# Third District Court of Appeal

State of Florida

Opinion filed May 11, 2016.

Not final until disposition of timely filed motion for rehearing.

________________

No. 3D14-2011

Lower Tribunal No. 07-536-K

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### Underwater Engineering Services, Inc., etc.,

Appellant,

vs.



### Utility Board of the City of Key West,

Appellee.

An Appeal from the Circuit Court for Monroe County, Tegan Slaton, Judge.

Palmer Law Group and Andrew J. Palmer (Fort Lauderdale); Burlington and

Rockenbach, Philip M. Burlington and Adam J. Richardson (West Palm Beach),

for appellant.

Robert C. Tilghman and Nathan Eden, for appellee.

Before EMAS, LOGUE and SCALES, JJ.

EMAS, J.2

Appellant/Plaintiff, Underwater Engineering Services, Inc. (“Underwater”),

appeals from a final judgment, entered after a nonjury trial, in favor of Appellee

Utility Board of the City of Key West (“the Utility Board”) on Underwater’s

breach of contract claim, as well as the Utility Board’s counterclaim. We hold that

there is competent substantial evidence in the record to support the trial court’s

determination in favor of the Utility Board on Underwater’s breach of contract

claim and affirm that portion of the final judgment. We further hold that the trial

court erred in entering judgment in favor of the Utility Board on its counterclaim,

as the evidence establishes that Underwater was not provided the contractuallyrequired notice and opportunity to cure the alleged defects before the Utility Board

hired a different contractor to correct and repair Underwater’s work. We therefore

reverse that portion of the final judgment and remand for entry of final judgment in

favor of

Underwater on the Utility Board’s counterclaim.

FACTS AND BACKGROUND

This action arises from a construction contract (“the Contract”) between

Underwater and the Utility Board. The Utility Board hires contractors as needed to

inspect over-the-water concrete and steel poles, and to perform necessary

maintenance and repairs. The inspections may reveal issues affecting or

compromising the structural integrity of the poles; they may require the pouring of3

a concrete collar around the base of the pole for additional support, or the

application of a particular coating to areas needing repair or to areas where a prior

coating application may have deteriorated.

In May 2004, the Utility Board issued a call for bids on a project entitled

“Repair Over the Water Transmission Pole Foundations.” The project involved,

among other things, structural concrete repairs, coating repair and new coating

placement. Specifically, the successful bidder was to repair approximately

fiftyseven concrete pole structures supporting electric transmission lines running

from Key West to the Seven Mile Bridge. Pursuant to the bid schedule, the

Contract was a unit-price contract

— the bid price was not a lump sum, but was

instead broken down into subparts for each item of work or material to be used

—

and the bidders proposed a price per unit. Following the bidding process,

Underwater was awarded the Contract, which was executed in October of 2004,

and a Notice to Proceed was issued in January 2005. The final contract price

(based on the unit prices bid by

Underwater) was $767,585.50.

The Contract contained the following relevant provisions:

Pursuant to “Section 01010-Summary of Work” :

1.8 Construction Sequence

A. Prior to commencement of Work, complete a detailed Pre-4

Construction Inspection of all structures. This inspection shall identify

repairs on each structure....

B. Required Observation and Review

1. Notify the Resident Engineering Representative 24 hours

prior to completing the following work:...

d) Completion of surface preparation and prior to

application of any coatings, sealers, or

miscellaneous patching material in accordance

with the applicable sections.

Pursuant to “Section 01019: Contract Considerations ”:

1.4 Change Procedures...

C. The Contractor may propose changes by submitting a Request

for Change Order to the Engineer, describing the proposed change and

its full effect on the Work. Include a statement describing the reason

for the change and the effect on the Contract Price and Construction

Time with full documentation. Document any requested substitutions

in accordance with Section 01600.

D. Unit Price Change Order: For pre-determined unit prices and

quantities, the Change Order will be executed on a fixed unit price

basis. Changes in Contract Price or Construction Time will be

computed as specified for Time and Material Change Order.

E. Engineer may issue a directive signed by the Owner, instructing

the Contractor to proceed with a change in the Work for subsequent

inclusion in a Change Order. Document will describe changes in the

work and designate method of determining any change in Contract

Price or Construction Time. Promptly execute the change....

