Almost a $1 million judgment was granted for the Design-Builder against its subcontractor and also against its design professional. On appeal, the court sustained the judgment, holding that the design-builder acted in detrimental reliance on the low bid, and that the design professional was negligent in failing to advise the design-builder that the bid was grossly low. Alfred Conhagen, Inc. v. Ruhrpumpen, Inc. , 338 So.3d 55 (2022).
According to trial testimony Healtheon was putting together a design-build proposal for NASA for a pump installation project. Healtheon approached Conhagen to be the mechanical subcontractor for the project. In turn, Conhagen recommended Nelson to be a design professional. As a result, the design-builder entered into a teaming agreement with Nelson, for design engineering services.
Nelson’s design professional role evolved into reviewing the pump packages and pricing. An equipment supplier named Ruhrpumpen submitted what seemed like a very low subcontract bid for certain important equipment. In addition to the low quote from Ruhrpumpen, the team also received higher quotes from two other firms. The engineer asked a number of questions of Ruhrpumpen to confirm the veracity of its quote. Subsequently, the engineer advised the design-builder that this quote was the only one that matched the desired specifications and that this justified the price disparity.
At some point, the day before the design-bid proposal was due to be submitted to the project owner, the engineer was apparently so concerned about the low equipment bid that it asked Ruhrpumpen to provide a cost breakdown by component. Ruhrpumpen responded that they didn’t want to do that because they did not have any firm quotes and the price could change. The engineer failed to forward this information to the design-builder.
After the contract was awarded to the design-builder, it sent a notice of intent to contract with Conhagen. Conhagen had based its pricing in part on the low equipment quote from Ruhrpumpen. After the award to Conhagen, Ruhrpumpen began receiving buyout quotes for parts of its equipment package, and these were much higher than it had quoted to Conhagen. But rather than notify the team of a major price discrepancy, Ruhrpumpen remained silent and continued with the project. After multiple requests for a final quote, on July 28, 2014, Ruhrpumpen falsely represented to Conhagen that it had not received any buyout quotes from the vendors. In early August, it informed Conhagen that it would advise if there was a problem with the final quote. However, Ruhrpumpen never notified Conhagen with any issues concerning the final quote. Finally, a month later, Ruhrpumpen submitted a second quote in the amount of $1,793,360.00, a difference in $1,058,880.00 from the first quote.
The court found that Ruhrpumpen should have expected Conhagen to receive and rely upon their budget quote. The Court found that Conhagen was a member of a limited group for whose benefit and guidance the quote was composed to guide. As discussed, Nelson, the design engineer, obtained the quote for the benefit of Conhagen, the mechanical subcontractor, and Healtheon, the general contractor, to assist with the design-build proposal to NASA. Moreover, Ruhrpumpen proceeded with discussions and e-mail communications with Conhagen after submitting its proposal without expressing any confusion or surprise.
The quote was prepared in the context of a design-build project. While Ruhrpumpen did not receive immediate compensation for preparing the quote, it had a substantial pecuniary interest in being selected as the supplier of the pump equipment because a substantial purchase order would follow.
Conhagen was a foreseeable third party who was “expected to receive and rely upon the contents” of the quote in the context of a design-build construction project, where obtaining correct quotes from potential sub-contractors is crucial. Under these circumstances, extending liability would serve public policy.
“Relying on the incorrect quote, Conhagen grossly underbid the project proposal to [the design-builder]. As a result, Conhagen suffered damages because it had to build the pump, which cost almost one million dollars more than what Ruhrpumpen initially quoted. Ruhrpumpen and its employees negligently, if not intentionally, communicated inaccurate and misleading information in its budget quote. Moreover, Ruhrpumpen failed to exercise competence in ensuring the quote obtained matched the specifications for two of the three major components required for the project. Further, upon receiving the buy-out quotes at much higher prices, Ruhrpumpen failed to communicate any potential problems with its quote to Conhagen. Instead, Ruhrpumpen maintained they were still waiting on the buyout quotes from the vendors. Conhagen’s reliance on the grossly incorrect quote was justified and caused harm.”
“Conhagen relied on Nelson’s engineering expertise to determine what pump package was best for the job. Nelson believed Ruhrpumpen’s bid to be suspect, yet it remained silent in its meetings with Conhagen about any concerns. Specifically, Nelson assuaged Conhagen’s concerns about the disparity in pricing by explaining that Ruhrpumpen’s package was the only package with the applicable components as stated in the initial specifications. More concerning, Ruhrpumpen communicated directly to Nelson that its prices could change the day the bid was submitted, yet Nelson never relayed that information to Conhagen.”
In light of its professional duty to warn, the engineer was held by the court to have “committed such a common-sense infraction when it failed to warn Conhagen of its concerns regarding a potential price increase, which caused Conhagen damages,” that no expert testimony was needed to demonstrate negligence. “Given the foregoing circumstances, we find that Conhagen met its burden of proving Nelson’s negligence.”
Comment: Even in cases where the design subconsultant to the design-builder are not deemed to have violated common-sense standard of care requirements as happened in this case, we are finding an inordinate number of claims by design-builders against their subcontractors and subconsultants, in an attempt to recover costs they cannot recover from the project owners under the guaranteed maximum price contracts. Depending upon who you ask, it seems that over 70 percent of design-build contracts end up with claims being made by the design-builder against is design subconsultant. This has become an increasingly risk busy model for designers to pursue.
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 Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk Report, Vol. 24, No. 7 (August 2022).
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