Opinion ID: 1638588
Heading Depth: 2
Heading Rank: 2

Heading: The Board's Claim of Breach of Contract as to Contract 16

Text: To paraphrase the trial court's January 2004 order and its March 2005 judgment, the trial court concluded: 1. There was no issue but that Harbert had substantially completed Project 16 on May 24, 1996. 2. As a matter of law, after it had substantially performed its obligations, Harbert was entitled to the balance of the contract price under Contract 16, less the costs, if any, of correcting any minor deviations that existed as of that date. 3. The Board's termination of Contract 16 after Project 16 was substantially complete was a material breach of Contract 16. 4. The Board's wrongful termination of Contract 16 prevented Harbert from fulfilling its remaining contract obligations, i.e., correcting any defective work or unperformed work that it had been paid for and that existed as of May 24, 1996, and performing its one-year-warranty obligation, at its own expense. 5. As a matter of law, the Board's wrongful termination of Contract 16 excused Harbert's future performance and barred the Board's counterclaim seeking completion costs (consisting of completion work and the correction of alleged deficiencies) and consequential damages under the contract. The Board argues that, based on the terms of Contract 16, it was not precluded from terminating Harbert's continued performance under the contract simply because Harbert might have substantially performed its obligations. The Board argues that, even if Harbert had substantially performed (and therefore was entitled to certain payments under the contract), it continued to have ongoing obligations under the contract, including obligations to correct punch-list items and to perform any work which became necessary under the one-year warranty. If Harbert failed to perform some or all of these obligations, the default and termination provisions of the contract apply just as they do to defaults during the substantial-performance phase of the contract work. We agree. We note that subsection 5.09 of the standard specifications required Harbert to correct unacceptable work, i.e., punch-list items, discovered before final acceptance. Also, subsection 5.10 of the standard specifications states: All work which has been rejected shall be remedied or else removed and replaced in an acceptable manner by [Harbert] at [its] own expense, and no compensation shall be allowed him for such removal or replacement. ... Upon failure on the part of [Harbert] to immediately comply with any order of [BCM] made under the provision of this Section [5], [the Board] shall have authority to cause defective work to be remedied, or removed and replaced ... and to deduct the cost from any monies due or to become due [Harbert]. In case no such monies are available, the amount shall be charged against [Federal]. Likewise, subsection 8.13 of the standard specifications, which discusses Harbert's submission of payment estimates for work it had performed, states: To insure the proper performance of this Contract, the [Board] will retain 10 percent of the amount of each estimate ... until final completion and acceptance of all Work covered by this Contract.  (Emphasis added.) As noted in the factual background discussion above, the standard specifications further state: 5.15 FINAL ACCEPTANCE: After the Final Inspection is made as outlined above, [Harbert] shall maintain the Work for 30 days in the same manner as set forth under [subsection 4.08] `Maintenance of the Work During Construction.' The Work will be finally accepted at the end of the 30 day maintenance period provided all work has been satisfactorily maintained. [Harbert], immediately after receiving the letter of Final Inspection, shall give notice of said completion of Work by an advertisement in some newspaper of general circulation published within the city or county wherein the Work has been done for a period of four successive weeks. ...  In no instance shall a final settlement be made upon [Harbert] until the expiration of the Maintenance Period and until the Contract is completed and Project accepted by the [Board]. 5.16 MAINTENANCE GUARANTEE AFTER ACCEPTANCE: Neither the final certificate of payment nor any provisions in the Contract nor partial or entire use or occupancy of the premises by the [Board] shall constitute an acceptance of work not done in accordance with the Contract or relieve [Harbert] of liability in respect to any express warranties or responsibility for faulty materials or workmanship. [Harbert] shall remedy any defects in the Work and pay for any damage to other work resulting therefrom which shall appear within a period of one year from the date of final acceptance of the Work unless a longer period is specified. The [Board] will give notice of observed defects with reasonable promptness and [Harbert] shall repair the defects immediately. [Harbert's] Performance or Contract Bond shall remain in effect and cover this guarantee. After completion of the Project and prior to final acceptance, [Harbert] shall provide a statement addressed to the [Board] from [Federal] acknowledging that the Contract Bonds will remain in effect during the one-year warranty period. Final payment under the Contract will not be made until this statement is received. (Emphasis added.) Thus Harbert clearly had an ongoing obligation to complete the punch-list items