1.5 Measurement and Payment

– Unit Prices....

C. Estimated Quantities: Quantities and measurements indicated in the

Unit Price Bid are scheduled for bidding purposes only. Actual

quantities and measurements supplied or placed in the Work shall

determine payment.5

E. Defect Assessment: The Work, or portions of the Work, not

conforming to specified requirements, shall be replaced by the

Contractor at Contractor’s expense.

Pursuant to “Section 01025: Measurement and Payment”:

1.5 DEFECT ASSESSMENT

A. Replace the Work, or portions of the Work, not conforming to

specified requirements.

B. If, at the request of the Contractor and in the opinion of the Engineer,

it is not Practical to remove and replace the Work, the Engineer will direct

one of the following remedies:

1. The defective Work may remain, but the Unit

Price will be adjusted to a new price as agreed to by the

Owner and Engineer.

2. The defective Work will be partially repaired to

the instructions of the Engineer, and the Unit Price will

be adjusted to a new price.

C. The authority of the Engineer to assess the defect and identify

payment adjustment is final.

Ed Giesler was the project engineer and Underwater’s primary contact with

the Utility Board. Tom Fettig was Underwater’s project manager. Pursuant to the

Contract, the preconstruction inspection of the Seven Mile Bridge area occurred on

June 22 and 23, 2005. The inspection was conducted by the Utility Board’s

resident engineering representative, Anchor Structural, represented by Wayne Fey

and Mark6

Demarest.

Underwater’s Claim: Breach of Contract (Coating Work)

Underwater’s primary claim against the Utility Board concerns an item

designated as “MIS4” and described as “Concrete Coating Repair.” In the blank

bid schedule, the Utility Board estimated the quantity of MIS4 units to be 200

square feet. Underwater’s bid stated it would perform MIS4 at a unit price of $110,

so the total price of the concrete coating repair (based on the estimated 200 square

feet x $110/square feet) was $22,000.

On June 23, 2005, a consultant on the project sent an email to Giesler and

Dale Finigan, also with the Utility Board, explaining he was trying to get the

Utility Board a revised estimate. The consultant indicated that based on the

inspections performed on June 22, 2005, they had a “rough handle on the amount

that the units will change on the upper portion of the project.” In response to a

question from the consultant, Finigan advised he was okay with building a

contingency amount into the numbers, but noted it should be “a reasonable

amount.” Though the emails contained no dollar amounts or quantities, no one

from the Utility Board followed up or requested clarification or additional

specificity.

The final Preconstruction Inspection Report for the fifty-seven poles in the

Seven Mile Bridge area was sent by Underwater to the Utility Board on June 29,7

2005. In the cover letter, Fettig wrote: “Please review this submittal as soon as

possible. We are planning on starting the work and procuring the material needed

to complete this work this week.” The report details the repair work, including the

MIS4 coating work on fifty-seven poles, but it contains no numbers or costs, either

estimated or actual. Though Underwater’s CEO testified that calculating the

amount of coating to be applied to the poles is a matter of “basic math,” the

detailed formula he provided at trial was contained nowhere in the Preconstruction

Inspection Report, and the parties disagree as to who was responsible for making

these calculations.

At some point during July 2005, Fettig, Underwater’s project manager and

the person responsible for making this project profitable for Underwater, prepared

two spreadsheets. These spreadsheets compared the revenue anticipated by the

project as originally estimated and agreed to by the Utility Board with the revenue

it could realize if the coating was increased from 200 square feet to 5,006 square

feet

. Using the original estimate for coating, Underwater faced a loss of

approximately $168,891.71. However, by increasing the amount of coating from

200 square feet to 5,006 square feet, Fettig’s spreadsheet showed Underwater’s

revenue on the project would increase by $528,660.00 and yield a profit of

$433,579.29. Though

Fettig and other members of Underwater thought it prudent to advise the Utility8

Board of this significant change in the total footage and resulting increase in cost,

Dean Reynolds, Underwater’s branch manager, told Fettig not to do so. Even

though Fettig testified that he personally believed this overrun should have been

revealed to the Utility Board, he also indicated that this overrun did not technically

require a change order because the parties were operating under a unit-price

contract. The differential in the cost did not relate to the unit price of the coating

(which remained the same), but instead related to the total square footage of the

poles to be coated. Fey, on the other hand, as president of Anchor Structural,

testified that an increase in the amount of coating, which consequently increased

the contract price by more than $500,000.00 would “absolutely” and “without a

doubt” require a change order. 1 However, no change order was ever submitted to

the Utility Board, nor was any authorization sought from the Utility Board before

Underwater proceeded to apply 5,006 square feet of coating (instead of 200 square

feet).

