No. 85-220 INTHE SUPREME COURT OF THE STATE OF MONTANA 1985

CLARK BROS. CONTRACTORS, Plaintiff and Appellant,



### -vsSTATE OF MONTANA, Defendant and Respondent,

APPEAL FROM: 

### District Court of theSixthJudicialDistrict, In and fortheCounty of Sweet Grass, The Honorable Byron Robb, Judgepresiding.

COUNSEL OF RECORD:

ForAppellant: Gough, Shanahan, Johnson & Waterman; Ronald F. Waterman, Helena, Montana Winston & Cashatt; PatrickA. Sullivan, Spokane, Washington For Respondent: W. D. Hutchinson, Dept. of Highways, Helena, Montana

Submitted on briefs: Sept. 6, 1985 Decided: December 4, 1985

Filed: 

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PMr. Justice Frank R. Morrison, Jr. delivered the Opinion of the Court. Plaintiff Clark Bros. Contractors appeal

### s the February 25, 1985, decision of the SixthJudicial Districtinfavor of thedefendant Stateof Montana. Wevacate the District Court iudgment and remand fortrial. Clark Bros. Contractors (Clark Bros.) 

### is a Montana corporation which has been engaged in the highway construction business for 20 years, including many highway projects for the State of Montana (State)

# . In lateFebruary

or early March, 1979, the State sent out bid invitations for the construction of a segment of interstate near Big Timber, Montana. The invitation included a description of the project, and notice that subsurface data was available from theMaterials Bureau inHelena. Bids

### weretobe submitted by March 28, 1.979. In preparing 

### its bid, Clark Bros. obtained cross-sections of theproject area from theMaterials Bureau, but not the subsurface data which was available. Officersof Clark Bros. did 

### an on site inspection, and talked with local ranchers about soilconditions in the area. This was an area of concern because the segment of interstate tobe built ran through a low lying irrigated farm valley, and would require substantial amounts of borrow (dirtsecured from adjacent or nearby sources) to construct the foundation, or embankment, for the road. Typically, the Stateprovides estimates of the amount of borrow to be used in a project in 

### its bid proposal. The borrow figure 

### is arrived at by a three step process: 1) calculating the subsidence of the soil in place upon which the road 

### is to be built; 2) calculating the shrinkage, or compaction, of the borrow that 

### is to be used in the embankment; and 

### 3) using the subsidence and shrinkage estimate to determine how much borrow 

### will raise the roadembankment todesign specifications. A typical shrink factor for borrow 

### is about 10%. In the Big Timber project, an unusually high shrink factor of 40%,and 55%in some areas,

was estimated by the State in 

### itsbid proposal. A provision in the proposal clearly stated the borrow figure was an estimate only. In calculating 

### its costs for the borrow work, Clark Bros. used the quantity estimates provided by the State. Clark Bros. submitted the lowest bid and was awarded the contract, which was executed on April 4, 1979. Pertinent contractprovisions included allowingdeviationsof up to25% inestimatedquantities, thatpayment would onlybe for units of work performed, and that theborrow was tobe provided by the contractor. Clark Bros. began work in May, 7979, and completed the excavation, borrow, and embankment work by the end of the year. Measurement of the borrow pits showed that substantially 

### less borrow had been used than estimated, so the State issued 

### a change order on February 13, 1980, reflecting that fact. Clark Bros. signed the order under protest on June 5, 1980. The borrow underrun was approximately 18%,which significantly reduced the amount paid toClark Bros. under the contract. Clark Bros. filed a claim on December 14, 1980, alleging a loss on the borrow work due to fixed costs and overhead. The State refused to settle, claiming 

### it was only obligated topay for units of work performed, and the contract further allowed forquantity deviations up to25%. Clark Bros. filed suit. The issues at trial 

### were: 1) whether the State was negligent inpreparing the shrinkage factor included 

### in the bid proposal; 2) whether Clark Bros. was entitled tobe paid forextrawork incurred not contemplated by the contract; and 3) whether exculpatory language in the contract barred theclaims asserted by Clark Bros. The DistrictCourt found in favor of the Stateon each issue. Clark Bros. asserts the following issues on appeal: 1. Was the 

