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Diversified Specialty Services v. Walsh Construction Co. et al.
MEMORANDUM OF DECISION
Preliminary Statement
This cause of action arises out of the construction of the Route 34 flyover bridge from Interstate 95 in New Haven (the project). The defendant Walsh Construction Company (Walsh) was the general contractor for the project, having been awarded the contract by the Connecticut Department of Transportation (CDOT). As required, Walsh obtained a payment bond for this public works project from the defendant Travelers Casualty & Surety Co. of America (Travelers). Thereafter, Walsh entered into a subcontract with the plaintiff, Diversified Specialty Services, LLC (DSS), for certain sewer and drainage work associated with the project. By operative complaint dated April 25, 2012, DSS claims that Walsh breached the subcontract by failing to make payments due thereunder; that Walsh constructively terminated the contract; that Walsh violated the Connecticut Unfair Trade Practice Act; and that Walsh violated its statutory obligation under Conn. Gen.Stat. § 49–41a. DSS also brought claims against Travelers for breaching the payment bond by failing to comply with Conn. Gen.Stat. § 49–42 when DSS made a claim against the performance bond, and for bad faith for its handling of the performance bond claim. Walsh has asserted several special defenses, as well as a counterclaim in which it asserts that DSS breached the subcontract agreement and is liable to it for the costs and damages it incurred due to the failure of DSS to perform as required.
DSS seeks the following: (1) amounts due under the contract, which Walsh wrongfully withheld; (2) amounts due for “extra work” as reflected in multiple proposed change orders; (3) amounts due for “quantities” of per-unit work performed by DSS for which it was not paid; (4) the amount of the bond claims made; (5) attorneys fees and punitive damages.
Walsh denies that it owes any money to DSS under the subcontract. Although Walsh acknowledges that it withheld money for work DSS performed, it claims a “chargeback” for damages it incurred as a result of DSS' failure to meet contractual obligations in excess of the amounts withheld. Walsh seeks damages for that excess as well as attorneys fees. Travelers denies all claims against it.
DSS denies the allegations in the counterclaim.
This case was tried to the court over the course of 15 days beginning on July 22, 2013 and continuing on diverse days until September 5, 2013. The court heard testimony from multiple witnesses and admitted thousands of pages of records from the construction project and other sources. Simultaneous trial briefs were submitted on November 22, 2013. Simultaneous reply briefs were submitted on December 9, 2009. The court has considered the testimony and evidence introduced, the arguments set forth in the parties' memoranda, the authorities cited therein, and renders this decision based thereupon.
It is for this court to decide whether and to what extent the parties fulfilled their respective contractual and statutory obligations and to assess, at the end of that analysis, the financial responsibility that flows from that determination.
FACTUAL FINDINGS
“In a case tried before a court, the trial judge is the sole arbiter of the credibility of the witnesses and the weight to be given specific testimony ․ It is within the province of the trial court, as the factfinder, to weigh the evidence presented and determine the credibility and effect to be given the evidence.” (Citation omitted; internal quotation marks omitted.) Cadle Co. v. D'Addario, 268 Conn. 441, 462 (2004). The court makes the following factual findings by a fair preponderance of the evidence, unless otherwise indicated, based upon the better, more credible evidence presented.1
DSS is a Connecticut-based, family-owned and operated, construction firm, which specializes in sewer and drainage work ancillary to road and highway construction. Anthony Garcia serves as the manager and primarily involves himself with the business end of the company and administrative responsibilities. Stephen Garcia, a civil engineer by education and profession, oversees the field work and designs the method and mechanism for fulfilling DSS' contractual obligations.
Walsh is a construction company based in the Midwest, which bids for and undertakes construction projects throughout the country. In 2008, CDOT invited bids for a portion of the ongoing reconstruction of Interstate 95 in the New Haven area. Walsh was awarded the contract. The entire scope of that contract and project is not the subject of this litigation. At issue is that portion of the contract that involved ancillary sewer and drainage work along Water Street, Chestnut Street and Franklin Street in New Haven necessitated by the reconstruction of the interchange between Interstate 95, Interstate 91 and Route 34.
In 2008, Walsh contacted DSS to inquire as to whether it would be interested in bidding for the sewer-work portion of the project.2 DSS submitted a bid, which was ultimately accepted and resulted in a subcontract between Walsh and DSS. The subcontract was signed in January 2009. The original subcontract was valued at $2,805,601. However, numerous approved change orders increased the value of the subcontract to approximately $4 million. While this was not the largest contract that DSS had ever undertaken, it was a significant project by any measure.
The Scope of the Work to be Performed
The contract involved three separate but ultimately intertwined projects: (1) the cleaning and relining of existing sewer pipe along Water Street between manhole 14 and manhole 7; 3 (2) the laying of new sewer pipe from the end of the existing sewer pipe, which was to be cleaned and relined in an eastward direction along Water Street to manhole 1; and (3) the laying of new sewer pipe up Chestnut Street and Franklin Street to the intersection of Wooster Street. These projects included the building of new manholes, the abandoning of old manholes and other ancillary subsurface work.
A. Cleaning and Relining the Existing Sewer Pipe Beneath Water Street
For this portion of the project, DSS was required to first design and build an effluent by-pass system, which would allow DSS to access, clean and then reline the existing sewer pipes. The by-pass would involve the use of temporary pipes and the routing of the effluent around the area to be cleaned and relined. The pipe to be cleaned and relined began at manhole 14 near the corner of Water Street and Union Street and continued east to where Chestnut Street met Water Street. The by-pass would begin at manhole 14 and re-route the sewer effluent into the then-existing manhole 7. The bypass required the use of rented pumps to move the effluent into the by-pass pipes. The rented pumps required access to sufficient water flow in the sewers in order to keep the pumps primed and operational. Once the by-pass was operational, the existing sewer line could be vacuumed and cleaned. DSS arranged for a subcontractor, McVac, to perform the cleaning. DSS also arranged for a subcontractor, Insituform, to perform the relining operation.4 Once the existing sewer line was cleaned and relined, the by-pass could be shut down and the sewer re-opened for the flow of effluent.
B. Installation of New Sewer Pipe—Water Street
The contract also called for the installation of a new sewer pipe beneath Water Street from manhole 1 running west to the end of the existing sewer pipe, which was to be cleaned and relined. At that location, the existing manhole 7 would be abandoned and a new manhole 7 constructed. Manhole 1 was located near the corner of Water Street and Hamilton Street. It marked the territorial limits of the Walsh/CDOT contract as well as the Walsh/DSS subcontract. Beyond manhole 1 to the east, different contractors were performing sewer work in connection with a different CDOT project.
This portion of the contract also required DSS to design and install two junction chambers. Junction Chamber No. 1(JC1) was to be constructed beneath manhole 5. Junction Chamber No. 2(JC2) was to be constructed beneath manhole 6. Construction of both manholes 5 and 6 were also part of the DSS subcontract with Walsh. JC2 was at the corner of Chestnut Street and Water Street. It encased the joint where the sewer line from Chestnut Street joined the sewer line along Water Street.
C. Installation of Sewer Pipe on Chestnut Street and Franklin Street
The third segment of the DSS subcontract required the installation of new sewer pipe running north from manhole 6 on Water Street, beneath Chestnut Street to where it meets Franklin Street and then beneath Franklin Street to the point where Franklin Street meets Wooster Street. The end of the work was located at manhole 13, which was located at the corner of Wooster Street and Franklin Street, directly outside Tre Scalini restaurant. The new sewer pipe would then join existing sewer lines along Wooster Street. The sewer was designed so that effluent would flow south from Wooster Street and eventually flow easterly along Water Street to and through manhole 1. Indeed, each portion of the sewers being worked on by DSS contemplated an eventual flow towards and through manhole 1.
With respect to each of these three projects, problems abounded.
Cleaning and Relining the Existing Sewer Pipe Beneath Water Street
In connection with the cleaning and relining of the existing sewer pipe beneath Water Street, DSS designed a by-pass system to move effluent around that portion of the sewer pipe that needed to be cleaned and relined. The design was submitted by DSS through Walsh to CDOT. After a period of time during which the interested parties went back and forth assessing the viability of the design, suggesting changes and making changes, the design was approved in December 2010. The building of the by-pass was cleared to begin as of April 1, 2011.
