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ASPHALT RDS. & MATS. CO. v. VA DEPT. OF TRANS., et al. (59819)


ASPHALT ROADS & MATERIALS
CO., INC.

v.

COMMONWEALTH OF VA, DEPT OF
TRANS., et al.


FEBRUARY 26, 1999
Record No. 980805

ASPHALT ROADS & MATERIALS COMPANY, INC.

v.

COMMONWEALTH OF VIRGINIA, DEPARTMENT OF
TRANSPORTATION, et al.

FROM THE COURT OF APPEALS OF VIRGINIA
Present: Carrico C.J., Compton, Lacy, Keenan,
Koontz, and Kinser, JJ., and Whiting, Senior Justice

OPINION BY SENIOR JUSTICE HENRY H. WHITING


The dispositive issue in this appeal is whether
a provision in a construction contract allows extra compensation
to a contractor for certain additional work on a highway project.

In June 1992, Asphalt Roads and Materials
Company, Incorporated (Asphalt Roads) contracted with the
Virginia Department of Transportation (VDOT), an agency of the
Commonwealth, to widen a section of Landstown Road in Virginia
Beach. The contract incorporated by reference VDOT’s
"January 1991 Road and Bridge Specifications" and any
amendatory and supplemental specifications. Section references
herein will be to the "1991 Road and Bridge
Specifications," as amended and supplemented.

Asphalt Roads subcontracted with Kevcor
Corporation (Kevcor) to install the utility pipes in conformance
with the terms of Asphalt Roads’ contract with VDOT. The contract
required the contractor to remove and replace any soil that was
unsuitable for use as backfill under the utility pipes.
[1] The contract drawings indicated that there were 940
cubic yards of such soil. However, during excavation, Kevcor
discovered that there were many more than 940 cubic yards of
unsuitable soil and VDOT’s inspector required that Kevcor remove
and replace that extra unsuitable soil with "borrow,"
which is defined by Sect. 101.02 as "[s]uitable
material from sources outside the roadway."

Asphalt Roads, on behalf of Kevcor
(collectively the contractor), claimed additional compensation
for the excess unsuitable material that was discovered, removed,
and replaced with borrow. Agreeing that the contractor was
entitled to a part of its claim, VDOT paid for the removal of
some of the material as an "unforeseen condition"
covered by Sect. 104.02.
[2] VDOT also
paid for some of the backfill under Sect. 303.06(d) (quoted
later herein). VDOT declined to pay the balance of the claim for
a number of reasons, some of which are involved in this appeal.

After exhausting the administrative remedies
provided by Code Sect. 33.1-386, the contractor sued VDOT in
the Circuit Court of the City of Virginia Beach under the
provisions of Code Sect. 33.1-387. At issue was the
contractor’s right of recovery and, if it had such a right, how
much borrow had been required and how much unsuitable material
had to be removed and disposed of.

The circuit court resolved these factual
disputes by holding that the contractor was entitled to payment
for an additional 8,657 cubic yards of backfill and 8,807 cubic
yards of unsuitable material. The court adopted VDOT’s contention
that compensation for the backfill should be awarded at the
contract-stated unit price of $6.18 for select borrow and awarded
the contractor $53,500.26 on that claim.
[3] With
regard to the disposal of unsuitable material, the court adopted
the contractor’s contention that compensation should be in the
amount of $11.16 per cubic yard, the unit price stated in the
contract for the disposal of similar materials, and awarded the
contractor $98,286.12 for that claim.

On VDOT’s appeal, the Court of Appeals reversed
the portion of the judgment awarding the additional compensation,
affirmed a part of the judgment, and remanded the case for
further proceedings on issues not material here. We awarded the
contractor an appeal limited to the hereinafter described issues.
[4]

Here, the dispute is whether the Court of
Appeals properly denied the contractor’s described claim for
extra compensation for excavating, removing, and replacing
unsuitable material under and around the utility pipes. Among
other things, the contractor contended that Sects. 104.03
and 303.06 applied, not only to allow the claim, but also to fix
the amount of the contractor’s compensation.
[5] The
Court of Appeals adopted VDOT’s contention that
Sects. 302.04 and 520.06 were the controlling sections and
that they did not provide for extra compensation.

