Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_06-cv-01598/USCOURTS-azd-2_06-cv-01598-1/pdf.json

Nature of Suit Code: 130
Nature of Suit: Miller Act
Cause of Action: 28:1352 Miller Act

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

THE UNITED STATES OF AMERICA )

FOR THE USE AND BENEFIT OF U.S. )

PREFAB, INC., an Arizona ) No. CIV 06-1598 PHX RCB

corporation, )

) O R D E R

Plaintiff, )

)

vs. )

)

NORQUAY CONSTRUCTION, INC., an )

Arizona corporation, et al., )

)

Defendants. )

___________________________________)

This matter arises out of a construction project governed by

the Miller Act, 40 U.S.C. § 3131 et seq., in which Defendant

Norquay Construction, Inc. ("Norquay"), the general contractor on

the project, entered into a contract with the United States Bureau

of Reclamation (the "Bureau") for the construction and repair of

its Phoenix area office headquarters. Compl. (doc. # 1). On June

22, 2006, Plaintiff U.S. Prefab, Inc. ("Prefab"), a subcontractor

on the project, brought suit against Norquay and its surety, Safeco

Insurance Company of America ("Safeco"), seeking payment of a 

Case 2:06-cv-01598-RCB Document 33 Filed 06/26/07 Page 1 of 16
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disputed amount of charges incurred due to "hard dig" conditions it

encountered in its performance of the subcontract. Id. Currently

before the Court is Defendants' motion for summary judgment (doc. 

# 17). The motion has been fully briefed. See Resp. (doc. # 25);

Reply (doc. # 27). Having carefully considered the arguments

raised, the Court now rules.

I. BACKGROUND

A. Undisputed Facts

On July 12, 2005, Norquay and Prefab entered into a $90,278

subcontract in which Prefab agreed to install carports at the

Bureau's Phoenix area office headquarters. Defs.' Statement of

Facts ("DSOF") (doc. # 18), Ex. 1 at 1. The contract required

Prefab to perform its work "in accordance with [inter alia] . . .

Specifications . . . and Contract Documents." Id. It is

undisputed that a specification entitled "Specification Section:

10534 - Car Shelters" was available for Prefab's inspection and

review during its bidding on the project and until its completion. 

Id., Ex. 4 ¶¶ 6-7; DSOF (doc. # 18) ¶¶ 4-5; Pl.'s Statement of

Facts ("PSOF") (doc. # 26) at 2. According to the specification,

Prefab was obligated to "[e]xamine subsurfaces to receive Work and

[to] report detrimental conditions in writing to Government/Owner." 

DSOF (doc. # 18), Ex. 2 at 3. The specification further provided

that Prefab's "[c]ommencement of Work w[ould] be construed as

acceptance of subsurfaces." Id.

Near the end of Prefab’s work on the project, a dispute arose

between the parties over charges of $18,675.36 in excess of the

base contract price due to alleged "hard dig" conditions

encountered by Prefab in the course of its drilling work in the

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parking areas. DSOF (doc. # 18), Ex. 5 at 3. Prefab submitted the

change order to Norquay on October 31, 2005, after the additional

costs had already been incurred, but left the total dollar amount

on its request blank. Id. Norquay's superintendent signed the

change order with the notation, "I acknowledge this work was done,"

apparently to reflect that the change order was presented for his

approval after the work had already been performed. Id., Ex. 6 ¶

8. It is undisputed that Prefab did not submit a drilling cost

breakdown when it presented its change order for the

superintendent's approval. Id. ¶ 9; DSOF (doc. # 18) ¶ 8; PSOF

(doc. # 26) at 2.

Once presented with the breakdown, Norquay rejected Prefab's

demand for drilling costs in excess of the base contract amount,

pointing out that Prefab did not request to see a copy of the soil

report prior to submitting its bid on the project. DSOF (doc. #

18), Ex. 5 at 1, Ex. 7. Nevertheless, Norquay agreed to submit

Prefab's additional "hard dig" costs for the Bureau's approval,

albeit without guaranteeing any favorable outcome. Id., Ex. 7.