In connection with the design and implementation of the by-pass, the contract documents required DSS to coordinate its efforts with the New Haven Water Pollution Control Authority (WPCA). The WPCA operates a pumping station in the area and also monitors drainage and flow rates in the sewer lines. In connection with the by-pass design, as part of the contract specifications, DSS was provided WPCA information regarding the “peak” flow rates in the sewer lines in the area.
DSS did not begin to construct the by-pass in April. Although the design and plan had been approved, DSS was preparing an alternative by-pass plan for review and approval. The alternate plan was to by-pass the existing sewer at manhole 14 but to pump the effluent north to Chapel Street. There, it would join the Chapel Street sewer line, running easterly toward the then-existing sewer line, which connected at Wooster Street. The alternate plan would require less pipe for the by-pass and less time to construct. It would, in theory, save both time and money.5 The submission was rejected and resubmitted multiple times over the course of almost three and one-half months. Ultimately, the State determined that the sewer pipe into which the by-pass would empty was too small to handle the effluent from the by-pass. The proposal was officially and finally rejected in approximately mid-July 2011. Any time savings to be had were long gone by then. Indeed, considering that the originally approved by-pass took only four weeks to construct, once the pursuit of the alternative plan exceeded that period, the pursuit was devouring days needlessly and unreasonably.6 As it turns out, having those days and weeks back would have made an enormous difference in the completion of this contract.
During this time, Walsh repeatedly advised DSS that it had concerns regarding the time being lost pursuing the alternative plan and indicated that DSS would have to make up that time.7 By mid-June, Walsh sent its first of several directives to cure default to DSS, for DSS' failure, among other things, to keep up with the Schedule.8 In late June, notice of default followed. In July, Walsh requested that DSS go to a six-day work week or, alternatively, longer shifts on the five-day schedule. DSS did neither.
DSS began constructing the by-pass system in early August 2011. It was completed and ready to be activated on August 30, 2011. At that time, McVac was on site ready to begin the cleaning operation. Insituform was also on site to observe the activation of the by-pass system. Unfortunately, the by-pass did not function as planned. The pumps used to move the effluent into the by-pass pipes could not draw enough water to hold their prime and so stopped functioning.9 Effluent, including raw sewage, flooded out onto the street.
Although the events of the evening of August 30, 2011 and early morning hours of August 31, 2011 came as a surprise to everyone, it did not take long to determine the problem and decide that an alternative plan was required. Within a few weeks, it was determined that the WCPA pumping station located on the Knights of Columbus property could be the site of the by-pass. The WCPA, CDOT, DSS and Walsh worked together to obtain the necessary easements and permissions. Thereafter, DSS built a by-pass that was longer than the first as it now had to cross over Union Street from the Knights of Columbus property to Water Street and ultimately to the existing sewer line to the east. The second by-pass was ready to be activated at the end of September. It became operational largely without incident,10 which cleared the way for McVac and Insituform to perform their respective subcontracts.
DSS blames Walsh for this lost time from the failed by-pass. It submitted a Proposed Change Order to cover the increased costs of the delay and re-build. In support of this claim, DSS asserts that the contract specifications misinformed DSS as to the flow rates in the sewers. This court finds to the contrary. The specification on which DSS relies identified the flow rates as “peak” and further required DSS to coordinate the by-pass operation with the WPCA. The WPCA runs the pumping station on Union Street and also monitors flow rates in the sewers and storm drain systems. With no coordination having occurred, only DSS knew that it had assumed that the “peak” flow figures in the contract specifications would be constant throughout the time the by-pass would be needed. The WPCA could have disabused them of this assumption. Coordination with the WPCA would also have informed DSS that the pumping station did not run continuously, a fact that DSS did not know. Testimony that efforts to coordinate with WCPA were made and rebuffed or ignored is rejected as not credible.
Testimony that DSS was told the flow rates were constant is also rejected. Aside from the fact that the word “peak” necessarily implies variation in the flow rates, DSS was fully aware that the sewer flows varied. When it was trying to video the sewer line in March 2011, it encountered too much flow to be able to adequately film the inside of the line. In an email to Aaron Maestre, Stephen Garcia describes his own observations with respect to the varying water levels in the line at different times. Thereafter, Maestre tells Garcia that he encountered the same issue in 2009 when conducting an inspection of the line. He noted that the flow rates are lower at night and that he should contact the WPCA as “they can somewhat control the flow for you.” Whether DSS assumed the flow was constant or knew that it was not and proceeded anyway is of no moment. The delay is the responsibility of DSS.
Additional problems arose in connection with the pipe cleaning. In 2009, after the DSS/Walsh subcontract had been signed, in preparation for work to be done, Walsh sent a video to DSS that contained images of a portion of the inside of the sewer pipe running along and beneath Water Street. The video showed silt and debris in the line which would need to be cleaned out, per the terms of the contract. When McVac entered the sewer to prepare the cleaning operation in September 2011, however, the pipe was almost half full of silt, dirt and debris—an amount claimed to be well in excess of what was anticipated based, in part, upon the video from 2009. Although the construction schedule had budgeted only a few days for the cleaning operation, it took weeks for McVac to clean the line.
DSS blames Walsh for this delay and seeks compensation for the increased cost associated with the cleaning. DSS argues that it relied upon the 2009 video in assessing the resources needed to complete the cleaning. However, Stephen Garcia testified that DSS went into the sewer in March 2011 and was able to observe the degree of silt and debris in the line. DSS was aware at that time that the pipe was approximately half full of debris and silt that would need to be cleaned out. The claim of surprise as to the condition of the pipe in September and October is therefore belied by the evidence. In March, DSS and/or McVac had failed to appreciate the impact on the schedule of the amount of silt. Had it done so, adjustments to the schedule and plans for the more extensive cleaning effort could have been made. Although the time to clean the pipe may have been initially unanticipated, by March it should have been known and planned for accordingly. DSS bears responsibility for this delay. McVac finished cleaning the pipe around the last week of October, at which point Insituform could start the relining operation. The relining operation was eventually completed without further incident within a week or two.
From the beginning of September through the completion of the pipe cleaning, however, Insituform was on site with refrigeration trucks trying to keep the liners, which have a limited shelf life once prepared, in good enough shape to be used when needed. The cost billed to DSS by Insituform for these efforts, caused by the delay, is in excess of $900,000, an amount DSS passed along to Walsh but for which Walsh disclaims any responsibility.11
The Sewer Work between Manhole 1 and Manhole 7
Although the cleaning and relining effort were delayed tremendously, DSS was working concurrently on the construction of the sewer lines between manhole 7 and manhole 1. This work required, among other things, the laying of new sewer pipe; the construction of manholes 5 and 6, and a new manhole 7; the insertion of junction chambers 1 and 2; the hook up to the previously existing sewer line along Water Street; and the connecting of the line to the sewer line at Chestnut Street. Unfortunately, this portion of the work was also plagued with problems.
As indicated, DSS was required to construct both manhole 5 and manhole 6, each of which connected to a junction chamber. Manhole 5, was above JC1 and manhole 6 was above JC2. A junction chamber is needed to surround the junction of two sewer lines that come together. The chamber itself is a precast structure. DSS purchased it in a CDOT-approved form and from a CDOT-approved vendor. The construction of the junction boxes was a design and build obligation under the DSS subcontract. In order to successfully complete installation of a junction box, it must be air tight and must pass testing to insure it is air tight. JC1 was installed in June 2011. JC2 was installed in July 2011. However, neither passed testing. DSS made multiple attempts at fixing the issues, to no avail. By the end of October 2011, the junction chambers had not passed testing and the sewer line to manhole 1 could not be opened. Eventually, Walsh was able to devise a method to stem the leaking to the point where the junction chambers passed the State's testing in approximately mid-November 2011.
In addition, DSS was plagued with problems in the construction of manhole 7. Manhole 7 marked the intersection of the pre-existing sewer and the new sewer. The pipes were of different widths, and DSS encountered significant difficulty making the connection work. Again, Walsh supplemented these efforts, and manhole 7 became operational in approximately mid-November 2011.
It was only after the junction chambers passed testing and the problems with manhole 7 were resolved that effluent would be able to flow east through manhole 1.
