Ohio Miscellaneous Reports

Unpublished

DUGAN & MEYERS CONSTR. v. ODAS, Unpublished Decision
(6-27-2003) DUGAN & MEYERS CONSTRUCTION, Plaintiffs v.
STATE OF OHIO DEPARTMENT OF ADMINISTRATIVE SERVICES, et
al., Defendants. Case No. 2001-07084. Court of Claims of
Ohio. June 27, 2003.

[EDITOR’S NOTE: This case is unpublished as indicated by the
issuing court.] REFEREE REPORT

WILLIAM L. CLARK, Referee

Statement of the Case

{¶ 1} In the summer of 1997 the Ohio Department of
Administrative Services (ODAS) received competitive bids
for the construction of Phase II of the Fisher College of
Business on the campus of The Ohio State University (OSU).
Phase II involved the construction of three separate
buildings identified as the Undergraduate Building, the
Resource Center, and the Executive Education Building. The
successful bidders were Dugan & Meyers Construction Company
(DM) for the general trades work and for lead contractor
services; Teepe’s River City Mechanical, Inc. (Teepe) for
the HVAC work; Accurate Electric Construction, Inc.
(Accurate) for the electrical work; J.A. Croson Company
(Croson) for the plumbing and fire protection work; and The
Sherman R. Smoot Co. (Smoot) for the site work.

{¶ 2} In mid-August 1997 ODAS entered into
construction contracts with the successful bidders in the
following original amounts: DM, $20,932,500; Teepe,
$3,850,000; Accurate, $4,593,000; Croson, $929,979; and
Smoot, $2,682,900. A notice to proceed was issued on August
15, 1997, establishing May 13, 1999, as the completion date
for the Resource Center and June 12, 1999, as the
completion date for the Undergraduate and Executive
Education Buildings. The contract declared time to be of
the essence and provided for the assessment of liquidated
damages for late completion. Project funding for Phase II
was provided in part by the Ohio General Assembly
($24,311,860) and in part from local University funds
($16,300,000).

{¶ 3} ODAS, through the office of the State
Architect, was responsible for general supervision over the
project, including such duties as interpreting the
construction drawings and specifications, acting as
impartial judge of the contractors’ performance, and making
decisions on all claims of the contractors relating to the
execution and progress of the work and on other matters
relating thereto with the consultation of the associate and
the sponsor agency.

{¶ 4} Karlsberger & Associates (Karlsberger) served
as the associate architect (associate). As associate
architect, Karlsberger was responsible for preparing the
construction drawings and specifications; visiting the job
site to observe the quality and progress of construction;
approving shop drawings; responding to contractor requests
for information concerning perceived conflicts, errors,
omissions or other discrepancies in the contract documents;
and administering any design changes necessitated thereby.

{¶ 5} Gilbane Building Company (Gilbane) was
retained by ODAS as the construction manager, and, as such,
was responsible for reviewing and approving the lead
contractor’s initial construction schedule; monitoring
compliance therewith; negotiating and processing change
orders; providing input to the associate and owner
regarding contractor payment applications; assisting in the
submission, review and approval of shop drawings; and
dealing with on-site safety and cost control issues.
Gilbane was required to conduct weekly progress meetings
among the prime contractors, associate, owner and
construction manager and to evaluate and assist with the
resolution of all schedule issues raised at progress
meetings.

{¶ 6} As lead contractor DM was responsible for
coordinating the work of all contractors and developing in
cooperation with the other contractors, a critical path
method (CPM) construction schedule. The CPM schedule was to
provide for the reasonable, efficient, and economical
execution of all work under the contract by the stipulated
contract end dates. During construction the lead contractor
was required to monitor the progress of the work for
conformity with the construction schedule, publish monthly
schedule updates, and propose an affirmative recovery plan
if it became apparent during construction that critical path
activities, schedule milestones or contract completion
dates would not be met.

{¶ 7} The initial construction schedule signed by
all contractors was to be submitted to the associate for
approval within 30 days of the date of the notice to
proceed, i.e., by September 15, 1997. While that schedule
was being developed, a delay was experienced in the
availability of structural steel for the project. In
recognition of that delay the parties agreed to a no-cost
change order extending the contract completion date for
each building by four weeks, i.e., to June 11, 1999, for
the Resource Center and to July 12, 1999, for the
Undergraduate and Executive Education Buildings. Although
subsequent events would give rise to contractor assertions
of entitlement to additional time extensions, there were no
further agreed modifications of the contract completion
dates. One of the reasons the University was reluctant to
grant any further time extensions was the University’s need
to occupy the new buildings for the fall quarter of 1999,
there being no other available space for classes scheduled
therein. The contractors were repeatedly reminded of that
time constraint as scheduling problems developed during the
course of construction.

