Opinion ID: 1040113
Heading Depth: 3
Heading Rank: 1

Heading: Initial hearing officer recommendation

Text: The hearing officer concluded that there was a differing site condition entitling North Pacific to additional compensation. Even though the subcontractor “did not segregate its labor costs,” and its “expert utilized a method of requesting damages 2 See AS 36.30.625(a); AS 36.30.990(6) (“construction” includes projects “altering” and “repairing” a public building). 3 AS 36.30.675(a). 4 AS 36.30.675(b). -6- 6818 which is prohibited by the contract,” the hearing officer “decline[d] to enforce strictly the construction contract limitations” because he found that the Department “should have disclosed this condition [of the pan deck surface] to all bidders.” The hearing officer also explained that the “contract contemplates when differing site conditions are discovered, the Contracting Officer and the parties will seek to make a resolution at that time during the contract performance,” concluding that both parties failed to follow “the requirements of the contract to resolve the dispute over the differing site conditions during performance of the contract.” The hearing officer recommended that North Pacific was entitled to an award of $158,821 for “cost overruns attributed to the embossed pan deck.” 2. Agency remand of the hearing officer recommendation The Department of Transportation and Public Facilities remanded the hearing officer’s recommended decision, explaining that “the recommended decision fails to address a number of fundamental issues bearing on liability and damages.”5 On remand, the agency instructed the hearing officer “to reconsider this matter in light of relevant legal principles and to issue a revised decision conforming to applicable law.” In particular, the agency directed the hearing officer to address the site inspection clause, which provided that the contractor had “visited and carefully examined the site and is satisfied as to the conditions to be encountered in performing the Work,” and the “seemingly unambiguous proof requirements” in the contract. 3. Hearing officer recommendation on remand On remand, the hearing officer again decided that North Pacific was entitled to additional payment. The hearing officer recommended three conclusions of law: (1) that the Department of Administration was obligated to disclose the condition of the 5 See id. (authorizing the agency to remand the hearing officer’s recommended decision). -7- 6818 embossed pan deck and failed to do so; (2) that the pan deck was a differing site condition; and (3) that the Department’s failure to comply with the contract precluded it from relying on the strict damages provisions. On these grounds, the hearing officer recommended an award of $156,539 in damages, slightly less than his initial recommendation of $158,821. First, the hearing officer concluded that the Department was obligated to disclose the condition of the pan deck surface because the Department had information that “an ordinary bidder would not reasonably acquire . . . without resort to [the Department]” and the Department was aware that the contractor had no knowledge or reason to obtain the information. Reasoning that North Pacific had bid and performed the abatement work without “vital information,” the hearing officer concluded that the Department’s failure to disclose the pan deck condition “was a breach of its contractual obligations” and justified recovery. The officer explained that the Department’s knowledge “(a) came from prior projects and an intimate and unique understanding of the actual conditions in the facility and (b) was well-based in fact and first-hand involvement.” Second, the hearing officer determined that the pan deck was a differing site condition because the contractor was unaware of the condition, the contractor could not have anticipated the condition from a site inspection or from general experience, and the pan deck surface varied from the norm. Third, based on the Department’s failure to disclose the condition, the hearing officer “decline[d] to enforce strictly the construction contract limitations in Section 15.1.4” that required “complete, accurate, and specific daily records” regarding “every detail of the potential claim including actual costs incurred.” -8- 6818 4. The deputy commissioner’s final agency decision At North Pacific’s request, the Department of Transportation and Public Facilities commissioner recused himself and delegated his final decision-making authority to the deputy commissioner.6 North Pacific does not challenge this delegation of authority. In June 2009 the deputy commissioner issued the final agency decision. “Because the hearing officer’s proposed conclusions [were] at variance with the law,” the deputy commissioner declined to accept the hearing officer’s conclusions. Rather, the deputy commissioner concluded that under the applicable law North Pacific had failed to carry the burden for additional compensation.7 a. North Pacific’s differing site condition claim To analyze the differing site condition claim, the deputy commissioner applied a three-part