Opinion ID: 474514
Heading Depth: 2
Heading Rank: 1

Heading: Damages for Second Mobilization

Text: 16 The district court awarded Bagwell damages for the second mobilization only, and Middle South claims on appeal that the district court erred in making this award for various legal and factual infirmities. Middle South asserts that the district court erred in refusing to find that the remedial provisions of the contract between Middle South and Bagwell were dispositive of any claim by Bagwell for additional compensation. Middle South also claims that Bagwell waived its breach of contract action by its continued performance. Finally, Middle South claims that in any event the district court erred in awarding Bagwell damages because Bagwell failed to introduce sufficient evidence that Bechtel's actions were the proximate cause of any specific damage incurred by Bagwell. 17
18 The contract between Middle South and Bagwell contains an explicit provision for changes and extra work. 1 This provision, article 38, essentially allowed Bechtel, as Middle South's agent, to require Bagwell to perform extra work, work outside the scope of the contract, or a change, a substitution, addition, or deletion of work within the scope of the contract. To be recompensed for changes or extra work, Bagwell was required to submit within ten days after receiving a written order from Bechtel a proposal outlining the cost of such work in sufficient detail, which Bechtel could either accept or reject in whole or part. If this proposal was rejected in whole or in part by Bechtel or if Bagwell did not submit a cost proposal, article 38 provided a detailed method of computing compensation. It is the asserted applicability of article 38 to the facts of this case that is the main focus of Middle South's appeal. 19 Middle South claims that article 38 should have governed the district court's disposition in this case. First, Middle South notes that the district court held that under the circumstances before it, Bagwell had the right ... to submit a claim for additional costs, thus arguably finding article 38 applicable. Middle South claims that the district court ignored its own holding by finding that the conditions Bagwell faced during its second mobilization were the proximate cause of substantial additional costs to plaintiff [Bagwell] in continuing work at Grand Gulf, but nevertheless awarding damages not in accordance with article 38. Since the district court awarded damages to Bagwell other than pursuant to article 38, Middle South concludes that the district court implicitly but erroneously awarded damages for breach of contract. Thus Middle South's ultimate position is that Bagwell must recover additional compensation, if any is owing, only through article 38. 20 Middle South asserts that the contract is flexible and is fully capable of resolving the current dispute through its various provisions and amendments, including primarily article 38 for changes and extra work. Middle South claims that the contract also provides compensation for differing site conditions (article 16), 2 and suspensions (article 42), 3 , and thus concludes that the contract is fully capable of adapting to meet this dispute. However, Middle South fails to explain why article 38 or any of the other above-noted articles are applicable to this particular dispute. Middle South claims that under article 38 Bagwell forfeited all rights to additional compensation because Bagwell did not comply with the requisites contained therein for compensation. Middle South asserts that Bagwell submitted claims under article 38 that were no more than stacks of paper, and thus Bechtel's rejection of these claims was correct. We reject these contentions. 21 Bagwell's suit was for breach of contract by Middle South. Bechtel, Middle South's agent, violated a specific contractual condition that it not obstruct the structural steel before the fireproofing. The contract between Middle South and Bagwell provided, through the adoption of Carboline's guidelines for the use of its cementitious fireproofing material Pyrocrete, that the fireproofing work was to proceed before installation of fixtures or equipment obstructing access to the steel members. This was a specific contract provision, unique to the contractual relationship between these parties. 4 22 Breach of this contractual provision to provide Bagwell unobstructed access to the structural steel is fully supported by convincing, undisputed evidence in the record. Don Williams, the production foreman for Bagwell during the Grand Gulf project, testified that piping, unistruts, duct work, [and] cabletrans were attached to the structural steel, and these obstructions slowed it [the fireproofing] down an awful lot. Photographs were admitted into evidence that established the work surface area in and around structural steel was clustered with various components. Williams also testified that conditions were often even more congested than those depicted in the photographs. These photographs show steel covered with various ducts and other obstructions. Working conditions suffered greatly as a result of this congestion, and workers were forced to improvise to the extent possible. 5 Furthermore, Gonzalez, president of Bagwell, testified that not having control of the work, the congestion, and not having a proper schedule severely affected Bagwell's profitability under its contract with Middle South. Thus we find uncontroverted evidence in the record that Middle South, through its agent Bechtel, breached its contract with Bagwell. 