### District Court opinion supported by substantialevidence orwas 

### it c1earl.y erroneous? 2. Did the District Court properly refuse to consider the deposition testimony of managing employees of the State? 3. Can the State of Montana avoid liability for material mistakes in information supplied toand relied upon by highway construction bidders by means of exculpatory contract language? Clark Bros. assertnumerous errorsintheDistrictCourt opinion. The court found that Clark Bros.' method of computation, and selection of a borrow site without independently testing the soils, placed the risk of loss caused by an underrun on Clark Bros. While a reading of the contract may support these findings, other evidence was not taken intoaccount because 

### itwas improperly excluded. During trial, counsel forClark Bros. 

### twiceattempted to introduce into evidence the deposition testimony of certain managing agents of the State. In refusing admission, the 

### DistrictCourt relied upon (1)a lack of notice tothe State that the depositions 

### were to be offered, (2) that no cross-examination could be conducted, and (3) that Clark Bros. made no showing that the witnesses 

### were unavailable. The DistrictCourt was inerror. Rule 32(a)(2),M.R.Civ.P. reads inpart: "The deposition of a party or of anyone who at the 

### time of taking the deposition was an officer, director, ormanaging agent

# . .. may be used by an adverse party for any purpose." There 

### is

no provision in Rule 32(a)(2)

### , M.R.Civ.P. which requires a finding of unavailability of the 

### witness or that notice was given of the intended use of a deposition at trial. Rule32(a)(2)

### ,M.R.Civ.P. governs theuse of depositions attrial, and the State's reliance on Rule 804 M.R.Evid. 

### ismisplaced. See Edington v. Creek Oil Co. (1984), 690 P.2d 970, 978, 41 St.Rep. 1990, 2000. Whether one 

### istobe considered a managing agent forthe State depends on several factors, including the individual's right of general control, authority, and judgment within his department; whether the interests of the individua1 are identified to be those of the State; and whether any person of higher authority possesses knowledge about thematters at issue. See Terry 

### v. Modern Woodmen of America (w.D.Mo. 1972), 57 F.R.D. 141; and Carroll v. Wisconsin Power & Light Co. (Wisc. 1956) 273 

### is. 490, 79 N.W. 2d 1. In this case, the depositions offered 

### were those of the chief of Materials Bureau, head of Location Road Design Section, chief of the Preconstruction Bureau, and assistant supervisor of Geology Section. We find the deposition testimony shows that these jobs, with the possible exception of the latter one, entail sufficient supervisory responsibility to place these individuals within the status of managing agents for the State. One might question the managerial statusof assistant supervisor of Geology Section, but 

### we need only focus on the deposition of the chief of Materials Bureau. We find the deposition testimony of the chief of Materials Bureau to be useful evidence on the issue of justifiable reliance. The witness's statements acknowledge that the State 

### is aware contractors rely on State estimates in preparing their bids. We find it was error to exclude thistestimony. The final issue 

### is whether the exculpatory language of the contract relieves the State from liability for damages caused by the borrow underrun. The 

### test previously appliedby this Court in similar cases has been whether the contractor justifiably relied upon the plans and specifications in preparing 

### its bid and executing the contract. William Clark testified that his company relied on the estimatesprovided by the Stateinpreparing 

### itsbid, because 

### it had neither the 

### time nor resources to 

### be independently investigatingproject data. Clark alsotestified thathe did not obtain all the subsurface data which was made available by the Highway Department, but he did conduct on 

### site investigation and talked to area ranchers about the local soilconditions. The District Court found no justifiable reliance by Clark Bros., in part due to the exculpatory language contained inthe contract. The contract explicitlyprovided: 1) that quantities in the bid proposal 

### were estimates only; 2) thatpayment would onlybe for unitsof work performed; 3) that quantity deviations of less than 25%of the estimate

were not cause for equitable adjustment; and 4) that the borrow sourcewas tobe secured by thecontractor. This 

### is the firstcase before thisCourt concerning the effect of an exculpatory clause on the contractor's right to

recover damages caused by a quantities underrun. Previous

casesdealtwith overruns but are analagous. In Stenerson 

### v. City of Kalispell (1981), 629 P.2d 773, 38 St.Rep. 938, the contractor prevailed where it had relied

on the city's estimate of the amount of grading work tobe done, yet ended up doing much more due to faulty estimates. One issue on appeal was whether exculpatory language exonerated the city. In holding such language tohe a factor indeterminingjustifiable reliancebut not tohe controlling thisCourt said: Several othercaseshave presented the issueof the effect of exculpatory clauses 