For the reasons which follow, we do not think
that Sects. 302.04 and 520.06 control or conflict with the
sections relied upon by the contractor to sustain its claim. As
pertinent, Sects. 302.04 and 520.06, both entitled
"Measurement and Payment," provide generally that
excavating, backfilling, disposing of unsuitable material, and
restoring existing surfaces, are included in the contract unit
price for pipe. However, neither deals specifically with the
problems at hand, as do the sections relied upon by the
contractor.

First, we decide whether the contractor is
entitled to compensation for the backfill that had to be obtained
from offsite sources to replace the unsuitable material. VDOT
argues that Sects. 302.04 and 520.06 preclude the payment of
additional sums for obtaining borrow to replace the excess
unsuitable soil removed by the contractor. For the following
reason, we find no merit in this contention.

Section 303.06, also entitled "Measurement
and Payment," provides, in subsection (d) that:

Furnishing and placing backfill
material, including backfill for undercut, will be
included in the price for excavation. . .
unless. . . suitable material is not available
within the construction limits.       When
suitable backfill is not available within the
construction limits, the material furnished and placed by
the Contractor will be paid for in accordance with
Section 109.05.

Section 303.06 is specific in providing that
when suitable backfill is not available on the job site, the
contractor will be compensated for the backfill provided from
off-site sources. Hence, we hold that Sect. 303.06
authorizes additional compensation to the contractor for having
provided the additional backfill material. Accordingly, the trial
court did not err in allowing additional compensation for that
claim.

Next, we consider whether the contractor is
entitled to additional compensation for removing and disposing of
the excess unsuitable material. The contractor claims that it is
entitled to such compensation under Sect. 104.03, the
differing site conditions clause. That section provides, in
pertinent part, that

[d]uring the progress of the work, if
subsurface or latent physical conditions are encountered
at the site differing materially from those indicated in
the contract,

then upon notification to VDOT and its
determination that the conditions are materially different,
"an adjustment, excluding anticipated profit, will be made
and the contract modified" to compensate the contractor for
the contractor’s increased cost.

The purpose of the differing site conditions
clause and similar clauses, described in a number of cases as the
"changed conditions clause," has been stated in several
cases. The North Carolina Court of Appeals, for example, has
stated that its purpose is "[t]o encourage low, competent
bids," Ray D. Lowder, Inc., v. North Carolina State
Highway Comm’n
, 217 S.E.2d 682, 696, (N.C. Ct. App.) cert.
denied
, 218 S.E.2d 467 (N.C. 1975).

Similarly, the Court of Claims stated that the
purpose of the clause was:

[T]o take at least some of the gamble
on subsurface conditions out of bidding. Bidders need not
weigh the cost and ease of making their own borings
against the risk of encountering an adverse subsurface,
and they need not consider how large a contingency should
be added to the bid to cover the risk. They will have no
windfalls and no disasters. The Government benefits from
more accurate bidding, without inflation for risks which
may not eventuate. It pays for difficult subsurface work
only when it is encountered and was not indicated in the
logs.

Foster Constr. C. A. & Williams Bros.
Co. v. United States
, 435 F.2d 873, 887 (Ct.Cl. 1970).

Although the differing site conditions clause
included in the contract at issue must be included in most
federal highway construction contracts pursuant to 23 C.F.R.
Sect. 635.109 (1997), apparently VDOT voluntarily inserted
the clause to obtain its benefits in securing the lowest
competent bids. VDOT does not question the wisdom and utility of
the differing site conditions clause, but instead contends that
it does not apply to mere increases in government-estimated quantities
of material as distinguished from the character and nature
of materials. We disagree.

Since we apparently have not been confronted
with this issue and the clause in question is similar to those in
federal construction contracts, both parties cite, and we
consider, cases arising under those contracts. Although VDOT
cites cases allegedly supporting its contention that changes in
quantity are not cognizable under the differing site conditions
clause, we note that most of those cases deal with substantially
different factual situations. We think that the better view is
expressed by the following statement of the Court of Claims:

The legal conclusion of the Appeals
Board that a 39 percent overrun [in clearing all trees
and brush along a 20 mile stretch of a river], in the
facts and circumstances of this case, was a material
change and warranted a price adjustment [under the change
of conditions clause], is supported by numerous decisions
in this court. To do otherwise, and hold the contractor
to its original lump-sum bid, would negate one of the
prime reasons for incorporating a "changed
condition" article into these contracts, i.e.,
"to induce bidders not to increase their prices to
cover possible misfortunes which might result from
unforeseen developments." This is true even though
the Army attempted to protect itself by inserting
caveatory and exculpatory provisions in the contract.