6 23 As we have noted, the contract requires that the fireproofing was to be done before the ducts, pipework, equipment, and other similar obstructions were in place. While it is perhaps arguable that Changes or Extra Work within the contemplation of article 38 should not be read so broadly as to authorize total repeal of this provision against obstruction of access, 7 we need not resolve that issue. Here, article 38 was never invoked by Bechtel or Middle South so as to alter this provision of the contract. No written order for Changes or Extra Work was ever issued in this respect, 8 and indeed Bechtel consistently refused to issue such an order. Accordingly, article 38 never came into play, and there was no article 38 Change of the contract to eliminate the provision prohibiting obstruction of access to the steel members. 9 Consequently, Middle South's breach of the contract remained unexcused. 10 The cases relied on by Middle South 11 are not in point, for none of them involve situations where the party in Middle South's position was guilty of breach of the contract. Moreover, here, Bagwell's recovery is for damages for breach of contract, as opposed to being for the value of work not covered by the contract. Bagwell performed the work covered by the contract--fireproofing the structural steel--and has not recovered for performing work not covered by the contract. Rather, Bagwell has recovered damages it incurred because Middle South's breach of the contract provision prohibiting obstruction of access increased Bagwell's cost of performance. Nor is this a situation in which a contractually authorized change order is issued. See Jackson v. Sam Finley, Inc., 366 F.2d 148 (5th Cir.1966). Had such an order been properly issued under article 38 (assuming its potential applicability), then Bagwell would have been entitled to the additional compensation called for by article 38 (in contrast to the Sam Finley situation where under the contract the change order did not affect the unit price), and the contract would have been changed so that Middle South would not have been in breach of it. But a change order was not issued, so Middle South remained in breach of its obligations under the contract. Bagwell, which performed its obligations, is entitled to recover its damages for Middle South's breach. 12 24 Nor does Middle South fare any better under its waiver or election of remedies contentions urged at oral argument before us. Middle South's theory seems to be that remedies under article 38 and for breach of contract are mutually exclusive, and that by continuing performance Bagwell chose the former and waived the latter. Under Mississippi law, election of remedies applies only when there is a choice between two or more available but inconsistent remedies. Anaconda Aluminum Co. v. Sharp, 136 So.2d 585, 588 (Miss.1962); O'Briant v. Hull, 208 So.2d 784, 786 (Miss.1968). Mississippi has been slow to accept the doctrine of election of remedies and its application has been carefully limited and guarded. Anaconda, 136 So.2d at 589. Election has not been established here. Since a change order was not issued, and Bagwell had no right to force a change order as such, an article 38 remedy was not available. Bagwell made no choice between article 38 remedies and those for breach of contract. Bagwell, at the beginning of the second mobilization, indicated it was ready to forego completely any further contract performance unless pricing arrangements were made. Bechtel pleaded with Bagwell to continue and assured Bagwell that these problems would be resolved, and that appropriate compensation would be forthcoming, if Bagwell would only return to or continue its fireproofing work. Moreover, the evidence does not indicate that while Bechtel was promising to recompense Bagwell, it promised to do so only under article 38. Indeed, the opposite appears to be true, for Bechtel employees consistently denied the applicability of any specific provision of the contract to its dispute with Bagwell. Moreover, since Bagwell clearly protested and Bechtel induced it to nevertheless continue work by assurances that Bagwell would be appropriately compensated, it cannot be said that Bagwell's continued performance under those circumstances constituted, as a matter of law, a waiver of its right to damages for Middle South's breach of contract. See Montgomery v. Kimbrough Homes, 214 Miss. 519, 59 So.2d 273, 276 (1952); Peter Kiewit Sons' Co. v. Summit Construction Co., 422 F.2d 242, 259 (8th Cir.1969). See also 13 Am.Jur.2d Building and Construction Contracts Sec. 53 at 57 (It is generally held that a building or construction contractor does not, by proceeding with the work, waive the right to recover damages resulting from the delay caused by a default of the contractee, especially where the contractor protests against the delay. (Footnote omitted.)). 13 25 Finally, our holding that Bagwell is entitled to breach of contract damages apart from article 38, and that its continued performance of the work does not require a determination that it waived its right to damages, is fully supported by our recent decision in Affholder, Inc. v. Southern Rock, Inc., 736 F.2d 1007 (5th Cir.1984), which also involved Mississippi law. Indeed, Chief Judge Clark's dissent in Affholder makes it clear that he too would have allowed recovery for the party in Bagwell's position had the work site change which caused that party's additional expenses been a breach of the contract by the other party. Id. at 1017. Here, as we have noted, Middle South breached the contract prohibition of obstructing access to the steel members, and article 38 does not excuse this breach because a change order was never issued. Unlike the subcontractor in Affholder (id. at 1018), Bagwell protested this breach, and Bechtel in response gave assurances that Bagwell would be appropriately compensated if it continued.
