By: Jon Straw
Government agencies often focus too much on procedure and not enough on merit. as such, they benefit from the clarity of hindsight contractors may not enjoy until after suffering irreparable damage.
Under a contract with the Pennsylvania Turnpike Commission (PTC), a contractor agreed to construct a 2,431-sq-ft material testing laboratory at mile marker 113.82 of the Pennsylvania Turnpike. During the project, certain changes or extra work arose, and the PTC directed the contractor to perform, track costs, and submit all for payment at the end of the project.
After project completion, the contractor submitted a “supplemental work order” to the PTC for all “changes to the Project,” which totaled about $150,000. Two months later, the PTC responded that it would pay about $35,000 for the supplemental work. The contractor promptly responded by requesting “further review.” One month later, the PTC denied the contractor’s request. Six months and one week from the $35,000 offer, the contractor submitted an administrative claim seeking about $418,000 for the supplemental work and delay damages.
Both parties disputed whether the claim accrued when the PTC first decided to pay some, but not all of the contractor’s request, or one month later when the PTC denied the contractor’s request for “further review.” Under Pennsylvania law, a claim accrues when the claimant knows the claim amount, the claimant can write a statement detailing the injury, and the Commonwealth refuses to pay. At the confluence of these elements, the six-month clock to file a claim starts to run.
The PTC denied the claim determining it was not filed within six months of the $35,000 offer for the supplemental work. The Commonwealth Court of Pennsylvania upheld the PTC’s denial of the contractor’s claim in Lobar Associates, Inc. v. Pennsylvania Turnpike Commission, 216 A.3d 526 (Pa. Comm. Ct., 2019).
The PTC’s $35,000 offer itemized the contractor’s 237 supplemental work items with a notation of “pay” or “no pay” accompanying each item. The contractor reasonably, but unsuccessfully, argued that this notification simply started the contractually mandated review process for a “supplemental job order.” Such process required the contractor and PTC to “meet and discuss” the matter before the PTC made a final determination, and only thereafter could the six-month clock start to run. The court noted, but did not dwell on, the fact that the contractor did not expressly request a meeting, but only asked for “further review” of its supplemental work payment request.
The PTC and the court agreed that the supplemental work order process applied only to present or future work, not to completed work. Under the contract, alterations or deletions of work were paid “as a Supplemental Job Order … [payment] will be limited to the work … actually performed.” The contract also stated that “[a] Supplemental Job Order identifying the work to be done and the price to be paid therefore will be processed before or during the performance of the work” (italics added). The court used the latter of these two provisions to support its determination that a supplemental work order could not be used to definitize past-performed work. The court’s opinion does not mention, but the contractor likely argued, that the “work … actually performed” could not have been known until the work was completed. The court did not reconcile these two seemingly different provisions, but fundamental contract interpretation requires they both must have meaning and must be read together.
The court also did not discuss whether the PTC’s direction to the contractor during the project to perform the supplemental work and track and submit its costs after the project was a waiver or modification to the supplemental work order process. Additionally, the court did not discuss and, it seems, placed no merit in the fact that the supplemental work was a directed, not constructive change, indicating that only quantification was disputed, not entitlement. Upon the PTC’s direction, the contractor had to continue performance while shouldering the cost burden unless and until the PTC agreed on price.
Here, the PTC and court erred by not reading and giving meaning to all parts of the contract, including both those parts expressly stated (i.e., the supplemental work order process) and the parts incorporated by law (i.e., when a claim accrues).
About The Author: Straw is a partner with Kraftson Caudle, PLC, a law firm in McLean, Va., specializing in heavy-highway and transportation construction. Straw can be contacted via e-mail at [email protected].