### on a contractor's 6righttorecover in situationsinwhich reliance 

### is alleged by the contractor. In Haggart Const. Co. v. State Highway Comm'n (1967), 149 Mont. 422, 427 P.2d 686, Haggart bid on a highway constructionjob and was told that he could use gravel in State-optioned pits as described in the "Available SurfacingMaterialsReports". The gravelwas later found to be unsuitable and the plaintiff incurred additional expense in obtaining gravel elsewhere. The defendant did not deny that the materials reports 

### were misleading, but rather relied on exculpatoryprovisions in the contractasa defense to the suit. Those provisions indicated that the Commission made no guaranty as to the quality and quantity of the materials available, and further that if the contractor chose to furnish his own materials, he would be responsible to produce satisfactorymaterial. The district judge found that the exculpatory provisions 

### were not enforceable. He noted that Haggart received thematerials reports only 14days before bid letting, giving him little 

### time to investigate independently. He further found that few contractors bidding on such projects have sufficient time or 

### test facilities to make an intelligent appraisal of materials. Despite the exculpatory clauses, the district judge concluded: "[Tlhere 

### is nothing to show that appellant expect[ed] 

### less than complete reliance on 

### its materials reports. "If the State Highway Commission were allowed to relyon theexculpatoryprovisions of the contract, the purpose for which such reports are offered would be sadly frustrated, if not totally destroyed. No prudent contractor would proceed in reliance on such reports athisabsoluteperil; the necessity toguard against unforeseen deficiencies would result in much higher bids than conditions would normallywarrant." Haggart, supra, 149Mont. at425, 427 P.2d at687-688. We affirmed thedistrictjudge inthatdecision but noted: "We are not here holding that such exculpatory clauses may not be enforced in other situations, that detrimental reliance may be assumed 

### in all cases, or that parties to such contracts arebound to exercise anything Iess than reasonable and prudent judqment. In other words 

### we will look to

justifiable reliance.

## '" Haggart, supra, 149Mont. at428, 427 P.2d at689.

We findthe Stenerson rationalepersuasive. Exculpatory language 

### in the contract 

### is a factor in determining justifiable reliance but not controlling.There 

### is considerable evidence here upon which to find justifiable reliance. William Clark testified that he had two tothreeweeks inwhich to submit hisbid, which was not adequate toperform hisown quantitiesestimates, and thathe relied on the State's estimates in preparing hisbid. Clark conducted on 

### site investigation and made further inquiry about the soils in the area, but found no reason not touse the State's estimates. Deposition testimony, improperly refused at trial, of the chief of the Materials Bureau indicated the State 

### isaware contractors rely on the State's soil analysis. Nevertheless, 

### we are reluctant to make 

### a findingof justifiable reliance asa matter of law. The case should be retried considering the deposition testimony and applyingthe legal principlesherein set forth. We vacate the judgment of the District Court and remand

fde concur:

### Mr. Justice L. 

### C. Gulbrandson,dissenting.

I

### respectfully dissent. I 

### would a.ffirm the decision of the trial jud.ge to exclude the offered depositionsof State employees. The Statehad propounded two sets of interrogatoriesto plaintiff, asking for identificationofwitnesses. Plaintiff

never identified deponents asproposed witnesses although the interrogatories were continuing in nature, failed to list deponents in its proposed pre-trial order just prior to trial, and made no effort to subpoena said deponents. This Court, in Ropischke v. First Continental Corp. (1980), 187 Mont. 471, at 510-511, 610 P.2d 668, at 689, upheld the exclusion of a deposition which would indicate that Rule 32(a) 

### should notbe construednor implemented in a

### void. The trial judge's finding of fact no. 40 clearly indicates that he was exercising his discretionary power toprevent an abuse of discovery. This Court, in Blassaro v. Dunham (1979), 184 Mont. 400, at 404-405, 603 F.2d 249, at 251-252, stated: The District Court has the inherent discretionary power to controldiscovery. That power is based on the District Court's authority to control trial administration

# .

# .. In controlling discovery, the District Court must regulate traffic to insure a fair trial to all concerned, neither according one party an unfair advantage nor placing the otherparty a.ta disadvantage.



