To:
SecretaIy Daniel A Gnibauskas, EDT
Through:
Commissioner John Cogliano, MHO
From:
Stephen H Clark, Administrative Law Judge
Date:
JIlIl1I8l)' 20, 2005
Re:
Report and
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I am plessed to submit for your consideration and approval the attached report
and recommendation.
The appeal ofDerbes Bros., IDe:. (Derbes) to revent the
downward adjustment of the rmals engin_ made punuant to
the price adjustmeut special provision iD Contract 1/98035 for
compensation for the cost of bitumiDous cement used iD
resurfacing and related work ou Rte. 3A iD QuiD." should be
deuied. The Contract compensated Derbes for use of
bitumiDous concrete 8W1rdiDg to a formula that took iDto
ac:count both the bid price and the cost of the material at the
time it was used. The Contract was delayed 9 months during
"hich time tbe cost of bituminous concrete fell BeaUle
Derbes failed to olfer any evidence that its costs increased as •
result of tbe falling priee of bituminous cemeat, it did Dot
prove any equitable adjustment iD the Contract price was due.
Derbes wu properly compensated for the use or bituminous
concrete under the Contract's special provision. Ib .ppeal
sbould be denied.
)
J
INTRODUCTION
Derbes Bros., Inc. (Derbes) appeals from the downward adjustment of $14,166.85
made by the finals engineer of the Massachusetts Highway Department (Department) in
the final estimate for contract #98035 (Contract). The Contract was for resurfacing and
related work on Rte. 3A in Quincy. The Contract contained a cost adjustment provision
under which Derbes would be paid more or less for each ton of bituminous concrete used
depending on a formula based on the difference between the market price at the time of
use and the price Derbes originally bid. When the Department’s finals engineer
calculated the price adjustment, the final payment decreased by $14,166.85.
The work was delayed approximately 9 months, during which time the price of
bituminous concrete fell. Derbes alleged in its claim that, because of the delay, its paving
subcontractor and bituminous supplier “both asked for and renegotiated higher prices.”
I conclude that Derbes stated a claim for an “increase in the cost of performance”
under G.L. c.30, s.39O but failed to prove it. At the hearing Derbes failed to offer any
evidence that is actual cost of performance had increased. The allegation that its
subcontractor and supplier had increased their prices due to the suspension of the work
was entirely unsupported. The evidence showed that the cost of bituminous concrete in
fact decreased during the time of performance. Accordingly, the Department’s
$14,166.85 downward adjustment should not be disturbed.
BACKGROUND
The record discloses the following facts, which I recommend the Commissioner
adopt.
Statement of the Appeal
Derbes and the Department entered into the Contract on June 8, 1998 at the bid
price of $853,021.50 with an original completion date of June 27, 1998.1 The Contract is
governed by the Standards Specifications for Highways and Bridges (1998 ed.) (Standard
Provisions) and the additional provisions set forth in Contract, including a supplement to
the special provisions governing compensation for bituminous cement.
The project was delayed some 9 months, but the Department granted Derbes an extension
of time to complete the work, which was completed by October 30, 1998.
On April 19, 2002 the Department sent Derbes the Contract final estimate, which
incorporated the adjustment made for actual cost of bituminous concrete from JuneOctober 1998. The Department determined that it had overpaid Derbes by $14,166.85 for
bituminous concrete during six months in 1998 when the market price of bituminous
concrete had fallen well below the bid price. On May 1, 2002 Derbes appealed to the
Office of the Administrative Law Judge and, on May 16, 2002, filed its statement of
claim.
A hearing was held on April 17, 2003 on the appeal before Chief Administrative
Law Judge Peter Milano. Present and participating in the hearing were
Peter Milano
Frank Derbes
Jon Johanson
Mary Bearse
Isaac Machado
Chief Administrative Law Judge
Derbes Bros., Inc.
Resident Engineer, MHD
Fiscal, MHD
Deputy Chief Counsel, MHD
The following documents were admitted in evidence at the hearing.
Exhibit #1
Contract #98035
1
Because of the adjustments to the Contract explained below Derbes was ultimately paid $756,673.88
(net of retainage).
2
Exhibit #2
Derbes Statement of Claim
At the hearing, Judge Milano left the record open to accept the following
additional documents into evidence.
