interpreted this note to mean that contractors were to rely on the riser diagrams for pipe size connection only and ignore the riser diagrams for all other purposes. Alternatively, BMI argued that the Contract is ambiguous because complete SV and LV piping systems were not shown on the floor plans, but were shown on the riser diagrams and detail drawings. BMI maintained that if the Board should find the Contract (including the Contract drawings) to be ambiguous, the rule of contra proforentem requires the language to be construed against the drafter (DGS in this case) and in favor of the other party (BMI) if the latter s interpretation is reasonable. Department of Transportation v. Semanderes, 531 A.2d 815, 818 (Pa. Cmwlth. 1987). 5 In rebutting BMI s arguments before the Board, DGS first asserted that when the Contract is viewed in its entirety, including the drawings, specifications, and express references to applicable code provisions, the documents do reveal the need for, and inclusion of, SV and LV vent piping on all floors. DGS argued that the inclusion of the SV and LV venting on the Contract riser diagrams (even though not to scale) clearly indicated a conflict with the partial omission of the LV and SV piping on the floor plans. DGS further contended that this, combined with plumbing code requirements of venting for the sinks, drains and fixtures shown on the floor plans, would have alerted a reasonable and prudent bidder to include these piping services in its bid, or, at the very least, to have sought clarification of this issue prior to bidding. DGS also pointed out that BMI s claim is not for extra work resulting from a need to route piping differently from what the documents described or from delay caused by a need to coordinate work with other prime contractors because of lack of detail on the drawings. Instead, DGS averred that BMI claimed that the Contract documents were such as to justify the total exclusion of vent piping from its bid, which, in DGS opinion, is unreasonable and unjustified. On October 25, 2007, the Board issued an order finding in favor of DGS and against BMI with respect to BMI s claim for additional costs related to the sanitary (SV) and laboratory (LV) venting claims, but finding in favor of BMI and against DGS with respect to BMI s claim for additional monies on the approved Change Order Nos. 18 to 22, along with related attorney fees. BMI and DGS thereafter filed the present cross-appeals of the Board s decision.1 1 This court s standard of review of a decision of the Board of Claims is limited to a determination of whether constitutional rights have been violated, an error of law was committed or necessary finding of fact are supported by substantial evidence. State Public School Building Authority v. Noble C. Quandel Co.,585 A.2d 1136 (Pa. Cmwlth. 1991). 6 On appeal, BMI argues that the Board erred in denying its claim for additional compensation because of DGS failure to provide complete and accurate drawings representing the routing of all piping. It is BMI s position that DGS knew that this routing information for all piping was not shown on all drawings and that such a material omission would confuse potential contractor bidders. BMI takes issue with DGS refusal to pay BMI additional compensation on the grounds that a reasonable contractor would not have been misled. BMI further avers that the Board s denial of its claim for additional compensation based upon what it avers were DGS ambiguous drawings and subsequent conduct tantamount to constructive fraud, is contrary to both law and public policy in that it compels innocent contractors to bear the risk of a government agency s mistakes. Additionally, BMI asserts that the Board erred in finding that it had not established damages as a result of DGS conduct regarding the omitted piping routing in the drawings, and in denying BMI s claim for penalties pursuant to the Commonwealth Procurement Code2 based upon what it avers to be DGS bad faith. On appeal, DGS avers that the Board erred in awarding BMI additional compensation in connection with four change orders considering that the amounts claimed were never proven, according to DGS, to have been actually incurred by BMI. DGS contends that BMI s claim for these costs was based upon estimates that are too speculative to meet the required standard of proof for contract damages. DGS also objects to the Board s award of attorney fees in connection with BMI s claim for additional labor costs, since DGS refusal to pay such costs was based upon adherence to the Contract s terms and conditions. In 2 62 Pa.C.S. §§101-4604 (Act 57). 7 response to BMI s arguments about the omitted piping routing on the plans and drawings, DGS avers that said omissions raised sufficient questions to place BMI on notice that as a prospective responsible bidder, it was obligated to make inquiries about the omissions prior to being awarded the Contract. Upon review of the record, we concur with the Board s determination and find that substantial evidence supports it. As the Board properly reiterated, in construing a contract, each and every part of it must be taken into consideration and given effect, if possible, and the intention of the parties must be ascertained from the entire instrument. Chester Upland School District v. Edward J. Meloney, Inc., 901 A.2d 1055, 1059 (Pa. Super. 