The amount of resources devoted to both the cleaning and relining portion of the scope work and the laying of the new sewer from manhole 1 to a new manhole 7 had a cascading effect on DSS' ability to stay on schedule. By the end of September, DSS had not completed the cleaning and relining of the Water Street line; had not completed construction of manhole 7 or the sewer line extending from manhole 7 to manhole 1 and had not progressed very far on the work up Chestnut Street to Franklin Street. Notwithstanding, DSS maintained that it would be able to meet the contract completion date without issue.12
The Chestnut St. to Franklin St. Sewer Work
As noted, by the end of September, DSS had only just begun in earnest the final project of laying sewer pipe north on Chestnut Street until it reached Franklin Street, and then north on Franklin Street to Wooster Street. This work involved, among other things, the installation of several manholes, a temporary by-pass around manhole 9, a new manhole 13 and, of course, excavation and pipe laying. The contract completion date of November 30, 2011 was weeks away and Walsh faced liquidated damages of almost $14,600 per day if the work was not completed. In October, Walsh therefore determined to supplement DSS' work. In connection with that decision, Walsh advised DSS that it would backcharge DSS for its costs. In addition, Walsh withheld periodic contract payments due to DSS for work already performed. In addition to its scheduling concerns, Walsh had received a letter from a DSS subcontractor from which Walsh assumed that DSS had failed to make a payment to that subcontractor. The withholding of these funds substantially impacted the ability of DSS to pay its subcontractors and/or vendors.
Walsh brought in Pete Schexnayder and Rob Blume, Walsh engineers, to review the remaining work to be done, devise a completion plan and then oversee its execution. For the final four weeks of the contract period, the number of crews was increased and the shifts were doubled. DSS worked the day shift and Walsh worked the night shift. Walsh crews completed the installation of manhole 7 and were able to solve the leak issue with the junction chambers. By mid-November, the Water Street line was able to flow effluent down to manhole 1. Because DSS had not done so,13 Walsh commissioned a utility support plan for the corner of Wooster Street and Franklin Street. Walsh thereafter implemented that plan. Due to the presence of a large gas main, the utility support and construction of manhole 13 was a very complicated and difficult undertaking. With both Walsh and DSS working the project, in rather dramatic fashion, the remainder of the sewer line was installed and the project otherwise mostly completed during the November 30, 2011 nightshift. Clean up and punch list items were completed after the project completion date, but the State did not assess any liquidated damages against Walsh. DSS remained on the job through to the completion date and thereafter assisted in punch list items, as well.
The Plaintiff's Claims
DSS brings four claims against Walsh: breach of contract; wrongful termination of the contract; CUTPA violations; and a breach of the statutory duties set forth in Conn. Gen.Stat. § 49–41a in respect to its bond claim. DSS claims that Walsh breached and/or terminated the contract when it withheld certain payments and used its own workers to complete DSS' work. DSS further claims that Walsh breached the contract by failing to pay DSS for what DSS claims was “extra work” performed outside the parameters of the contract. DSS also claims that Walsh breached the contract when it failed to pay DSS for “quantities” of work performed within the parameters of the contract.
Breach/Constructive Termination and Walsh's Counterclaim for Breach
“The elements of a breach of contract action are the formation of an agreement, performance by one party, breach of the agreement by the other party and damages.” (Internal quotation marks omitted.) Pelletier v. Galske, 105 Conn.App. 77, 81 (2007), cert. denied, 285 Conn. 921 (2008).
“A contract must be construed to effectuate the intent of the parties, which is determined from the language used interpreted in the light of the situation of the parties and the circumstances connected with the transaction ․ [T]he intent of the parties is to be ascertained by a fair and reasonable construction of the written words and ․ the language used must be accorded its common, natural, and ordinary meaning and usage where it can be sensibly applied to the subject matter of the contract ․ Where the language of the contract is clear and unambiguous, the contract is to be given effect according to its terms. A court will not torture words to import ambiguity where the ordinary meaning leaves no room for ambiguity ․ Similarly, any ambiguity in a contract must emanate from the language used in the contract rather than from one party's subjective perception of the terms.” (Internal quotation marks omitted.) Tallmadge Brothers, Inc. v. Iroquois Gas Transmission Systems, L.P., 252 Conn. 479, 498 (2000).
Here, the subcontract contained a wrongful termination provision at Article 8.7, which gives DSS certain remedies if Walsh “wrongfully exercises [its] termination options under this Article.” DSS alleges that Walsh violated this provision when it constructively terminated the subcontract. In support of this claim, DSS argues that Walsh essentially made it impractical and/or impossible for DSS to complete its work and effectively terminated DSS when it sent in its own crews to complete DSS-scope work. DSS acknowledges that it was not removed from the entire jobsite and that Walsh notified DSS that it was terminating the subcontract as provided for under the subcontract. Indeed, the evidence is undisputed that Walsh did not give any such notice and that DSS remained on the job through the completion of punch list items.
This court has located no case law in the State of Connecticut which applies the doctrine of “constructive termination” in the context of a building contract between a contractor and a subcontractor. The doctrine has been developed in the context of employment disputes; see, e.g., Brittell v. Dept. of Correction, 247 Conn. 148, 178 (1998) (constructive discharge where working conditions so unpleasant or difficult reasonable person working in them would feel compelled to resign); and does not appear to have been expanded beyond that context. Moreover, even if this court were to apply the constructive termination analysis, DSS cannot prevail. The factual allegations made in support of the alleged “constructive termination” were not proven. Whether such a claim is recognized in Connecticut is therefore of no moment.14
The first question is whether Walsh breached the subcontract by its decision to withhold periodic payments in October and November and to supplement the DSS work with its own crews and on site engineers. The court finds that DSS was in material breach of the subcontract by the time Walsh withheld payment and further finds that Walsh's decision to step in and perform portions of the DSS work scope was permissible under the terms of the subcontract. Finally, the court finds that the contract permitted the backcharge of the costs incurred by Walsh against DSS' outstanding contract balance.
As found above, DSS is responsible for the delays caused by its pursuit of an alternative by-pass plan, the failed by-pass design, the failure of the junction chambers to pass testing, the completion of manhole 7 and the connection of the existing sewer pipe to the new sewer pipe. The delay occasioned by a large amount of silt and debris in the sewer line was no one's fault per se, but it was a delay that DSS should have anticipated no later than March 2011 and planned for accordingly. DSS also failed to submit a utility support plan for the area surrounding manhole 13. In short, DSS breached Article 2.1 of the subcontract, which requires that the subcontractor “supply sufficient labor, equipment and material to enable Contractor, Owner and all other subcontractors to complete the construction in the time required by the contract between the Owner and Contractor.”
Section 8.1 of the subcontract further provides:
if the Subcontractor refuses or fails to supply enough properly skilled workers, proper materials, maintain the Schedule of Work ․ and fails within seventy-two (72) hours after receipt of written notice ․ to commence and continue to satisfactory correction of such default with diligence and promptness, the Contractor ․ shall have the right to any and all of the following remedies: (1) supply such number of workers and quantity of materials, equipment and other facilities as the Contractor deems necessary for the completion of the Subcontractor's Work, or any part thereof which the Subcontractor has failed to complete or perform after aforesaid notice and charge the cost thereof to the Subcontractor, who shall be liable for the payment of same including reasonable overhead, profit and attorneys fees.
Under the circumstances then and there existing, Walsh was permitted, pursuant to Section 8.1 of the contract, to supplement DSS work with its own crews and to backcharge DSS for the costs associated therewith against contract payments otherwise due and owing. Walsh neither breached the contract nor constructively terminated the contract by so doing even if such a claim is cognizable under Connecticut law. Indeed, DSS remained on site and working hard to the end of the contract period and thereafter.
Walsh is also alleged to have breached the contract by failing to pay sums claimed for change order work and “quantities” of per unit items claimed by DSS. A review of how payment is secured under the contract is necessary at this juncture.
In the subcontract, some work items are identified as “lump sum” items, while others are identified as “per unit” items. A lump sum item is a task or result required under the contract for which a single, agreed upon payment, will be made. With a lump sum item, the subcontractor's profit, if any, will depend on the extent to which he can complete the required task on a budget that falls below the agreed upon price. For example, the cleaning and relining of the Water St. sewer line from manhole 14 to manhole 7 was a lump sum item. The sum to be paid included the costs associated with designing, building, and implementing the by-pass, as well as the cost to actually clean and reline the existing pipe. A “per unit” item is one that is measured as work progresses and is paid according to the contract specifications. For example, laying sewer pipe, which involved the excavating of trenches, the laying of various layers of fill both beneath the pipe and on top of the pipe, and the refilling of the trench once the pipe was in place, was comprised of per unit items. Payment depended on the depth of the trench, the width of the trench, the length of the pipe placed and the volume of fill needed to refill the trench. On a daily basis, a DSS employee, usually Lee Reopell, the project manager on site or his foreman, would note these various items on a Daily Timecard. Thereafter, he would enter his notes and calculations into DSS' system to track quantities. Similarly, CDOT had its project inspector on site, usually Pat Malloy, to keep track of progress. The State inspector would keep a Daily Work Report in which materials, work, progress and quantities were tracked. DSS would meet with the State inspectors on a daily or nightly basis, to review the work and quantities completed. The Daily Work Reports from the inspectors were then entered into the CDOT computer system for tracking work progress and determining estimated quantities for per unit payment.
