Opinion ID: 2743534
Heading Depth: 3
Heading Rank: 1

Heading: The Bid Process

Text: Yates decided to submit a bid on the general contract to handle the airport expansion project. To form its bid for the general contract, Yates solicited bids from subcontractors to handle various components of the expansion project, including the installation of the escalators. In soliciting bids for the escalator installation, Yates made Drawing A180 and the Master Spec available to all the bidders and instructed them that their bids had to conform to those requirements. Otis was one of the companies that bid on the subcontract for the escalator installation. Trey Steber, Otis’ new-equipment sales representative, prepared Otis’ proposal. When Steber reviewed Drawing A180 and the Master Spec, he concluded that they were “unclear” as to the step width for the escalators. Despite 3 Case: 13-14067 Date Filed: 10/17/2014 Page: 4 of 19 Steber noticing the ambiguity, neither he nor anyone else at Otis tried to clarify the step-width issue before submitting Otis’ bid. Instead Otis assumed that 32-inch steps would be acceptable and submitted a proposal that used escalators with a 32inch step width. Yates accepted Otis’ bid because it was the lowest quote for the escalator installation. Yates then used Otis’ bid as part of its own bid on the general contract. The Airport awarded the general contract to Yates because it was the lowest bidder. 2. The Prime Contract, the Shop Drawings, and the Subcontract After Yates was awarded the general contract, it still had to formalize its contract with the Airport and its subcontracts with Otis and the other subcontractors. The “Prime Contract” between Yates and the Airport had three features relevant to this appeal. First, the Prime Contract expressly incorporated Drawing A180 as part of its terms 2 and required Yates “to complete the work in strict accordance with said plans, specifications, and Contract terms.” Second, it established that Chapman Sisson “shall decide all questions that may arise as to the interpretation and/or clarification of the specifications or plans relating to the work, the fulfillment of the Contract on the part of the Contractor, and the rights of different contractors on the project.” Third, the Prime Contract required both Yates and Chapman Sisson to, before work began, review and approve all “Shop 2 The Prime Contract’s definitions section specifies that the Prime Contract “include[s] . . . the Specifications [and] the Plans . . . .” 4 Case: 13-14067 Date Filed: 10/17/2014 Page: 5 of 19 Drawings . . . and similar submittals” from the subcontractors to ensure that they complied with the Prime Contract’s requirement. However, the Prime Contract made clear that Chapman Sisson’s “[r]eview of such submittals is not conducted for the purpose of determining the accuracy and completeness of other details such as dimensions and quantities.” With the Prime Contract signed, Yates and Chapman Sisson began the process of reviewing and approving shop drawings as required by the Prime Contract. Otis submitted shop drawings indicating that it would install escalators with a 32-inch step width. Otis did not include any disclaimer or other notice to Yates that called attention to the fact that the shop drawings used 32-inch steps. As is customary in the industry, Chapman Sisson did not conduct a “line item” review of the over 400 submittals it received from Yates’ subcontractors. Similarly, in keeping with industry custom and the terms of the Prime Contract, it did not check the shop drawings to ensure that their dimensions matched the Prime Contract’s specifications. When Chapman Sisson approved Otis’ revised shop drawings,3 it used a stamp that specifically qualified its approval by stating: “This review is only for general conformance with the design concept of the project and general compliance with the information given in the Contract Documents.” 3 Chapman Sisson had, at the Airport’s request, checked Otis’ shop drawings to confirm that it included several details unrelated to the escalators’ step width. Because Otis’ initial drawing had failed to include those unrelated details, it had to submit a revised shop drawing. 5 Case: 13-14067 Date Filed: 10/17/2014 Page: 6 of 19 Yates also reviewed and approved the revised shop drawings. The stamp it placed on the shop drawings specified that Yates’ review had been “for general compliance” and that the “[f]inal dimensions and quantities required for the project remain the responsibility of the subcontractor.” After the approval of Otis’ shop drawings, Yates signed a separate contract with Otis (the Subcontract). Several of its provisions are relevant here. First, the Subcontract expressly incorporated “all terms and conditions of the Prime Contract,” as well as “all drawings, specifications, details and standards.” It provided that Otis had to complete the escalator installation “in strict accordance with this Subcontract and with the Prime Contract.” Second, the Subcontract gave “the appropriate design professional” binding authority to resolve “any conflict, ambiguity, . . . or . . . difference in interpretation” of the Subcontract. Third, the Subcontract established that Yates’ and Chapman Sisson’s review and approval of shop drawings did not excuse Otis from performing its work in “strict accordance” with the project’s plans and specifications. The Subcontract went on to emphasize that Yates had “no duty to discover any mistake, error, or deviation in any submittals from the Prime Contract requirements,” and that Yates’ and Chapman Sisson’s approval of the submittals “shall not relieve [Otis] from responsibility or liability for any mistakes, error, or deviation, or of [Otis’] obligation to perform its work in strict accordance with the Prime Contract.” Finally, the Subcontract had a 6 Case: 13-14067 Date Filed: 10/17/2014 Page: 7 of 19 merger clause that limited the terms of the agreement to those written in the Subcontract itself and the documents incorporated by reference in the Subcontract. 