Opinion ID: 331254
Heading Depth: 2
Heading Rank: 1

Heading: Errors Urged by Appellants

Text: 34 1. No evidence on which to base delay by Cass. This argument has two aspects. The first is whether there was evidence to support the equal division of the 292 days delay between Rich and Cass. Since we have found as a matter of law that Rich could not be held responsible for one-half of the delay, we need not further consider this point; the entire delay in constructing the building pads must be charged to Cass. 35 In the second prong of this argument, appellants challenge whether the evidence is sufficient to show that the 292 days delay in completion of the building pads delayed the project by the same amount. Appellants note that eight of the building pads they completed were not used by Rich for several months. They further argue that Cass was not the 'lead man' throughout the project. 36 The record contains evidence that the pads were scheduled to be completed in an orderly designated, geographic sequence and in a smooth fashion over the period during which they were scheduled for construction. The pads were delivered in a haphazard order and to some extent in groups of several at one time. For these reasons we cannot hold that Rich's failure to use eight of the pads completed is so inconsistent with the findings of the district court that we must hold them clearly erroneous. 37 Similarly we cannot find that deviations from the planned order of work took Cass out of the critical path. First, appellants misconstrue the sense in which a contractor must be 'lead man' for it to be on the critical path. It need not be the first contractor on the job but only need be the contractor whose work must be completed before the next contract holder can go to work. Thus, it is of no significance that a surveyor needed to complete his work before Cass could proceed unless Cass was delayed because the surveyor had not completed his work. Suffice it to say the district court did not so find. Appellants also argue that the order of construction was changed so that foundations were poured before Cass compacted the pads. This change did not prevent construction from being delayed by Cass's delinquency because a building slab could not be poured and erection started until after a pad passed compaction. We cannot fault the district court for treating the deviations cited by appellants as insignificant. 38 2. Computation of General and Administrative Expense. The district court charged Cass with the increase in general and administrative expense incurred by Rich as a result of the delay. That delay has an impact on general and administrative expense is beyond dispute, but the extent of that impact is difficult to estimate. To compute increased general and administrative expense, the district court determined general and administrative expense as a percentage of sales for 1969 and 1970, took the lower of the two figures, multiplied this by the original contract price, and then divided by the original contract period to determine the general administrative expense allocable to the contract on a per day basis. This figure was then multiplied by the 146 day delay found by the district court to arrive at damages chargeable to Cass. Appellants do not challenge the percentage of sales figures used or the technique used for making the allocation. They do challenge the use of the original contract price rather than the adjusted contract price. 39 We find no justification for the use of the original contract price. The district court found that in early 1969 the government eliminated items from the contract which reduced the price from $3,846,000.00 to $3,360,000.00. Rich's arguments and the testimony in the court below supporting the use of the higher figures are almost totally conclusionary. The district court's figures appear to be taken directly from an exhibit prepared by Rich. We can see no reason Rich should pass on overhead costs at the per diem rate originally bid rather than that ultimately agreed upon. As counsel for Cass stated: 'A percentage reflecting general and administrative expense must be based on sales that one has and not upon sales that one thought that one might get.' 40 In accord with these findings, we have recomputed the damages allowed for general and administrative expenses. The details of both the district court's and our calculations are set forth in Schedule B attached to this opinion. 41 3. Liquidated Damages Assessed by the Government. The trial court charged to Cass the entire 76 days liquidated damages assessed against Rich by the Government. Cass argues that there is no logical reason for not splitting these damages between Rich and Cass in the same manner that the other damages for delay were divided. Since we have determined that none of the delay damages should be divided, we need not further consider this point. 