On a bi-weekly basis, CDOT prepared pay estimates that reflected quantities of per-unit items that were approved for payment based upon the progress tracked by the Daily Work Reports. These were sent to Walsh and DSS, and thereafter DSS would create an invoice for the same amounts. However, also on a bi-weekly basis, DSS compiled its own record reflecting the total quantities of “per unit” items for which it claimed payment. Notwithstanding efforts to reconcile the quantities, the CDOT pay estimates and the DSS quantities calculations did not always match. When a discrepancy between DSS' claimed quantities and the State's paid quantities occurred, working through Walsh, DSS would attempt to bolster its numbers with documentation, diagrams, or other items available to it. Over the course of the project, some of the discrepancies were resolved in favor of DSS, others were not. The ultimate call as to the amount of quantities to be paid by CDOT was made by CDOT.15
DSS seeks payment for the outstanding “quantities” of per unit work, which it claims it performed but for which it was not paid. The “quantities” at issue were not approved by CDOT, so CDOT never paid Walsh for those items.
The contract documents also contemplated the potential for “extra work” or change orders that would be necessitated by virtue of unforeseen obstacles or events that increased the amount or nature of the work required under the subcontract. When such an event occurred, DSS was required to give notice of the obstacle or event that created the problem, an estimate of the costs associated with addressing the issue, and a Proposed Change Order (PCO), which would be submitted by Walsh to CDOT for approval or denial. Again, over the course of the project, DSS submitted a number of PCOs, some of which were approved and paid by CDOT, others of which were not.
DSS seeks to collect from Walsh, payment for the work done to complete the “extra work” that was required and was documented in several PCOs. The “extra work” for which DSS seeks to be paid, however, involved work that was not approved as “extra work” and with respect to which the PCO was rejected. As a result, CDOT did not pay Walsh for this work beyond what was contemplated in the contract.
Walsh argues that it has no obligation to pay DSS for work performed for which CDOT did not pay Walsh. This argument extends to both the extra “quantities” claimed and the “extra work” identified in the various PCOs submitted but rejected by CDOT.
The court first looks to the contract documents included in the agreement between these parties. The contract documents include the January 2009 subcontract between DSS and Walsh. Specifically incorporated into this agreement is Form 816, the State of Connecticut Department of Transportation, Standard Specifications for Roads, Bridges and Incidental Construction, Form 816 (2004); a Form 816 addendum; and the contract drawings and specifications particular to this project.
The subcontract contains the following pertinent provisions:
3.6 Time of Payment
If Subcontractor is in compliance with this Subcontract and if, and only if, Owner pays Contractor, which is an express condition precedent to Contractor's duty to pay Subcontractor, Progress Payments shall be due to Subcontractor no later than ten (10) days after receipt of payment from Owner by Contractor provided Subcontractor remains in compliance with the terms of this Agreement. If the Contractor has provided a payment and performance bond for the project, the Subcontractor shall make no claim on this bond for payment due to the Subcontractor for which the Owner has not paid the Contractor and the Contractor's surety is an express third party beneficiary of this promise. No Progress Payment made under this Agreement shall be considered an acceptance of Subcontractor's Work, in whole or in part.
3.7 Unit Price Work
Where this Agreement anticipates that the Work shall be paid for at an agreed rate per unit of Work in place, then the Subcontractor agrees that the unit prices stated herein shall represent full payment for the Work covered including Subcontractor's overhead and profit and that the Owner, Engineer or Contractor may make a final and binding determination of the quantity of Work to be paid for.
(Emphasis added.) As indicated, the agreement also incorporated the provisions of Form 816, which includes contract specifications as well as the procedure by which the quantities will be assessed and approved for payment. Form 816 provides in pertinent part:
Section 1.05.01
All work shall be subject to review by the Engineer. He shall decide all questions as to interpretation of the plans and specifications, and questions of mutual or respective rights of the Contractor and other Department contractors. The Engineer shall decide on an acceptable rate of progress, on the manner of performance, and what shall be deemed acceptable fulfillment of the contract.
Section 1.09.06(1)
Once each month, the Engineer will make, in writing, current estimates of the value of work performed in accordance with the Contract, calculated at Contract unit prices, including but not limited to the value of materials complete in place and materials not yet incorporated into the Project, but approved by the Engineer for payment ․
With respect to “extra work” for which proposed change orders are submitted, the subcontract provides:
4.1
An express condition precedent to payment to Subcontractor on account of changes made or directed by Owner shall be that Contractor shall have received such payment from Owner for Subcontractor's changed Work.
DSS argues that Walsh is obligated to pay the “quantities” of per unit work claimed by DSS despite CDOT's rejection of those claimed quantities. Similarly, DSS argues that Walsh is obligated to pay for the CDOT rejected PCOs. Under the language of the contract documents cited above and Appellate Court precedent, this argument cannot stand.
In Suntech of Connecticut, Inc. v. Lawrence Brunoli, Inc., 143 Conn.App. 581, 588–91, cert. denied, 310 Conn. 910 (2013), the Appellate Court construed a “pay-when-paid” provision of a subcontract for work performed on a CDOT construction project at Bradley Airport. The Appellate Court expressly rejected the plaintiff's claim that the “pay-when-paid” provision was simply a provision governing the timing of payment as opposed to the duty to pay at all. Id., 588–89. Further, as is the case here, the subcontract in Suntech incorporated Form 816 into its terms. Id., 586. Relying on both the language of the subcontract and the express provisions of Form 816,16 the Appellate Court determined that the general contractor was not required to pay the subcontractor for items not paid by the DOT. Here, the subcontract between DSS and Walsh is more explicit as to whether Walsh is obligated to pay DSS in the event CDOT has not paid Walsh. As noted, Section 3.6 states that Walsh will pay DSS, “if and only if Owner pays Contractor, which is an express condition precedent to Contractor's duty to pay Subcontractor.” Section 3.7 specifically provides that “the Owner, Engineer or Contractor may make a final and binding determination of the quantity of Work to be paid for.” Section 4.1 clearly makes Walsh's obligation to pay for “extra work” contingent upon CDOT's approval of and payment for same. Thus, Walsh's obligation to pay DSS for quantities was limited to what CDOT determined those quantities to be and for which Walsh received payment. Similarly, if Walsh did not receive payment for the PCOs that were rejected by CDOT, Walsh is not obligated to pay DSS for the work reflected in those PCOs, even though the work may have been completed.17
There was also a series of PCOs which were accepted in part and rejected in part by CDOT. DSS seeks the difference between what was requested and what was approved and paid. However, to the extent that Walsh did not receive the full amount of the PCO, for the same reasons set forth above, it is not obligated to pay DSS the full amount of the PCO.18
Thus, Walsh did not breach the subcontract by failing to pay these items.19 As to counts one and two, judgment will enter in favor of Walsh.
CUTPA Claims
The CUTPA claims rely upon the same factual allegations as were made in the constructive termination and the breach of contract claims. As set forth above, those allegations were not proven and so the CUTPA claim fails as well. As to count three, judgment will enter in favor of Walsh.
Conn. Gen.Stat. § 49–41a
In the fourth count, DSS alleges that Walsh breached its statutory obligations under Conn. Gen.Stat. § 49–41a. The statute is the mechanism by which subcontractors, among others, can seek recourse against a general contractor as well as its surety for the payment bond in the event a general contractor fails to meet its payment obligations. Additional facts are necessary to address this count. Beginning in October 2011, when the relationship between Walsh was considerably strained and Walsh had withheld certain payments from DSS, DSS made a claim against the performance bond issued by Travelers. By letter dated October 24, 2011, pursuant to Conn. Gen.Stat. §§ 49–41a and 49–422, DSS gave notice to Walsh and Travelers that Walsh had failed to pay DSS for services rendered and that DSS would look to Travelers for payment. Specifically, DSS claimed $152,337.47 for an unpaid requisition dated August 31, 2011 and $64,644.29 for an unpaid requisition dated September 15, 2011. By letter dated October 31, 2011, Travelers responded to the notice of bond claim. Therein, Travelers acknowledges receipt of the claim. It thereafter provides in pertinent part:
The information you have provided to date is not sufficient to establish liability under the bond. Therefore, we must inform you that at this time we consider no portion of the amount claimed to be undisputed. The basis for challenging the disputed amount is lack of substantiation. Therefore, to facilitate our independent investigation of the claim, we request that you fill out and return the enclosed claim form, attaching copies of all documents requested in the claim form.