Derbes/MHD Correspondence2
Final Estimate Contract #98035
MHD Bit. Conc. Price Adjustment
Letter of Frank Derbes, 4/25/02
Memo of Jon Johanson, 1/24/02
Memo of P.J. Sullivan, P.E., 2/14/03
Exhibit #3
Exhibit #4
Exhibit #5
Exhibit #6
Exhibit #7
Exhibit #8
The matter was taken under advisement. In July 2003 Chief Administrative Law
Judge Peter Milano resigned. At the time of Judge Milano’s resignation no report had
been made to the Board of Contract Appeals (Board). On March 1, 2004 the undersigned
was appointed Chief Administrative Law Judge. On July 21, 2004, through St. 2004, c.
196, s. 5 (Act), the Legislature abolished the Board and, so far as is pertinent here,
conferred the Board’s prior functions on the Secretary of Transportation (Secretary) and
the Commissioner of the Department (Commissioner). See G.L. c. 16, s. 1(b), as
appearing in the Act. This report and recommendation is made through the
Commissioner to the Secretary.
Findings of Fact
The Department issued a notice to proceed on August 29, 1997. Notwithstanding,
at the preconstruction conference held September 5, 1997, the Department personnel
orally informed Derbes that the Contract work should not start, as funds were no longer
available. Derbes did not begin the work.
2
The correspondence consisted of (1) notice to proceed (8/29/97); (2) notice preconstruction conference
(9/5/97); (3) letter of Frank Derbes to Eric Botterman, District Highway Director (10/24/97); (4) letter of
Eric Botterman to Frank Derbes (2/2/98); (5) Notice of Department to Derbes revising project limits
(2/12/98); (6) letter of Eric Botterman to Frank Derbes (6/3/98); (7) Notice of Department to Derbes of
Contract time extension until 10/27/98 (10/7/98).
3
On or about October 24, 1997 the Department orally informed Derbes that certain
Contract work was to be deleted but that the project limits for resurfacing work were to
be extended. In an apparent response to a Department request, on October 24, 1997
Derbes wrote the Department that it agreed to perform all items in the modified work “for
the same contract prices that we bid. [ ] We will not seek to renegotiate any price
increase for the deleted or reduced items or any increased quantities.” The Department
did not acknowledge Derbes’s letter.
On February 12, 1998 the Board of Highway Commissioners approved in writing
the oral representations made to Derbes on October 24, 1997. The deletions of work
lowered the value of the overall Contract, while the expansion of the project limits added
to resurfacing work, in which more bituminous concrete would be used. Neither Derbes
nor the Department considered that the expansion of project limits to be extra work.
On January 8, 1998 the Department repeated its oral suspension of work order.
On February 2, 1998 the District Highway Director confirmed in writing its oral order of
January 8, 1998 suspending the work. The Department wrote, “you [Derbes] are directed
to suspend all work on contract No. 98035, Quincy, Rte. 3A Resurfacing.” The letter
stated that “when engineers are available to oversee your work you will be notified.” On
June 3, 1998 the Department “directed [Derbes] to proceed on June 15, 1998 with the
construction and related work under the Contract.” Derbes accordingly began the work.
The delay resulting from the oral order to suspend work given September 5, 1997
was 123 calendar days. The delay resulting from the written order of the Department was
150 calendar days. The total time of delay was approximately 9 months. The
Department and Derbes agreed to extend the time of Contract completion from June 29,
4
1998 to October 27, 1998, a total of 120 days. The Commission approved that extension
of time on October 7, 1998. Derbes finished the work on or before October 27, 1998.
Derbes’ Statement of Claim asserts, “the DBE and bituminous supplier both asked
for and renegotiated higher prices [as a result of the delay].” At the hearing Derbes
offered no evidence concerning its resurfacing subcontractor, the higher price allegedly
renegotiated, or the actual cost to Derbes resulting from the renegotiated subcontract
price. At the hearing Derbes offered no evidence concerning its supplier of bituminous
concrete used in the work in the six months between June-October 1998 or any other
time. Derbes offered no evidence concerning the prices it was obligated to pay any
bituminous cement supplier under either an original or renegotiated contract. Derbes
offered no evidence at the hearing to prove that its actual cost of performance of the
Contract had increased as a result of the 9-month delay ordered by the Department.
The Contract included a “Supplement To The Special Provisions,” revised as of
January 1998, titled “Price Adjustment For Bituminous Concrete Mixtures.”3 The price
adjustment clause for bituminous concrete “shall not include transportation or other
charges.” The base price of “bituminous concrete mixtures” set by the Department as a
result of Derbes’ bid, was $162.67 per ton. The total tonnage of bituminous concrete (all
types) used in the work for the six-month period June/October 1998 was 9,670.7 tons.