Schutt Construction Co., Inc. v. United
States
, 353 F.2d 1018, 1021 (Ct.Cl. 1965) (internal citations
omitted).

We think that whether the changed conditions
are "conditions . . . differing materially from
those in the contract" under Sect. 104.03 is a question
of fact regardless of whether the claimed changes result in
quantitative or qualitative changes to the work to be performed.

Even so, VDOT argues that the contractor has
failed to make the necessary showing that it could not reasonably
have ascertained from information available to it at the time of
bidding that there would be an excess amount of unsuitable soil.
Part of the evidence suggests that the contractor’s employees
should have anticipated the excessive amount of unsuitable
material which would be encountered from their excavation
experience of similar nearby areas. On the other hand, the
contractor’s employees testified that there was no practical way
of ascertaining whether there was much more unsuitable soil to
excavate than that contemplated by the contract.

Thus, the evidence conflicted on this issue,
and that conflict has been resolved by the trial court’s decision
implicitly rejecting VDOT’s contention.
[6] Since
credible evidence supports that decision, we, as the reviewing
court, must reverse the judgment of the Court of Appeals and
reinstate the circuit court’s judgment on that issue. See Rogers
v. Marrow
, 243 Va. 162, 166, 413 S.E.2d 344, 346 (1992)
(circuit court must reinstate jury verdict if credible evidence
to support it).

Next, VDOT argues that the Court of Appeals
correctly applied Sect. 102.04 to deny the claim on the
ground that this section made the contractor responsible for any
alleged excess quantities of unsuitable soil. As pertinent,
Sect. 102.04 provides:

The submission of a bid will be
considered conclusive evidence that the bidder has
examined the site of the proposed work, proposal, plans,
standard drawings, specifications, . . . and
any other documents specified in the proposal before
submitting a bid and is satisfied as to the conditions to
be encountered in performing the work and requirements
specified in the proposal.

. . . .

The submission of a bid will be
considered conclusive evidence that the bidder is
satisfied with regard to the subsurface conditions to be
encountered in the work.

Additionally, VDOT notes other warnings in
Sect. 102.04 which advise bidders that the available
subsurface data are accurate with regard to test borings only and
disclaim any warranty regarding subsurface conditions or the
condition, amount, or nature of the material which may be
encountered.

We reject these contentions. If we applied
these sections to the change of condition shown in the evidence
in this case, we would render meaningless the language of
sections like Sect. 104.03 and negate their salutary
purposes. See Schutt Constr. Co., 353 F.2d at 1021.
For these and other reasons, a number of cases have rejected
similar contentions dealing with the relation of clauses like
Sect. 102.04 to clauses like Sect. 104.03. See e.g.,
United Contractors v. United States, 368 F.2d 585 (Ct.Cl.
1966); Fehlhaber Corp. v. United States, 151 F. Supp. 817
(Ct.Cl.), cert. denied, 355 U.S. 877 (1957); Ray D.
Lowder, Inc.
, 217 S.E.2d 682; Morrison-Knudsen Co. v.
United States
, 397 F.2d 826 (Ct.Cl. 1968).

Finally, and contrary to VDOT’s contention, we
conclude that since Sect. 104.03 applies to a specific
situation, "differing site conditions," it controls,
rather than the general language in Sects. 302.04 and
520.06. We hold, therefore, that the contractor was entitled to
additional compensation for the disposal of the excess material
under Sect. 104.03 of the contract.

For these reasons, we will reverse the judgment
of the Court of Appeals, which reversed the circuit court’s
judgment awarding $151,786.38 to the contractor on the above
claims. We will also enter final judgment in favor of the
contractor on those claims, as provided in the judgment of the
circuit court.
[7] We will remand the case to the Court of Appeals for its
remand to the trial court for further action in conformance with
the balance of the opinion of the Court of Appeals.

Reversed,

final judgment in part,

and remanded.

 

JUSTICE LACY, with whom JUSTICE KOONTZ
and JUSTICE KINSER join, concurring.