One of the primary points at issue in the appeal (and directly related to this

increase in square footage of coating) is whether Underwater gave proper notice to

the Utility Board in between two critical steps of the project: the surface

1 Fey further testified that when Anchor Structural was involved in similar

construction projects utilizing unit-pricing contract, if the estimated quantities were

going to be increased such that the contract price is exceeded, the contractor would

request a change order and, if the owner approved the change order, the work

would then proceed.9

preparation of the fifty-seven poles and the application of the coating to those

poles.

Pursuant to section 01010, 1.8B.1.d of the Contract, the resident engineering

representative was to be notified twenty-four hours prior to completing the surface

preparation and before coatings were applied to the poles. The obvious purpose of

such notice was to permit the Utility Board an opportunity to inspect the structures

and determine whether the poles were properly prepared before the actual coating

was applied (and, if not properly prepared, to ensure that the necessary additional

preparation work was undertaken before the coating was applied). To that end, on

Wednesday, August 10, 2005, Fettig sent the Utility Board and Anchor Structural a

“3-Week Look Ahead Schedule” purportedly to establish that Underwater would

be coating the poles in the Seven Mile Bridge area roughly for a few days

sometime between the dates of August 11 and August 22. 2 Underwater contends

that this schedule satisfied the twenty-four hours’ notice requirement and was

enough to advise the Utility Board and Anchor Structural when the surface

preparation would be complete and the coating would begin.

On August 16, 2005, Giesler was advised (for the first time) that the poles

had been coated and the contract price was well over $1,000,000.00. At this point,

Giesler immediately told Underwater personnel to stop working on that portion of

2 Witnesses testified, however, that it was not possible to coat fifty-seven poles in a

span of two to three days.10

the Contract. Though Underwater contended that the onsite inspector/resident

engineer, Demarest from Anchor Structural, knew the coating work was being

performed, Demarest testified he first learned of it several days after it had been

completed and that Underwater did not notify him after the poles were

pressurewashed and prepared but before they were coated. Similarly, Wayne Fey

also testified he did not learn that the coatings had been applied to the poles until

“all

poles in question were supposedly done.”

The second point on appeal is whether Underwater properly applied the

coating to the fifty-seven poles. Underwater represents that it properly applied the

coating pursuant to the contract specifications. However, Demarest had the

following observations upon his inspection on August 30, 2005, two to three weeks

after the poles had been coated:

I went to measure coating applied on the Seven Mile Bridge

Structures. 41 out of the 57 were coated over the peeling remaining

with no preparation. When we approached the bases anywhere the

boat touched the coating peeled off. I took photographs relative to the

peeling and the 1’-2’ of exposed base which was not coated. It is

apparent that the coating on all of the bases can be removed

easily...Much of the coating was applied over areas that were not

prepared properly.

Additionally, on August 26, Bill Williams of Power Engineers sent Giesler a letter

informing the Utility Board of the coating of the fifty-seven poles:11

Last week, the Contractor coated approximately 57 poles in the Seven

Mile Bridge area of the project. This coating was part of the MIS4

unit in the contract

. . . . As is required in the specification, Section

010101.8.B.1.(d), we were to be notified after the surface preparation

was completed and prior to the placement of the coating, to verify that

the surface preparation was performed in accordance with the

specifications. Our field inspector was not notified, until he received

a call from the Contractor on last Friday, that the work was completed

and was asked to verify the quantities for payment. The inspector

received no requests to inspect the surface preparation on these

structures.