{¶ 8} As a result of the delay in the availability
of steel the initial construction schedule (sometimes
referred to as the “baseline schedule”) was not finalized
until January 1998. Notwithstanding the absence of an
approved schedule, work on the project commenced in August
1997, shortly after issuance of the notice to proceed. No
objection was raised by the state to the tardy finalization
of the baseline schedule.

{¶ 9} The work was scheduled to proceed from floor
to floor and building to building in a logical, coordinated
sequence of more than 2,400 construction activities to be
performed by the five prime contractors and their
subcontractors. To facilitate contractor efficiency and
productivity each trade was scheduled to complete its work
in a given location within a specified time frame following
completion of the scheduled predecessor work of another
trade. Work on all three buildings was to begin in
September 1997 and be substantially completed by April
1999, leaving some “float” in the schedule to accommodate
unanticipated delays or changes in the work. Weekly
progress meetings conducted by the construction manager and
coordination meetings convened by the lead contractor were
to be held to provide a contractual mechanism for
monitoring the progress of the work and addressing various
problems as they might arise.

{¶ 10} In February 1998 ODAS assigned its
responsibility for administering the Phase II construction
contracts on behalf of the state to OSU in order to save
$418,000 in administrative fees otherwise payable to ODAS
for providing that service. That assignment was one of
several measures taken to reduce a projected funding
deficit of approximately $1.4 million for Fisher Phases I
and II. The Phase II prime contractors executed no-cost
change orders acknowledging that assignment. After February
27, 1998, ODAS ceased to administer the contracts and
withdrew its field representative who had been on site
during the first five months of construction. OSU made no
changes in its staffing of the project following the
assignment.

{¶ 11} During the first year of construction the
work progressed essentially as scheduled. The monthly
schedule updates prepared by the lead contractor during
that period consistently forecasted completion of the
project within the extended contract end dates. By June 1998
the foundations, steel frameworks, concrete floors, stairs,
exterior metal framing, sheathing, masonry, and roofs of
all three buildings were either in place or nearing
completion, and the interior work (framing, drywall,
painting, ceiling grids, millwork, etc., and the
interrelated HVAC, plumbing, fire protection, and
electrical work) was underway. The interior framing,
drywall, and ceiling work was performed by DM’s
subcontractor, Cleveland Construction, Inc. (CCI).

{¶ 12} At this point in the project, significant
slippage in the schedule began to occur and continued
thereafter throughout the balance of the project. As the
interior work progressed numerous omissions, inaccuracies,
and conflicts in the design documents for all three
buildings were discovered that required the contractors,
before proceeding with their work, to seek a determination
by the associate as to what was intended or required.
Between June 1998, and the end of September 1998, 176
requests for information (RFI) had been submitted, and 48
field work orders (FWO) and 15 architect supplemental
instructions (ASI) had been issued dealing with such
problems as framing conflicts in tiered classrooms,
insufficient space for plumbing in lavatory walls,
conflicts of ceiling heights with mechanical, electrical and
plumbing (MEP) systems, soffit depth clearance problems,
questions regarding rolling window shade specifications,
and a variety of other issues.[fn1]

{¶ 13} Many of the RFIs related to the work of CCI.
When CCI’s framing, drywall, or ceiling work in an affected
area was suspended awaiting the associate’s response to an
RFI, often the successor activities of the plumbing,
electrical and/or HVAC contractors in that area were
delayed. In general, the associate’s responses to RFIs were
made within contractual time requirements, although a
problem regarding framing conflicts and design changes in
the tiered classrooms of the Undergraduate Building
required five months (April to September 1998) to resolve.

{¶ 14} The issue of schedule slippage was discussed
at the weekly progress meetings and was a matter of
continuing concern both to the state’s design team
(representatives of OSU, the associate and the construction
manager) and to the contractors. Special meetings seeking a
solution were held in October and December 1998 and in
January and March 1999. The lead contractor asserted that
the frequent need for clarification, modification, or
completion of the design documents relating to its work and
the necessity of suspending or relocating its activities
pending the associate’s responses thereto were seriously
affecting the ability of all contractors to maintain the
project schedule and to conduct their operations with
expected efficiency and productivity. During this period
there were disagreements among the parties as to whether
the incidence of RFIs, ASIs, and FWOs was excessive;
whether the schedule slippages were caused by ineffective
coordination, lack of contractor cooperation or insufficient
staffing; whether float in the schedule was primarily for
the benefit of the contractors or OSU; and why, despite
their combined efforts, a schedule recovery was not being
achieved. Meanwhile, as the work proceeded the schedule
continued to slip.

