Blankenship Construction Co. v. North Carolina State Highway Commission

222 S.E.2d 452, 28 N.C. App. 593, 1976 N.C. App. LEXIS 2785

• Court: Court of Appeals of North Carolina
• Decided: March 3, 1976
• Docket: 7526SC727
• Status: Published

Opinion

BROCK, Chief Judge.

It is appropriate to preface this opinion by acknowledging the well-established rule that the Commission is not subject to suit except in the manner provided by statute. Teer Co. v. Highway Commission, 265 N.C. 1, 143 S.E. 2d 247 (1965). General Statute 136-29 establishes the procedure for the settlement of claims against the Commission by a contractor who has not received “such settlement as he claims to be entitled to under his contract.” This language has been construed to mean that recovery is possible only within the terms and framework of the contract. Teer Co. v. North Carolina State Highway Comm., 4 N.C. App. 126, 166 S.E. 2d 705 (1969). Thus the general question raised by this appeal is whether the Contractor is entitled to compensation in excess of the original contract price under the provisions of its contract with the Commission.

The Contractor’s claim for additional compensation is governed by several provisions of the “Standard Specifications for Roads and Structures” incorporated into the construction contract. The first is entitled “Changed Conditions”; in particular, Section 4.3A, “Alteration of Plans or Character of Work”:

“The Commission reserves the right to make, at any time during the progress of the work, such increases or decreases in quantities and such alterations in the details of construction, including alterations in the grade or alinement of the road or structure or both, as may be found to be necessary or desirable. Such increases or decreases and alterations shall not invalidate the contract nor release the Surety, and the Contractor agrees to accept the work as altered, the same as if it had been a part of the original contract.

“Under no circumstances shall alterations of plans or of the nature of the work involve work beyond the termini of the proposed construction except as may be necessary to satisfactorily complete the project.

“Unless such alterations and increases or decreases materially change the character of the work to be performed or the cost thereof, the altered work shall be paid for at the same unit prices as other parts of the work. If, however, the character of the work or the unit costs thereof are materially changed, an allowance shall be made on such basis as may have been agreed to in advance of the performance of the work, or in case no such agreement has been reached, then the altered work shall be paid for by force account in accordance with Article 9.U.

“No claim shall be made by the Contractor for any loss of anticipated profits because of any such alteration, or by reason of any variation between the approximate quantities and the quantities of work as done.

“Should the Contractor encounter or the Commission discover during the progress of the work conditions at the site differing materially from those indicated in the con tract, which conditions could not have been discovered by reasonable examination of the site, the Engineer shall be promptly notified in writing of such conditions before they are disturbed. The Engineer will thereupon promptly investigate the conditions and if he finds they do so materially differ and cause a material increase or decrease in the cost of performance of the contract, an equitable adjustment will be made and a supplemental agreement entered into accordingly.

“In the event that the Commission and the Contractor are unable to reach an agreement concerning the alleged changed conditions, the Contractor will be required to keep an accurate and detailed cost record which will indicate not only the cost of the work done'under the alleged changed conditions, but the cost of any remaining unaffected quantity of any bid item which has had some of its quantities affected by the alleged changed conditions, and failure to keep such a record shall be a bar to any recovery by reason of such alleged changed conditions. Such cost records will be kept with the same particularity as force account records and the Commission shall be given the same opportunity to supervise and check the keeping of such records as is done in force account work.” (Emphasis added.)

According to this language, whether a material change in the character of the work is induced by increases or decreases in quantities or alterations in the details of construction by the Commission, or the result of unexpected conditions at the site, the Contractor is required to notify the Commission of the changed condition (s) and negotiate an “allowance” or “equitable adjustment” to be embodied in a supplemental agreement. In the case of altered work, if no agreement can be reached, the altered work shall be paid for by force account. Similarly, in the case of work done under changed conditions, if the Contractor and Commission fail to negotiate a supplemental agreement, the Contractor must keep cost records of such work “with the same particularity as force account records.”

In addition to the procedures discussed above for compensation for changed conditions, the contract provides for payment of “Extra Work,” Section 4.4. Extra work is defined as “construction for which there is no unit or lump sum contract price” (Section 1.26). Payment for extra work is predicated on a determination by the Engineer that there is extra work to be performed and an authorized modification providing for the performance of extra work. If the Contractor and Engineer agree on the price for the extra work, a supplemental agreement should be issued in conjunction with the authorized modification; if no agreement is reached for the price of extra work, the Contractor must furnish “a force account notice” in conjunction with the authorized modification (Sections 4.4 [A] [1] and [2]). In the event the Engineer disagrees that there is extra work and issues a written denial of the Contractor’s request for an authorized modification, but the Contractor intends to seek compensation for performing such alleged extra work, the following procedures apply:

“. . . [The Contractor] shall notify the Engineer in writing of his intention to file a claim for such payment and shall receive written acknowledgement from the Engineer that such notification has been received before he begins any of the alleged extra work. In such case the Contractor will be required to keep an accurate and detailed cost record which will indicate the cost of performing the extra work. Such cost records will be kept with the same particularity as force account records and the Commission shall be given the same opportunity to supervise and check the keeping of such records as is done in force account work.

