L & L Painting Co., Inc. v.
Dep't of Transportation
OATH Index No. 1045/06, mem. dec. (May 4, 2006)
Contractor, who entered into bid contract with the Department to perform the removal of lead-based paint from the Queensboro Bridge, seeks additional payment to compensate it for significant increase in the price of fuel which it uses to power blasting machines that remove the paint. Contract Dispute Resolution Board denies contractor's claim finding no basis for awarding additional compensation.
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NEW YORK CITY OFFICE OF
ADMINISTRATIVE TRIALS AND HEARINGS
CONTRACT DISPUTE RESOLUTION BOARD
In the Matter of
L & L PAINTING CO., INC.
Petitioner
- against -
DEPARTMENT OF TRANSPORTATION
Respondent
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MEMORANDUM DECISION
TYNIA D. RICHARD, Administrative Law Judge/Chair
KENNETH JOCKERS, ESQ., Deputy General Counsel, Mayor’s Office of Contracts
ROBERT POLSTEIN, ESQ., Prequalified Panel Member
Presently pending before the Contract Dispute Resolution Board (the "Board") is the petition of L & L Painting Co., Inc. ("L&L"), which seeks additional compensation from respondent, the Department of Transportation ("DOT"). This dispute arises out of L&L’s work under Contract No. 20040013406 (DOT Project No. BRC231P) under which it contracted to remove lead-based paint from the Queensboro Bridge, which it conducts by a blasting method that utilizes diesel-powered compressors (Tr. 5). The five-year contract in the amount of $167 million was awarded to petitioner on or about September 18, 2003, after competitive bidding.[1]
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Petitioner seeks an amount estimated at two million dollars as compensation for the “unprecedented” increase in the price of diesel fuel, which it claims has risen 275% from prices in effect at the time the contract was bid (Tr. 6).
When prices started to rise, petitioner contacted the Department seeking a cost adjustment, which was denied. See Letters dated May 23, 2005, and June 29, 2005. Petitioner’s appeal to the Comptroller also was denied. See Comptroller Letter, dated December 1, 2005. Respondent refutes that petitioner has any entitlement to additional compensation.
Petitioner filed the instant appeal with this Board. Oral argument was conducted before the Board on March 31, 2006. At the oral argument, petitioner’s counsel moved to submit additional materials in support of its claim. The Board granted his request pursuant to title 9 of the Rules of the City of New York (“RCNY”), section 4-09(g)(3). Petitioner made its submission on April 5, 2006, on which date the record was closed.
ANALYSIS
Petitioner contends that the increased cost of fuel is beyond what could reasonably have been anticipated at the time of contracting, therefore it should be awarded additional compensation for its increased costs. The petition notes that L&L paid $1.38 per gallon for diesel fuel in May 2004, and $2.35 in July 2005 (Tr. 5). Petitioner projects that its additional costs may exceed two million dollars by the end of the contract term in 2008.
Before this Board, petitioner asserts two bases for its entitlement to additional compensation: the contract itself and the principles of equity.
As for petitioner’s claim under the contract, the Department contends that L&L, who was aware of the five-year duration of the contract, should have included an escalation for fuel prices in its bid, but it did not, and it is not now entitled to modify the terms of the contract. Similarly, the Comptroller’s decision stated that petitioner could have included a fuel price escalator in its bid, but did not.[2]
Petitioner asserts that Schedule K of the contract provides the relief it seeks. Schedule K
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provides for modification of the contract and an adjustment where there is an increase in the cost of performing work under the contract due to a “differing site condition.” Section 1 of Schedule K describes differing site conditions, as follows:
During the progress of the work, if subsurface or latent physical conditions are encountered at the site differing materially from those indicated in the contract or if unknown physical conditions of an unusual nature, differing materially from those ordinarily encountered and generally recognized as inherent in the work provided for in the contract, are encountered at the site, the party discovering such conditions shall promptly notify the other party in writing of the specific differing conditions before they are disturbed and before the affected work is performed.
Section 1(i) (emphasis added). This provision pretty clearly applies itself to physical conditions that are found at the work site. Despite the fact that fuel price is not a physical condition found at a work site, for support of its position, petitioner specifically points to section 4(b) of Schedule K, which further explicates section 1(i).
Section 4 is the “Definitions” section for Schedule K. It defines “subsurface or latent physical conditions which differ materially from those ordinarily encountered and generally recognized” as:
conditions at the site materially differing from any shown on the contract plans or indicated in the specifications, or such conditions as could not reasonably have been anticipated by the Contractor and were not anticipated by the City, which conditions will materially affect the cost of the work to be done under the contract.
Section 4(b) (emphasis supplied). Petitioner contends that the second part of section 4(b), italicized above, provides a remedy for conditions other than subsurface or latent physical conditions, and that the unanticipated and precipitous rise in fuel costs is a unique “market condition” that is covered under this provision. Under this theory, the cited clause could be
applied to virtually any unanticipated condition that arose, which could open the door to an endless array of claims not contemplated by or agreed upon under this contract.
Moreover, petitioner’s is not a plausible interpretation of section 4(b), which must be read in the context of section 1(i), to which it specifically refers, and section 1(i) applies only to
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physical conditions found at the work site. A sound rule of contract construction is applicable here: “where the language of a contract is clear, unequivocal and unambiguous, the contract is to be interpreted by its own language.” R/S Associates v. New York Job Development Auth., 98
N.Y.2d 29, 32, 744 N.Y.S.2d 358, 360 (2002), quoting Springsteen v. Samson, 32 N.Y. 703, 706, 1865 N.Y. LEXIS 199 (1865). The clear and unequivocal meaning of this language is that it applies solely to physical conditions, not to market conditions or, more specifically, to fuel costs.