DSS supplemented its claim on or about November 15, 2011 by submitting the requested materials to Travelers. Thereafter, through a series of correspondence and submissions, DSS made additional claims under the bond and provided information to Travelers in support of its claims. The subsequent notices of claims were sent to Walsh and Travelers on December 7, 2011. Ultimately, by letter dated February 2, 2012 but sent February 9, 2012, Travelers rejected the claims for payment under the bond. In connection with this series of events, correspondence and outcomes, DSS brings count four against Walsh as well as two claims against Travelers. The claims against Travelers will be discussed separately below. Conn. Gen.Stat. § 49–41a provides in pertinent part:
(c) If payment is not made by the general contractor in accordance with [statutorily identified] requirements, the subcontractor shall set forth its claim against the general contractor ․ through notice by registered or certified mail ․ In addition, the general contractor, upon written demand ․ shall be required to place funds in the amount of the claim, plus interest of one percent, in an interest bearing escrow account in a bank in this state, provided the general contractor ․ may refuse to place the funds in escrow on the grounds that the subcontractor has not substantially performed the work according to the terms of his or its employment.
DSS claims that Walsh failed to escrow the amounts claimed in its various bond claims. Walsh responds that it had no such obligation because DSS had not “substantially performed” under the subcontract. The court agrees.
“Whether a building contract has been substantially performed is ordinarily a question of fact for the trier to determine.” Nor'easter Group, Inc. v. Colossale Concrete, Inc., 207 Conn. 468, 472 (1988) (subcontractor on public works project found to have substantially performed); see also, Edens v. Kole Construction Co., 188 Conn. 489, 494 (1982), abrogated on other grounds by Argentinis v. Gould, 219 Conn. 151 (1991) (“[s]ubstantial performance of a building contract ․ is ordinarily a question of fact for the trier to determine”). “The analysis necessarily involves an inquiry into the totality of facts and circumstances surrounding the performance of the contract.” Miller v. Bourgoin, 28 Conn.App. 491, 496, cert. denied, 223 Conn. 927 (1992). The court's analysis above, in which the court concludes that DSS was in material breach of the subcontract at the time the bond claim was made, also mandates the conclusion that DSS had not substantially performed its contract obligations at the time the bond claim was made. By October 24, 2011, DSS had not completed the cleaning and relining of the Water Street pipe. The Water Street line between the new manhole 7 and manhole 1 was not operational. Both junction chambers were still leaking and manhole 7 was not fixed. Work on Chestnut Street had begun, but the majority of work on the Chestnut Street to Franklin Street to Wooster Street portion of the project remained. By December 7, 2011, this work was completed but only through the significant supplementation effort of Walsh. Under these facts and circumstances, Walsh was not obligated to escrow the amounts claimed as due and owing under the payment bond claims. As to count four, judgment will enter in favor of Walsh.
The Claims Against Travelers
DSS claims first that Travelers breached its obligations under the payment bond, specifically compliance with § 49–42. DSS also claims that Travelers acted in bad faith, violating the covenant of good faith and fair dealing implied into the payment bond.
Breach of the Payment Bond/Conn. Gen.Stat. § 49–42
Pursuant to § 49–42, if a subcontractor is not paid for work or materials provided, the subcontractor may serve a notice of claim on the surety which issued the payment bond. The notice “shall state with substantial accuracy the amount claimed and the name of the party for whom the work was performed or to whom the materials were supplied, and shall provide a detailed description of the bonded project for which the work or materials were provided.” Conn. Gen.Stat. § 49–42(a). Thereafter, “[n]ot greater than ninety days after the service of the notice of claim, the surety shall make payment under the bond and satisfy the claim, or any portion of the claim which is not subject to a good faith dispute and shall serve a notice on the claimant denying liability for any unpaid portion of the claim.” Conn. Gen.Stat. § 49–42(a).
The receipt of a notice of claim triggers the surety's obligation to conduct an investigation into whether there is a good faith dispute as to the subcontractor's entitlement to payment. See, PSE Consulting, Inc. v. Frank Mercede & Sons, Inc., 267 Conn. 279, 308–09 (2004). If the surety determines that there is such a dispute and denies the claim, the claimant may bring an action in the Superior Court. If the court determines that the denial of liability was without substantial basis in fact or law, the court may award both interest and attorneys fees to the claimant. Conn. Gen.Stat. § 49–42(a).
DSS first claims that Travelers did not pay or deny the October 24, 2011 bond claim within 90 days and therefore Travelers must pay the claim having waived any defenses thereto by this failure. In the complaint, count five, paragraph 36, DSS alleges that “Travelers denied Diversified's bond claim in full by letter dated October 31, 2011, but also requested that Diversified provide additional information related to its claim.” In its Answer, Travelers admitted this allegation. DSS now argues that the October 31, 2011 letter was not a denial of the claim, but was merely an acknowledgement of the claim, which remained pending. Travelers relies upon the complaint as a judicial admission.20 This court finds that there is no issue to be tried as to whether the denial of the October 24, 2011 claim was timely.
“Judicial admissions are voluntary and knowing concessions of fact by a party or a party's attorney occurring during judicial proceedings.” (Internal quotation marks omitted.) Borrelli v. Zoning Board of Appeals, 106 Conn.App. 266, 271 (2008). “Factual allegations contained in pleadings upon which the cause is tried are considered judicial admissions and hence irrefutable as long as they remain in the case.” (Internal quotation marks omitted.) Id. “The statement relied on as a binding admission [however] must be clear, deliberate and unequivocal.” National Amusements, Inc v. East Windsor, 84 Conn.App. 473, 482 (2004). “Pleadings are intended to limit the issues to be decided at the trial of a case and [are] calculated to prevent surprise ․ [The] purpose of pleadings is to frame, present, define, and narrow the issues, and to form the foundation of, and to limit, the proof to be submitted on the trial ․ A judicial admission dispenses with the production of evidence by the opposing party as to the fact admitted, and is conclusive upon the party making it ․ [The] admission in a pleading or answer is binding on the party making it, and may be viewed as a conclusive or judicial admission ․ It is axiomatic that the parties are bound by their pleadings.” (Internal quotation marks omitted.) Brye v. State, 147 Conn.App. 173, 177 (2013). It would be fundamentally unfair, at this juncture, to permit DSS to argue that the October 31, 2011 letter was not a denial of the payment bond claim. The allegations of paragraph 36 are clear, deliberate and unequivocal. They were admitted by Travelers. They are judicial admissions and therefore binding upon DSS. In light of that binding admission, Travelers complied with the time limits of the statute with respect to the October bond claim.21
DSS also argues that the denial of the claims sent in February 2012 lacked a “substantial basis in law and fact.” 22 This argument, in large measure, depends on the success of DSS' claims that Walsh breached the contract, terminated the contract and otherwise acted unscrupulously during the course of the project. Having failed in its proof on these allegations, this claim fails, as well. Further, by November 2011, DSS and Walsh were entangled in a multi-layered dispute while at the same time trying to complete the project by its completion date. The fallout from those disputes was unfolding on a daily basis as Travelers continued to receive information on both sides of the dispute. Travelers' decision to deny payment, in light of the substantial and ongoing dispute with Walsh over the completion of the contract and payment issues arising thereunder, was appropriate and supported by the law and the facts it had. Judgment will enter in favor of Travelers on count five.
Breach of the Covenant of Good Faith and Fair Dealing
In Connecticut, an implied duty of good faith and fair dealing is a covenant implied into a contract or a contractual relationship. Hoskins v. Titan Value Equities Group, Inc., 252 Conn. 789, 793 (2000). It exists and has been recognized to apply to the contractual relationship between an insured and an insurer. Verrastro v. Middlesex Ins. Co., 207 Conn. 179, 190 (1988); Hoyt v. Factory Liberty Mutual Ins. Co. of America, 120 Conn. 156, 159 (1935). It applies in the surety context. PSE Consulting, Inc. v. Frank Mercede & Sons, Inc., supra, 267 Conn. 301–02.