I concur with the majority’s conclusion that
contract Sect. 303.06(d) entitled Kevcor to additional
compensation for backfill because that section specifically
authorizes payment for backfill brought onto the site from off
site in accordance with the provisions of Sect. 109.05. This
specific section of the contract overrides the more general
contract provisions relied upon by VDOT, Sects. 302.04 and
520.06, which do not address additional compensation for backfill
acquired off site. Because Asphalt Roads did not appeal the
amount of additional compensation awarded by the trial court for
backfill, I agree with the majority and would reinstate that part
of the trial court’s judgment awarding Kevcor $53,500 for the
backfill.

Section 303.06, does not address additional
compensation for disposal of unsuitable material. I disagree with
the majority’s conclusion that Sect. 104.03, the Differing
Site Conditions Clause of the contract, is the source of such
compensation. The majority reached its conclusion through a
two-step process. First, it announces that the issue whether the
asserted changed conditions qualified as conditions
"differing materially from those in the contract" under
Sect. 104.03 was one of fact. And second, the majority
concludes that, in this case, the trial court resolved
conflicting evidence and made the requisite finding of fact in
Kevcor’s favor, that is, that the site conditions differed
materially from those in the contract. Assuming, arguendo,
that the first step is correct, the record does not support a
conclusion that the trial court made the factual finding asserted
by the majority.

Although the trial court found that the
evidence supported the additional compensation, there is nothing
in the record that indicates that this conclusion was based upon
an application of Sect. 104.03 or upon any finding by the
trial court of "materially different conditions." The
absence of such a finding is readily understood in light of the
posture of the case when it reached the trial court.

At the time the project was bid, VDOT, Asphalt
Roads, and Kevcor were aware that some of the material excavated
would be unsuitable for use as backfill. The contract estimated
that there would be approximately 940 cubic yards of material
unsuitable for backfill. During the course of the excavation,
however, VDOT’s inspector informed Kevcor that none of the
material being excavated would be suitable for backfill. As a
result of this change, Kevcor had to remove the unsuitable
material and replace it with suitable backfill material obtained
from sources outside of the project and also had to dispose of
the unsuitable material outside of the project area.

VDOT, Kevcor, and Asphalt Roads engaged in many
discussions regarding compensation for the backfill Kevcor
brought to the site and the unsuitable material it disposed of
off site. At this time, Kevcor claimed additional compensation
under Sects. 303.06 and 109.05 of the contract. VDOT agreed
that Kevcor was entitled to additional compensation pursuant to
Sect. 104.02, entitled "Alteration of Quantities,"
which allows VDOT’s engineer to change the quantities and make
alterations in the work which are necessary to complete the
project.
[8]

However, a dispute arose between the parties
over the amount of backfill needed and the amount of unsuitable
material disposed off site for which additional compensation was
due. In quantifying its claim, Kevcor asserted that it had
delivered 18,742 cubic yards of backfill and disposed of the same
amount of unsuitable material off site. VDOT insisted on
measuring the compensable amount of backfill by using the PB-1
Pipe Bedding "X" dimensions as shown in the contract.
Using that measurement, VDOT agreed to pay, and did pay, Kevcor
for about half of the amount of backfill claimed by Kevcor, but
refused to pay for the remainder. Kevcor asserted that it was
entitled to payment for the additional 9,323 cubic yards of
backfill.

Kevcor, in its claim letter dated October 16,
1995, asserted that payment for the backfill was not limited by
the measurement applied by VDOT, arguing that neither
Sects. 303.06(d), 109.05, nor any other provision in the
contract limits the compensation for additional backfill to the
amount measured by the PB-1 Pipe Bedding "X"
dimensions. Kevcor also asserted that, under OSHA standards, it
was required to protect workers by "means of sheeting,
shoring, bracing or sloping the sides of the trenches" in
which they worked. Kevcor explained that it was "physically
impossible for a contractor to comply with the minimum
"X" dimension for bedding and maintain that trench
width to the top of the excavation and also provide the necessary
protection for workers" as required by OSHA standards. Thus,
Kevcor concluded that VDOT erroneously limited its additional
compensation for both the backfill and the disposal of unsuitable
material to the PB-1 Pipe Bedding "X" dimensions, and
that Kevcor should be paid for an additional 9,323 cubic yards of
backfill and for the off-site disposal of an additional 9,323
cubic yards of unsuitable material.