42 4. House services for water distribution eliminated. Appellants argue that it was error for the trial judge to talk Cass's attorney out of objecting to the admission into evidence of a change order, which Cass had not signed, dated February 12, 1971 (after the complaint in this suit was filed). Cass was originally to install the house services, but this requirement was eliminated from Cass's contract when the government changed the specifications to plastic pipes. Cass's president testified that the parties agreed to reduce the contract price by $13,667.21. A witness for Rich testified that the proper deletion was the amount shown on the change order to which Cass objects, $22,754.00. The amount on the change order purported to be taken from a payment breakdown of May 18, 1969, prepared by Cass. Though we do not hold that it was error for the district court to admit the change order as evidence, we hold it was error for it to use $22,754.00 in computing the adjusted subcontract price. 43 Rich was obliged to make periodic payments to Cass as construction progressed. To receive such payments, Cass completed an application for partial payment on a form provided by Rich. The cover sheet of the form contained columns for Cass to show 1) the breakdown amount for major categories of work, 2) the percentage completed, and 3) the total amount completed for which payment was being requested (after 10% retainage and prior payments were deducted). The same page also contained columns 'For F.D. Rich Company Use Only' in which Rich would indicate the percentage and amount completed. In these columns Rich would adjust amounts requested based on the work that had been approved by the Government. The internal pages of the form contained the detail upon which the composite figures on the cover were based. 44 House services were included on the forms in the major category, 'Water Mains.' Under the subcategory 'House Services,' the breakdown amount for 'Valves, Stops & Services' was $22,754.00, the amount shown on the change order issued by Rich and the amount used by the district court. The columns for work completed show $7,614.80. Similarly Rich's bar graph of the Cass contract (Trial Exhibit IK) shows that Cass performed work in this category before the house services were deleted. On the cover page Rich included this amount of work as work completed in the 'For F.D. Rich' columns, and it clearly should not have been adjusted out of the amount deleted. In later applications for partial payment, the cover page shows a deduction from the Water Main category of $13,667.21 for the contract modifications. This is the agreed adjustment according to the testimony of Cass's president. He testified that the additional $1,471.99 resulted from a later agreement. 5 45 Rich's approval of Water Main Work completed indicates the work was 98% complete. Rich multiplies this by the adjusted price shown by Cass to arrive at the amount approved. Since $13,667.21 was used by both parties as the correct adjust amount, without objection until after this litigation began, and having read the testimony of both Cass's president and Rich's witness concerning this figure, 6 we hold it was error for the district court to use the higher figure. The effect of this adjustment on damages is set forth in Schedule C attached to this opinion. 46 5. Responsibility for Delay. The district court used a total contract period of 850 days in computing additional General Operating Field Expenses. The source of this figure is unclear. In making several calculations, the district court attributed 146 days of this delay to Cass, one half of the 292 days by which Cass was late in delivering the building pads. USF&G argues that the actual contract period was 884 days and that only 38 days should be attributed to Cass. USF&G's calculations are as follows: 47 Original Contract period 540 days Contract extensions for which the government did not charge a penalty 268 Days for which penalty charged 76 --- Total contract period per USF & G 884 days --- 48 USF&G argues that since the Government 'accepted responsibility' for delaying the project 268 days, the days cannot be charged against Cass, only the remaining 76 days can be. Further, USF&G contends that since the district court held damages should be divided between Cass and Rich, only 38 days (1/2 of 76) should be charged against Cass. Since we earlier held that damages should not be divided between Rich and Cass, we may ignore this final contention. Rich argues that the district court found that the reasons the Government granted extensions had no relation to Cass's delay and therefore need not be considered. The facts cited by USF&G are not sufficient for us to enter judgment on this basis, but neither is the finding by the district court that the extensions granted by the Government were unrelated to Cass's delay sufficient for us to affirm. 