The final engineer’s worksheet showing application of the Contract price adjustment
3
The supplement provided, in part, “The price adjustment clause is inserted into this contract because the
shortage of oil products in relation to the national and work-wide energy situation has made future costs of
asphalt unpredictable.” “The price adjustment will be based on the variance in price for the asphalt cement
component only from the base price to the period price. It shall not include transportation or other
charges.” “The contract price of the Bituminous Concrete Mixture will be paid under the respective item in
the contract. The price adjustment, as herein provided, upward and downwards, will be made as work is
performed, using the most recent previous price adjustment item until the applicable period price is
established.”
5
clause for the tonnage of bituminous concrete used in the six-month period June/October
1998 is the only evidence in the record showing the actual prices of Bituminous
Concrete.4
On April 19, 2002 the Department’s finals section notified Derbes in its Final
Estimate that, due to the application of price adjustments factors resulting from a
decrease in the price of bituminous concrete in the period June-October 1998, the
Department had overpaid Derbes by $14,166.85. 5
DISCUSSION
There is no question that the Derbes Contract was suspended after the notice to
proceed had issued and that the work was suspended for more than 15 days. The delay
was initiated only because the Department sought it and the Department unquestionably
ordered Derbes in writing to suspend the work. These facts bring the Contract within the
purview of G.L. c.30, s.39O (Section 39O).6 Section 39O provides that an “awarding
4
The “period price” (FOB Terminal) is determined by the Department by “averaging the prices posted at
the beginning, middle and end of each two month period by two or more suppliers.” In this Contract there
were three separate two month periods for which adjustments were made. The May-June and July-August
1998 time periods both showed a net price decrease of $24.84/ton; the September-October 1998 time
period showed a decrease of $30.99/ton. Overall, after applying the price adjustment formula to the
9,670.7 tons used between May and October the contract formula yielded a total downward adjustment of
$14, 166.85.
5
Derbes’ Statement of Claim states that its appeal is for $11,573.15. However, Derbes’s stated number is
plainly the result of a clerical error made by Derbes in reviewing the final estimate. Derbes intended to
compute the amount subtracted from the final estimate by the finals engineer as a result of the price
adjustment clause for bituminous concrete. The correct sum of all those reductions is $14,166.85, not
$11,573.15. I treat the Derbes claim as one for $14,166.85.
6
Section 39O, which must be included in every contract awarded under G.L. c.30,
provides
(a) The awarding authority may order the general contractor in writing to suspend,
delay, or interrupt all or any part of the work for such period of time as it may
determine to be appropriate for the convenience of the awarding authority; provided
however, that if there is a suspension [ ] for fifteen days or more due to a failure of
the awarding authority to act within the time specified in this contract, the awarding
authority shall make an adjustment in the contract price for any increase in the cost
of performance of this contract but shall not include any profit to the general
6
authority may order the general contractor in writing to suspend, delay or interrupt all or
any part of the work for such period of time as it may determine to be appropriate for the
convenience of the awarding authority….” Section 39O(a).
If there has been a written order for suspension of fifteen days or more, “the
awarding authority shall make an adjustment in the contract price for any increase in the
cost of performance of this contract, but shall not include any profit to the general
contractor on such increase ….” Section 39O(a). (Emphasis supplied.) The statute has
been construed to mean that the awarding authority’s obligation to consider a claim for an
adjustment in the contract price only arises where the suspension is based upon a written
order and the work is suspended for fifteen days or more. See Reynolds Bros. v.
Commonwealth, 412 Mass. 1 (1992).
Section 39O does not require that the awarding authority make an automatic price
adjustment to the contract. The statute provides that the general contractor “must submit
the amount of a claim under provision (a).” Section 39O(b). The price adjustment
contemplated by Section 39O(a) is only made after the general contractor both claims and
proves an “increase in the cost of performance” net of “any profit to the general
contractor on such increase.” Section 39O(a) and (b).
contractor for such increase; and provided further , that the awarding authority shall
not make any adjustment in the contract price under this provision for any
suspension, delay, interruption or failure to act to the extent that such is due to any
cause for which this contract provides for an equitable adjustment of the contract
price under any other contract provision.
(b) The general contractor must submit the amount of a claim under provision (a) to the
awarding authority in writing as soon as practicable after the end of the suspension,
delay interruption or failure to act and, in any event, not later than the date of final
payment under this contract and except for costs due to a suspension order, the
awarding authority shall not approve any costs in the claim incurred more than
twenty days before the general contractor notified the awarding authority in writing
of the act or failure to act involved in the claim.
7
Derbes in fact filed a statement of claim alleging that its actual cost of
performance had increased because of the 9-month delay.7 It specifically alleged that its
“DBE [paving subcontractor] and bituminous supplier both asked for and renegotiated
higher prices.” Statement of Claim, PP 10.
