Opinion ID: 1265558
Heading Depth: 3
Heading Rank: 1

Heading: Duty to Supply a Source of Permanent Electricity For Construction Purposes

Text: Neal bases its contention that the Housing Authority was obligated to supply the construction sites with a source of permanent electric power on three primary grounds. First, Neal argues that the language of the contract, taken as a whole, implies that the Housing Authority had a duty to timely supply permanent power to the sites for construction purposes. Neal emphasizes certain contract provisions which direct Neal to [a]scertain where these services will be available [5] and require Neal to ensure that the electrical equipment provided will operate with the site electrical system. [6] (Emphasis added.) Second, Neal contends that the architect's representations that permanent power would be available for Neal's use during construction reinforced the contractor's interpretation of the agreement's express terms. Because this extrinsic evidence does not vary or contradict the terms of the contract as interpreted by Neal, Neal contends that the parol evidence rule is inapplicable. Finally, Neal argues that at a minimum, it was a third-party beneficiary of the Housing Authority's underlying contract with HUD. Neal notes that the Housing Authority was required to equip the new subdivisions with permanent electric power for the benefit of future homeowners, and emphasizes that HUD had specifically requested that the Housing Authority finalize its agreements with the local utilities before awarding the construction contract to Neal. The Housing Authority rejects Neal's assertions that it was responsible for erecting a source of permanent power in time for Neal to use during construction. The Housing Authority contends that with regard to electrical power, the contract was reasonably susceptible to only one meaning. Central to the Housing Authority's argument are two express provisions which required Neal to furnish all ... power ... necessary for performance of the work. [7] The Housing Authority also identifies contract language which, in its view, explicitly allocated to Neal the risk that a source of permanent power would not be immediately available. In the Conditions Affecting the Work clause, for example, Neal represented that it had satisfied itself as to the general and local conditions which can affect the work or its cost. The provision further specified: Any failure of the Contractor to take the actions described and acknowledged in this paragraph will not relieve the Contractor from responsibility for estimating properly the difficulty and cost of successfully performing the work or for proceeding to successfully perform the work without additional expense to the [Housing Authority]. In addition to requiring Neal to investigate local conditions, the Housing Authority assumed no responsibility for interpretations other than those made in writing and incorporated into the contract. [8] The bid documents explained the proper procedure for obtaining a formal interpretation: questions shall be submitted in writing before the deadline for bidding, and written interpretations shall thereafter be circulated to each bidder and incorporated into the contract. The Housing Authority maintains that although Neal acceded to these terms, the contractor did not adequately perform its due diligence inquiry. According to the Housing Authority, Neal failed to visit two of the five job sites or contact any of the local utility companies prior to bidding on the contract. Therefore, the Housing Authority argues that Neal's expectation that permanent power would be provided in time for use during construction was not objectively reasonable. Finally, the Housing Authority contends that the lower court properly applied the parol evidence rule to bar evidence of pre-bid representations by the architect and correctly entered judgment in favor of the Housing Authority as a matter of law. In the Housing Authority's characterization, because the architect's representations flatly contradict the integrated contract, evidence of these conversations cannot be used to vary the terms of the agreement. The Housing Authority concludes that because Neal otherwise failed to identify any genuine issues of material fact, we should affirm summary judgment in the Housing Authority's favor. The goal in interpreting any contract is to `give effect to the reasonable expectations of the parties.' Stepanov v. Homer Elec. Ass'n, 814 P.2d 731, 734 (Alaska 1991) (quoting Mitford v. de Lasala, 666 P.2d 1000, 1005 (Alaska 1983)). A grant of summary judgment based upon the interpretation of a contract is subject to de novo review. Martech Constr. Co. v. Ogden Envtl. Servs., 852 P.2d 1146, 1149 (Alaska 1993). Summary judgment is inappropriate where the evidence before the trial court establishes that a genuine factual dispute exists as to the parties' intent. Id. The parties' expectations must be gleaned not only from the contract language, but also from extrinsic evidence, including the parties' conduct, goals sought to be accomplished, and surrounding circumstances at the time the contract was negotiated. Peterson v. Wirum, 625 P.2d 866, 870 & n. 7 (Alaska 1981).