In the context of a surety's alleged breach of the covenant of good faith and fair dealing, the claimant must establish that the surety acted with “improper motive” or “dishonest purpose.” Id., 305. Although “good faith” does not equate with “reasonableness,” whether a surety's actions were reasonable properly may be considered when analyzing bad faith. Id. “Unreasonable conduct can be evidence of improper motive and is a proper consideration where parties are bound by a contract that gives unmitigated discretion to one party.” Id.
There is little question that a surety is under an obligation to conduct a proper investigation. Id., 306. However, evidence of a “deficient investigation is not, by itself, sufficient to support a finding of bad faith.” (Emphasis in original.) Id., 308. There must be “other evidence of an improper motive” in order to prove bad faith. Id., 309.
DSS claims that Travelers acted in bad faith because it failed to sufficiently investigate the circumstances surrounding Walsh's alleged default, the backcharge and the other amounts DSS claimed it was owed. DSS claims Travelers had not, but should have, engaged an engineer to review the work, interviewed DSS personnel, requested or reviewed project documents and progress reports and decided for itself whether the claim was valid. DSS asserts that Mr. Cipriano, the individual at Travelers who was investigating the claims, simply deferred to Walsh and the information Walsh provided to decide that there was a good faith dispute and that it covered the entirety of the bond claims made.
To the contrary, Travelers avers that the course of conduct undertaken by Mr. Cipriano was adequate, appropriate under the circumstances and correct in its conclusion.
The evidence allows for differing conclusions as to the quality, depth and vigor of Mr. Cipriano's efforts. As expected, he gathered information from both DSS and Walsh, though his communications with Walsh and the manner and means by which it provided the information was more informal than the manner and means by which he communicated with DSS or sought documentation from DSS. He received documentation that described Walsh's claims of default against DSS and the unfolding dispute regarding supplementation and the backcharge. DSS' submission on November 15 advised Mr. Cipriano that Walsh disputed its October 24, 2011 claim.
Could Mr. Cipriano have undertaken many of the inquiries or tasks identified by DSS? It seems so. Whether the court finds the investigative efforts lacking in this regard, however, is of no moment for two reasons. First, the evidence is clear that, in fact, the entire amount of the claim was in dispute so any further investigation or vigorous pursuit of the issue would not have changed the outcome. Second, even a finding that his work was deficient does not carry the day. There must be other evidence of an improper motive. There is no evidence that would support such a conclusion. The investigation was not so totally lacking or otherwise deficient to support such an inference and there was no direct evidence of an improper motive.23 When faced with a payment bond claim, the surety's responsibility is to determine whether there is a good faith dispute with respect to the claim. If such a dispute exists, it is not for the surety to resolve the dispute. The surety may, at that juncture, deny payment until such time as the dispute is resolved.
Judgment will enter in favor of Travelers on count six.
Walsh's Counterclaim
As decided above, Walsh proved that DSS breached the subcontract by failing to meet the project schedule and/or provide adequate labor and resources to complete the work before the project completion date. The court further finds that Walsh substantially performed its obligations under the subcontract. Walsh is therefore entitled to damages proven to a reasonable degree of certainty. However, DSS is entitled to a setoff from any damages so proven in the amount of $516,784.91, the amount of money paid by CDOT to Walsh for DSS-scope work and still held by Walsh in light of its determination to supplement DSS' work and backcharge DSS for that work.24
Walsh seeks damages (the backcharge) of $706,341.78 for costs incurred performing DSS-scope work and supplementing the labor force in order to complete the project by November 30, 2011.25 The court awards some, but not all, of the damages sought.
The evidence as to the reason Walsh supplemented DSS-scope work was to avoid liquidated damages and to ensure that the contract completion date was met. As held above, the better evidence established that DSS was not in a position to finish DSS-scope work before November 30, 2011, so supplementation was an available remedy under the contract. The costs incurred to complete the project by November 30, 2011 are appropriately included in the backcharge. However, the court was not provided with sufficient evidence as to why Walsh continued to supplement DSS work after the contract completion date; whether such was necessary and why DSS could not fulfill its remaining obligations. To the contrary, the evidence established that DSS did continue to work on punch list items. Absent evidence that establishes the necessity of Walsh continuing to supplement DSS-scope work after the initial justification had been satisfied (the completion of the project by November 30, 2011), this court will not assess those labor costs against DSS.26
Further, the court does not accept Walsh's claim for labor which included “Maintenance, Protection and Traffic” (MPT). This was a lump sum item which was Walsh's responsibility under the subcontract. Walsh needed to provide MPT to this work site through November 30, 2011 under the subcontract. The mere fact that Walsh was providing MPT to its own crews instead of DSS, or that DSS took longer at some locations to complete the work, necessitating more MPT than was originally calculated, does not justify shifting the cost to DSS.
Additionally, the evidence at trial established that the backcharge compilation had specific erroneous charges for labor. One, the double billing for the Minew brothers, has already been conceded by Walsh and is not sought. However, the backcharge includes 20.5 man hours of labor for the week ending October 23, 2011. The timesheets in support of that assessment show only 4.5 hours of time on DSS scope work. The court therefore reduces the amount allowed for labor for that time period to $375.00 (4.5 hours at $35.80 per hour, adjusted for workers' compensation 51.2% and overhead and profit 20%, with a proportionate allowance for benefits). This results in a reduction of the claim for labor by $1,820.62. Finally, the court does not assess damages against DSS for Walsh's determination to pay four individuals for eight hours each on Thanksgiving when those individuals did not work—a nice gesture perhaps, but not one for which DSS should be charged. The court disallows the wage as well as all markups made thereupon. Allowing for benefit costs which were also assessed, the court reduces the labor charge by an additional $2,000.27
Labor damages are assessed as follows:
Labor damages claimed by Walsh $542,140.65
Less MPT labor ($ 17,988.00) 28
Less labor for week of 10/23/11 ($ 1820.62)
Less labor after 12/4/11 ($ 94,245.00) 29
Less an adjustment for a markup error of 5% conceded by Walsh ($ 20,599.00)
Less adjustment for Minew error conceded by Walsh ($ 800.00)
Less Thanksgiving labor ($ 2,000.00 )
Damages for Labor costs: $404,688.03
Walsh next seeks damages for salaried personnel, to include 50% of the salaries of Kyle Constantine and Peter Schnexnayder and 100% of the salary for Rob Blume during the supplementation period. Rob Blume, Pete Schnexnayder and Kyle Constantine would not otherwise have had to work on this project in the manner that they did but for the supplementation of DSS' work. The court awards damages for the percentage of their salaries included in the backcharge. However, Walsh's “supplementation period” appears to be from early October 2011 through early February 2012. As held above, the purpose, justification or necessity of continued supplementation after November 30, 2011 was not established by Walsh. Therefore, the court reduces by 50% the damages claimed for these salaries (approximately two months of four included in the back charge).30 The court awards damages in this category of $17,913.50.
Walsh seeks damages for subcontractors, expendable materials it purchased and rental costs for tools and other equipment. Walsh has withdrawn some of these items in its post-trial memoranda: for example, bluebook calculations on equipment and some vehicle rental. Additionally, Walsh has increased credits to DSS against the backcharge for certain work items. The remaining items, allowing for these credits, in this category total $141,294.44. These damages have been established with reasonable certainty and are calculated as follows:
Subcontractors, expendable materials and rentals: $445,732.00
Less blue book charges ($156,762.56)
Less credit for MH 13 shoring and self-performed work ($139,723.00)
Less credit for invert CO ($ 7,952.00 )
Total damages in this category $141,294.44
Although Walsh concedes a credit for previously claimed blue book rental of equipment, it does seek the actual cost it incurred to rent heavy equipment in the amount of $8,848.32. This item of damage is proven and is awarded.
Thus, Walsh has proven total damages in the amount of $572,744.29. As indicated, DSS is entitled to a setoff of $516,784.91, reducing the amount to $55,959.38.
Judgment will enter in favor of Walsh on the counterclaim.
At trial, it was agreed that any claims for attorneys fees would be heard after the court's decision was issued. In this regard, counsel is directed to contact the court for purposes of scheduling, as may be necessary, a hearing to take up these issues.
