City of Meridian, an Idaho Mun. Corp. v. Petra Inc.

• Citation: 299 P.3d 232,154 Idaho 425
• Decision Date: 01 April 2013
• Docket Number: No. 39006.,39006.
• Court: United States State Supreme Court of Idaho
• Parties: The CITY OF MERIDIAN, an Idaho municipal corporation, Plaintiff–Counterdefendant–Appellant, v. PETRA INCORPORATED, an Idaho corporation, Defendant–Counterclaimant–Respondent.

154 Idaho 425

299 P.3d 232

The CITY OF MERIDIAN, an Idaho municipal corporation, Plaintiff–Counterdefendant–Appellant,

v.PETRA INCORPORATED, an Idaho corporation, Defendant–Counterclaimant–Respondent.

No. 39006.

Supreme Court of Idaho, Boise, February 2013 Term.

April 1, 2013.

Trout Law, PLLC, Boise, for appellant. Kim J. Trout argued.

Cosho Humphrey, LLP, Boise, and Holland & Hart, LLP, Boise, for respondent. Thomas G. Walker argued.

J. JONES, Justice.

This appeal stems from a protracted contract dispute arising out of the construction of Meridian's new City Hall. The City of Meridian brought suit against the project's construction manager, Petra, Inc., alleging that Petra breached the parties' agreement in numerous ways. The City further claimed that Petra was not entitled to any additional fees for its work. Petra counterclaimed, seeking an equitable adjustment of its construction manager fee. After trial, the district court entered its findings of fact and conclusions of law, ruling against the City on all but one of its claims and awarding Petra an additional fee for its services. The court awarded Petra $595,896.17 in costs and $1,275,416.50 in attorney fees, but stayed enforcement of the judgment pending appeal. The City timely appealed. We affirm the judgment.

I.FACTUAL AND PROCEDURAL HISTORY

In 2006, the City of Meridian was experiencing a surge in growth. Consequently, its Mayor and City Council (collectively, "the City") decided to construct a new City Hall. The City's initial plan was to build approximately 80,000 sq. ft. of Class A office space, related improvements, and parking (the Project). The City selected LCA Architects, P.A. (the Architect) to design the Project, and Petra as its construction manager.

The primary contract between Petra and the City was the Construction Management Agreement (CMA), which was drafted by the City. The CMA provided that the maximum budget for the Project would be $12.2 million. Additionally, the CMA incorporated several documents by reference: the Professional Services Agreement between the City and the Architect, as well as the AIA 201/CMa–1992 General Conditions (the A201), and the AIA 101/CMa–1992 (the A101). The CMA required Petra to purchase an errors and omissions liability insurance policy, which it did, and gave it the option of providing a payment and performance bond, which it did not. Petra and the City executed their agreement effective August 1, 2006.

The CMA addressed Petra's compensation as follows: the City agreed to pay Petra a flat construction management fee of $574,000, and to pay Petra's reimbursable expenses. The latter were Petra's "direct personal expense[s]" of certain professional staff; e.g., the Project Manager, the Project Engineer, and so on. Furthermore, the City agreed to pay Petra's reimbursable expenses for "General Conditions"—those items designated for procurement by Petra.

The CMA provided that changes in Petra's services could be accomplished upon the City's request, or if Petra's services were affected by "[s]ignificant change to the Project, including, but not limited to size, quality, complexity, owner's schedule, budget or procurement method." In either event, Petra would be entitled to an equitable adjustment of its construction manager fee and/or its reimbursable expenses, if the change(s) materially affected its services. Petra was to notify the City of any change in its services prior to providing them and to receive the City's approval for the change. Petra would not be entitled to an equitable adjustment for any change due to its fault.

Preconstruction of the City Hall began on July, 5, 2006, and construction subsequently started on May 7, 2007. The prime contractors who performed the construction services contracted with the City directly, and Petra agreed that it would observe each contractor's work, on site, at least once a day, and report back to the City. Petra agreed to reject the work of any contractor whose work did not conform to the contract documents. That said, Petra did not guarantee the work of the contractors and was not responsible for their failure to carry out the work. Instead, each contractor was to give the City a warranty.