3. The Airport Protests Nobody noticed a problem with the escalators’ step width until March 14, 2012. Chris Waters from Chapman Sisson performed bi-weekly site visits to monitor the progress of the expansion project, and his visit on March 14 was his first since the escalators were operational. In earlier visits there had been “plastic” and “barricades” around the escalators. While riding the escalators, Waters realized that they were narrower than what the plans had shown. After comparing Drawing A180 with Otis’ shop drawings, Waters realized that the escalator steps were 32 inches when they should have been 40 inches. When the Airport learned of the issue the next day, it demanded that all four escalators be replaced with 40-inch-step escalators. It also threatened Yates with the prospect of liquidated damages — $5,000 a day beginning April 20, 2012, and $7,500 a day beginning June 17, 2012. The Airport’s threats prompted an exchange of letters between Yates and Otis. Yates sent a letter on March 20, 2012, that (1) informed Otis that the Airport had deemed the 32-inch steps to be out of compliance with the Prime Contract, (2) directed Otis to remove the two interior escalators and replace them with 40-inch-step-width escalators, and (3) reminded Otis that it was responsible for the escalators’ failure to conform with the Prime 7 Case: 13-14067 Date Filed: 10/17/2014 Page: 8 of 19 Contract. Otis responded in a letter on March 21, 2012, dismissing Yates’ position as “ridiculous” and claiming that Drawing A180 and the specifications were “cryptic” as to step width. Otis also requested that Yates “work with us to persuade the [Airport] that such a step is unnecessary, time-consuming, an enormous waste of assets, and will certainly result in litigation.” Yates believed that Otis’ request triggered Yates’ obligation under the Subcontract to present Otis’ position to the Airport and Chapman Sisson. Yates responded on March 22, telling Otis it would “attempt to reach a resolution with the [Airport] but the onus rests on Otis to comply with the Contract Documents.” Otis replied the next day, confirming that it would participate in a meeting that Yates had arranged with the Airport and Chapman Sisson, but denying any contractual obligation to replace the escalators. On March 26, 2012, all of the relevant parties — the Airport, Chapman Sisson, Yates, and Otis — met to discuss the escalators. At the meeting, Otis presented its position by making five main arguments to the Airport and Chapman Sisson: • The specifications and plans did not explicitly denote the step width; • Another subcontract bidder had also proposed using 32-inch steps in its bid on the escalator subcontract; • 40-inch escalator steps would not fit in the wellways provided by Drawing A180 and the Master Spec; • Yates and Chapman Sisson both “approved” Otis’ shop drawings with the 32-inch steps; and 8 Case: 13-14067 Date Filed: 10/17/2014 Page: 9 of 19 • Either Yates or Chapman Sisson should have noticed the discrepancy earlier. At the end of the presentation, the Airport rejected Otis’ arguments, directed Otis and Yates to replace the escalators with 40-inch-step-width units, and asked Otis to formally respond to its directive. Several days after the meeting, Yates sent a letter to the Airport formally laying out the arguments in favor of Otis’ interpretation. 4 Chapman Sisson responded in a letter dated March 29, 2012. It rejected the arguments favoring Otis’ interpretation and concluded that Drawing A180 called for 40-inch steps, not 32-inch steps. On May 7, 2012, Yates reached a compromise with the Airport that was formalized as Change Order 75. Under the agreement, the Airport would keep all four of the 32-inch escalators. The two exterior escalators would remain in place and receive some minor modifications. The two interior escalators would also remain, but would be repositioned so that a third, 40-inch-step escalator could be added. Yates would avoid liability for liquidated damages, but it would have to perform the work at no cost and would credit the Airport $100,000 for accepting the exterior escalators and $36,600 for the architectural and engineering costs of 4 Two versions of Yates’ letter were produced at trial. The one dated March 28 presents the arguments as the opinion of both Yates and Otis, while the one dated March 29 specifies that the arguments are Otis’ view. The parties disagree about which one was actually sent to Chapman Sisson, but it does not matter to our decision. 9 Case: 13-14067 Date Filed: 10/17/2014 Page: 10 of 19 reconfiguring the interior escalators. Yates also had to waive its right to recover from the Airport any costs associated with Change Order 75. On May 9, 2012, Yates and Otis worked out their own agreement for Change Order 75. Each agreed to bear its own costs and reserved its respective rights against the other under the Subcontract. Otis completed the installation and alteration of the escalators within the timeframe specified by Change Order 75. Yates claims that it incurred $599,000 in costs associated with Change Order 75, and it offset those costs by invoking the terms of the Subcontract and withholding the $260,013.70 that it owed Otis for its initial work installing the escalators (not on Change Order 75). Otis claims that its records show that it incurred $123,659.97 in completing the work for Change Order 75.