2006) The present record substantiates the Board s finding that the Contract specifically includes the drawings, the specifications and the general conditions, as well as express references to compliance with applicable code provisions. The Board correctly notes that: the Contract s floor plans depict the location of LV piping on the fifth floor of the building, but not in the basement or on the first through fourth floors; and the floor plans also depict the location of the SV piping on the first through fifth floors of the building, but do not depict the location of the SV piping in the basement. However, as the Board states, the riser diagrams (referred to in several notes on the floor plans) depict SV and LV piping on all floors (including the basement) of the building. The Board further points out that industry practice and applicable plumbing codes alert any reasonable and prudent plumbing contractor that some type of venting is needed for the multiple sinks, drains and fixtures of the sanitary and lab waste drain systems. The Board s own review of the plans, specifications and drawings for this Project, as well as the totality of other evidence submitted, support its 8 conclusion that these documents and drawings were not ambiguous, but instead clearly indicated the intention to include SV and LV piping on all floors of the building. We further concur with the Board s conclusion that the partial omission of the SV and LV piping from certain floor plans was a significant, obvious and glaring error in said plans and drawings. In this regard, the Board addressed the critical issue of whether the drawings were such as to justify the total exclusion of SV and LV vent piping from BMI s bid, and whether the omission of the venting on the floor plans was so blatant and significant as to have required BMI, prior to its bid, to notify DGS of such an important omission. In Department of Transportation v. Bracken Construction Co., 457 A.2d 995, 999 (Pa. Cmwlth. 1983), the Court acknowledged that when a government construction contract contains an obvious, glaring ambiguity, a private contractor is under a duty to inquire and try to resolve the problem before entering into the contract. Failure to make such an inquiry prevents the contractor from complaining of the ambiguity after the contract is signed and problems arise. The rule requiring bidder notification to the Commonwealth of an obvious error was reiterated in Department of Transportation v. Anjo Construction Co., 487 A.2d 455, 459 (Pa. Cmwlth. 1985). In Anjo Construction, the Board of Claims held that the plaintiff was not entitled to recover its anticipated profits because: (1) it had breached the contract by failing to notify DOT when it discovered that 195 ounces of a concrete additive was a gross underestimation (33,624.8 ounces were actually necessary to complete the work) and (2) It did not comply with a contract provision requiring written authorization for extra material. The Anjo Construction Court reversed the Board s monetary award for the amount of additive, and stated that where a 9 contractor discovers an obvious error or discrepancy in the contract, he is obliged to bring the situation to the Commonwealth s attention if he intends to subsequently resolve the issue in his own favor. Anjo Construction Co., 487 A.2d at 459. Applying the Anjo Construction rationale to the present matter, we agree with the Board s decision that the Contract here required compliance with all applicable building codes and that the Contract drawings clearly indicated the intention to include SV and LV piping on all floors. It is equally clear that if the plumbing system were installed without the LV and SV piping, it would not have complied with plumbing codes, which require venting for all trapped sinks and drains of the type used on this Project. There were also notes about the venting on the floor plans referring to the riser diagrams for each floor. Moreover, testimony from BMI s own expert acknowledged that there is an obligation on the part of a bidder to bring obvious errors in plans to the owner s attention. The installation of the venting was essential to the completion of the work, making the lack of routing a significant issue. In consideration of all the foregoing reasons, we concur with the Board s finding that BMI had a duty to notify DGS of the omission of SV and LV piping from some of the floor plan drawings before bidding on or entering into the Contract. We also agree with the Board s dismissal of BMI s attempt to explain its failure to notify DGS of the omission from the plan drawings by relying upon a last minute bulletin issued on November 21, 2001 with revisions to the Project, and the proviso that questions from bidders had to be submitted by Sunday, November 25, 2001, which date was part of the Thanksgiving holiday. In this regard, the record supports the Board s conclusions that the omissions on the plans were 10 apparent from mid-October to the bid date of December 5, 2001, and that they were so significant as to warrant BMI s notifying DGS as soon as possible prior to the bid date. Having failed to do so, BMI cannot now hold DGS responsible for these omissions because it did not seek clarification and failed to include this work in its bid. Accordingly, we concur with the Board s denial of BMI s present attempt to recover the $401,722.31 in additional compensation it seeks for installing the LV and SV piping. The Board s denial of BMI s second theory of recovery, that DGS omission of a complete depiction of the LV and SV piping in the drawings constitutes a misrepresentation, is also consistent with precedent. In Acchione and Canuso, Inc. v. Department of Transportation, 501 Pa. 337, 343, 461 A.2d 765, 768 (1983), the Pennsylvania Supreme Court identified five factors relative to the determination of misrepresentation in the public construction contract setting: (1) whether a positive representation of specifications or conditions relative to the work is made by the Governmental agency handling the contract or its engineer; (2) whether this representation goes to a material specification in the contract; (3) whether the contractor, either by time or cost constraints, has no reasonable means of making an independent investigation of the conditions or representations; (4) whether these representations later prove to be false and/or misleading either due to actual misrepresentation on the part of the agency or its engineer or by what amounts to a misrepresentation through either gross mistake or arbitrary action on the part of the agency or its engineer; and (5) whether as a result of this misrepresentation, the contractor suffers financial harm due to his reliance on the misrepresentation in the bidding and performance of the contract. 