Upon inspection by our field inspector, it is evident that in many

places the proper surface preparation, according to the specifications,

was not done in those locations. This is evidenced by the fact that the

structures show coating over the old peeling coating that was to be

removed during the surface preparation process, and would have been

removed if the surface had been prepared properly. Along with this,

there are other factors that allow speculation that the surface

preparation was not performed properly or at all.

Based on these items, the field inspector cannot verify these units for

payment. Further, Power Engineers, Inc. will not be able to certify

that these units were performed in accordance with the specifications

at the conclusion of this project.

Because the Utility Board did not believe the work was fulfilled pursuant to the

terms of the contract, it did not pay Underwater for the work performed.

Thereafter, Underwater filed a complaint against the Utility Board for breach of

contract, alleging the Utility Board failed to pay for the work it completed in

connection with the coating on the fifty-seven poles. 3 The Utility Board denied

3 In addition to the breach of contract claim, Underwater contends it was owed

damages due to a lost pour day and retainage. We find this argument unavailing,

however, as there was competent substantial evidence that any delay in pouring the12

Underwater’s allegations, and asserted as affirmative defenses that Underwater

failed to satisfy conditions precedent (i.e., notice and opportunity to inspect

following preparation but prior to commencement of the coating), and that

Underwater breached the

Contract as well as the implied covenant of good faith and fair dealing.

The Utility Board’s Counterclaim: Breach of Contract (Structural Collars)

In addition to answering the complaint, the Utility Board asserted a

counterclaim, alleging that Underwater defectively constructed the concrete

structural collars on eight poles. The Utility Board sought damages for the cost

incurred in repairing these allegedly defective collars.

The subject of the Utility Board’s counterclaim is an item described in the

Contract as a “Structural Collar for Transmission Pole.” The Contract estimated

that a total of thirty of such concrete collars would be poured. As of October 6,

2005, Underwater had poured and completed a total of twenty-five structural

concrete collars. However, in 2009, less than four years later, while another

contractor was conducting a pre-construction inspection prior to beginning a

different job on the site, that contractor discovered that eight of the collars

Underwater had poured in

collars was not attributable to the Utility Board, but to Underwater.13

August 2005 were already showing signs of premature and severe deterioration.

The Utility Board retained Joseph Amon, an engineer, to perform testing and

determine the cause of the deterioration. Amon testified that the compressive

strength of the concrete exceeded the required strength specified in the Contract

and that the concrete was not sufficiently mixed prior to placement which would

“lead to areas of higher water cement rations and areas of lower water cement

rations and lead to corresponding areas of higher porosity and lower porosity.”

These areas of higher porosity would allow for both accelerated water absorption

and salt crystal deposition. Amon further testified that the technology used to form

the collars specified in the Contract is an acceptable method of reinforcing piles

with collars and has been used in recent years in other projects. Finally, the defects

he found in the core samples demonstrated poor quality workmanship, likely by

allowing water to enter that did not meet industry standards.

Underwater, on the other hand, relied on the opinion of expert engineer Dr.

William Hartt. Dr. Hartt testified that the type of high-strength concrete required

for the collars is inherently problematic, and that the higher the strength, the more

brittle the material becomes. Dr. Hartt further explained that the manner in which

Underwater sought to repair the collars reflected “technology from thirty years

ago” rather than what the Department of Transportation has been doing for several14

decades. Dr. Hartt thus characterized this manner of repair as “antiquated,”

opining that the Utility Board was “not incorporating present-day technology.”

In defense to the counterclaim, Underwater asserted that despite the contract

language, the Utility Board never provided Underwater with the opportunity to

cure the defective collars as it was contractually bound to do.

In 2013, the case proceeded to a five-day nonjury trial. At the conclusion of

the trial, the court rendered a judgment against Underwater, in effect awarding

Underwater no damages on its breach of contract claim after determining that

Underwater “failed to perform every condition precedent of the Contract.” The

court stated:

The reasons [Underwater] failed to comply can be simply put as

“shoddy work, unfamiliarity as to how to properly stabilize marine

utility poles, a complete lack of understanding of who had authority

over the entirety of the project at [the Utility Board] and many

complaints and excuses, made by [Underwater] without the ability to

cure their failings.”

The court also awarded the Utility Board judgment on its counterclaim with

respect to the concrete collars. Underwater appeals.