26 Middle South's next claim is that even if Bechtel breached the contract by obstructing the structural steel, Bagwell was nevertheless not entitled to damages because it failed to sufficiently prove that Bechtel's actions caused any specific damage, or the amount thereof. Middle South asserts that the district court adopted a total cost method of calculating Bagwell's damages, which erroneously permitted Bagwell to assume that Bechtel's breach caused all the additional costs which Bagwell thereafter incurred. Consequently, Middle South asserts, the district court did not require Bagwell to, and Bagwell did not, prove that its own internal inefficiencies or other problems not related to Bechtel or Middle South were not in whole or part the cause of Bagwell's increased costs, and thus Bagwell failed to meet its burden of proof. United States ex rel Gray-Bar Electric Co. v. J.H. Copeland & Sons, Inc., 568 F.2d 1159, 1161-62 (5th Cir.), cert. denied, 436 U.S. 957, 98 S.Ct. 3072, 57 L.Ed.2d 1123 (1978) ([T]he party who seeks to collect damages has the burden of proving the extra costs it has incurred as a result of the breach.). 27 As Middle South notes, the total cost method is not well defined, but it typically involves a comparison of the bid amount and actual costs. It has been described as follows: 28 The total cost method for ascertaining damages 'has been used when actual costs for the change are unavailable and there is no acceptable estimate of the costs involved in the change. Under this method, the contract price is subtracted from the total cost of performance and the difference is considered the amount of the change.'  United States v. R.M. Wells Co., Inc., 497 F.Supp. 541, 545 (S.D.Ga.1980) (quoting Nash and Cibinic, The Changes Clause in Federal Construction Contracts, 5 Geo.Wash.L.Rev. 908, 933 (1967)). 29 Here the district court derived Bagwell's extra costs from an exhibit Bagwell prepared that compared actual costs and estimated costs and in various cost management categories defined the difference. The district court added up the additional amounts Bagwell had expended and arrived at a total sum for Bagwell's extra direct costs. It subtracted from this amount ten percent for Bagwell's admitted internal inefficiencies. This appears to be a species or variant of the total cost approach, for often that method is modified to include a downward adjustment to eliminate costs not due to the breach. 14 See Fattore Company, Inc. v. Metropolitan Sewerage, Inc., 505 F.2d 1 (7th Cir.1974). 30 Whatever the label of the award of damages to Bagwell, Middle South claims that the district court abused its discretion in awarding Bagwell damages on this cost comparison theory because the ten percent reduction in actual enhanced costs used by Bagwell and the district court to compute damages was not a permissible substitute for direct proof of the amount of damages where such proof was possible, as Middle South contends it was here. It asserts that the testimony of Nathan Sadownik, Bechtel's cost and scheduling supervisor, clearly established that more precise proof of damages was possible in this case when he testified that a method of attribution of damages would have been difficult but not impossible. Middle South argues in this connection that jurisdictions utilizing the total cost method have held that in order for it to apply the claimant must demonstrate that, inter alia, the nature of the particular losses makes it impossible or highly impractical to determine them with a reasonable degree of accuracy and that it [the claimant] was not responsible for the added expenses. Wells, 497 F.Supp. at 545; see also J.D. Hedin Construction Co. v. United States, 347 F.2d 235, 171 Ct.Cl. 70 (1965); Moorhead Construction Co. v. City of Grand Forks, 508 F.2d 1008 (8th Cir.1975). Accordingly, Middle South asserts, the entire award of damages is erroneous, and Bagwell is entitled to no recovery. 31 We find, however, that Middle South's position gives insufficient weight to the distinction between the amount of proof necessary to establish that a breach of contract is the proximate cause of some substantial damage of a particular kind to a plaintiff, and the quantum of proof necessary to fix the amount of those damages. A noted treatise has stated on this subject: 32 An attempt is sometimes made to distinguish between certainty that some damage has been caused, and certainty as to the amount of damage; ... but no broad statement can be made that where it is uncertain that any damage has been caused by the breach no recovery is allowable.... What can be said is that-- 33  'There is a clear distinction between the measure of proof necessary to establish the fact that [the plaintiff] sustained some damage and the measure of proof necessary to enable the jury to fix the amount.'  