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Design-Builder of a bridge sued its engineer subconsultant for costs allegedly attributed to errors in preliminary designs and cost/quantity estimates provided under the terms of a Teaming Agreement. Following a bench trial, the court rejected most of the design-builder’s claims, finding that the contractor was essentially attempting to argue that the preliminary plans prepared for bidding purposes should have been complete and accurate to the same extent as if they were one hundred percent final construction documents. Design-Builder claimed that if the engineer had not breached the Teaming Agreement it would have bid more and made a greater profit. There was no evidence that the engineer failed to meet the standard of care for preliminary design documents and nothing suggested anything the engineer did caused the Project to be more expensive. Middlesex Corp., v Fay, Spofford & Thorndike, Inc., 2019 WL 3552609, (Superior Court of Massachusetts, Suffolk County, 2019).

An important aspect of the decision was the rejection of the design-builder’s claim that the engineer breached the standard of care by not knowing the Department of Transportation (DOT) would ultimately reject its proposed design pitch of the bridge deck. Expert testimony supported the reasonableness of the engineer’s design and the court stated the design-builder might have recovered from DOT if it had pursued a claim against DOT. The judge concluded, “There appears to be no reason to charge [engineer] with [design-builder]s strategic decision not to press this claim.”

The Teaming Agreement

All of the design-builder’s claims are based on alleged breach of the Teaming Agreement. This particular agreement included a standard of care provision that provided the following:

9. The Design/Builder acknowledges that as a design professional, the Engineer’s performance of its service both pursuant to this Agreement and with regard to any services performed as part of a Subcontract for Design Services are subject to a professional standard of care. The Design/Builder and Engineer agree that the applicable standard of care for the Engineer’s services shall be that degree of skill and care normally exercised by practicing professional engineers performing similar services on similar projects under similar conditions. No other representations or warranties, whether express or implied, shall be imputed to the Engineer’s services …

11. The Engineer will provide its professional opinion regarding the Design/Builder’s construction estimate for quantities and comment on specific items of potential quantity growth, but the Engineer shall not have risk associated with estimate quantities and/or construction pricing. The Engineer will prepare its own independent estimate for use by the Design/Builder in making its assessment of quantities. The Design/Builder acknowledges that such estimates are based upon only limited and conceptual design development derived from the contents and requirements of the RFP. The Design/Builder shall verify quantities or other information furnished by the Engineer and shall use its knowledge and experience as a construction professional in developing its bid and pricing for the work, and shall include in such bid an appropriate degree of contingency for additional cost resulting from the post-award design development and finalization process.

Preliminary Design – steel issues

It was understood by the parties that the engineer would only provide preliminary design during the bid phase, and only about 3% of the engineer’s total fee for the project was for its pre-bid, preliminary design services. The engineer retained subconsultants to assist with certain aspects of the preliminary bridge design. One of those consultants (TY Lin) recommended a post tensioning system that would include the use of stringers (drag brackets).

The court decision has a lengthy discussion concerning the brackets and the designer’s consideration of whether to complete that aspect of the design before bidding the project or to await contract award before completing that design. Partly as a result of an RFP addendum, certain design changes were made to the initial preliminary documents that the designer was providing to the design-builder. Also with changes necessitated by the addendum, the engineer revised the drawing to reflect further refinement of the post-tensioning system to include the drag brackets that connected the crown of each arch to the bridge deck.

In making these drawing revisions, the engineer failed to advise the design-builder that it had further advanced the design in this manner. Not having been alerted to the drag brackets, the design-builder didn’t notice them during their final review before submitting the lump sum bid of approximately $90 million, which turned out to be $3.5 million lower than the next lowest bid.   The changes relating to the design brackets increased the steel weight by 206,190 pounds, at significant additional cost. The design-builder paid its steel fabricator about $1 million above that subcontractor’s fixed price bid.   $356,000 of that was attributable to the drag brackets. For the balance of the overrun the court found that the design-builder “failed to prove that this costs was not simply the result of ‘post-award design development and finalization’ that was anticipated by the Agreement and consistent with the testimony of all experts who testified about design/build projects.”

Breach of Standard of care – But no Damages Proved

With regard to the costs associated with the drag brackets, the court concluded that the engineer breached the standard of care for not having alerted the design-builder that they had been added in the final version of the pre-bid drawings. “As part of multiple bound volumes of bid documents, FST could not have anticipated that Middlesex would notice this change if it was not pointed out by FST.”

There is no evidence of what Casco would have bid on the February 8th drawings or for a true fixed price in which Casco bore risk associated with further design development. Notably, none of Middlesex’ witnesses testified that if he had been advised of the changes in the February 8th drawings, he would have increased Middlesex’ bid amount.4 As it turns out, the $20 million carried in Middlesex’ cost estimate was more than adequate to cover all of the structural steel costs. It is also apparent that Middlesex was bidding the Project very aggressively, discounting its profit margins and hoping to make that up with bonuses for early completion of Project milestones. The court finds that Middlesex has failed to prove that had it been alerted to the drag brackets, it would have increased its bid amount.