test from a construction law treatise: (1) the contractor “did not know about the relevant condition encountered; (2) it could not have anticipated the condition from site inspection, reasonable investigation, or general experience; and 6 2 Alaska Administrative Code (AAC) 12.740(a) (2012) gives commissioners the authority to, in their discretion, “delegate their authority under AS 36.30 to an employee in a department or agency.” This “delegation of authority must be in writing.” Id. 7 An assistant attorney general, with assistance from Chief Contracts Officer O’Brien, prepared the draft agency decision. Because there was no transcript of the hearing prepared at the time, the assistant attorney general primarily relied on the hearing officer’s findings of fact, the exhibits introduced at the hearing, and an email message from the hearing officer sent in response to an inquiry from O’Brien. The deputy commissioner later testified that, after reviewing the draft decision and discussing it with his staff, he signed the agency decision. The deputy commissioner did not personally read the hearing officer’s recommended decision or the hearing record. -9- 6818 (3) the condition varied from the norm in similar contracting work.”8 The deputy commissioner stated that North Pacific “demonstrated it lacked actual knowledge of the embossing” on the pan deck and therefore met the first prong of the test for a differing site condition claim. But under the second prong of the test, North Pacific had to show that it could not have anticipated the condition.9 “This is a heavy burden” according to the deputy commissioner. The deputy commissioner noted that “[a]s a rule, contractors must ‘conduct pre-bid inquiries or reasonable site inspections since recovery on . . . [this] claim is available only if a condition is unknown. A condition is not unknown if it would have been revealed upon inquiry or a reasonable site investigation.’ ”10 But “[h]ere, in spite of [the State]’s admonitions, [North Pacific] did not conduct a site investigation.” Therefore, the deputy commissioner explained, North Pacific “is charged with the knowledge a reasonable investigation would have revealed.” The deputy commissioner explained that a reasonable investigation should have at least entailed a request for photos or other information on the pan deck. The deputy commissioner also pointed out that North Pacific could have obtained information from the five previous subcontractors that had performed asbestos removal for the Department. The agency concluded that 8 See, e.g., 4A PHILIP L. BRUNER & PATRICK J. O’CONNOR , JR ., BRUNER & O’CONNOR ON CONSTRUCTION LAW § 14.53, at 800-01 (2009); see also Fru-Con Constr. Corp. v. United States, 44 Fed. Cl. 298, 311 (Fed. Cl. 1999) (quoting Lathan Co. v. United States, 20 Cl. Ct. 122, 128 (Cl. Ct. 1990)); Municipality of Anchorage v. Frank Coluccio Constr. Co., 826 P.2d 316, 323 (Alaska 1992); 64 A M . JUR . 2D Public Works and Contracts § 166 (2011). 9 See Frank Coluccio Constr. Co., 826 P.2d at 323; see also Fru-Con Constr. Corp., 44 Fed. Cl. at 311. 10 The deputy commissioner quoted Appeal of Shumate Constructors, Inc., VABCA No. 2772, 90-3 BCA ¶ 22,946. -10- 6818 “reasonable investigation would have revealed the exposed pan deck and its embossing.” Thus, North Pacific’s own failure to reasonably anticipate the condition caused the “unplanned expense and delay.” The deputy commissioner relied on several facts to conclude that a reasonable investigation would have revealed the uncovered pan deck. Many of these facts are based on the hearing officer’s factual findings. But the deputy commissioner made an error of fact in his decision. The deputy commissioner mistakenly found that “at the alternative site [the Department] had offered to show comparable ceiling pan deck [that] was exposed and its surface was clearly visible to any prospective bidder who chose to observe it.”11 But the Department did not actually offer to show a portion of exposed pan deck. Rather, as the hearing officer found, “there was no exposed pan deck in the area [the Department] showed to the contractor, but had the contractor requested to see it, there were other areas at the [State Office Building] site in which the pan deck is exposed and the embossed pan deck is clearly visible.” The Department acknowledges that the deputy commissioner’s “decision referred to [the] incorrect information” from an email exchange between O’Brien and the hearing officer. O’Brien inquired of the hearing officer: 11 The deputy commissioner made the same mistake in a footnote in his decision: We note [the Department] had offered to provide access to the exposed deck after normal business hours. As owner of a functioning office building undergoing asbestos abatement, [the Department] is entitled to adopt reasonable measures to minimize operational disruptions within the building and possible risks to employee well-being. On the evidence presented, we do not find [the Department]’s offer unreasonable. -11- 6818 During the prebid conference were other bidders offered the opportunity to observe the embossed pan deck at an alternate