“The Contractor’s claim to increased compensation as provided herein will be limited to the amount which would have been due the Contractor if payment for the work had been made on a force account basis as provided by Article 9.4.” (Section 4.4C.)

Therefore, whether the work performed falls in the category of “altered work,” “work done under the changed conditions,” or “extra work,” the procedures for obtaining additional compensation are generally the same. In each case the Contractor must first seek a supplemental agreement for the price of the work in question prior to the performance of such work. If an agreement cannot be reached, the Contractor must insure that the Engineer or Commission is on notice of its intention to file ¿ claim for additional compensation, maintain accurate and detailed cost records “with the same particularity as force account records,” and provide the Commission the same opportunity to supervise the keeping of such records as is done in force account work.

Section 9.4, entitled “Force Account Work,” describes the manner in which work done on a force account basis is paid for:

“1. Labor. For all labor and foremen in direct charge of the specific operations, the Contractor shall receive the base rate of wages (or scale) actually being paid by the Contractor for the class or classes of labor normally necessary to perform the work for each and every hour that said labor and foremen are actually engaged in such work, to which rate 30 % will be added. Before beginning the work the Contractor shall file with the Engineer for his approval a list of all wage rates applicable to the work. Approval will not be granted where these wage rates are not actually representative of wages being paid elsewhere on the project for comparable classes of labor performing similar work, or where these wage rates include costs paid to or on behalf of workmen by reason of any fringe benefit.

“2. Bond, Insurance, and Tax. For property damage, liability, and workmen’s compensation insurance premiums, unemployment insurance contributions and social security taxes on the force account work, the Contractor shall receive the actual cost, to which cost 6% will be added. The Contractor shall furnish satisfactory evidence of the rate or rates paid for such bond, insurance, and tax.

“3. Materials. For materials accepted by the Engineer and used, the Contractor shall receive the actual cost of such materials delivered on the work, including transportation charges paid by him (exclusive of machinery rentals as hereinafter set forth), to which cost 15% will be added.

“4. Equipment. For any machinery or special equipment (other than small tools) including fuel, lubricants, cutting edges, all repairs and all other operating and maintenance costs (other than operator) plus transportation costs for equipment not already on the project, the Contractor shall receive the rental rates listed in the current schedule published by the Associated Equipment Distributors. When equipment is used for a period less than one month, the rental rate shall be computed on an hourly basis using an hourly rate which is 1/176 of the monthly rate. When equipment is used for a period of one month or more, the rental rate shall be on a monthly rate basis.

“5. Miscellaneous. No additional allowance will be made for general superintendance, the use of small tools, or other costs for which no specific allowance is herein provided.

“6. Compensation. The Contractor's representative and the Engineer shall compare records of the cost of work done as ordered on a force account basis.

“7. Statements. No payment will be made for work performed on a force account basis until the Contractor has furnished the Engineer with duplicate itemized statements of the cost of such force account work detailed as follows:

“a. Name, classification, date, daily hours, total hours, rate, and extension for each laborer and foreman.

“b. Designation, dates, daily hours, total hours, rental rate, and extension for each unit of machinery and equipment.

“c. Quantities of materials, prices, and extensions.

“d. Transportation of materials.

“e. Cost of property damage, liability and workmen’s compensation insurance premiums, unemployment insurance contributions, and social security tax.

“Statements shall be accompanied and supported by receipted invoices for all materials used and transportation charges. However, if materials used on the force account work are not specifically purchased for such work but are taken from the Contractor’s stock, then in lieu of the invoices the Contractor shall furnish an affidavit certifying that such materials were taken from his stock, that the quantity claimed was actually used, and that the price and transportation claimed represents the actual cost to the Contractor.”

Strict compliance with the contract provisions discussed above is a vital prerequisite for the recovery of additional compensa tion based on altered work, changed conditions, or extra work. The Contractor assigns error to the trial judge’s finding that the Contractor failed to comply with the notice requirement and the record-keeping requirement prescribed by the contract in connection with its claims for additional compensation.

In order to qualify for additional compensation under Sections 4.3A or 4.4(C), the Contractor is required to furnish the Engineer written notice of the alleged changed conditions and, in the event the Contractor and Engineer fail to reach an agreement concerning the alleged changed conditions, keep an accurate and detailed cost record with the same particularity as force account records. Furthermore, the Commission must be given the same opportunity to supervise and check the keeping of such records as is done in force account work.