Preliminary Design- Roadway Pitch

The engineer identified a potential for cost savings related to the pitch of the deck. The sketches in the DOT bridging design documents (the designs prepared for DOT and provided to the prospective bidders with the RFP) showed the roadways on both the east and west bound bridges to be crowned with water running off to both sides of the bridge. But the road leading to the bridge pitched only to the outside. The engineers decided to carry this pitch across the entire bridge for substantial cost savings. The court explains,

This design approach was consistent with all applicable design codes and had been used on many bridges across the country. [Engineer’s] proposal to change the design from the sketches in this manner was thoroughly discussed with Middlesex, eventually approved by it, and incorporated in the preliminary designs in the RFP response submitted to the DOT. The price bid prepared by Middlesex incorporated the cost savings associated with this design enhancement.

After the contract was awarded to Middlesex, the DOT pushed back on the constant pitch shown in the FST preliminary design and eventually insisted on returning to the crown deck design shown in the sketches. The DOT maintained that the constant pitch would make bridge maintenance more difficult. Middlesex initially requested that DOT issue a change order for the additional costs associated with a crowned roadway that would require drainage structures on both sides of the Bridge and the transitions to Route 9. When the DOT was unreceptive to Middlesex’ position, it dropped the change order request. At that time, Middlesex and FST were still having difficulty making the DOT comfortable with the post-tensioning system, and Middlesex was more concerned with this issue than the roadway pitch.

The Cost Estimates: 10 percent cost increase is to be expected

The court analyzed cost reports that reflected how the design-builder based its bid. From the cost reports the court determined that the design-builder had included in its final bid estimate $4 million increased costs for steel more than it had in an earlier estimate. The court noted that the final bid price was almost $10 million more than the direct costs included in the cost breakdown estimates but that how much was for profit or contingency or a combination of the two was unclear. The court concluded that the project was aggressively bid without clear definition of how much was included in the bid price to reflect a profit margin or allowance for contingencies.

A number of experts testified concerning industry standards regarding the amount of contingency that a contractor should include when bidding a design/build project; consensus seemed to be that cost increases in the range of 10% should be expected. It is unnecessary for the court to find as a fact what the proper percentage for contingency was in this case; indeed, an appropriate contingency is undoubtedly dependent on the project and the amount of time available to the engineering team to advance toward a final design before bid submission. All of the experts, however, agreed, and the court finds, that in design/build projects weights, complexities and therefore construction costs invariably increase after the contract is awarded as design development proceeds to the final approved-by-owner construction design.

Court Recognizes Pre-Bid Design Services Contains only Preliminary Design work Sufficient for Design-Builder to Estimate its Costs and Not Expected to be as Precise as Final Documents

The Teaming Agreement between the designer and design-builder defined the engineer’s standard of care as “that degree of skill and care normally exercised by practicing professional engineers performing similar services on similar projects under similar conditions.” The court pointed out that “That would have been the appropriate standard of care to apply … even in the absence of this contractual provision.” The Agreement required the engineer to provide services required for preliminary design sufficient to enable the design-builder to prepare the overall Project and construction cost estimates. The court noted that the “pre-bid design work was preliminary in nature, no greater than what was required to respond to the RFP, and sufficient to allow [design-builder] to prepare cost estimates.” (emphasis by court).

The fact that the design-builder was required by contract to include a “contingency” was an acknowledgment, said the court, “that all that can be expected of [engineer] under the Agreement is preliminary design work sufficient to estimate costs and, if the bid is successful, there will be substantial design development.”

Of particular note concerning alleged damages, the court emphasized that no claim was made against the engineer that anything it did caused the Project to be more expensive than it otherwise would have been to construct. The design-builder’s claim was predicated solely upon its contention that if the engineer had not breached the Teaming Agreement, the design-builder would have bid more and made a greater profit. The court nailed the point with the following conclusion:

Underlying most of the [design-builder’s] claims for breach of this Agreement is a contention that the preliminary design work done pre-bid would allow [design-builder] to develop a fixed price bid with the same precision as a bid made on final contract drawings provided by the owner in a traditional construction project. This is not what the Teaming Agreement required.

Comment: There are so many lessons learned in this decision that a separate article could be written concerning each legal point made by the court. Design-builders seem to be more frequently making claims against their design subconsultants with arguments similar to those made in this case, this decision presents a road map for designer’s to defend against common claims for matters such as alleged lost profits arising out of less than perfect preliminary design services that the contractor or design-builder argue should have been as precise as final design and construction documents.

 

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 22, No. 1 (Jan 2020).

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