location? I see reference to an “alternate location” but I couldn’t tell if that was offered at the prebid, or whether it was assumed that a contractor could have asked on their own to view it at an alternate location. The hearing officer responded that [f]rom the evidence all bidders were offered a site inspection. The site inspection would not have revealed the embossed pan deck because it was covered with fire proofing. All bidders were offered the chance to inspect pan deck that was not covered, which was at another location in the S[tate] O[ffice] B[uilding], so not technically the site, and the inspection had to be at a different time of the day and after normal office hours. Thus it is undisputed that, based on this exchange, the deputy commissioner incorrectly stated that the Department had affirmatively offered participants at the prebid meeting an opportunity to view an uncovered pan deck. The deputy commissioner also cited an uncontested fact in the hearing officer’s decision that stated “[o]nly one contractor, during the pre-bid conference, asked to see the area from which asbestos would be removed” and “[a] ceiling tile was removed so the contractor could see the area.” Aside from the factual error, the deputy commissioner relied on North Pacific’s failure to conduct a site investigation or to request any photos or other related information on the site to reject the claim. In short, the deputy commissioner concluded that North Pacific had not met the second prong of the differing site conditions test because a “reasonable investigation would have revealed the exposed pan deck and its embossing.” -12- 6818 The third prong of a differing site condition is whether the condition varied from the norm in similar contract work.12 The deputy commissioner acknowledged that North Pacific “offered evidence supporting the basic proposition that embossed decks are generally uncommon outside Juneau” but noted that North Pacific “offered no evidence demonstrating that embossed pan decks installed in 1970[]s era buildings are outside the norm.” The deputy commissioner concluded that North Pacific had failed to demonstrate that the pan deck surface was outside the norm, and that North Pacific therefore did not have a valid differing site condition claim. b. North Pacific’s superior knowledge claim The deputy commissioner next addressed North Pacific’s contention that the Department had a duty to disclose relevant information regarding the pan deck surface. Because North Pacific could have acquired the relevant information on the pan deck through an independent investigation, the deputy commissioner decided that North Pacific had failed to show that the Department had breached a duty to disclose. The deputy commissioner reasoned that because the Department’s staff experience was limited to Juneau and based on previous asbestos abatement projects involving dimpled pan decks, they had no reason to believe the pan deck surface was unique. The deputy commissioner considered and rejected the hearing officer’s recommendation for damages. The deputy commissioner stated that he did not find the Department’s investigation of the claim to be unreasonable. In addition, the deputy commissioner pointed to the fact that North Pacific had failed to maintain an accurate daily record of alleged damages as required by the contract. 12 See Fru-Con Constr. Corp., 44 Fed. Cl. at 311; Earthmovers of Fairbanks, Inc. v. State, Dep’t of Transp. & Pub. Facilities, 765 P.2d 1360, 1364 (Alaska 1988) (recognizing that federal case law may be useful in analyzing disputes between the government and contractors). -13- 6818 North Pacific appealed the agency decision to the superior court, arguing that the decision was procedurally flawed and that the agency had incorrectly resolved the contract claims. 5. The superior court decision The superior court conducted a limited trial de novo on North Pacific’s procedural objections to the administrative process. As to the contract claims, the superior court intended “to play its traditional role as an intermediate appellate court.” While the superior court was “troubled” by some of the procedural issues, it ultimately held that the final agency decision “was not legally flawed” and the State’s “resolution of the legal questions raised by [North Pacific] was reasonable.” a. The superior court’s limited trial de novo on North Pacific’s procedural claims The superior court held a limited trial de novo to consider North Pacific’s procedural arguments regarding (1) the timing of the deputy commissioner’s decision, (2) the decision-making role of the deputy commissioner, (3) the role of Department of Transportation and Public Facilities staff in the decision, (4) the alleged deprivation of a hearing, and (5) the alleged ex parte contact. After trial, the superior court made thorough findings of fact on the agency appeals process, the agency’s factual error, communications between the deputy commissioner and the staff, and the lack of bias in the agency decision-making process. Finally, the superior court concluded that the agency decision was not procedurally flawed.