Thus, Kevcor claimed it was entitled to an
additional amount of $56,497.38 for the backfill and $103,112.38
for the off-site disposal of the unsuitable material based on
$11.16 per cubic yard.
[9] VDOT refused to pay this claim.

Kevcor, through Asphalt Roads, appealed VDOT’s
denial of claim to the Commissioner of Transportation, pursuant
to the administrative review procedure provided by Code
Sect. 33.1-386. The Commissioner also denied the claim, and
Asphalt, on its own behalf and on behalf of Kevcor, filed its
motion for judgment in the Circuit Court of the City of Virginia
Beach.

Following an evidentiary hearing, the trial
court stated from the bench that "the evidence established
that Kevcor was entitled to additional compensation" for the
backfill and disposal of unsuitable material, "although not
as much, I would suspect, as [Asphalt] feels that it should have
been entitled to on behalf of its subcontractor Kevcor." The
court went on to award $53,500.26 for the backfill and $98,286.12
for the disposal of unsuitable material, for a total of
$151,786.38. While the trial court stated that the amount
"breaks down to" 8,657 cubic yards at $6.18 per cubic
yard for the backfill and 8,807 cubic yards at $11.16 per cubic
yard for the disposal of unsuitable material, the trial court did
not indicate the source of these figures or the specific contract
provision that authorized the additional compensation.

The dispute before the trial court was over
VDOT’s assertion that it only had to pay for the amounts as
measured by the PB-1 Pipe Bedding "X" dimensions. In
resolving this dispute, the trial court stated only that it
believed the evidence established a right to additional
compensation. This statement, given the posture of the case,
indicates that the trial court determined only that VDOT and the
Commissioner were wrong in limiting the amount of material
for which Kevcor was entitled to compensation to the PB-1 Pipe
Bedding "X" dimensions. Nothing in the record, in my
opinion, indicates that the trial court found that the additional
9,000 cubic yards that had to be disposed of off site was a
"materially different condition" under
Sect. 104.03 of the contract.

The specific contract provision that authorized
this additional payment was not the crucial issue in the trial
court.
[10] VDOT had already paid Kevcor for approximately 9,000
cubic yards of unsuitable material deposited off site under
Sect. 104.02.
[11] It logically follows that the trial
court assumed that the authorization for payment of the
additional compensation it awarded was also Sect. 104.02.

This record does not support the conclusion
that the trial court made a factual finding that the site
conditions were materially different than those in the contract.
It does, however, support the trial court’s decision that Kevcor
was entitled to additional compensation for the amount of
unsuitable material it disposed of off site, and that such
compensation was not limited to amounts set out in the PB-1 Pipe
Bedding "X" dimensions.

Accordingly, I would reverse the decision of
the Court of Appeals and reinstate that portion of the trial
court’s judgment awarding Kevcor $98,286.12.

 

 

FOOTNOTES:

[1] Section 101.02 defines backfill as
"[m]aterial used to replace or the act of replacing material
removed during construction; may also denote material placed or
the act of placing material adjacent to structures."

[2] Section 104.02(a) provides, in
pertinent part: "Alterations of Quantities[.] [VDOT's] Engineer reserves the right to make, in writing, at any time
during the work, such changes in quantities and such
alterations in the work as are necessary to satisfactorily
complete the project." (Emphasis added.)

[3] Section 101.02 defines select borrow
as "[b]orrow material that has specified physical
characteristics."

[4] Because this case originated before an
administrative agency, the judgment of the Court of Appeals is
ordinarily final and not subject to further appeal. Code
Sect. 17.1-410. However, we granted this appeal because we
consider the primary issue involved to be a matter of significant
precedential value. Id.

[5] We reject VDOT’s contention that the
contractor did not assert the differing site conditions clause
either in the trial court or in the Court of Appeals. Our
inspection of the record indicates that the contractor argued
that Sect. 104.03 was the applicable section on several
occasions. First, the contractor introduced written
correspondence with VDOT into evidence in which it asserted that
Sect. 104.03 was applicable. Second, at least one witness
was specifically questioned by the contractor’s counsel about
Sect. 104.03. Third, the contractor argued that
Sect. 104.03 was the applicable term on page 10 of its brief
in the Court of Appeals. And indeed, the same attorney for VDOT
who contends here that the differing site conditions clause was
not asserted by the contractor in the courts below specifically
responded to that contention when asserted by the contractor not
only in his oral argument for VDOT in the trial court, but also
in VDOT’s brief in the Court of Appeals.