ANALYSIS

In reviewing a judgment rendered after a bench trial, “the trial court’s

findings of fact come to the appellate court with a presumption of correctness and

will not be disturbed unless they are clearly erroneous.” Emaminejad v. Ocwen

Loan Servicing

, LLC

, 156 So. 3d 534, 535 (Fla. 3d DCA 2015). Thus, they are15

reviewed for competent, substantial evidence. Verneret v. Foreclosure Advisors,

LLC

, 45 So. 3d

889, 891 (Fla. 3d DCA 2010). Even if a trial court’s judgment is insufficient in its

findings of fact, the judgment “should be affirmed if the record as a whole

discloses any reasonable basis, reason or ground on which the judgment can be

supported.” Firestone v. Firestone

, 263 So. 2d 223, 225 (Fla. 1972).

To the extent the Contract must be interpreted, such interpretation is

reviewed de novo. Fernandez v. Homestar at Miller Cove, Inc.

, 935 So. 2d 547,

550 (Fla. 3d DCA 2006). However, in reviewing the trial court’s application of the

terms of a contract, courts are “powerless to rewrite [a] contract to make it more

reasonable or advantageous to one of the parties

. . . or to substitute [their]

judgments for that of the parties to the contract in order to relieve one of the parties

from the apparent hardships of an improvident bargain.” Id. at 551.

Underwater’s Claim

Underwater’s complaint sought damages against the Utility Board for breach

of contract, alleging it remains unpaid nearly $697,000 dollars under the Contract.

The trial court’s factual findings with regard to this cause of action included the

following: “Pursuant to the Contract, [Underwater] was to notify [the Utility

Board] once the cleaning and surface preparation was completed.” We find the trial16

court correctly construed and applied Section 01010, 1.8 B.1.d of the Contract,

which stated:

B. Required Observation and Review

1. Notify the Resident Engineering Representative 24 hours prior to

completing the following work:...

d) Completion of surface preparation and prior to

application of any coatings, sealers, or miscellaneous

patching material in accordance with the applicable

sections.

There is competent and substantial evidence in the record that Underwater

breached this provision of the Contract. The testimony and other evidence, in a

light most favorable to sustaining the trial court’s judgment, established that

Underwater failed to notify the Utility Board that the surface preparation on the

fifty-seven poles was complete and that the poles were ready for inspection twentyfour hours prior to the application of the coating. Both Demarest and Fey testified

that they were not notified that the surface preparation was completed prior to the

coating of the poles.

Similarly, Bill Williams of Power Engineers sent Giesler a letter informing him

that their field inspector was not notified that the surface preparation had been

completed and had received no requests to inspect the structures prior to

commencement of the coating process. Once the poles were actually inspected by

the Utility Board (after application of the coating had already taken place), it was17

evident to the Utility Board that the surface preparation was not performed in

accordance with the project specifications.

Additionally, there is no question that the implied covenant of good faith and

fair dealing attaches to the performance of these contractual obligations. See QBE

Ins. Corp. v. Chalfonte Condo. Apt. Ass’n, Inc.

, 94 So. 3d 541 (Fla. 2012) (stating

“Florida contract law does recognize an implied covenant of good faith and fair

dealing.”) As the Florida Supreme Court noted in QBE Ins. Corp.

, the “covenant is

intended to protect ‘the reasonable expectations of the contracting parties in light of

their express agreement.’” Id. at 548 ( quoting Barnes v. Burger King Corp.

, 932 F.

Supp. 1420 (S.D. Fla. 1996)).

Here, Underwater’s failure to properly notify the Utility Board and permit a

timely inspection of the surface preparations prior to the coating was directly

linked to its decision to increase by more than twenty-five fold the number of

square feet to be coated (leading to a dramatic increase in cost), without notifying

the Utility Board of this change. Though Fettig testified he would have notified

Underwater of this resulting dramatic increase in the contract price prior to

applying the coating, he was advised by his superior, Reynolds, not to do so.

Thereafter, Demarest was told by Underwater’s onsite superintendent, Glenn

Patterson, that Underwater had found a “loophole” in the Contract, and that the

poles were coated without having first provided notice and an opportunity for the18

Utility Board to inspect the preparation work. Patterson told Demarest he simply

did what he “was told to do.”