{¶ 15} The February 1999 schedule update was the
first schedule that showed projected completion of all
three buildings beyond the contract end dates.[fn2] It was
becoming apparent to the design team at this time that,
despite assurances from DM’s project manager that the
completion dates shown in the February 1999 schedule update
were realistic, something had to be done to ensure
completion of that portion of the project that OSU needed
for the fall quarter.

{¶ 16} In early April the design team began to push
for completion of the Undergraduate Building and several
floors of the Resource Center, the space most needed for
classes in the fall. The contractors were told that if all
parties agreed to commit to the February 1999 schedule
update, to instill in their personnel a sense of urgency
toward completion, to cooperate in identifying problems and
solving them quickly, the University would approach the
College of Business to obtain its approval to extend the
completion dates for the Executive Education Building and
the remaining portion of the Resource Center. The
contractors committed themselves to those objectives.
However, during the ensuing two months the RFIs, ASIs, and
FWOs continued to be submitted and issued, and the schedule
continued to slide.

{¶ 17} In early July OSU relieved DM of its
responsibilities as lead contractor and employed the
construction manager (Gilbane) to take over DM’s scheduling
and field coordination responsibilities. DM remained on the
job as the general trades contractor. The justification
given for this action was that DM had “failed or neglected
to prosecute the Work with the necessary diligence so as to
complete the work by the applicable milestones and the time
specified in the contract, pursuant to General Conditions
5.3.1.” (DM Exhibit 39.) In its written response, DM took
issue with the design team’s assessment of its performance
as lead contractor and proposed specific remedial measures
“to curb and ideally correct the recent slide in
completion.” (DM Exhibit 337.) The design team found those
measures to be insufficient. When Gilbane took over as lead
contractor, DM was informed that the cost of employing
Gilbane under the new arrangement would be backcharged to
DM. (DM Exhibit 338.)

{¶ 18} Upon assuming its role as lead contractor,
Gilbane resequenced the construction schedule, giving
priority to and directing completion of the work in the
Undergraduate Building and Resource Center at the expense
of the Executive Education Building. During June, July, and
August no progress was made in the framing of that building,
which remained eighty percent complete. As a result OSU was
able to hold classes in the Undergraduate Building and
Resource Center starting in September 1999. Final
completion of the Executive Education Building was not
achieved until January 16, 2000, six months after the
stipulated contract completion date.

{¶ 19} OSU subsequently backcharged DM a total of
$264,340 for the cost of Gilbane’s lead contractor services
and assessed liquidated damages against DM, Accurate,
Croson, and Teepe in the amounts of $325,000, $20,000,
$11,000 and $115,000, respectively, apportioning
responsibility for 186 days of delay (July 12, 1999, to
January 16, 2000) allegedly attributable to lack of
coordination between prime contractors, inadequate
management of subcontractors, and failure to effectively
utilize resources. (DM Exhibit 344.) No part of the delay
was attributed to the owner.

{¶ 20} The contractors subsequently filed claims
pursuant to Article 8 of the contract seeking to recover
their respective contract balances, reversal of
back-charges, and extra costs for delays allegedly
attributable to the owner. Hearings regarding those claims
were held, and all such claims were rejected.

{¶ 21} Thereafter, DM filed this action against ODAS
and OSU for breach of contract and, in the alternative,
unjust enrichment, including a claim on behalf of its
subcontractor, Cleveland Construction, Inc. Accurate,
Teepe, and Croson joined in the action as additional
plaintiffs, also seeking to recover damages on theories of
breach of contract and unjust enrichment.[fn3] ODAS/OSU
denied liability as to all claims and asserted a
counterclaim against DM for liquidated damages, for the
cost of replacing DM as lead contractor, and for
indemnification for any amounts it might be required to pay
Accurate, Croson, and/or Teepe. William L. Clark was
appointed referee pursuant to R.C. 153.12 and 2743.03, to
conduct the trial of the case and report his findings and
recommendations to the court.

{¶ 22} A 17-day trial was held between February 10
and March 5, 2003. The trial record consists of nearly
6,000 pages of testimony and 636 exhibits comprising
several thousand pages of job records, correspondence and
other documents. Proposed findings of fact and conclusions
of law, together with post-trial briefs were filed by the
parties on April 1, 2003. The referee’s findings of fact
and recommendations regarding all issues are set forth
below.

