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Structural Concepts, Inc. v. Kean University

A-4016-06T1 (N.J. Super. App. Div. 2009) (Unpublished)

CONTRACTORS; CONTRACTS — If a contract shifts the economic risk of encountering unexpectedly difficult conditions to a contractor, the contractor then cannot sustain a claim against the owner or the owner’s experts for failing to investigate whether there were such conditions in the first place.

A contractor successfully bid on a state university project to replace a steam heating and sanitary piping system. The contractor planned to buy the necessary piping from another company believing it would be a “two pipe” system. In fact, it received a “three pipe” system that required more work to install. The contractor also undertook more work because of unexpected underground conditions in laying the new pipe. It sued the university and the engineering consultants who prepared the project plans and other bid documents for damages. Following years of litigation, all parties agreed to submit the remaining disputes to arbitration before a retired judge. The judge made findings of fact and issued rulings. The lower court confirmed the arbitrator’s award. Both parties appealed the arbitrator’s rulings. The parties to the arbitration had agreed that the underlying decision of the arbitrator would be fully reviewable to the same extent as would have been the decision of a court.

The Appellate Division treated the arbitrator’s factual findings as stipulated between the parties, and addressed whether the arbitrator’s conclusions drawn from those facts were correct as a matter of law. The contractor had alleged that the university was unjustly enriched because the bid amount did not account for the contractor’s extra efforts to lay a “three pipe” system. The Court affirmed the arbitrator’s conclusion that the contractor’s mistake as to the type of system required was not a sufficient basis for its claim that the university would be unjustly enriched if the contractor could not charge more than the contract price for the work.

The contractor also claimed the engineering firm had not sufficiently identified hidden underground conditions and this caused extra work. The Court affirmed the arbitrator’s conclusions that the bidding documents and the relevant contractual documents placed the economic risk of encountering unexpectedly difficult underground conditions on the bidder, and that the contractor bore the responsibility for additional testing of soil. It agreed that the contract shifted to the contractor the risk of absorbing the extra costs caused by unexpectedly difficult underground conditions. The Court ruled that, absent a positive misrepresentation of known conditions, the terms of a contract shifting the risk to a bidder must prevail, and the stipulated facts in this matter indicated the university did not deliberately misrepresent or withhold knowledge about subsurface conditions. Further, it affirmed the arbitrator’s denial of damages for three failed sections of pipe because the sections failed due to the contractor’s poor workmanship.

Lastly, the contractor claimed that the engineering firm had failed to provide complete and accurate plans and drawings. The Court affirmed the arbitrator’s conclusion that the firm was competent and reasonable and was in no way responsible for the problems the contractor encountered in performing the construction work. It referred to the arbitrator’s findings that the plans were not intended or represented to be final plans, but were intended to be diagrammatic and were sufficiently specific under State contracting law.

The Court also found no error in the arbitrator’s denial of the university’s liquidated damages claim, when the arbitrator concluded that it would be inequitable to enforce a delay clause against a contractor who had incurred so much extra work in attempting to complete the contract timely. Similarly, it found no error in the arbitrator’s rejection of the university’s damage claim to repair leaking manholes, where the arbitrator concluded the university could have mitigated its damages by promptly installing sump pumps at a modest expense. Lastly, the Court found no error in the arbitrator’s decision to deny the university’s claim for defense and indemnity from the engineering firm; the arbitrator found the contractor’s primary claim for breach of contract was against the university.

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