Its claim also stated that it was appealing from the Department’s “deduction for
bit con [sic] lower fuel adjustments.” Id., PP 9. The challenged adjustments were made
by the Department’s finals engineer pursuant to Subsection 9.05 (“Final Acceptance and
Final Payment”), which provides, in part, “All prior partial estimates and payments shall
be subject to correction in the final estimate and payment.”
Because Derbes alleged higher costs of performance due to delay of more than
fifteen days based on a written suspension order, I conclude Derbes has properly filed a
Section 39O claim.
As the party appealing from the determinations of fact made by the Department’s
final engineer under Subsection 9.05, Derbes carries the burden of persuasion. See
General Electric Co. v. Board of Assessors of Lynn, 393 Mass. 591, 598 (1984) (burden
of persuasion is from the outset on one party; presumption of validity of government’s
administrative action means challenging party has burden of proving the contrary).
At the hearing Derbes offered no evidence to prove its allegations of increased
cost of performance due to delay. It proffered no document or testimony that referred in
any way to higher costs of performance it incurred as a result of actions of either its DBE
7
Derbes filed its claim within the time allowed by the statute. Section 39O provides “The general
contractor must submit the amount of a claim under provision (a) to the awarding authority in writing as
soon as practicable after the end of the suspension, delay, interruption or failure to act and, in any event, not
later than the date of final payment under this contract ….” Section 39O(b). By immediately challenging
the application of the bituminous cement price adjustment taken by the Department’s final section, Derbes
did “submit the amount of [its] claim” to the Department.
8
subcontract or its bituminous supplier. With respect to its DBE subcontractor, Derbes did
not offer the subcontract itself into evidence and did not testify to its terms. Derbes failed
as well to offer testimony concerning the alleged renegotiation of the subcontract terms.
With respect to its “bituminous supplier,” Derbes offered no evidence whatsoever.
The record is silent with respect to Derbes’s allegation that its “bituminous supplier”
“renegotiated higher prices.” Likewise, Derbes offered no evidence to show the market
price of bituminous concrete, either during the original or extended term of the Contract.
Derbes did not show either what it originally was to pay its bituminous supplier or the
amount of the alleged price increase due to the alleged renegotiation. The only evidence
at the hearing on prices for bituminous concrete was the calculation sheet used by the
Department’s finals engineer in computing the price adjustment. Ex. 4.
I conclude that Derbes has failed to prove the allegations made in its statement of
claim. Having the burden of persuasion Derbes was obligated as a matter of law to prove
by substantial evidence the elements of its claim. General Electric Co. v. Board of
Assessors of Lynn, supra. Substantial evidence “is such evidence as a reasonable mind
might accept as adequate to support a conclusion.” New Boston Garden v. Assessors of
Boston, 383 Mass. 456, 466 (1981). Derbes produced no substantial evidence to prove
that Derbes’s DBE subcontractor in fact charged Derbes “higher prices” after a
renegotiation or that Derbes’s bituminous concrete supplier in fact charged higher prices
as a result of renegotiation brought about by the suspension in the work. Derbes failed to
show any “increase in the cost of performance.”
Derbes also argues in substance that the Department’s downward adjustment in
compensation after applying the price adjustment clause ipso facto increased its cost of
9
performance. “We do not feel we should be responsible for the lower fuel [sic]
adjustment,” Derbes says. Statement of Claim, PP 7. Derbes argues that had the work
not been delayed it would not have been subject to the downward price adjustment. The
application of the price adjustment clause after the price fell was done only because of
the Department’s delay. In short, Derbes argues that, because it could not work when
prices were higher, the delay caused “an increase in the cost of performance.” I disagree.
Derbes misapprehends the nature and operation of the bituminous cement price
adjustment clause in the Contract. The price adjustment clause does not guarantee
Derbes a price for bituminous cement. In contrast to compensation based on a bid item
for which Derbes guarantees a fixed price for the term of the Contract, the price
adjustment clause compensates Derbes on the basis of a formula. The Contract assumes
that the price of bituminous concrete will fluctuate over the life of the Contract.
The stated purpose of the price adjustment clause is to protect both parties from
the effects of anticipated price swings. The express intent of the clause is to insulate the
parties from “unpredictable” higher or lower costs of asphalt. The price adjustment,
which is based on a formula determined by the difference between Derbes bid price and
the market price at the time the asphalt is used, is expressly written to provide a flexible,
as opposed to fixed, means of compensation. The adjusted price does “not include
transportation or other charges,” such as overhead or profit.