The Bureau denied Prefab's cost change proposal, and rebuffed

Norquay's numerous requests for a meeting to discuss the proposal. 

By letter dated February 6, 2006, the Bureau stated that the

additional costs could not be considered, because the "cost

proposal offers no evidence that the site conditions were different

than those described in the [soil] report." Id., Ex. 9. Norquay

then requested a meeting to discuss the matter with the Bureau. 

Id., Ex. 10. The Bureau denied Norquay's request on February 15,

2006, taking the position that there was no basis to discuss the

matter "[u]ntil evidence [wa]s provided[] which [would]

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contradict[] the site conditions presented in the [soil report]

included in the contract documents." Id., Ex. 11. Norquay

repeated its request for a meeting, but was denied again by the

Bureau in an April 10, 2006 letter reiterating the same argument

concerning the soil report. Id., Ex. 13 at 1, Ex. 14.

In its final attempt to seek an audience with the Bureau,

Norquay took the position that "a hard dig situation should not

have been encountered" based on the information contained in the

soil report. Id., Ex. 15. To make its case for Prefab, Norquay's

letter analyzed six boring logs discussed in the soil report, and

broke them out into two groups. Id. The first group represented

drill holes in the parking areas-- boring logs 7, 8, and 9-- while

the second group represented drill holes at the outer edges of the

parking areas-- boring logs 1, 4, and 6. Id. Although drilling

depths of thirteen-and-a-half to eighteen feet were recorded for

the outer edges of the parking areas, the boring logs for the

parking areas indicated that drilling was stopped at three feet. 

Id. Based on that information, and in view of Prefab's obligation

to drill eight feet for the installation of the carport footings,

Norquay took the position that the soil report did not provide

adequate information on which Prefab could have relied in preparing

its bid. Id.

In response to Norquay's criticisms, the Bureau stated that

the boring logs for the outer edges of the parking areas were

representative of the subsurface conditions that would have been

encountered directly in the parking areas had the drilling at those

other sites been allowed to proceed beyond three feet. Id., Ex.

16. The Bureau also underscored the fact that all eleven drill

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holes discussed in the soil report "indicated moderately cemented

material at all depths, which did not present a problem with the

drill/auger during the geological investigations, and thus did not

represent or indicate a hard dig condition for the 8 foot depth

design requirement" for the carport footings. Id. Finally, the

Bureau pointed out that Prefab had no problem drilling to the

required depth of eight feet once the proper "industry standard"

equipment was used, and attributed the additional drilling costs to

Prefab's initial use of "undersized" and inadequate equipment. Id.

After unsuccessful attempts at an out-of-court resolution of

the matter, Prefab filed the present action against Norquay and its

surety, Safeco, on June 22, 2006. Compl. (doc. # 1).

B. Disputed Facts

For purposes of the present motion, it is disputed whether the

soil report, also referred to in the record as the "Geotechnical

Engineering Report," DSOF (doc. # 18), Ex. 3, was identified among

the contract documents referred to in Prefab's contract with

Norquay. DSOF (doc. # 18) ¶ 4-5; PSOF (doc. # 26) at 2. 

Defendants have submitted an affidavit by Norquay's project

coordinator stating that the soil report was included in the

contract documents and was available for Prefab's review during the

bidding process and through the completion of the project. DSOF

(doc. # 18), Ex. 4. However, they have not cited to any portion of

the contract, and the Court's independent review has not revealed

any provision that names the soil report in any list of contract 

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1

 The Court notes that the car shelters specification, which was

included in the contract documents available for Prefab's review,

explicitly required Prefab to "[e]xamine subsurfaces to receive Work

and [to] report detrimental conditions in writing to

Government/Owner." DSOF (doc. # 18), Ex. 2 at 3.

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documents.1 See id., Ex. 1. Prefab contends that its contract did

not place it on notice of any soil report that it could have

reviewed during the bidding process or project duration, PSOF (doc.