11 We concur with the Board s acceptance of DGS arguments on this issue. Specifically, DGS pointed out that Acchione dealt with contract specifications that were based on assumptions made by PennDOT drafters that were neither revealed nor reasonably susceptible to independent discovery. In contrast, DGS avers that realizing the need for SV and LV piping in the present matter was not solely within its area of expertise, and that BMI had reasonable means of making an independent investigation of the conditions or representations on the drawings. In fact, DGS points out that BMI had almost two months to review the initial bid package and to ask questions regarding the significant, glaring and obvious inconsistencies between the floor plans and riser diagrams respecting LV and SV piping. The third element of the Acchione requirements is obviously lacking here. For this same reason, we agree with the Board s finding a lack of reasonable reliance by BMI on these drawings as a basis to omit the need for SV or LV pricing in its bid. Thus, the Board correctly decided that the required elements of actionable misrepresentation are not, in fact, evident in this matter. Finally, the record supports the Board s finding that BMI failed to carry its burden of proof for establishing actual damages resulting from the omission of LV and SV piping from some of the floor plans. The Courts have consistently reaffirmed that a plaintiff bears the burden of establishing not only a breach of contract but also its damages resulting therefrom. Spang & Company v. U.S. Steel Corp., 519 Pa. 14, 25-26, 545 A.2d 861, 866 (1988). While the exact amount of damages need not be calculated with mathematical certainty, the proof cannot be based on mere guess or speculation. Damages cannot be recovered if they are too speculative, vague, contingent, or beyond what the evidence can 12 establish with reasonable certainty. Spang 519 Pa. at 25-26, 545 A.2d at 866. In response, BMI maintains that the use of published labor rates of the Mechanical Contractors Association of America (MCAA) is not only a commonly accepted method of pricing change orders in the mechanical contracting industry, but that it has been accepted by several courts as a proper method for calculating damages in construction cases. However, BMI failed to cite any Pennsylvania cases for this premise. In Paliotta v. Department of Transportation, 750 A.2d 388, 390 n.2 (Pa. Cmwlth. 1999), this Court held that, the burden of proof is on the contractor who seeks reimbursement for damages to show facts necessary for such recovery. In Paliotta, both this Court and the Board held that the expert s cost estimates presented there, with nothing more to substantiate same, were insufficient to establish damages actually incurred. Id. at 390-392. Similarly, the Board properly found BMI s evidence respecting the LV and SV piping to be lacking in this case, in that BMI presented only MCAA cost estimates from its expert for the alleged additional work, and even failed to document the material quantities from which these estimates were purportedly derived. Further, BMI provided no job cost report, labor report or any equivalent documentation or testimony as to the actual man hours worked or for any other costs incurred on the LV/SV portion, or any other portion, of this job. The record also indicates that BMI provided no evidence of competitors bids to establish that its own bid costs were reasonable or to indicate whether other bid competitors included the SV or LV piping costs in their estimates. We now address the Board s grant of BMI s second claim, averring entitlement to the full amount of compensation for labor which it submitted for work reflected in Change Order Nos. 18 to 22 because DGS did not express any 13 dissatisfaction with the work and did not offer any legitimate justification for reducing the MCAA labor rate submitted by BMI. Review of the record supports the Board s determination on this issue. Because DGS original design for the above-ceiling services was deficient, DGS was compelled to revise its design by, among other things, lowering ceiling heights, running services through beam penetrations and adding additional vertical risers. This work, including the addition of hot/cold water risers, the addition of the lab gas risers, the addition of the storm risers and additional lab waste and vent risers, necessitated Change Orders 18 to 22. It is undisputed by the parties that this work was beyond the scope of the original Contract. The MCAA has calculated the labor rates required to install specific types of materials (piping, fittings, hangers, etc.) and provided a methodology for adjusting those labor rates to fit the circumstances of a particular project. The MCAA rates may be adjusted up or down to reflect the difficulty of the installation or the decrease in productivity associated with working in certain conditions. Because change order work is often out of sequence, it is often more costly to perform than if the same work were performed as part of the original contract scope. In the present matter, DGS paid only 70% of the MCAA formula labor rate submitted by BMI when it evaluated BMI s proposed costs associated with the subject change orders. For all other change orders, except for Change Order No. 1, DGS paid 100% of the MCAA rates. Also, for change orders that resulted in a credit in favor of DGS, DGS used 100% of the MCAA rates. BMI used the MCAA labor rates to prepare every request for additional