49 The questions are whether the delay for which the Government did not charge Rich with a penalty (hereinafter referred to as 'Government delay') was an actual delay or only an apparent one and, if an actual delay, whether it was in addition to the delay caused by Cass or whether it was concurrent with that caused by Cass. In other words, looking at the figures in gross, if the project was delayed 292 days by Cass and then 268 days by the Government, for a total of 560 days, Cass would be responsible for the full 292 days. Similarly, if the 268 days did not result in actual delay to the project, because the delayed items were not on the critical path of the project and the project would not have been delayed by these days had Cass been on schedule, then Cass is fully responsible for the 292 days. On the other hand, if the project would have been delayed 268 days even if Cass had completed its work on schedule, then Cass and the Government were each sufficient causes for the 268 days of delay. 7 On remand the district court will have to determine which of these situations, or some hybrid combination thereof, existed in this case. Some of the Government delay may fall into one category; some into another. Total figures were used here only to provide an example. 50 We express no opinion on the extent to which Cass would be liable if the delays were concurrent, the final hypothetical posited above. We can conceive of equitable and policy arguments ranging from holding Cass completely responsible for the concurrent portions of the delay to holding Cass liable for none of the concurrent portion. This issue, which may or may not even need to be reached depending on factual determinations by the district court, has neither been briefed nor argued before the court. 51 The schedules attached to this opinion do not reflect any adjustment for the problems noted in this subsection and therefore may need to be modified by the district court to reflect these considerations before judgment can be entered. On remand, findings of fact and conclusions of law should be entered on the matters discussed in this subsection, and we suggest their effect, if any, be summarized as modifications on a schedule which follows generally the format of Schedule A. 52 6. Overpayments by Rich. USF&G argues that it, as surety for Cass, should not be required to pay $77,557.53 8 of the damages awarded to Rich because a witness for Rich testified that Cass had been overpaid by that amount. According to USF&G, Indiana law provides that overpayment by a principal releases a surety to the extent of the overpayment. Detroit Fidelity & Surety Co. v. Bushong, 96 Ind.App. 352, 175 N.E. 683 (1931) (en banc). 53 Indiana law does not mandate the result urged by USF&G. The key element to the Bushong case is that the payments were made in excess of the amount due under the terms of the contract on which the surety bond was issued. Both the surety bond and the payment bond between Cass and USF&G for the benefit of Rich contain the following language: 54 'The Surety (USF&G) and the principal (Cass) hereby jointly and severally agree with the Obligee (Rich) that the obligation of said Surety and its bond shall be in no way impaired or affected . . . by any payment (under the subcontract) before the time required therein . . . and such Surety does hereby waiver notice of any and all such . . . payments . . ..' 55 The subcontract, incorporated into the surety bonds by reference, contained similar language in specifying the payment obligation of Rich: 'First party (Rich) at its sole option, may make prepayments without affecting the terms hereof nor the liability on any bond given by the second party (Cass).' Article XXI, $2. 56 Although Rich's witness characterized the payments made to Cass as 'overpayments,' they are not overpayments in the sense that they were funds which would not have been due Cass had Cass remained on the job but rather overpayments in the sense that the funds were not yet due Cass; i.e., they were prepayments. They were therefore not payments in violation of the contract which would release USF&G. We have no reason for thinking that if Cass had remained on the job it would not ultimately have repaired its deficient work. 57 . Limitation of Damages. USF&G's claim that the damages awarded against appellants should be limited to $280.00 per day, the amount which the Government could collect against Rich as liquidated damages, is totally frivolous. USF&G argues that any greater amount would be beyond the contemplation of the parties. The liquidated damages which the Government may have been willing to accept by virtue of being delayed in utilizing the facilities have no relationship to the damages which Rich suffered as a result of excess time on the project. The subcontract contemplated this problem: 58 'The second party (Cass) agrees that if it shall delay the progress of the work, so as to cause any damage, for which the first party (Rich) shall suffer or become liable, it shall make good to the first party any such damages, all inclusive, and the assent or permission of the first party to the delayed finishing of the work shall not be construed as a waiver of the agreement to make good any damage caused by such delay or default or a forfeiture of such damages.' Article VII, $2. 59 Thus, the liquidated damage provision of the general contract in no way limits the damages for which Cass may be charged even though it is a component of those damages.