# 26) at 2.

The parties also dispute whether the change order reflected a

valid amendment to the base contract. See id. ¶¶ 4-7; DSOF (doc. #

18) ¶ 10; Defs.' Supplemental Statement of Facts ("DSSOF") (doc. #

28) at 2. Although this dispute concerns a legal question, the

Court will briefly note the factual bases for the parties'

respective positions. Section 5.1 of the contract, entitled

"Proceeding with Changes in the Work" provides as follows:

The subcontractor shall proceed with any owner

or contractor changes to the base contract only

after receiving authorization by the contractor

in writing before the Work is accomplished in

the field. . . . As [sic] request for change to

the Contractor must include a cost breakdown of

man hours, rate per hours, material quantities

and unit prices and the hourly cost of

equipment if needed to complete the change in

work.

DSOF (doc. # 18), Ex. 1 at 4. Prefab does not challenge

Defendants' assertion that it submitted the change order after it

had already completed the work and without contemporaneously

providing its drilling cost breakdown, but suggests that Norquay

had prior notice of the changed conditions. Id. ¶¶ 7-8; PSOF (doc.

# 26) at 2. Prefab has not supplied the Court with any evidence in

support of this contention.

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Finally, Prefab disputes the accuracy of the Bureau's

statement that the soil report would have placed it on sufficient

notice of the conditions actually encountered in the course of its

drilling work, relying, it seems, on the analysis by Norquay in its

May 1, 2006 letter to the Bureau. Id. at 3; DSOF (doc. # 18), Ex.

15. For their part, Defendants emphasize that the position Norquay

previously took as to whether the soil report provided sufficient

notice of any "hard dig" conditions was only made for purposes of

presenting Prefab's case to the Bureau, and did not reflect a

statement of fact. DSSOF (doc. # 28) at 2.

II. STANDARD OF REVIEW

Summary judgment is appropriate "when there is no genuine

issue of material fact" such that "the moving party is entitled to

judgment as a matter of law." Fed. R. Civ. P. 56. In determining

whether to grant summary judgment, a district court must view the

underlying facts and the inferences to be drawn from those facts in

the light most favorable to the nonmoving party. See Matsushita

Elec. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

If a party will bear the burden of proof at trial as to an

element essential to its claim, and fails to adduce evidence

establishing a genuine issue of material fact with respect to the

existence of that element, then summary judgment is appropriate. 

See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). Not

every factual dispute is capable of defeating a properly supported

motion for summary judgment. Rather, the party opposing the motion

must show that there is a genuine issue of material fact. See

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). A

factual dispute is genuine if the evidence is such that a rational

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trier of fact could resolve the dispute in favor of the nonmoving

party. Id. at 248. A fact is material if determination of the

issue might affect the outcome of the case under the governing

substantive law. Id. Thus, a party opposing a motion for summary

judgment cannot rest upon bare allegations or denials in the

pleadings, but must set forth specific facts demonstrating a

genuine issue for trial. See id. at 250. If the nonmoving party's

evidence is merely colorable or not significantly probative, a

court may grant summary judgment. See id. at 249; see also Cal.

Architectural Bldg. Prods., Inc. v. Franciscan Ceramics, 818 F.2d

1466, 1468 (9th Cir. 1987).

III. DISCUSSION

Under the Miller Act, a general contractor on a federal

construction project must furnish a payment bond "for the

protection of all persons supplying labor and material in the

prosecution of work provided for in [the] contract." 40 U.S.C. §

270a(a)(2). The Act creates a cause of action in favor of "every

person who has furnished labor or material in the prosecution of

the work provided for in [the] contract. " 40 U.S.C. § 270b(a). 

Under the Act, such persons "who have not been paid in full

therefor before the expiration of a period of ninety days after the

day on which the last of the labor was done or performed by him or

material was furnished or supplied by him for which such claim is

made shall have the right to sue on [the] payment bond . . . for

the sum or sums justly due him." Id.