The contract language, when read alone, does not support Neal's position. The detailed agreement explicitly stated in two separate passages that electrical power required for construction purposes was the sole responsibility of the contractor. On the first page of the standard-form HUD contract, in regular type, the agreement provided: The Contractor shall furnish all ... light, heat, [and] power ... necessary for performance of the work... . In the specifications provided by the Housing Authority for the project, the contract again provided: Water and electricity for construction shall be the responsibility of and shall be paid by the Contractor. We find these clauses to be straight-forward. Nowhere in the contract document did the Housing Authority expressly promise that permanent power would be available for Neal's use. Where the agreement did address the contractor's need for electrical power, it used the broad phrases [t]he Contractor shall furnish and the responsibility of ... the Contractor, thereby placing the responsibility on Neal to determine what type of power source it would use during construction. It would be unreasonable to argue that the contractor's duty to furnish power simply requires it to pay for electricity used while hooked up to a pre-existing permanent power source. The second clause cited above clearly makes a distinction between the contractor's duty to pay for temporary utilities and its fundamental duty to procure those services for itself. [9] An interpretation which allocates the duty to provide electrical power during construction solely to Neal is consistent with the remainder of the contract. At the initial stages of the procurement, upon review of the bid documents, it should have been clear to Neal that the installation of permanent electrical power at the remote sites could occur simultaneously with construction. There are at least two distinct passages in the agreement that required Neal to coordinate all his work with the serving utilities (electrical, telephone, etc.). Significantly, nowhere did the contract indicate that permanent electrical power would be established by a certain date. In addition to the fact that the agreement was silent with regard to the date when permanent electrical power would ultimately be available, several provisions placed the risk upon the contractor that permanent power would not be established prior to or during construction. Neal agreed to investigate local conditions which could affect the cost of the work; this would include assessing the progress made at each site in setting up permanent power. The contract further specified that the Housing Authority would be responsible only for contract interpretations made in writing and incorporated into the contract; had Neal experienced any uncertainties after its investigation, it could have requested a formal interpretation. Instead, Neal now identifies certain language in the contract which, in its view, implied that permanent electrical power would be established at the sites and available for Neal's use either at the outset of construction or before its completion. In referring to temporary utilities, for example, the contract stated: Ascertain where these services will be available, make temporary connections as required and remove same upon completion of work. (Emphasis added.) Neal also emphasizes the contractual requirement that inspections were to utilize the site electrical system. Neal contends that from this language, it formulated a reasonable expectation that the Housing Authority intended to set up permanent electrical power in time for Neal to use during construction. In light of the provisions which placed the risk upon Neal that permanent power would not be available for construction use, Neal's interpretation misses the mark. The language requiring the contractor to [a]scertain where these services will be available  should actually be read as a further directive to Neal to inquire into or ascertain the specific conditions at the five sites. As for the language which required inspections to utilize the site electrical system, we agree with the analysis of the trial court. In light of the two provisions which placed responsibility for temporary power squarely on the contractor, see supra notes 5 and 7, the inspection term must be read narrowly: If inspection cannot occur until permanent power is available, then [the Housing Authority] has a duty to promptly make power available for inspection purposes. (Emphasis added.) Finally, Neal draws our attention to some remaining language from the contract to support its position. Neal points out that the contract offered distinct warnings regarding a lack of certain services at the construction sites. For instance, the contract specifically cautioned that [t]he Contractor should be aware of the lack of rooming and dining facilities in some villages. Neal infers that if the Housing Authority was under no duty to supply permanent power, the contract would have offered as specific a warning about the unavailability of electricity. Neal's argument is not persuasive. In light of the two provisions discussed above which explicitly stated that the contractor was to be responsible for providing electric power for construction purposes, as well as the terms which placed the risk upon Neal that permanent power might not be available in time for the contractor's use, it is clear that Neal was adequately warned. Based on the foregoing analysis, we can come to no other conclusion but that the language of the agreement clearly placed the burden upon potential bidders to investigate the availability of power at the outset and, if necessary, to make other arrangements to meet construction requirements. We therefore agree with the conclusion of the trial court that the contract provides no evidence ... standing alone, which indicates that [the Housing Authority] had a duty to supply permanent power for use by Neal during construction.