The competent substantial evidence supports the conclusion that Underwater

purposefully avoided a post-preparation, pre-coating inspection (and the Contract’s

requirement for notice of same) because such an inspection surely would have led

the Utility Board to discover the expanded scope of the coating project, and the

resulting increase of nearly $528,660.00 in the contract price. The evidence

supported a finding that Underwater breached the express terms of the Contract and

the implied covenant of good faith and fair dealing, and that the Utility Board was

thereby relieved of its contractual obligation to pay for this work.

The Utility Board’s counterclaim

With regard to the Utility Board’s counterclaim

— namely, that Underwater

breached the Contract for failing to properly pour eight concrete collars according

to the Utility Board’s specifications for poured concrete

— Underwater raised two

defenses at trial, one of which we determine to be meritorious. 4 Underwater

4 Underwater alternatively contended that, pursuant to the Spearin doctrine

( Spearin v. U.S.

, 248 U.S. 132 (1918)), known in Florida as the implied warranty

of constructability, it is not responsible for the consequences of defects in the plans

and specifications. Id. at 136. By raising this defense, Underwater had the burden

to prove not only that there was a defect in the specifications, but that the defect in

the specifications was the proximate cause of the failure of the eight collars. See

Rick’s Mushroom Serv., Inc. v. U.S., 521 F.3d 1338, 1345 (Fed. Cir. 2008)

(holding contractor was required to prove that “defect in [design] specifications

was the proximate cause” of the damages flowing from the breach of implied

warranty created under Spearin ). Because we resolve the Utility Board’s19

asserted that the Utility Board was required to notify Underwater that eight collars

were defective, and to permit Underwater an opportunity to cure the defects, before

engaging someone else to correct, repair or replace the collars.

At trial, the Utility Board presented evidence that it had been using the same

specifications for pouring concrete collars since the late 1980’s or early 1990’s,

and none of the nearly fifty collars poured previously, with the exception of the

eight collars poured by Underwater, ever failed or deteriorated. The Utility Board

introduced Amon’s testimony, who opined that the defects he found in the core

samples demonstrated poor quality workmanship, likely by allowing water to enter

the mix, and did not meet industry standards.

The relevant portion of the Contract, entitled “Defect Assessment,” provides

in part:

1.5 DEFECT ASSESSMENT

A. Replace the Work, or portions of the Work, not conforming to

specified requirements.

B. If, at the request of the Contractor and in the opinion of the

Engineer, it is not Practical to remove and replace the Work, the

Engineer will direct one of the following remedies:

1. The defective Work may remain, but the Unit

Price will be adjusted to a new price as agreed to by the

Owner and Engineer.

counterclaim on other grounds, it is unnecessary to reach the merits of this

alternative defense.20 2. The defective Work will be partially repaired to

the instructions of the Engineer, and the Unit Price will

be adjusted to a new price.

The uncontested evidence at trial established that the Utility Board did not

give Underwater the opportunity to “[r]eplace the [w]ork, or portions of the [w]ork,

not conforming to specified requirements.” Given the evidence presented, and in

light of the Defect Assessment provision, which explicitly provides that

Underwater must be afforded the opportunity to replace any of the work that was

“not conforming to specified requirements,” the trial court erred in finding in favor

of the Utility Board on its counterclaim and awarding damages. 5 We therefore

reverse that portion of the final judgment, and remand for entry of final judgment

in favor of Underwater on the Utility Board’s counterclaim.

CONCLUSION

We affirm that portion of the final judgment which found for the Utility

Board on Underwater’s claim for breach of contract. We reverse that portion of the

final judgment which found for the Utility Board on its counterclaim for breach of

contract. We remand with directions to enter final judgment in favor of

5 The final judgment makes no factual findings with regard to the counterclaim, nor

does it engage in any discussion or analysis of the Defect Assessment provision of

the Contract. The final judgment merely finds that the Utility Board shall recover

on its counterclaim and awards damages in the amount paid by the Utility Board to

assess the cause of the defective collars, together with the cost to replace the

defective collars and prejudgment interest.21

Underwater on the Utility Board’s counterclaim and for further proceedings

consistent with this opinion.