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Project Overruns Laid to Contractors

Thursday, April 11, 2013

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The general contractor’s “unreasonable” direction of subcontractors on an Air Force repaving project in Guam led to delays that will cost the parties millions of dollars, a federal judge has ruled.

Wading into a messy series of claims and counterclaims between AMEC Earth and Environmental Inc. and a joint venture comprised of Nippo Corp. and International Bridge Corp., U.S. District Judge Cynthia M. Rufe's 114-page ruling assigned some share of the blame and costs to each party for the problem-plagued project, which included failed materials, months of delays, and millions of unbudgeted costs.

Still, much of Rufe's ruling went against AMEC, the global consulting, engineering and project management firm.

“The court concludes that, as to certain limited claims, the JV has indeed shown that AMEC was either primarily responsible for the delay or additional cost, or was unreasonable in its direction or evaluation of the JV’s performance in ways that constructively modified the subcontract or constituted a breach of AMEC’s contractual duty of good faith and fair dealing,” the ruling said.

AMEC
AMEC

AMEC was awarded a $74.2 million engineering and construction services contract to rebuild typhoon-damaged structures at Andersen Air Force Base in Guam from 2003 to 2006.

Although the joint venture "did not strictly comply with the contract requirements for all claims," it "provided sufficient notice to AMEC regarding the problems it was encountering and the damages it was sustaining," the judge found.

$29.7M Contract

The claims arose from a November 2003 contract that AMEC was awarded for runway repairs and resurfacing at Andersen Air Force Base in Guam. The airfield is classified as a "heavy load" facility, designed for the use of B-52 and bomber aircraft, which increases the significance of the specifications, the ruling noted.

The $29.7 million contract was a "cost reimbursable contract," under which the Air Force was to reimburse the contractor and its subcontractors for costs "within the scope of work and the authorized budget."

The subcontract with the Nippo/International Bridge JV was valued at $21.2 million.

The original completion date for the subcontract work was April 26, 2006, but that was extended, and the scope of work expanded, until July 10, 2006. In the end, however, the Air Force did not accept the project until May 31, 2007, 325 days after the scheduled end date.

AMEC ended up meeting the Air Force's budget for the project, but the JV ended up spending $47.6 million on the project; it blamed 251 days of delay and $16.2 million of the additional costs on AMEC, leading to the litigation.

'Never Simple'

The court notes that "determining and attributing 'fault' among the parties in a highly complex contruction contract is never simple," and this case was no exception.

Complications included Guam's extreme tropical climate (with nearly 100 inches of rain over 270 days a year); its remote location; and its military sensitivity, the court noted.

Andersen AFB
Andersen AFB

"Heavy load" runways at Andersen Air Force Base support B-52s and other bomber aircraft.

On the other hand, the court said, all of the parties "are sophisticated repeat players in this industry" who realize that responsibility for increased costs and delays fell in this case primarily on the subcontractors, unless they could prove otherwise.

Some of those delays, the court adds, were "indisputably caused by the JV." Those included multiple late cement deliveries; an attempt to use "an on-island paver that proved wholly inadequate"; insufficient trucks to transport concrete; "drastically" underestimating the number of rain delay days that would need to be built into the schedule; and failure to provide sufficient rain protection for the fresh cement.

Even absorbing the cost of those mistakes, however, left millions of dollars in dispute.

Hot Mix Asphalt Debate

A major source of contention in the project (and resulting lawsuit) was the hot mix asphalt used to pave runway shoulders, overruns and taxi tie-ins. AMEC provided the specifications for the HMA mix, and the JV used a local paving contractor that AMEC approved and had used before.

However, AMEC rejected the first mix design submitted by the JV in May 2006. It also noted that a second submitted mix "did not strictly comply" with the specifications but accepted it, with certain requirements waived. However, the Air Force then rejected the mix approved by AMEC.

At that point, AMEC "'took control' of the HMA mix design process" (although the extent of that control was in dispute) and ended up directing the local paving contractor, according to the judge's ruling. The JV contends that it was effectively excluded from the process at this point.

'Fatal Mistake'

Many weeks later, however, AMEC was also unable to come up with a suitable mix, and the continuing delay was threatening to shut down the entire project. The JV complained in writing to AMEC about the delay, but the Air Force refused to approve any alternative mixes.

"I expect [the Air Force personnel] won’t be able to realize that Guam is a 2nd World Country with deficient labs and will refuse to grant approval of the mix," an AMEC manager wrote in an email in August 2006. "Within 2 weeks the project could come to a screeching halt as a result of this issue.”

Another manager wrote about the same time: "I don’t know how AMEC got ourselves into the middle of trying to produce an asphalt mix design for [the local paving contractor] but i[t] was a fatal mistake that we must immediately extricate ourselves from."

Approval—and Failure

In late August 2006, AMEC finally persuaded the Air Force to accept the variance and the same mix design it had rejected that June. The JV made one change to the mix (allowed under the specifications) and installed it.

Hot mix asphalt
Wikimedia Commons / kallerna

The design of the hot mix asphalt was debated throughout the summer of 2006. When a mix was finally approved and installed, it failed. The court blamed the GC for "interfering" with the subcontractor.

The mix failed. Of seven lots placed that September, six required partial or total removal.

In the end, the court blamed AMEC for muscling in on the subcontractor's piece of the project, to a costly and problematic result.

"AMEC’s active involvement in attempting to create an HMA mix with local materials that met the contract specifications—ultimately resulting in AMEC’s obtaining the mid-August approval and variances for a mix design that was substantially similar to that submitted by the JV at the end of May—violated the duty of good faith and fair dealing by interfering with the JV’s contract performance," the court found.

'Self-Help'

Regardless of AMEC's "good intentions," the court said the contractor had "interfered with and hindered" the JV "by taking the HMA mix design process out of the JV's hands..."

The judge added: "AMEC’s efforts at self-help backfired, but only after AMEC itself was unable to develop a mix that met the specifications in the subcontract did AMEC make a concerted effort to seek the necessary variance from the Air Force.

"It would be unjust, therefore, to hold the JV responsible for the delay associated with AMEC’s own unsuccessful attempts to improve on the JV’s May 31, 2006 mix design."

The court said it was "also particularly troubled by AMEC’s decision to compel the JV to use a laboratory-created HMA mix that AMEC evidently knew would be difficult, if not impossible, to produce in the field, while making little allowance for field-production variations and failures. Such a decision clearly violates the duty of good faith and fair dealing."

That made AMEC responsible for additional delays and costs, the court found.

   

Tagged categories: Airports; Asphalt; Contracts; General contractors; Government; Government contracts; Infrastructure; Repair materials; Subcontractors

Comment from Donald L Crusan, (4/11/2013, 8:11 AM)

Many problems here: Patronage reared it's ugly head, someone at AMEC decided to cut corners & make a name for themself, probably without provenance & Senior Management Approval, Typical Bureaucratic Confusion, and not bringing the proper lab equipment on Island to test the mixes quickly & before application. There are also many more as I see it.


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