[6] Although the record does not indicate
which section of the specifications the trial court applied in
awarding a judgment on this claim, in the absence of clear
evidence to the contrary in the record, we presume that it
correctly applied the provisions of Code Sect. 104.03 to the
facts and that, in doing so, it resolved any conflict in the
facts in favor of the contractor. See Bottoms v.
Bottoms
, 249 Va. 410, 414, 457 S.E.2d 102, 105 (1995) (absent
clear evidence to contrary in record, appellate court assumes
trial court correctly applied law to facts and also views facts
in light most favorable to party prevailing in trial court).

We do not think that the trial court could have
made an award under Sect. 104.02 as set forth in the
concurring opinion, because these were not "changes"
that were made by VDOT’s engineer, as expressly provided in that
section and no such "changes" were made in writing, as
further provided in that section. Indeed, VDOT, in making its
payment of a part of these claims, characterized them as arising
from an "unforeseen condition," one of the predicates
for payment under Sect. 104.03.

[7] Because neither VDOT nor the
contractor questioned the trial court’s computation of the
amounts due the contractor, the Court of Appeals did not, and we
will not, review the trial court’s method of determining the
amount of extra compensation due to the contractor.

[8] Section 104.02 of the contract
provides:

The Engineer reserves the right to make, in
writing, at any time during the work, such changes in
quantities and such alterations in the work as are necessary
to satisfactorily complete the project. Such changes in
quantities and alterations shall not invalidate the contract
nor release the surety, and the Contractor agrees to perform
the work as altered.

If the alterations or changes in quantities
significantly change the character of the work under the
contract, whether or not changed by any such different
quantities or alterations, an adjustment, excluding
anticipated profits, will be made to the contract. The basis
for the adjustment shall be agreed upon prior to the
performance of the work. If a basis cannot be agreed upon,
then an adjustment will be made either for or against the
Contractor in such amount as the Engineer may determine to be
fair and equitable.

At the option of the Engineer, the
Contractor may be directed to accomplish the work on a force
account basis in accordance with the provisions of Section
109.05 of the Specifications.

If the alterations or changes in quantities
do not significantly change the character of the work to be
performed under the contract, the altered work will be paid
for as provided elsewhere in the contract.

The term "significant change"
shall be construed to apply only to the following
circumstances:

(1) When the character of the work as
altered differs materially in kind or nature from that
involved or included in the original proposed
construction or

(2) when a major item of work, as
defined elsewhere in the contract is increased or
decreased more than 25 percent of the original contract
quantity. Any allowance for an increase in quantity shall
apply only to that portion in excess of 125 percent of
original contract item quantity, or in case of a decrease
below 75 percent, to the actual amount of work performed
or

(3) When overruns and underruns of
piling amount to more than 25 percent of the original bid
quantity, whether or not such item has been designated as
a major item. 11-19-91 104(d)

[9] Although Kevcor also maintained it was
entitled to approximately $10.00 a cubic yard for the backfill
under Sect. 109.05 of the contract, it agreed to accept the
contract unit price for select borrow of $6.06 per cubic yard.

[10] In its brief before the Court of
Appeals, Asphalt Roads asserted that the only issue which could
be decided by the trial court was the claim submitted to and
denied by the Commissioner, specifically Asphalt Roads’
attempt to obtain the difference between the actual cost of
supplying suitable backfill from off site and disposing of
unsuitable material and the amount allowed and paid by VDOT. VDOT
did not seek a set-off or counterclaim for amounts it had already
paid. Virginia Code Sect. 33.1-387 restricts the trial court
to a review of the claims denied by the Commissioner.

[11] The record contains a number of
documents authored by VDOT indicating VDOT’s understanding that
off-site disposal would be compensable under Sect. 104.02.
Similarly, there are a number of documents authored by Kevcor and
Asphalt Roads that claimed compensation for the off-site disposal
under Sect. 104.02.

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