Opinion ID: 203690
Heading Depth: 2
Heading Rank: 1

Heading: The Guaynabo-Comagro Contract

Text: On December 7, 1999, the Municipality of Guaynabo awarded a contract for the construction of a new government center and adjoining parking facility to Comagro Special Partnership (Comagro), a general contractor owned and managed by Francisco Méndez-Matos (Méndez-Matos). As originally conceived, the government center project had a value of over $17 million dollars. It included plans for a nine-story tower with a mezzanine, a plaza, an amphitheater complex, above-ground parking and below-ground parking. On January 24, 2000, the parties signed the construction contract. The contract incorporated by reference the American Institute of Architects General Conditions of the Contract for Construction (the AIA agreement), which divided payment into two stages. First, at preset intervals during construction, Comagro would receive progress payments after documenting its work to Guaynabo. Second, Guaynabo would withhold ten percent of the contract price (the retainage) until the project was certified substantially complete. A certificate of substantial completion would be awarded when an inspector determined that the facility was sufficiently complete that it could be transferred to Guaynabo and put to its intended use. Construction began in early 2000, but progress was slow. The city repeatedly altered the design of the project, submitting at least thirty-eight change orders after January 2000. Those changes led to delays. In late October 2003, three years after signing, the parties amended the construction contract. Under the terms of the amended agreement, construction was divided into two phases, separating the parking facility from the rest of the project. The city's thirty-eight change orders were incorporated into the project's price, increasing the contract value by nearly fifteen percent, to over $20 million dollars. Delays continued even after the amendment. The design of important aspects of the government center remained incomplete. As of October 2003 Comagro still did not possess complete designs for the tower's air conditioning system, the plaza, and other aspects of the project. In some cases designs were not delivered until nearly one year later, in July 2004. In February 2004, four months after the amended contract was signed, a dispute arose over the progress payments. Guaynabo asserted that it had overpaid Comagro by $1,300,000. City officials blamed Comagro, which had submitted payment certificates that included the cost of unused building materials. As they interpreted the AIA agreement, the city was not responsible for the cost of materials unincorporated into the structure. In response, Comagro claimed that the building materials had been properly included in the payment certificates, that the certificates had been approved by city officials, and that the materials remained unused only because of the many change orders and missing designs. By Comagro's calculation, there had been no overpayment. Nevertheless, Guaynabo officials began to make deductions from progress payments to account for the alleged error. Seeking the withheld monies, Comagro filed a request for arbitration on April 15, 2004. On October 6, 2004, in the midst of this dispute, city project inspector Jamie Dávila (Dávila) issued Comagro the certificate of substantial completion. Pursuant to the AIA agreement, Dávila included a so-called punch list with the certificate. The punch list specified minor problems with the project that Comagro was obligated to address before receiving final payment (such as the repair of cracks, the replacement of defective light fixtures, and cleaning). Comagro was given thirty days to address the items on the list. In fact, Comagro had already corrected many of the problems on the punch list by the time the list was received. It immediately began to resolve those that remained. However, on November 3only a few days before the scheduled final inspectionGuaynabo officials provided Comagro with a new punch list and claimed that some of the items on the first list had not yet been addressed. On November 15, Dávila sent a memo to Comagro asserting that deficiencies on the punch list had still not been corrected, and that the city was therefore withdrawing the certificate of substantial completion and imposing liquidated damages of $1,000 a day. In Comagro's response, also dated November 15, Méndez-Matos asserted that the construction contract did not allow for late additions to the punch list, nor for the withdrawal of the certificate of substantial completion. The letter characterized as a total contradiction the city's assertion that the building was now unusable for its intended purpose, when it had been judged usable only one month earlier. Guaynabo's conduct, it stated, was plainly retaliatory for Comagro's decision to file for arbitration. As evidence, the letter pointed to comments made by Mayor Héctor O'Neill (the Mayor) at an October 21 meeting, in which the Mayor stated that a certificate of substantial completion should never have been granted because Comagro had filed for arbitration. Nevertheless, the letter stated, Comagro would continue to prepare the projectwhich was already completefor delivery. Until this point, the Mayor's involvement with the government center project had been indirect. He had not seen the construction contract, the certificate of substantial completion, or its accompanying punch list. He had not inspected the project. Instead, he received reports on the status of the project from the public works director, who in turn relied on the city's legal division, its finances department, and the project inspector, Dávila. This team told the Mayor that the government center was severely delayed, that the city and Comagro were embroiled in a payment dispute, and that Comagro had filed for arbitration. At some point in the weeks before November 26, however, the Mayor began to personally inquire about the status of the project. He asked several city officials when the city would take possession of the building. He made multiple phone calls to the director of the legal division, asking if the process for me to make use of the [government center] parking lot had concluded. On November 18, the city sent a default letter to Comagro. The letter, on which the Mayor was briefed, [1] asserted that Comagro was in breach of the amended contract for construction. The agreed-upon delivery date for the project, it stated, had been January 21, 2004; by this count, Comagro was late by 292 days. Moreover, Comagro had failed to fix construction deficiencies identified on the punch list within the thirty-day deadline for doing so. The letter concluded that Comagro was in default, demanded immediate delivery of the project, and reiterated Comagro's responsibility to respond[] for any construction deficiency or defect, evident or hidden, which may be detected by the [city] at the project. [2] Méndez-Matos told no one at Comagro about the default letter when he received it on November 24. In his view, the termination effected by the default letter was unlawful, because the city had failed to follow the procedures required by the AIA agreement for termination of the general contractor. More importantly, however, under the AIA agreement a terminated contractor was entitled to seven days notice before having to deliver a project to the owner. Thus, on Friday, November 26, two days after Comagro received the default letter, it sent its employees to the government center to correct construction deficiencies and clean up, in preparation for delivery of the building.