North Pacific pointed out that the deputy commissioner’s decision was issued 48 days after the hearing officer’s recommended decision. North Pacific argued that the passage of 48 days after the issuance of the first recommended decision triggered AS 44.64.060(e), which governs the timing of agency action on decisions issued by -14- 6818 administrative law judges within the Office of Administrative Hearings.13 Alaska Statute 44.64.060(e) requires the final decision maker to take action within 45 days of the administrative law judge’s proposed decision.14 If the final decision maker does not act within 45 days, then the administrative law judge’s proposed decision becomes the final decision.15 The superior court first concluded that AS 44.64.060(e) applies to administrative law judges and not hearing officers under the Department of Transportation and Public Facilities.16 The superior court then determined that even if the statute was applicable, the time frame was directory and not mandatory. The superior court further reasoned that “[i]t makes little sense to penalize a party” by requiring it to be bound by the recommended decision, simply because the agency responsible for timely action was tardy and that North Pacific “was not prejudiced in any way by the delay of three additional days.” 13 AS 44.64.060(e) (procedure for hearings in the Office of Administrative Hearings). 14 AS 44.64.060(e)(1)-(5). 15 AS 44.64.060(f). 16 See AS 36.30.627(a) (establishing procedures for appeals “from a decision of the procurement officer of a claim involving a construction contract”); AS 36.30.680 (stating that “a decision by the commissioner of transportation and pub lic facilities involving procurement of construction shall be sent to all parties by personal service or certified mail within 45 days after receipt by the commissioner of transportation and public facilities of the hearing officer’s decision”). -15- 6818
North Pacific argued that there was institutional bias in the decision-making process and that the communications between agency staff and the hearing officer were inappropriate. North Pacific further claimed that the deputy commissioner, as the final decision maker, improperly relied on his staff in rendering the final decision. Rejecting these arguments, the superior court concluded “that all the commissioner needs to do to comply with AS 36.30.675 and .680 is to issue the final decision.” iii. Role of institutional subordinates within the Department of Transportation and Public Facilities North Pacific argued that Chief Contracting Officer O’Brien and the agency’s assigned assistant attorney general could not play any role in the process leading to the final decision. The superior court determined, however, that the involvement of institutional subordinates did not taint the agency’s neutrality or “overstep any statutory assignments of authority.”17 The superior court further found that North Pacific had “not proved by a preponderance of evidence that [the deputy commissioner], [Chief Contracting Officer] O’Brien and [the assistant attorney general] were individually or collectively personally biased against [North Pacific].” iv. Alleged deprivation of a hearing North Pacific argued that it was deprived of a hearing because the final decision maker had minimal exposure to the raw information from the hearing. Specifically, North Pacific objected to the deputy commissioner’s failure to review the 17 See AS 36.30.675(b) (“The commissioner of administration or the commissioner of transportation and public facilities may affirm, modify, or reject the hearing officer’s recommendation in whole or in part, may remand the matter to the hearing officer with instructions, or take other appropriate action.”); AS 36.30.685(a)-(b) (allowing the final decision of the commissioner of transportation and public facilities to be appealed to the superior court). -16- 6818 record before rejecting the hearing officer’s decision. Although the superior court acknowledged that this argument had “more than a little surface appeal,” it nonetheless rejected North Pacific’s argument for two reasons: (1) “the oral testimony was not the entire record,” and the agency decisions were based on the hearing officer’s decision and the available exhibits; and (2) the “problem is that to enforce an adequate role by the final decision maker would almost always require exploration into the deliberative process.” As a result, the superior court concluded that North Pacific had “been provided a hearing process that complie[d] with due process.” v. Alleged ex parte contact North Pacific claimed the final agency decision was based on ex parte communications between O’Brien and the hearing officer and thus violated due process. Again, the superior court rejected North Pacific’s argument. While the superior court found that O’Brien requested clarification from the hearing officer and that the hearing officer responded,18 the court concluded that there was no traditional ex parte contact because the communication did not involve a party to the case. The superior court further concluded that the erroneous factual finding that was likely caused by the exchange did not substantially impact the agency decision. b. The superior court’s appellate review of the alleged errors of contract interpretation After reviewing North Pacific’s differing site condition claim, the contract, and the reasoning of the hearing officer and the deputy commissioner, the superior court considered whether North Pacific “could have learned of the condition of the pan deck by a site inspection or other reasonable inspection.” The superior court concluded that the Department of Transportation and Public Facilities had a reasonable basis in deciding 18 See supra Part II.B.4.a. -17- 6818 a) that [North Pacific] should have inspected the site; and b) that had it attended the pre-bid meeting and asked the simplest question (but the most important to its bid): May we see a sample of the exposed pan deck?; and c) that [the Department] would have provided an effective prompt and informative response, that is, [the Department] would have revealed a portion of exposed embossed pan deck for inspection. By asking that question [North Pacific] would have received an appropriate response and [North Pacific] would not be where it is today. Thus, the superior court affirmed the agency’s conclusions denying North Pacific’s differing site condition claim. c. Attorney’s fees The State requested attorney’s fees and costs as the prevailing party. North Pacific opposed, arguing that AS 09.60.010 19 barred an award of attorney’s fees to the State because North Pacific had raised constitutional due process issues. Finding that the State was the prevailing party, the superior court awarded it thirty percent of the actual reasonable fees incurred under Alaska Civil Rule 82 as well as costs under Alaska Civil Rule 79.