compensation that it submitted on the Project. After BMI submitted its request for payment for change orders, the Professional hired by DGS for the 14 Project also provided an estimate for the cost of the change order work. BMI points out that the Professional s estimates validated BMI s submissions, and in fact, the Professional s total of $366,000 for the five change orders was actually about $1100.00 more than the $364,911.21 total submitted by BMI. DGS argues that at a hearing on Change Order No. 1, which also involved a dispute over labor rates, BMI agreed to the payment for labor on it and all other change orders at only 70% of the MCAA rate. DGS further maintains that paying 70% of Change Order No. 1 was precedent setting, and therefore, the 70% rate then applied to the remainder of the Project. DGS also argues that its reduction of the amounts for Change Order Nos. 18-22 did not breach the Contract because the Contract specifically allows DGS to determine the cost of change orders, pursuant to General Condition, Paragraph 10.5, which provides that if the parties cannot reach agreement as to the cost of change order work, [S]aid cost or credit shall be determined by the Department. Additionally DGS points out that BMI never submitted its actual time and material figures to DGS, but rather relied on MCAA rates for its change orders and continues to do so for its claim. DGS also emphasizes that the cases cited by BMI, where the courts accepted the use of MCAA rates as a proper method for calculating change orders and damages, were not Pennsylvania cases, and that in the past, this Court has found it erroneous not to utilize the time and materials approach for such calculations. BMI asserts that it used the MCAA labor rates for each and every change order request it submitted on this Project. This is not credibly disputed by DGS; nor is it disputed that DGS paid the full amount of this labor rate for every change order except Change Order No. 1 and the subject Change Order Nos. 18 to 22. DGS did not offer reasons related to work performance or other factors for 15 reducing the MCAA rate of pay for labor on Change Order Nos. 18-22. We concur with the Board s finding that the preponderance of evidence presented contradicts DGS assertion that BMI agreed at its claim hearing on Change Order No. 1 to reduce its labor rate on all subsequent change orders by 70%, and that DGS actions with regard to the many change orders on this Project are more significant than the testimony presented at the hearing. The Board did not err in concluding that DGS actions in reducing the labor rate on Change Order Nos. 18-22 were without basis in reason or fact, arbitrary and a breach of DGS duty to perform its portion of the Contract (review and determination of change order costs) in good faith and fair-dealing. We also concur with the Board s dismissal of DGS s argument that Section 10.5 of the General Conditions portion of the Contract designates DGS as the final arbiter of change order cost or credit. Although this section expressly gives DGS initial authority to determine change order cost, Section 10.5 goes on to say that after completing the work as directed, the contractor may subsequently submit its cost for re-evaluation by the Department. Once re-submitted, we see no language in the Contract preventing a contractor from challenging DGS determination by filing a claim and proceeding through normal appeal channels if it disagrees with DGS re-evaluation. Any interpretation of Section 10.5 that would make DGS the final arbiter on change order cost would, in essence, make Sections 10.3, Section 10.6 and all appeal provisions of the Contract superfluous. Therefore, based on the aforementioned discussion, we agree with the Board s order directing payment by DGS to BMI of the balance of the full labor costs on Change Order Nos. 18 to 22 in the amount of $89,058.21. 16 With regard to the Board s award to BMI of interest with respect to its claim on Change Order Nos. 18-22, we find that evidence of record supports the Board s calculation of interest using the closest date to the date such a claim was filed. This date is January 6, 2004, the date of BMI s formal hearing with DGS on this matter. The Board therefore correctly calculated prejudgment interest from January 6, 2004, to the date of its Opinion and Order in the amount of $20,272.50. Finally, upon review of the record, we concur with the Board s denial of BMI s claim for penalties and its grant of BMI s claim for attorney fees with regard to Change Order Nos. 18-22. It is well-established that in assessing penalties, the Board may exercise its discretion in deciding whether an amount shall be deemed to have been withheld in bad faith to the extent that the withholding was arbitrary or vexatious. Because the Board found DGS actions with regard to its denial of the full amount requested by BMI for Change Order Nos. 18-22 to be without basis in fact or reason (i.e. arbitrary), but not so egregious as to justify the imposition of penalty, it properly awarded BMI reasonable attorney fees related to its claim on Change Order Nos. 18-22, but denied imposition of penalties. Accordingly, based upon the foregoing discussion, the determination of the Board in the present matter is affirmed. ____________________________________ JAMES GARDNER COLINS, Senior Judge 17 IN THE COMMONWEALTH COURT OF PENNSYLVANIA Department of General Services, Petitioner v. Bryan Mechanical, Inc., Respondent Bryan Mechanical, Inc., Petitioner v. Department of General Services, Respondent : : : : No. 2155 C.D. 2007 : : : : : : : No. 2159 C.D. 2007 : : : ORDER AND NOW, this 22nd day of May 2008, the October 25, 2007 order of the Board of Claims entered in the above-captioned matter is AFFIRMED. ____________________________________ JAMES GARDNER COLINS, Senior Judge

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