At oral argument, petitioner also argued that section 26.1 of the contract provides for extra compensation if the quantity of a unit price item exceeds 125% of the estimated quantity for that item as set forth in the bid schedule, and that section 26.1 supports an analogous argument for providing extra compensation if the price of an item exceeds 125% of that estimated (Tr. 7). This argument, even by analogy, fails for two reasons. First, section 26.1 applies to items that “the Contractor is directed to provide” under the contract, and the contractor is not “directed to provide” fuel under the contract; rather, it uses fuel to perform the service that it provides under the contract. Second, petitioner’s claim that this provision would inure to the benefit of the contractor if it related to unit price rather than quantity is without merit. To the contrary, the provision inures to the benefit of the City; it does not seek to reduce unanticipated costs to the contractor. Under section 26.1, the City reserves the right to negotiate a new lower unit price (which shall not “exceed the unit bid price,” section 26.1.2) for units ordered in excess of 125% of the original estimated quantity, if performance under the contract requires the contractor to provide those extra units. It also caps at 125% of the original quantity the number of units that the City will pay for, and requires the engineer to authorize in writing any compensation for additional quantities (section 26.1.1). In sum, section 26.1 does not support petitioner’s position.
Accordingly, the Board finds no basis in the contract for awarding additional compensation to L&L for the increased cost of fuel.
Similarly, the Board finds no basis in law for petitioner’s claim. Petitioner’s claim that it may seek compensation for an unanticipated cost is akin to, but not quite, an argument of impossibility of performance, upon which courts have excused a party’s performance under a
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contract where the performance was made impossible by the unanticipated actions of government. See, e.g., Metpath, Inc. v. Birmingham Fire Insurance Company of Pa., 86 A.D.2d 407, 449 N.Y.S.2d 986 (1st Dep’t 1992); A&S Transportation Co. v. County of Nassau, 154 A.D.2d 456, 546 N.Y.S.2d 109 (2d Dep’t 1989). For example, in Moyer v. City of Little Falls, the court released the contractor from its obligation under a government contract to dump refuse because the closure of a landfill forced the contractor to use the only other available landfill facility at a increased cost of 666%. The court found that the landfill closure created a financial “impossibility” of performance that was caused by governmental action. Moyer v. City of Little Falls, 134 Misc. 2d 299, 510 N.Y.S.2d 813 (S. Ct. Herkimer Co. 1986).
The doctrine of impossibility of performance is not applicable here. First, the record did not establish that the increase in fuel costs was completely unanticipated or that government action caused it (neither was it established that fuel was the only means of powering its equipment, as petitioner asserted during oral argument). As the Department contended, even if this particular oil price increase was not anticipated, increased volatility in the price of oil certainly could have been anticipated (Tr. 12). To the extent that the increase could be attributable to the war in Iraq, it was underway at the time of the bid. Second, petitioner has not requested application of that legal doctrine, whose remedy is release from the obligation to perform – not additional compensation.
Finally, petitioner also made a claim for relief based upon equity. Even if not entitled to relief under a legal theory, L&L contends, the oil price increase is a cost that the City can and should participate in (Tr. 14). The Department argued that the precedent established by granting petitioner’s relief based on the increased price of oil would affect “every single City contract in which there was a fuel component and that is simply an untenable result for the City” (Tr. 17).
The only case law cited by petitioner in support of its claim for equity is the Court of
Appeals decision in Garrison Protective Services, Inc. v. Office of the Comptroller, 92 N.Y.2d 732, 685 N.Y.S.2d 921 (1999). That case held that the City Comptroller has the authority to settle claims on an equitable basis where no legal claim lies. Petitioner argues that such power is properly exercised here where such a large quantity of fuel will be used throughout the duration
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of the contract that it will materially affect the cost of the work to be done under the contract. Although equitable power might properly be exercised by the Comptroller in such a circumstance, such power is not vested in this Board. The PPB rules provide that the Board’s decisions “must be consistent with the terms of the contract” (9 RCNY § 4-09(g)(4)), which the Board has construed as a limitation on its authority to award equitable remedies. See Unisys Electric, Inc. v. Dep’t of Design and Construction, OATH Index No. 759/03, mem. dec. (Apr. 30, 2003); Weeks Marine, Inc. v. Dep’t of Sanitation, OATH Index No. 1296/00 (June 23, 2000), aff’d, 291 A.D.2d 277, 737 N.Y.S.2d 92 (1st Dep’t 2002); Perini/O&G II, J.V. v. Dep’t of Transportation, OATH Index No. 1520/00 (Nov. 14, 2000). Thus, the Board finds no authority to award equitable relief here.
In consideration of the foregoing, petitioner's claim is denied. This constitutes the final decision of the Board. All panel members concur in this decision.
Tynia D. Richard
Administrative Law Judge/Chair
May 4, 2006
APPEARANCES:
BROWN RAYSMAN MILLSTEIN FELDER & STEINER, LLP
Attorney for Petitioner
BY: CHARLES FASTENBERG, ESQ.
MICHAEL A. CARDOZO, ESQ.
CORPORATION COUNSEL
Attorney for Respondent
BY: KATHLEEN KARAKASSIS, ESQ.
[1]1 A full copy of the contract was not supplied by either party (Tr. 7); therefore, this general description of the contract’s terms, none of which was in dispute, was taken from the parties’ written submissions and oral argument.
[2]2 By seeking extra fees not included in the contract, petitioner could effectively modify the contract unilaterally, in derogation of its terms. See Certified Moving & Storage Co., Inc. v. Office of the Comptroller, OATH Index No. 1170/00 (June 13, 2000).