The market price of bituminous concrete fell during the three months the contract
performance was extended. The result, based primarily on the cost of the asphalt, was a
decrease in compensation payable to Derbes. Because Derbes had no contractual right to
be paid at the “higher” price it originally bid, it has no basis to claim compensation at a
10
price other than that yielded by application of the price adjustment special provision. The
adjustment made by the final engineer was required by the Contract. No such adjustment
could be deemed an “increase in the cost [of Derbes] performance” when prices in fact
decreased.
A final issue requires discussion. In its statement of claim Derbes says, “The
Resident Engineer did not include the fuel adjustment because of the financial loss we
would have been forced to absorb.” PP 10. An internal Department memorandum dated
January 24, 2002 by the former resident engineer corroborates that statement. The
Department employee states
I disagree with the [] deduction [of $14,166.85 made by the finals engineer]. The
project had many delays, none of which were the fault of the contractor. The
paving was the DBE portion of this contract. The contractor due to the delays had
to renegotiate and pay a higher price both to the DBE and his bituminous concrete
suppler to complete the project.… The deductions for Bit. Conc. Fuel
Adjustments [sic] coupled with the higher price paid to the DBE, in my opinion,
will do significant financial damage to a contractor that cooperated and worked
diligently with the Department to overcome many unforeseen obstacles and
complete his work. Ex. 7.
There is an inference in this record that the Department at the district level failed
to abide by the Contract’s price adjustment clause when it submitted certain periodic
payment estimates. The Department’s finals engineer properly corrected that oversight.
The resident engineer was obligated to administer the Contract, including terms that
seemed to him to adversely affect Derbes. Neither Department personnel nor the
contractor may selectively enforce provisions of the Contract depending on their
“opinions.” If the contractor wishes to seek a price adjustment, it must follow the
provisions of the Contract itself. Failure to follow the procedures set forth in the contract
designed to provide it a remedy results in a forfeiture of any compensation it might have
11
been awarded. See Glynn v. Gloucester, 9 Mass. App. Ct. 454, 461 (1980) (failure to
follow the remedies set forth in the contract preclude all relief). Whatever effect
Derbes’s letter of October 24, 1997 not to “seek to renegotiate any price increase” may
be, it did not excuse Derbes from its failure to pursue its remedies under the Contract.
The Contract, as well as Section 39O, contained a provision that allowed Derbes
to seek its “actual” increased costs attributable to delays not its own fault. Under
Subsection 8.05 the Commissioner8 has the discretion to adjust the compensation due
Derbes. To seek a claim for such discretionary compensation under Subsection 8.05 “the
contractor shall submit in writing not later than 30 days after the termination of such
suspension, delay or interruption the amount of the claim and the breakdown of how the
amount was computed [ ] except no allowance for overhead and profit shall be allowed.”9
Here, assuming that Derbes gave the Department the required notice and
assuming further that its statement of claim provided the required “breakdown” or
“computation” of its “increase in the actual cost of performance,” Derbes still cannot
prevail. That is because a Subsection 8.05 claim, no less than a Section 39O claim,
requires proof by substantial evidence. Derbes produced no evidence to show an “actual
increase in the cost of its performance.”
8
Subsection 8.05 provides that the “Commission” has the power to determine whether “the Department”
should make an adjustment in the contract price “for any increase in the actual cost of performance
…(excluding project and overhead)” caused by delays for which the contractor is not responsible. Through
St. 2004, c. 196, s. 5 amended Chapter 16 of the General Laws abolishing the Commission and transferring
its powers to the Commissioner.
9
Subsection 8.05 provides that the contractor is precluded from seeking any damages for delay in the
commencement or performance of the work, but shall granted an extension of time. Such a “no delay
damages” clause is lawful. See Charles I. Hosmer, Inc. v. Commonwealth, 302 Mass. 495 (1939).
Subsection 8.05 also provides an exception to the prohibition against damages for delay, however. Thus,
where a contractor can show that it has suffered an “increase in the actual cost of performance” because of
a delay for which it is not responsible, the Commissioner in his discretion may adjust the contract price.
12
CONCLUSION
I conclude that Derbes failed to prove any increase in its cost of performance due
to the delays the Department ordered. I further conclude that the Department’s
application of the price adjustment clause reducing compensation payable for bituminous
concrete was required by the Contract and was not an increase in the cost of performance.
RECOMMENDATION
The appeal of Derbes should not be allowed.
The Department should uphold the decision of the finals engineer.
Respectfully submitted,
Stephen H. Clark
Administrative Law Judge
13