The City was initially scheduled to take occupancy of the building on August 1, 2008, but discovery of contaminated soil in February 2007 impacted the Project schedule early on. Accordingly, on May 22, 2007, Petra issued an updated schedule that reflected delays due to cleanup, and that moved the occupancy date to August 27, 2008. As noted by the district court, the Project "increased in size, scope, quality, and complexity after the agreement was executed." A variety of changes, directed by the City, were performed by Petra. These included:

[I]ncreased size; the addition of a basement to effectively contend with an unanticipated ground water issue; upgraded offices and council chambers from those contemplated in the parties' original agreement; re-design of the Mayor's office suite; better than standard exterior stone and brick; high tech mechanical and electrical systems; and an upgraded public plaza and amphitheater.

As the Project continued to evolve in complexity and scope, the CMA required Petra to update the Construction Management Plan, and submit it to the City for approval. On January 29, 2008, Petra presented another updated schedule, which now pegged the occupancy date at October 10, 2008. During this phase, the budget of the Project also greatly expanded, from the initial budget of $12.2 million, to more than $15 million in 2007, and more than $20 million in 2008. The City was aware of the costs and approved them.

Several companies and individuals performed required testing, observation, and inspection during the course of construction. These included Petra, the Architect, the engineers, a commissioning agent hired by the City, and the City's building inspectors. With a few identified exceptions, all systems passed inspection, or were corrected after not initially passing. When one contractor caused a delay in the Project, Petra recommended that the City assess liquidated damages against it, which the City did.

As construction reached a close, Petra and the Architect jointly developed "punch lists"—lists that detailed remaining problems with the Project that needed to be corrected. The parties dispute this point, but it seems that the items on these lists were either corrected, or were covered by the various contractors' warranties. At this point, the Architect was required to issue certificates stating that the work was substantially complete. Petra asked the Architect to do so, but it did not.

The City took occupancy of the new building on October 15, 2008, which was the same date the contractors' warranties became effective. The final cost of the Project was $21,395,962.13.

The catalyst of this litigation was Petra's request for an equitable adjustment to its construction manager fee and reimbursable expenses. In 2007, Petra corresponded with the City's purchasing agent and discussed an equitable adjustment based on the extra services it was providing as the Project evolved. The City and Petra agreed that Petra would wait until the final base contract value of the Project was determined before submitting a fee request. Later that year, Petra reminded the City of this issue by sending notice of its intention to seek an equitable adjustment.

In April of 2008, Petra provided the City with a formal "change order" that requested an equitable adjustment for 4.7% of the cost of the Project in excess of $12.2 million, which, at that point, amounted to $367,808. The City requested more information to justify the request, which Petra provided on August 3, 2008. However, the City denied the request on February, 24, 2009. The parties attempted to resolve their disputes through mediation, but were unsuccessful.

The City filed this lawsuit against Petra on April 16, 2009, seeking a declaratory judgment that Petra was not entitled to an increased fee. The City also sought damages from Petra for breach of contract. The City eventually alleged numerous instances of deficient work or damage for which it claimed Petra was responsible, including roof damage, subpar masonry work, an improperly balanced HVAC system, and a leaky water feature. Petra counterclaimed, alleging breach of contract and seeking the amount of its equitable adjustment.

During the pre-trial phase, myriad motions were filed by both parties. This included the City's motion for summary judgment, asking the district court to find that the Idaho Tort Claims Act (ITCA) barred Petra's counterclaim. The court denied the motion. The City also moved to amend its Complaint, which the district court denied.

This case was tried by the court, sitting without a jury, from December 2, 2010, to April 7, 2011. The district court held that Petra properly managed the Project's contractors and that it did not breach the parties' agreement. Further, it held that Petra was entitled to an equitable adjustment for the additional services it provided the City as the Project grew in scope. The district court concluded that 4.7% was a proper metric for the equitable adjustment. Also, the court found that Petra had overcharged the City during the course of work, though it did not consider this a breach. It offset Petra's damages by $52,000, which resulted in an award of $324,808. The district court found Petra to be the prevailing party and entitled to recover "pre-judgment interest, costs allowed under I.R.C.P. 54, and reasonable attorney fees incurred." Judgment to that effect was entered on June 14, 2011. The City timely appealed.

II.ISSUES ON APPEAL

I. Did the district court err in concluding that Petra is entitled to an equitable adjustment of its construction manager fee and contract reimbursable expenses?

II. Was the district court's award of a percentage-based equitable adjustment proper?

III. Did the district court err in not applying Section 8 of

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