I. Liability Issues

A. Overview

{¶ 23} The fundamental factual question in this case
is what caused the project to be delayed six months beyond
the stipulated contract completion date. The lead
contractor (DM) attributes the overall delay to the
multiple errors and omissions in the design documents and
to ODAS’ “abdication” of its statutory responsibility to
administer the contracts, which, DM contends, deprived it
and the other contractors of an experienced, impartial
interpreter of the contract documents, assessor of the
contractors’ performance, and evaluator of contractor
claims. DM argues that OSU’s inexperience with a project of
this size and its inability to effectively manage the many
design changes so as to allow the work to proceed as
efficiently as possible exacerbated the scheduling problems
caused by the defective plans. DM argues further that it
fulfilled its obligations as lead contractor and that the
state breached the contract by relieving it of that role
and back charging it for the amount OSU paid to its
successor (Gilbane).

{¶ 24} The electrical contractor (Accurate)
maintains that its work was delayed and disrupted by delays
in the performance of predecessor activities which the
state failed to rectify through the exercise of its
exclusive contractual enforcement authority.

{¶ 25} The plumbing and HVAC contractors (Croson and
Teepe) assert that their operations were delayed and made
less efficient as a result of the state’s failure to
enforce a realistic schedule, to provide accurate and
complete plans, and to promptly resolve issues as they
arose.

{¶ 26} All of the contractors contend that the
assessment of liquidated damages against them was
inappropriate in light of the fact that the state had
caused the delay.

{¶ 27} The state denies that it was guilty of any
breaches of contract and places the entire responsibility
for the delay in completion of the project at the feet of
the contractors, citing as contributing causes the
incompetence of CCI, CCI’s interference with successor
activities, understaffing by DM, inexperience of DM’s key
personnel, lack of proper coordination of the work by all
contractors, and failure to have the baseline schedule in
place within 30 days of the issuance of the notice to
proceed. The state contends that the number of RFIs, ASIs
and FWOs was not excessive for a project of this size and
complexity; that each of the design changes was covered by
a written CO specifically excluding any further recovery
therefor; that the contractors failed to give proper notice
of their claims, to timely file their claims, or to make
contractually required requests for time extensions; and
that, in any event, the contractors’ claims are barred by
the “no damage for delay” clause contained in the contract.

B. Referee’s Finding Re: Cause of Delay

{¶ 28} On the basis of the evidence presented the
referee finds that the principal cause of the delay in
completion of Fisher Phase II was the existence of an
excessive number of errors, omissions and conflicts in the
design documents furnished to bidders by the state and
incorporated into the plaintiffs’ contracts. Despite the
concerted efforts of the state’s design team and the
efforts of the lead contractor and the other prime
contractors during construction both to address those
design issues as they arose and to maintain scheduled
progress, it became impossible in constructing the
interiors of the three buildings to overcome the frequent
disruptions of the work caused thereby and to perform the
required activities with the efficiency and productivity
reasonably contemplated in the plaintiffs’ bids and in the
approved baseline schedule. As a consequence the
contractors were delayed in completing their work and
incurred unanticipated additional costs relating thereto.

{¶ 29} The state’s election in July 1999 to complete
the Undergraduate Building and portions of the Resource
Center and to defer further work on the Executive Education
Building until that had been accomplished added a further
period of delay in achieving final completion. If the work
had progressed simultaneously in all three buildings as
originally planned, final completion might well have been
achieved in November or December 1999.[fn4] While the
decision to change priorities accomplished OSU’s goal of
obtaining occupancy of two of the buildings for the fall
quarter, it kept the contractors on the project longer and
added further to the inefficiency and disruption of their
operations. Evidence supporting the above findings is
highlighted below.

{¶ 30} A total of 732 RFIs were submitted to the
associate by DM throughout the course of the project.[fn5]
Approximately half of those RFIs required the issuance of a
clarification, ASI or FWO by the associate before work in
the area involved could proceed. Of the 264 FWOs issued to
DM in response to RFIs, 46 percent were classified by the
associate as errors or omissions, 30 percent were classified
as user agency requests (changes), and 14 percent were
classified as field conditions. Thus, at least 76 percent
of all FWOs resulted from matters within OSU’s control, and
at least 90 percent thereof resulted from matters outside
DM’s control. (DM Exhibit 361.)

{¶ 31} Comparing the number of document changes on
this project with other, similar projects, Robert
Fredelake, DM’s project executive with over 25 years of
relevant construction experience, testified as follows
(Transcript 3093-4):

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