# . . .Discovery fulfills this purpose by a-ssuring the mutual knowledge of all relevant facts gathered.by both parties which are essential toproper litigation.

(Citations omitted.) 

### I also do not concur in the majority's decision to apply the Stenerson rationale to the underrun situation in

### this case. Inmy view, there is substantial evidence in the record to support the trial judge's findings of fact and conclusionsof law. Several pertinent findings read as follows: 12. The state's invitation to bid and standard specifications called for unit price bids on listed work items. Two contract work items listed were item 111-030-000 (Excavation-Unclassified Borrow) in the amount of 1, 658,857cubic yards, and item 112-001-000 (Compaction Roadbed) in the amount of 1,930,034cubic yards. The State

## 's standard specifications.

# .. concerning bid schedule quantities state: "02.04 INTERPRETATION OF 

### QUANTITIES IN BID SCHEDULE. The quantities appearing in the bid schedule are approximate only and are prepared for the comparison of bids. The unit prices to be tenderedby the bidder are to be tendered expressly for the scheduled quantities as they may be increased or decreased within the restricting percentage hereinafter stipulated. Payment to the contractor will be made only for the actual quantitiesofwork performed and accepted ormaterials furnished in accordance with the contract." 13. 

### The material to be used as unclassified borrow was to come from contractor furnished sources, which was not unusual to the industry. Since such sources, were not identified until after the contractwas awarded, the state could not test unclassified borrow material that would actually be used prior to estimating the quantitiesused in thebid schedule.

16. 

### Rather than basing its bid on unit prices, Clark Bros. estimated the total cost of constructing the highway embankment in 

### place, and then used the state

## 's 

### estimated quantities of 

### unclassified borrow and roadbed. compaction as divisors into its total projected costs to obtainunitprices for theborrow and compaction. By 

### using such method, instead of that specified by the standard specs, plaintiff assured itself of claiming a loss if there were an underrun below the estimated quantities,

### and claiming it should be paid more if there were an overrun above the estimated quantities for these items. William Clark also acknowledged his awareness that contractors were not to submit unbalanced bids. 17. The method used by plaintiff to compute unit prices also ignored these factors if there were an underrun: (a) Less equipment would be needed, or it would be needed for a shorter period.

(b) Less hauling, fuel and manpower expense would be incurred. (c) Less landowner royalty would have to be paid forborrow.

30. The plain meaning and clear intent of standard specifications 02.04, 04.02 and 09.03 are that changes in quantity may occur in the actual performance of contract work between anticipated or estimated quantities, and actual quantities used, and in such event, the contractor will be paid at contracted unit prices for actual quantities used and will bear the risk of loss for changes of quantity of less than 25% 

### for major items. The changes of the unclassified borrow and road compaction in this casewereboth less than 25%,and the testimony of Roger Blossom indicated thiswas notuncommon. 31. Plaintiff cannot be said to have justifiably relied on exact amounts of borrow and compactionwork todowhen the bid proposals and contract specifically provided the amounts were estimates and subject to increase or decrease, when plaintiff's officers were well acquainted with such terms and conditions,and when William Cia-rk 

### testified an overrun or underrun didn't much affect the total cost of a project and that plaj-ntiff's bid would not have been much different whether the state estimated a round figureor specific amountofunclassified borrow or road compaction. The trial judge, in an explanatory comment to his findings, stated: It is difficult to see how the state could make it any clearer to contractors bidding on highway jobs that various parts of 

### the work to be done, such 

### as borrow excavation and compaction, are

### just estimates and not specific amounts of materials to be supplied. If the contract terms and provisions are too loose in allowing for a 25% 

### variation on such items, the contractor's association or the individual bidder should request amendment thereof before a contract is signed,but after execution, the court is "not to insert what has been omitted or to omit what has been inserted" (sec. 1-4-101, MCA 1983). As 

### an experienced bidder and contractor, plaintiff must be held to the plain terms of the contract, aswell 

### asdefendant. I 

### concur in that statement and would affirm the decision of the trial judge.

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