While the form of the notice — written or oral — may not be critical, the content of the notice must satisfy the underlying purpose of the notice requirement. In this case the Contractor orally notified the Engineer in the spring of 1967 of the unexpected rock conditions. The Engineer, Mr. Davis, informed the Contractor that the nature of the bid as “unclassified excavation” precluded a claim for additional compensation under Section 4.3A. It appears that the Contractor accepted Mr. Davis’ reasoning and proceeded with the Project. Then, after completion of work on the Project, the Contractor filed a claim for additional compensation and at that time prepared cost records in support of its claim. In our opinion the purpose of the notice requirement of Section 4.3A is to apprise the Commission of the Contractor’s belief that he has encountered “work conditions at the site differing materially from those indicated in the contract” for which he is entitled to an “equitable adjustment.” The Contractor’s notice in this case was equivocal at best; from the Engineer’s standpoint, it amounted to a tentative inquiry rather than a forceful indication of changed conditions and demand for equitable compensation. Under the particular circumstances of this case, we affirm the trial judge’s finding that the notice requirement of Section 4.3A or 4.4 was not satisfied with respect to the Contractor’s claim for additional compensation.

Even if the Contractor’s notice had sufficed, and the Engineer’s response is given the same effect as a denial of changed conditions, it appears that the Contractor failed to comply with the record-keeping requirement of Section 4.3A or 4.4(C). The Contractor’s cost records, although derived from records kept by the Contractor during the course of the Project, were prepared after the completion of the Project. When viewed in conjunction with the notice requirement, it is clear that the record-keeping provision is designed to involve both parties in the record-keeping process as the work in question is performed. The contract specifies the form and manner in which the cost records must be prepared.

“. . . The Commission shall be given the same opportunity to supervise and check the keeping of such records as is done in force account work.” (Emphasis added.)

In Section 9.4(1) concerning the force account payment for labor, the following appears: “Before beginning the work the Contractor shall file with the Engineer for his approval a list of all wage rates applicable to the work.”

Taken together, these provisions require that the cost account records be kept as the work in question is performed. The latter requirement in Section 9.4(1) presupposes that the Contractor has given the Commission clear and unequivocal notice of its desire to be compensated for altered work, work under changed conditions, or extra work prior to performing any of the work in question. Furthermore, the provision in Section 4.3A, which is repeated in Section 4.4(C) (Claims for Increased Compensation for Extra Work), affords the Commission an opportunity to supervise and check the keeping of the cost records. The policy of this provision is clear: such supervision and checking, to be effective at all in protecting the State from a claim based on inaccurate cost estimates, must be made possible as the work is performed. Had the Contractor in this case maintained such records during the course of the Project and notified the Commission of this action so as to provide the Commission with the opportunity to supervise and check the keeping of these records, the only question would be whether the Contractor encountered changed conditions or extra work under Sections 4.3 and 4.4. However, failure to comply with the notice and record-keeping requirements constitutes a fatal flaw in all of the Contractor’s claims for additional compensation.

In construing the provisions of Sections 4.3 and 4.4, we are not blind to the possibility that the Contractor in this case encountered considerably changed conditions and extra work. But the position of the Contractor must be balanced against the Commission’s compelling need to be notified of a “changed conditions” or “extra work” problem and oversee the cost records for the work in question. The notice and record-keeping requirements are clearly set forth in the contract. The Contractor’s failure to comply with these procedures is inexcusable. The Contractor first discovered the alleged changed conditions in the fall of 1967; the work on the entire Project was completed on 7 March 1969. On 2 January 1970 the Contractor filed a claim for additional compensation. After receiving payment for the final estimate under the contract, the Contractor filed a verified claim in the spring of 1972 for $4,167,276.30, more than twice the original contract price. The Commission did not receive adequate notice of the claim or have a sufficient opportunity to supervise the maintenance of the cost records as prescribed by Sections 4.3 and 4.4. The notice and record-keeping procedures of these provisions are not oppressive or unreasonable; to the contrary, they are dictated by considerations of accountability and sound fiscal policy. The State should not be obligated to pay a claim for additional compensation unless it is given a reasonable opportunity to insure that the claim is based on accurate determinations of work and cost. The notice and record-keeping requirements constitute reasonable protective measures, and the Contractor’s failure to adhere to these requirements is necessarily a bar to recovery for additional compensation.

We find no error in the dismissal of plaintiffs’ claim for remission of liquidated damages without prejudice. Even if such a dismissal were improper, it would not affect the validity of the findings of fact and conclusions of law with respect to plaintiffs’ other claims. Plaintiffs’ opportunity under the judgment of dismissal to commence a new action within a year on their claim for liquidated damages withheld by the Commission fully cured any conceivable error underlying the dismissal. This assignment of error is overruled.

The judgment of the trial court is

Affirmed.

Judges Britt and Morris concur.