Norquay and its surety, Safeco, contend that they are entitled

to summary judgment, because there is no genuine issue of material

fact from which a trier of fact could find that Prefab was "justly

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due" any part of the disputed charges for "hard dig" drilling. In

particular, Defendants argue that (1) Prefab did not examine the

soil report, conduct its own study to refute the soil report, or

provide any report of detrimental conditions, and, by commencing

work, accepted the subsurface conditions as they were, (2) Prefab

failed to obtain authorization to proceed with its proposed changes

to the base contract in the manner required by the contract, and

(3) the contract does not entitle Prefab to payment from Norquay

for amounts claimed by Prefab, but not received from the Bureau. 

The Court considers each argument in turn.

A. Acceptance of Subsurface Conditions

At the outset, the Court notes that Prefab has not come

forward with any evidence of subsurface studies conducted prior to

its bid on the project. Although the Court has not located any

specific reference in the contract documents to the soil report

that Norquay claims to have made available for Prefab's review

during the bidding phase, the car shelters specification that

Prefab acknowledges to have had at its disposal clearly admonishes

prospective bidders to examine the subsurfaces, and warns that

their commencement of work would be construed as acceptance of

those subsurfaces. Given this guidance, in lieu of incurring the

additional expense of preparing its own study, Prefab could easily

have inquired as to the existence of any soil report on which it

could rely in preparing its bid for the project. It seems that it

did not do so. In any event, the fact that Prefab now appears to

dispute whether the Bureau's soil report, if it had been consulted,

would have provided sufficient notice of the subsurface conditions

actually encountered is immaterial, as its commencement of work

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constituted its acceptance of the subsurface conditions as they

were.

Had proper due diligence been performed in the bidding phase,

Prefab may have become aware of any alleged shortcoming of the

Bureau's soil report. See DSOF (doc. # 18), Ex. 15 (explaining

that drill holes in parking areas only tested to three-feet, while

design specifications required a drilling depth of eight feet). 

This may have allowed Prefab to conduct its own tests to examine

subsurface conditions beyond the three-foot depth covered in the

Bureau's soil report, with the possibility of charging those tests

to the Bureau in its bid, but with the obvious risk of losing the

contract. Under the circumstances, it appears that Prefab took the

calculated risk to bid and commence work without first examining

the subsurface conditions. The fact that this course may have

proven unwise in hindsight does not, on its own, provide an avenue

to alter the outcome for which the parties have contracted.

The Ninth Circuit has stated that "bidders are required to

inspect documents brought to their attention in the bidding

materials and to make a general inspection of the project site." 

Umpqua River Navigation Co. v. Crescent City Harbor Dist., 618 F.2d

588, 594 (9th Cir. 1980) (emphasis added). In this case, there is

no indication that Prefab attempted to examine the subsurface

conditions to discover the alleged "hard dig" conditions until

after it was awarded the contract and began its work. By the terms

of its contract and the car shelters specification, Prefab cannot

bend the terms of its base contract to account for the alleged

changed conditions in the subsurfaces, and summary judgment will be

granted accordingly.

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2

 Prefab suggests that Norquay may have had notice of the

changed conditions by other means prior to its submission of the

change order, but has not adduced any evidence in support of this

implicit argument. See PSOF (doc. # 26) at 2. This argument is of

no avail, as it is well settled that "mere denials, unaccompanied by

any facts which would be admissible in evidence at a hearing, are not

sufficient to raise a genuine issue of fact" for purposes of Rule 56.

See Fed. R. Civ. P. 56(e); Piantadosi v. Loew's, Inc., 137 F.2d 534,

536 (9th Cir. 1943).

3

 Based on the timing, it is noteworthy that those costs should

have been known to Prefab at the time the change order was presented

to Norquay's approval. Not only did Prefab fail to provide a costbreakdown with its request, as required by the contract, but it also

failed to complete the last and probably most important line of its

own form to indicate the total dollar amount of the change requested.

See DSOF (doc. # 18), Ex. 5. Given the infrequency with which

sophisticated parties such as contractors deal in blank checks, a

reasonable interpretation of Prefab's zero-dollar change order would

be that it was simply intended to authorize the use of a larger drill

auger than that originally contemplated in its bid-- at no extra cost

to Norquay or the Bureau.