Kari A. Dooley, Judge
FOOTNOTES
FN1. The court does not attempt to include in this decision all of the evidence relied upon in the court's factual findings. The court has considered all of the evidence admitted. The reference to any subset of the evidence presented should not be construed as identifying the exclusive basis for the court's finding, and the court's failure to identify or mention specific evidence should not give rise to an inference that such evidence has not been considered.. FN1. The court does not attempt to include in this decision all of the evidence relied upon in the court's factual findings. The court has considered all of the evidence admitted. The reference to any subset of the evidence presented should not be construed as identifying the exclusive basis for the court's finding, and the court's failure to identify or mention specific evidence should not give rise to an inference that such evidence has not been considered.
FN2. DSS was a “disadvantaged business enterprise.” Walsh's contract with CDOT required that such businesses perform a minimum percentage of the work to be subcontracted.. FN2. DSS was a “disadvantaged business enterprise.” Walsh's contract with CDOT required that such businesses perform a minimum percentage of the work to be subcontracted.
FN3. The amount to be paid for the cleaning and relining project was not included in the original subcontract but was contemplated to be part of the work performed. The details of this portion of the contract are contained in a Subcontract Change Order, which provided for a $862,750.00 lump sum payment to DSS for this work.. FN3. The amount to be paid for the cleaning and relining project was not included in the original subcontract but was contemplated to be part of the work performed. The details of this portion of the contract are contained in a Subcontract Change Order, which provided for a $862,750.00 lump sum payment to DSS for this work.
FN4. Relining is accomplished by inserting a sleeve into the pipe; expanding the sleeve so that it hugs the inside of the pipe; and then forcing heat and steam into the pipe, which causes the resin on the sleeve to adhere to the inside of the sewer pipe, creating a protective coating. Once cooled, the sleeve can be pulled out of the sewer pipe, leaving behind the coated sewer.. FN4. Relining is accomplished by inserting a sleeve into the pipe; expanding the sleeve so that it hugs the inside of the pipe; and then forcing heat and steam into the pipe, which causes the resin on the sleeve to adhere to the inside of the sewer pipe, creating a protective coating. Once cooled, the sleeve can be pulled out of the sewer pipe, leaving behind the coated sewer.
FN5. The work was a “lump sum” item under the contract and DSS would be paid the agreed upon lump sum, regardless of the cost to DSS in completing the task: the lower DSS' costs, the greater its profit margin for the job.. FN5. The work was a “lump sum” item under the contract and DSS would be paid the agreed upon lump sum, regardless of the cost to DSS in completing the task: the lower DSS' costs, the greater its profit margin for the job.
FN6. There was evidence that this shortcoming in the alternative plan was “obvious,” rendering DSS' determination to pursue the alternative plan more egregious. Given the court's determination that the decision to pursue the alternative plan became unreasonable given the passage of time alone, the court need not find whether it was an obviously bad plan or just a plan that was ultimately rejected by the State.. FN6. There was evidence that this shortcoming in the alternative plan was “obvious,” rendering DSS' determination to pursue the alternative plan more egregious. Given the court's determination that the decision to pursue the alternative plan became unreasonable given the passage of time alone, the court need not find whether it was an obviously bad plan or just a plan that was ultimately rejected by the State.
FN7. The Walsh/DSS subcontract and the Walsh/CDOT contract both recognized that time was of the essence. Indeed, the Walsh/CDOT contract included a liquidated damages provision of $14,600 per day if the work was not completed on or before November 30, 2011.. FN7. The Walsh/DSS subcontract and the Walsh/CDOT contract both recognized that time was of the essence. Indeed, the Walsh/CDOT contract included a liquidated damages provision of $14,600 per day if the work was not completed on or before November 30, 2011.
FN8. The evidence established that the project work schedule was almost in constant motion as the items along the critical path were completed. Nevertheless, although the time frame during which the sewer work was contemplated to be done changed over time, the total time allocated for the work did not change substantially. Even with an April 1, 2011 start date, DSS had eight months to complete its work before the contract completion date.. FN8. The evidence established that the project work schedule was almost in constant motion as the items along the critical path were completed. Nevertheless, although the time frame during which the sewer work was contemplated to be done changed over time, the total time allocated for the work did not change substantially. Even with an April 1, 2011 start date, DSS had eight months to complete its work before the contract completion date.
FN9. The pumping station that is used to control the flow of effluent in the sewers ran intermittently. When it stopped, the flow reduced to the point where the by-pass pumps could not hold their prime. When the pumping station pumps resumed operation, the by-pass pumps could not react quickly enough to keep the wet well at manhole 14 from flooding.. FN9. The pumping station that is used to control the flow of effluent in the sewers ran intermittently. When it stopped, the flow reduced to the point where the by-pass pumps could not hold their prime. When the pumping station pumps resumed operation, the by-pass pumps could not react quickly enough to keep the wet well at manhole 14 from flooding.
FN10. The hose on one of the pumps was damaged by debris but the issue was quickly resolved. DSS made a claim for additional compensation arising out of the damaged pump and that claim is part of the breach of contract claim discussed infra.. FN10. The hose on one of the pumps was damaged by debris but the issue was quickly resolved. DSS made a claim for additional compensation arising out of the damaged pump and that claim is part of the breach of contract claim discussed infra.
FN11. The request for funds is contained in one of several outstanding Proposed Change Orders discussed, infra. This court does not decide herein the validity of the claim as between DSS and Insituform.. FN11. The request for funds is contained in one of several outstanding Proposed Change Orders discussed, infra. This court does not decide herein the validity of the claim as between DSS and Insituform.
FN12. In hindsight, this confidence seems not only misplaced but extremely naive. The evidence is replete with acknowledgements by Stephen Garcia that this project was plagued with problems and was not going at all as planned. Walsh had been raising concerns regarding DSS' ability to meet the construction schedules in May. By June, before any of the major problems had even occurred, DSS was not keeping to its own schedule for the laying of pipe and completion of the project. During the course of this project, it should have been increasingly clear to DSS, as it is to the court, that DSS had significantly underestimated the scope of the contract work and the resources that would be needed in terms of manpower and cost to complete the work in a timely fashion.. FN12. In hindsight, this confidence seems not only misplaced but extremely naive. The evidence is replete with acknowledgements by Stephen Garcia that this project was plagued with problems and was not going at all as planned. Walsh had been raising concerns regarding DSS' ability to meet the construction schedules in May. By June, before any of the major problems had even occurred, DSS was not keeping to its own schedule for the laying of pipe and completion of the project. During the course of this project, it should have been increasingly clear to DSS, as it is to the court, that DSS had significantly underestimated the scope of the contract work and the resources that would be needed in terms of manpower and cost to complete the work in a timely fashion.
FN13. With respect to all of the work to be completed within the scope of the DSS subcontract, DSS was responsible for “utility support.” Utility support is the obligation of the contractor to identify any utilities which may be encountered underground, i.e. electrical, gas, or water, and to develop a plan to work safely around these utilities without interrupting utility service or otherwise damaging the sub-surface utility structures. The subcontract required that DSS submit its utility support plan for all phases of the contract, that such plan or plans be prepared by a Professional Engineer (PE), and that such plan include an indication that the utility in question has approved or signed off on the plan. For the western portion of the Water Street work (the area between manholes 1 and 7), DSS submitted a plan to Walsh and CDOT prepared by Stephen Garcia. Stephen Garcia, however, is not a PE. The plan was rejected not only because it was not prepared or certified by a PE, but for other reasons as well. A new plan or resubmittal was requested. Although there was some testimony to the contrary, the court finds that DSS never resubmitted a utility support plan for the Water Street work and never submit a utility support plan with respect to the work at manhole 13.. FN13. With respect to all of the work to be completed within the scope of the DSS subcontract, DSS was responsible for “utility support.” Utility support is the obligation of the contractor to identify any utilities which may be encountered underground, i.e. electrical, gas, or water, and to develop a plan to work safely around these utilities without interrupting utility service or otherwise damaging the sub-surface utility structures. The subcontract required that DSS submit its utility support plan for all phases of the contract, that such plan or plans be prepared by a Professional Engineer (PE), and that such plan include an indication that the utility in question has approved or signed off on the plan. For the western portion of the Water Street work (the area between manholes 1 and 7), DSS submitted a plan to Walsh and CDOT prepared by Stephen Garcia. Stephen Garcia, however, is not a PE. The plan was rejected not only because it was not prepared or certified by a PE, but for other reasons as well. A new plan or resubmittal was requested. Although there was some testimony to the contrary, the court finds that DSS never resubmitted a utility support plan for the Water Street work and never submit a utility support plan with respect to the work at manhole 13.