With no firm indication from the contract that a genuine issue of material fact exists as to the parties' intent, we turn to the extrinsic evidence. Foremost is the affidavit of Neal's project manager Chris Oehler, in which Oehler reported the pre-bid oral representations made by the architect that all necessary arrangements had been made by [the Housing Authority] to assure that permanent electric utility service would be available for use by the contractor during construction on the project. The superior court concluded that this evidence was barred by operation of the parol evidence rule. In Western Pioneer, Inc. v. Harbor Enterprises, Inc., 818 P.2d 654 (Alaska 1991), we reversed a superior court's application of the parol evidence rule, and in doing so, summarized the current status of the rule in Alaska: The parol evidence rule is implicated when one party seeks to introduce extrinsic evidence which varies or contradicts an integrated contract. Once the rule is triggered, the parties' reasonable expectations are determined by applying a three-step test. The first step is to determine whether the contract is integrated. The second step is to determine what the contract means. Determining the meaning of a contract is treated as a question of law for the court except where there is conflicting extrinsic evidence on which resolution of the contract's meaning depends. Whether there is conflicting extrinsic evidence is a question resolved by the court. Even where there is conflicting extrinsic evidence the court decides the question of meaning except where the written language, when read in context with its subject matter, is reasonably susceptible to both asserted meanings... . Extrinsic evidence may always be received in resolving these first two inquiries. The third step is to determine whether the prior agreement conflicts with the integrated writing. Whether there is conflicting extrinsic evidence depends on whether the prior agreement is inconsistent with the integration. Inconsistency is defined as the absence of reasonable harmony in terms of the language and respective obligations of the parties. Id. at 657 n. 4 (citations omitted) (emphasis added). The parties do not dispute the trial court's conclusion that the contract was fully integrated. Under the steps articulated in Western Pioneer it thus becomes necessary to elaborate upon what the contract means in view of the extrinsic evidence. Because the procedural posture of this case is such that the question of meaning has never been presented to the trier of fact, we must consider whether the contract, when read in context with the extrinsic evidence, is reasonably susceptible to both asserted meanings. Western Pioneer, 818 P.2d at 657 n. 4. After considering all of the extrinsic evidence presented, we remain convinced that the contract does not contain a promise by the Housing Authority to supply Neal with a source of electricity for use during construction. The strongest evidence that Neal presents is the pre-bid oral statements made by the architect to Oehler noting that permanent electrical service would be available for Neal's use. Taken alone, these statements might be construed either as a promise or a prediction. However, in light of the written language of the contract and other surrounding circumstances, it is clear that the statements could not have reasonably been interpreted to have been anything but predictions. As noted above, bid documents provided by the Housing Authority contained two explicit provisions vesting the responsibility for providing all light, heat, and power necessary for construction with the contractor. Upon learning that there might soon be a convenient on-site source of permanent electrical power, however, Neal made no attempt to secure a written addendum to the contract through the formal procedures outlined by the bid documents. Moreover, in the face of two express terms imputing familiarity with local conditions to the contractor, Neal apparently chose not to visit two of the construction sites or contact any of the local utilities to discuss their scheduling intentions until after the contract was awarded. Finally, although the contract documents permitted Neal to complete construction as late as May and September 1989, at the time of the contract award Neal voluntarily chose to accelerate its schedule and aim for completion by December 1988. Although courts will look to extrinsic evidence to assist in questions of contract interpretation, we cannot ascribe undue weight to statements which, by the contract's terms, are not controlling. In this regard, we adhere to the rule-of-thumb articulated in Alaska Diversified Contractors, Inc. v. Lower Kuskokwim School District, 778 P.2d 581 (Alaska 1989), cert. denied, 493 U.S. 1022, 110 S.Ct. 725, 107 L.Ed.2d 744 (1990): `after the transaction has been shown in all its length and breadth, the words of an integrated agreement remain the most important evidence of intention.' Id. at 584 (quoting Restatement (Second) of Contracts § 212 cmt. b). Despite the architect's alleged pre-bid statements, when the testimony is viewed in context with all of the extrinsic evidence, it cannot be said that the contract language is reasonably susceptible to Neal's interpretation. In view of this analysis, we conclude that the superior court properly applied the parol evidence rule to bar Oehler's testimony. To the extent that the architect's oral representations implied that the Housing Authority was willing to take on some responsibility for supplying a source of electricity for use during construction, the statements are not in reasonable harmony with the obligations of the parties as set out in the written agreement. The architect's pre-bid statements therefore directly contradict the meaning of the integrated agreement and will not be permitted to vary the terms of the contract.
Neal subtly presents one final argument to support its contention that the Housing Authority was responsible for providing the contractor with a source of permanent power. In Neal's view, it was a third-party beneficiary of the underlying contract between the Housing Authority and HUD. The record shows that HUD desired that the Housing Authority would have final agreements with the local utilities in place before awarding the main construction contract bid. From this, Neal infers that the Housing Authority possessed a duty to supply Neal with permanent electric power for construction. This argument also lacks merit. Although Neal may have been at least an incidental third-party beneficiary of the Housing Authority's contract with HUD, a third-party right in a contract will not be implied absent evidence showing that the parties intended that at least one purpose of the contract is to benefit the third party. Stewart-Smith Haidinger, Inc. v. Avi-Truck, Inc., 682 P.2d 1108, 1112 (Alaska 1984). Because Neal presented no supporting affidavits tending to show that there is a genuine issue for trial on this claim, Neal's third-party beneficiary argument cannot provide a basis for reversal. We conclude that there are no genuine issues of material fact tending to show that the parties expected the Housing Authority to supply the sites with a source of permanent electricity for use during construction. Since under the contract Neal was therefore solely responsible for meeting its own power requirements, Neal's claim for an equitable adjustment of the contract price was properly denied as a matter of law. We affirm the grant of partial summary judgment in favor of the Housing Authority.