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B. Failure to Give Notice in Manner Required by Contract

Defendants maintain that summary judgment is also warranted,

because Prefab failed to obtain authorization to proceed with its

desired changes to the base contract in the manner demanded by the

contract. The Court agrees. Section 5.1 of the contract required

Prefab to obtain permission for its proposed changes before

completing the relevant work, and required the submission of a cost

breakdown with any such request. Prefab acknowledges that it

submitted its changed order to Norquay's superintendent after it

had completed the subject work,2 and did so without

contemporaneously providing a breakdown of the costs already

incurred,3

 i.e., proceeding instead in a manner explicitly

prohibited by the contract.

To circumvent this inconvenient reality, Prefab posits that

the change order amended and superseded those contract terms,

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4

 As if to illustrate the "negotiated" nature of its change

order, the last line of Prefab's "Infield Modification Authorization"

reads, "IF THIS ORDER IS NOT SIGNED, U.S. PREFAB INC. CAN NOT [sic]

PROCEED FURTHER ON THE PROJECT!" See DSOF (doc. # 18), Ex. 5

(capitalization and exclamation mark in original).

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thereby relieving it of its notice obligations. Resp. (doc. # 25)

at 5-6. It refers to the change order as a "negotiated resolution"

of its "threat of leaving the job," based on its idiosyncratic view

that its agreement to remain and perform that which it had

previously agreed to do constituted some quid pro quo. Id. There

are countless flaws with this argument, most notably, as Defendants

rightly point out, that a party's agreement to do that which it is

already bound to do is not valid consideration for purposes of

contract modification. See Reply (doc. # 27) at 3-4 (citing Perry

v. Farmer, 47 Ariz. 185, 54 P.2d 999 (1936)). Moreover, Prefab's

asserted satisfaction with its "negotiated resolution" of its

"threat of leaving the job" is misplaced under circumstances

potentially indicative of economic duress.4 See Totem Marine Tug &

Barge, Inc. v. Alyeska Pipeline Serv. Co., 584 P.2d 15, 22 (Alaska

1978) (stating that "[i]n many cases, a threat to breach a contract

. . . has constituted a wrongful act" for purposes of establishing

economic duress) (cited by Frank Culver Elec. v. Jorgenson, 136

Ariz. 76, 78, 664 P.2d 226, 228 (Ct. App. 1983)). Furthermore,

Prefab has not shown, nor can the Court discern, which provision of

the change order, if it were construed as a valid modification,

would override Section 5.1 of the original contract regarding the

procedure for approval of changes. See DSOF (doc. # 18), Ex. 5. 

Consistent with the foregoing, the Court rejects Prefab's claim

that its change order reflected a valid amendment to the base

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contract.

Contemplating this result, Prefab also argues that Norquay

waived the notice provisions of Section 5.1 by (1) signing the

change order and (2) presenting Prefab's case to the Bureau with

the addition of its own charges for overhead, profit, and state and

city taxes. See Resp. (doc. # 25) at 6-7. Prefab cites no legal

authority in support of its legal conclusion. Under Arizona law,

waiver generally requires the intentional relinquishment of a known

right and, according to some authorities, "must be supported by

consideration or at least by the equivalent of estoppel." Mohave

County v. Mohave-Kingman Estates, 120 Ariz. 417, 422, 586 P.2d 978,

982 (1978) (citations omitted). The Court does not perceive any

genuine issue of material fact, based on the instances noted by

Prefab, that would suggest any intention on Norquay's part to

effect a waiver. The dollar amount on the signed change order was

conspicuously left blank by Prefab, and, prior to offering its

assistance in seeking payment from the Bureau, Norquay clearly

advised Prefab of its reservations regarding the additional

charges. See DSOF (doc. # 18), Exs. 5 and 7. Furthermore, as

discussed above, there was no consideration for the change order. 

Finally, in light of the fact that Prefab had already completed its

work prior to presenting the change order, there is no evidence of

estoppel that might support waiver.