in an acceptable manner and to correct deficient work discovered within a period of one year from the date of final acceptance. Further, we have found no contractual support for a conclusion that the Board's right to terminate Contract 16 pursuant to subsections 8.11 and 8.12 of the standard specifications rested on whether Harbert's alleged delay, neglect, or default arose before substantial completion of the work to be done under the contract. Subsection 8.11 clearly states, without qualification, that Harbert would be in potential default if it neglect[ed] or refuse[d] to remove materials or perform anew such work as shall be rejected as defective and unsuitable, or discontinue[d] prosecution of the Work, or from any other cause whatsoever [did] not carry the Work in an acceptable manner. (Emphasis added.) Subsection 8.12 authorized the Board to summarily terminate the contract [i]n the event of failure by [Harbert] to perform any and all of [its] obligations in a prompt and efficient manner satisfactory to the [Board.] (Emphasis added.) [20] There is no contractual basis for the conclusion that the Board's right to terminate Contract 16 was limited to delay[s], neglect[s], or default[s] that occurred before Harbert had substantially performed the construction of Project 16. The evidentiary materials presented to the trial court do not support the conclusion that there was no genuine issue of fact as to whether Harbert completed the punch-list items in an acceptable manner or adequately performed any necessary warranty work. Viewing the parties' submissions in the light most favorable to the Board, and drawing all reasonable factual inferences in favor of the Board, see Capital Alliance Insurance, supra, based on the evidentiary materials submitted to the trial court discussed above and those discussed hereinafter, we conclude that genuine issues of material fact existed with respect to alleged deficiencies in Harbert's work, both as it existed as of May 24, 1996, and as subsequently performed. Our conclusion is supported by the correspondence reported above. In addition, the Board submitted to the trial court an affidavit from Donald Lynn May, a registered electrical engineer who had worked on Project 16, that states, in part: Subsequent to June 14, 1996, I inspected the physical plant and work comprising the scope of Contract 16. I compared the actual progress made by Harbert to the contract documents for Contract 16, including the plans and specifications. Harbert's performance of the work of Contract 16 was unacceptable in that Harbert did not complete substantial portions of the work specified by the contract. These portions include, but are not limited to: incomplete wiring for instrument loops; instrument devices missing; incomplete programming; failure to tag and identify wires; absence of any interlocks and missing or inadequate displays of the process within the control room. In my opinion as an engineer involved in Contract 16, Harbert's performance was unsatisfactory. The work performed did not constitute acceptable compliance with the work specified by Contract 16. Also, the Board submitted the following testimony from Asarisi: Q. And what problem with the centrifuge was reported to Harbert in that letter of April 2, 1997? A. This states that the required analog output to control the speed of the drives, the feed pumps, and control of the polymer pump is not provided and, also there are no analog inputs to accept sludge flow signals or tank levels and, also the lightning protection system had not been installed and performance testing had not been done. Q. Were those items that were essential to proper fulfillment of the Contract 16? [Harbert's counsel]: Object to the form. A. Yes, sir. Q. In your judgment as engineer, could Contract 16 be acceptably fulfilled in the absence of those items being properly accomplished? [Harbert's counsel]: Object to the form. A. No, sir. (Emphasis added.) As to the June 18, 1997, punch list, Asarisi further stated: Q. What items did the engineer determine were left out of the contract and not installed by Harbert? [Harbert's counsel]: Object to the form. .... A. I remember there was a control panel issue, which was in one of these prior exhibits that wethe controls, the control panel, specific controls were missing from that. That was a major item, sir. Q. When you speak of items being left out, do you mean that if you looked in the control panel box, it simply was not there? A. That's correct, sir. (Emphasis added.) We further note that the Board presented evidentiary materials indicating that the two centrifuges Harbert installed ultimately proved so deficient as to require the addition of a new, third centrifuge to bring Project 16 up to the capacity required under Contract 16. Based on the foregoing, we conclude that the trial court erred when it entered a summary judgment against the Board as to its claims against Harbert alleging a breach of Contract 16 and as to its claims against Federal under the surety bond for Contract 16, on the stated ground that the Board's termination of Contract 16 in December 1997 came after Harbert had rendered substantial performance. The provisions of Contract 16 gave the Board the right to such a termination if justified by Harbert's acts or omissions. A genuine issue of fact exists as to whether Harbert's acts or omissions justified the Board's termination of Contract 16.