November 2002
By ALEXANDER A. MIUCCIO, CIC Legal Counsel
This column previously addressed claims by contractors for extra work when the work exceeded the quantities set forth in the contract. Where the contract has exculpatory clauses, providing that the quantities set forth are mere estimates, upon which the contractor may not rely in lieu of its own inspection and testing of the job site, such claims for extra work will ordinarily be rejected. A variation arises when the work turns out to be substantially less than the quantities set forth in the contract, particularly in a unit price contract. In that instance, the contractor may earn less overhead and profit than it had anticipated. In a recent case, Fischbach & Moore, Inc. v. Department of Environmental Protection, the Contract Dispute Resolution Board of New York City rejected the claim of the contractor for loss of overhead and profit.
Background
Fischbach & Moore, Inc., entered into a unit price contract with the New York City Department of Environmental Protection (DEP) to complete the Plantwide Instrumentation and Control System at the North River Pollution Control Plant in Manhattan. After two other contractors had abandoned the project following disputes with DEP, Fischbach & Moore contracted to complete and install electrical conduit, wiring, fixtures, switches, power supply and control instrumentation in the existing water pollution control plant at a price of $19,490,825.
Section 36 of the contract provided that if it appeared that the quantities required to complete the work were going to exceed the estimates by more than 25 percent due to errors, site conditions, changes in design or any other reason, the contractor was to immediately notify the engineer of the anticipated overruns. Section 36 also warned bidders that the engineer's estimates of quantities were only approximations, given solely for the purpose of comparison of bids, and were not part of the contract. It also provided that the quantities may be more or less than the estimate and no action for loss of profits shall accrue to the contractor.
During the work on the project, the contractor found that the quantities of conduit and wire actually required to be installed were substantially less than the estimates in the bid documents. It submitted a claim to DEP for lost profit and overhead in the sum of $829,445. DEP issued a final determination denying the claim. In accordance with the dispute resolution provisions of the contract, the contractor filed a notice of claim with the City Comptroller. After the Comptroller also denied the claim, the contractor petitioned the Contract Dispute Resolution Board (CDRB) for consideration of its claim.
Arguments
The contractor argued that the discrepancy in the quantities of conduit and cable amounted to a qualitative change in the nature of the contract, not contemplated by the parties. It argued that section 36 of the contract recognized that variances in quantities can have a significant effect on the propriety of the unit price. It further argued that the contract was silent with respect to under-runs in quantities. Finally, the contractor argued that the mistaken estimates constituted gross negligence on the part of the city, based upon the fact that the contractor was required to complete work abandoned by two other contractors preceeding it.
DEP argued that section 36 of the contract prohibited the claim because it clearly stated that the estimates were provided for the purpose of comparing bids and were not part of the contract. DEP also argued that under the contract, the contractor was obligated to examine the site to satisfy itself of the accuracy of the estimates. According to the DEP, the contractor was an experienced electrical contractor and had sufficient time to determine and understand the risks of the contract.
Decision
The CDRB rejected the contractor's claim for loss of overhead and profit. The CDRB noted that section 36 of the contract warned that the estimates were solely for the purpose of comparing bids and that the quantities could be more or less than the estimates. Section 36 also provided that no action for loss of profit shall accrue to the contractor by reason of a difference between actual and estimated quantities. The language unambiguously contemplated a discrepancy between estimated and actual quantities.
The CDRB also noted that the information for bidders advised bidders to view the site before bidding and put them on notice that they would be presumed to have knowledge of any and all conditions that should have been indicated to a reasonably prudent bidder.
The CDRB held that the contract clauses warning that estimates of quantities are approximate and barring claims for lost profits, due to overestimates, were enforceable in the absence of bad faith on the part of the city. It found that the contractor's claim that the city's over-estimation was gross negligence was not supported by the record.
The contractor has filed an Article 78 proceeding in court, seeking to reverse the determination of the CDRB.
Conclusion
Exculpatory clauses in contracts which provide that a contractor may not rely on the estimated quantities set forth in the contract, and which preclude claims based on either overruns or under-runs, are generally enforceable in the absence of bad faith. Such clauses may bar a contractor from a claim of extra work if the actual quantities exceed the estimate. Such clauses may also bar a contractor from a claim of lost overhead and profit in the event that the actual quantities required to complete a unit price contract are substantially less than estimated, as in this case. Where such clauses exist, the contractor should make its best effort to estimate the quantities on its own. Reliance on the estimates set forth in the contract will be at the contractor's risk.
About the author: Mr. Miuccio is a partner in the New York City-based law firm Altieri, Kushner, & Miuccio P.C. and legal counsel to the Construction Industry Council of Westchester and the Hudson Valley Inc.