Because Prefab has failed to produce any evidence

demonstrating a genuine issue of material fact in support of any

theory that would excuse its noncompliance with the requirements of

Section 5.1 of its contract, Defendants' motion for summary

judgment (doc. # 17) will be granted.

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C. "Pay When Paid" Clause

Lastly, Defendants argue that they are entitled to summary

judgment based on the "pay when paid" clause in Prefab's contract. 

Section 5.2 of the contract provides as follows:

The Subcontractor agrees to make all claims for

which the owner is or may be liable in the

manner provided in the Contract Documents for

like claims by the Contractor upon the Owner.

Notice of such claims shall be given by the

Subcontractor to the Contractor within one (1)

week prior to the beginning of the

Subcontractor's Work or the event for which

such claim is to be made, or immediately upon

the Subcontractor's first knowledge of the

event, whichever shall first occur otherwise,

such claims shall be deemed waived.

. . .

The Subcontractor shall have no greater right

or claim against the Contractor than the

Contractor has against the Owner and,

Contractor shall not be liable to Subcontractor

in excess of any sum actually received from

Owner on behalf of Subcontractor.

DSOF (doc. # 18), Ex. 1 at 4 (emphasis added). Prefab contends

that Defendants cannot rely on the "pay when paid" clause to the

extent that the provision contravenes the purposes of the Miller

Act and impairs their rights under the Act. Resp. (doc. # 25) at

3-5 (citing United States ex rel. Walton Tech., Inc. v. Weststar

Eng'g, Inc., 290 F.3d 1199 (9th Cir. 2002)).

The Ninth Circuit has held that subcontract terms affecting

"the timing of recovery or the right of recovery under the Miller

Act" cannot be enforced to preclude Miller Act liability. United

States ex rel. Walton Tech., Inc., 290 F.3d at 1207. To that end,

the court has unequivocally stated that "[a] subcontractor's right

of recovery on a Miller Act payment bond accrues ninety days after

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the subcontractor has completed its work, not 'when and if' the

prime contractor is paid by the government." Id. at 1208. 

However, the court has been careful to distinguish this issue

concerning the timing of payment from those questions involving the

measure of payment "justly due" under the Act, stating that

Considerable differences exist between a case

in which the measure of recovery in a Miller

Act case is determined by reference to

subcontract terms governing how work performed

under the subcontract will be compensated and

one in which the timing of recovery, and, in

some cases, the right of recovery under the

Miller Act is dictated by such terms.

Id. at 1207. In the former cases, "[t]he Ninth Circuit . . . looks

to the underlying contract in determining the measure of 'sums

justly due' under the Miller Act." Id.

The quoted portion of Section 5.2 of the parties' contract

appears to be an attempt to obtain a waiver of Prefab's Miller Act

rights, at least as to the timing of recovery and may be

unenforceable for timing issues. However, based on the preceding

discussion in Parts III.A and B, supra, it is apparent to the Court

that the Miller Act issues of this case revolve around the measure,

not the timing, of payments due. For the same reasons discussed

above, the Court finds that Prefab has not demonstrated any triable

issue concerning the amounts to which it claims it was equitably,

contractually, or statutorily entitled for its "hard dig" drilling.

IV. CONCLUSION

Prefab was obligated to examine the subsurfaces to receive

work under the subcontract, and its commencement of work

constituted its acceptance of the existing subsurface conditions. 

As such, its base contract must be understood as having been priced

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on those conditions which it later encountered on the job. 

Moreover, its failure to follow the contractually agreed procedure

for obtaining authorization for its proposed changes to the base

contract further defeats its claims to the disputed funds. Because

Prefab has not demonstrated the existence of any triable issue with

regard to these matters, 

IT IS THEREFORE ORDERED that Defendants' motion for summary

judgment (doc. # 17) is GRANTED.

IT IS FURTHER ORDERED directing the Clerk of the Court to

enter judgment in favor of Defendants and terminate this case.

DATED this 26th day of June, 2007.

Copies to counsel of record

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