FN14. The court notes that even in the employment context, the claimant must establish that they resigned. Here, DSS never left the job site, of its own volition or otherwise.. FN14. The court notes that even in the employment context, the claimant must establish that they resigned. Here, DSS never left the job site, of its own volition or otherwise.
FN15. The contract documents included the maximum dimensions and volumes for which the CDOT would make payment. If for example, DSS dug a wider trench than was permitted, it would have been at its own expense as those quantities would not be within the specifications for the contract.. FN15. The contract documents included the maximum dimensions and volumes for which the CDOT would make payment. If for example, DSS dug a wider trench than was permitted, it would have been at its own expense as those quantities would not be within the specifications for the contract.
FN16. Among other things, Form 816 essentially gives CDOT the final say as to when work is accepted for payment and how much will be paid for the completed work.. FN16. Among other things, Form 816 essentially gives CDOT the final say as to when work is accepted for payment and how much will be paid for the completed work.
FN17. In light of the court's determination that these funds are not owed to DSS by Walsh because CDOT did not pay these funds to Walsh in the first instance, the court does not take up the question of whether the work identified in each individual PCO was in fact “extra work” for which compensation was due and owing. Nor does the court determine whether the outstanding “quantities” should have been paid by CDOT.. FN17. In light of the court's determination that these funds are not owed to DSS by Walsh because CDOT did not pay these funds to Walsh in the first instance, the court does not take up the question of whether the work identified in each individual PCO was in fact “extra work” for which compensation was due and owing. Nor does the court determine whether the outstanding “quantities” should have been paid by CDOT.
FN18. To the extent payment was received after Walsh determined to withhold contract payments, DSS has been credited with those payments in Walsh's proposed backcharge against the withheld payments.. FN18. To the extent payment was received after Walsh determined to withhold contract payments, DSS has been credited with those payments in Walsh's proposed backcharge against the withheld payments.
FN19. As a practical matter, the ability of a general contractor to a State Project to prepare a profitable project bid would be significantly impaired if the general contractor had to factor in the cost of covering claimed quantities and PCOs that the State rejects.. FN19. As a practical matter, the ability of a general contractor to a State Project to prepare a profitable project bid would be significantly impaired if the general contractor had to factor in the cost of covering claimed quantities and PCOs that the State rejects.
FN20. Travelers also argues that the letter is, in fact, a denial based upon its content.. FN20. Travelers also argues that the letter is, in fact, a denial based upon its content.
FN21. There is evidence from which a contrary conclusion could be drawn. The judicial admission aside, it is troubling that Travelers did not conduct or attempt to conduct any investigation of the October bond claim before sending the purported denial letter three days later. The bond claim dated October 24, 2011 contained each of the items required by the statute. Receipt of that claim triggered Traveler's obligation to first investigate and then pay, deny or pay undisputed portions within 90 days. If there is a denial of all or a portion of the claim, the statute requires that any such denial be based upon a determination that the amounts claimed are subject to a good faith dispute. Travelers acknowledged that it had no information, one way or the other, as to whether the bond claim was subject to a good faith dispute. Travelers' knee jerk issuance of a denial of the entire claim served only to undermine the intent of the statute that claims either be paid or denied in a timely fashion. Taking Travelers' theory to its logical conclusion, once the October 31, 2011 denial letter was sent, it became DSS' obligation to provide further information to revive the claim. Absent any further communication from DSS, Travelers would have simply closed out the claim file. Thus, if DSS had accepted the denial and gone no further, it would be Travelers' position that it fully complied with the statute. Given the de minimus effort to investigate whether the claimed amounts were the subject of a good faith dispute prior to the October 31, 2011 letter, such a position is difficult to defend.. FN21. There is evidence from which a contrary conclusion could be drawn. The judicial admission aside, it is troubling that Travelers did not conduct or attempt to conduct any investigation of the October bond claim before sending the purported denial letter three days later. The bond claim dated October 24, 2011 contained each of the items required by the statute. Receipt of that claim triggered Traveler's obligation to first investigate and then pay, deny or pay undisputed portions within 90 days. If there is a denial of all or a portion of the claim, the statute requires that any such denial be based upon a determination that the amounts claimed are subject to a good faith dispute. Travelers acknowledged that it had no information, one way or the other, as to whether the bond claim was subject to a good faith dispute. Travelers' knee jerk issuance of a denial of the entire claim served only to undermine the intent of the statute that claims either be paid or denied in a timely fashion. Taking Travelers' theory to its logical conclusion, once the October 31, 2011 denial letter was sent, it became DSS' obligation to provide further information to revive the claim. Absent any further communication from DSS, Travelers would have simply closed out the claim file. Thus, if DSS had accepted the denial and gone no further, it would be Travelers' position that it fully complied with the statute. Given the de minimus effort to investigate whether the claimed amounts were the subject of a good faith dispute prior to the October 31, 2011 letter, such a position is difficult to defend.
FN22. The February denial of the December claims was timely under the statute.. FN22. The February denial of the December claims was timely under the statute.
FN23. DSS, by innuendo mostly, suggests an untoward relationship between Walsh and Travelers such that Travelers was aligned with Walsh in the effort to defeat the claim and build up the backcharge. The evidence does not support a finding of such collusion.. FN23. DSS, by innuendo mostly, suggests an untoward relationship between Walsh and Travelers such that Travelers was aligned with Walsh in the effort to defeat the claim and build up the backcharge. The evidence does not support a finding of such collusion.
FN24. Although Walsh withheld a greater amount of money, with the permission of all parties concerned, it also paid several of DSS' subcontractors.. FN24. Although Walsh withheld a greater amount of money, with the permission of all parties concerned, it also paid several of DSS' subcontractors.
FN25. At the time of trial, the backcharge was valued at approximately $1.2 million. Certain errors were discovered during the trial and Walsh has withdrawn a portion of its damages request in its post-trial memoranda.. FN25. At the time of trial, the backcharge was valued at approximately $1.2 million. Certain errors were discovered during the trial and Walsh has withdrawn a portion of its damages request in its post-trial memoranda.
FN26. As to materials and equipment, those expenses would have been incurred whether DSS or Walsh performed the work. Their inclusion in the backcharge is therefore appropriate. The court permits labor through the week ending December 4, 2011.. FN26. As to materials and equipment, those expenses would have been incurred whether DSS or Walsh performed the work. Their inclusion in the backcharge is therefore appropriate. The court permits labor through the week ending December 4, 2011.
FN27. According to the labor records, the four workers were paid a total of $1,073.60 in wages, to which the Conn–9 adds the cost of benefits, a 51.2% markup for workers' compensation and the 20% markup for profit.. FN27. According to the labor records, the four workers were paid a total of $1,073.60 in wages, to which the Conn–9 adds the cost of benefits, a 51.2% markup for workers' compensation and the 20% markup for profit.
FN28. The court used the figure provided by Walsh in its post-trial brief as to the value of MPT in the backcharge and did not do a separate analysis. If DSS disputes this figure based upon the body of evidence, the court will hear argument as to any further adjustment claimed.. FN28. The court used the figure provided by Walsh in its post-trial brief as to the value of MPT in the backcharge and did not do a separate analysis. If DSS disputes this figure based upon the body of evidence, the court will hear argument as to any further adjustment claimed.
FN29. The court recognizes that some of the labor costs claimed for the work done after December 4, 2011 included MPT and so the court's calculation doubles the reduction for those hours. However, the percentage of MPT time is very small and the timesheets are such that it is not always clear which time is allotted to MPT and which is allotted to DSS scope work. Given that Walsh has the burden on the issue, the lack of clarity in the timesheets will inure to their detriment in the court's calculation.. FN29. The court recognizes that some of the labor costs claimed for the work done after December 4, 2011 included MPT and so the court's calculation doubles the reduction for those hours. However, the percentage of MPT time is very small and the timesheets are such that it is not always clear which time is allotted to MPT and which is allotted to DSS scope work. Given that Walsh has the burden on the issue, the lack of clarity in the timesheets will inure to their detriment in the court's calculation.
FN30. Trembley testified that this backcharge for the salaries was for the “supplementation period,” a phrase he did not define The backcharge covers four months and hence the reduction.. FN30. Trembley testified that this backcharge for the salaries was for the “supplementation period,” a phrase he did not define The backcharge covers four months and hence the reduction.
Dooley, Kari A., J.
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Docket No: X10CV126015284
Decided: March 17, 2014
Court: Superior Court of Connecticut.
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