11 Williston on Contracts Sec. 1346 at 240-41 (3d ed. 1968) (quoting Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 51 S.Ct. 248, 250, 75 L.Ed. 544 (1931) (damages under Sherman Act)). 34 This is also the rule in Mississippi. In Ross v. Deposit Guaranty National Bank of Jackson, Mississippi, 400 F.Supp. 45, 52 (S.D.Miss.1974), applying Mississippi law, the district court noted this distinction, holding: 35 Not only is there an absence of evidence that the plaintiffs suffered damages as a direct and proximate result of any fraudulent or tortuous action or inaction on the part of the defendants but plaintiffs failed to actually prove that they suffered any damages or the amount thereof. Although under Mississippi Law the lack of a perfect measure of damages does not preclude recovery, nonetheless they must be proved with reasonable certainty and may not be speculative or conjectural. 36 Here, as discussed previously, the evidence clearly established a breach of contract which proximately caused Bagwell to incur damages in the form of substantially increased costs of performance. For instance, Bechtel's own Trend Report No. 41 assigned $340,000 as an allowance for Grand Gulf fireproofing because of extra work claims or revised unit pricing due to interference and congestion. According to the testimony of Bechtel's employee-expert Sadownik, $80,000 of this sum was assigned to Bagwell for work related to the present contract. Sadownik also admitted that the more obstructions that are placed on steel to be fireproofed, the more time consuming and costly the fireproofing operation becomes. He further testified that he could quantify ten percent of excess labor and man-hour costs as due to Bagwell's internal problems in those areas since he had data on those items, but that he could not quantify other areas because of a lack of data. However, there is no indication in the record that any other problems attributable to Bagwell that were not included in the overall ten percent cost reduction even existed, much less comprised any material aspect of the other (nonman-hour or nonlabor) extra costs incurred. We note that Sadownik testified that he quantified all of Bagwell's unproductive labor that he could without making some rash assumptions. Consequently, both the Trend Report and the testimony of Bechtel's own employee clearly acknowledged that Middle South's breach of contract in fact caused Bagwell to suffer substantial increased costs of performance. 37 Middle South's claim that Bagwell should be denied all damages because it did not establish that Bechtel's actions damaged Bagwell, on an item-by-item basis, must fail. This contention goes only to the amount of damages. Under Mississippi law, where, as here, a breach is proved and causation of some substantial damage is established, the proof needed to sustain an award of damages is much more flexible. The Mississippi Supreme Court has held: 38 Although the method used in obtaining the measure of damages is not entirely without fault, it may be said, as a general rule, that a party who has broken his contract will not be permitted to escape liability because of the lack of a perfect measure of damages caused by his breach. Therefore, a reasonable basis for computation and the best evidence which is obtainable under the circumstances of the case, and which will enable the trier to arrive at a fair approximate estimate of loss is sufficient proof. Koehring Co. v. Hyde Construction Co., 254 Miss. 214, 178 So.2d 838, 853 (1965). 39 Given the difficulty of precision in proof in this regard, a difficulty established by Bechtel's own witness, Bagwell's deduction of ten percent of all its enhanced costs for its own actions, which was at least partially validated by a Bechtel witness, and the total lack of proof that Bagwell's damage calculations were incorrect, we hold that the district court's finding of the amount of damages is not clearly erroneous. See Affholder. 15 We reject Middle South's complaints as to the damages.