Aecom Technical Servs. Inc. v. Mallinckrodt LLC

• Decision Date: 03 August 2015
• Docket Number: Civil Action No. 12–11420–PBS,Consolidated Civil Action No. 12–11382–PBS
• Citation: 117 F.Supp.3d 98
• Parties: AECOM Technical Services Inc., Plaintiff, v. Mallinckrodt LLC, Defendant. Mallinckrodt LLC, Plaintiff, v. AECOM Technical Services, Inc., Defendant.
• Court: U.S. District Court — District of Massachusetts

117 F.Supp.3d 98

AECOM Technical Services Inc., Plaintiff,

v.Mallinckrodt LLC, Defendant.

Mallinckrodt LLC, Plaintiff,

v.AECOM Technical Services, Inc., Defendant.

Consolidated Civil Action No. 12–11382–PBS

Civil Action No. 12–11420–PBS

United States District Court, D. Massachusetts.

Signed August 3, 2015

Vincent M.V. Devito, Louis M. Ciavarra, Bowditch & Dewey LLP, Boston, MA, Douglas T. Radigan, Bowditch & Dewey, Worcester, MA, for Plaintiff.

Benjamin S. Piper, Jeffrey D. Talbert, Preti, Flaherty, Beliveau Pachios & Haley, LLC, Portland, ME, Michael B. Doherty, Preti Flaherty, Boston, MA, for Defendant.

MEMORANDUM AND ORDER

Saris, Chief Judge.

Mallinckrodt LLC (Mallinckrodt) hired AECOM Technical Services, Inc. (AECOM) to excavate and provide decontamination services at the site of a former columbium-tantalum (C–T) plant licensed by the Nuclear Regulatory Commission. The parties agreed that the "Target Price" for the project was $3.7 million. But after paying $12.8 million, Mallinckrodt terminated AECOM and hired another company to finish the job. AECOM and Mallinckrodt have now come to court to deal with the fallout from their breakup. Among other things, they accuse each other of breach of contract, bad faith, and unfair and deceptive business practices. Following discovery, the parties filed cross-motions for summary judgment. (Docket Nos. 85, 89). For the following reasons, the Court ALLOWS IN PART AND DENIES IN PART AECOM's motion for summary judgment (Docket No. 85), and ALLOWS IN PART AND DENIES IN PART Mallinckrodt's motion for summary judgment (Docket No. 89).

I. STATEMENT OF UNDISPUTED FACTS

A. AECOM's Bid Proposal

Mallinckrodt formerly operated a plant in St. Louis, Missouri that extracted columbium and tantalum compounds from ores. In 2009, Mallinckrodt sought a contractor to decommission the facility. Phase I of the plan–demolishing the plant–was complete. Now Mallinckrodt was seeking a contractor to execute Phase II, which involved decommissioning the facility's floor slabs, foundations, sewers, pavement, sediment basins, and land. Mallinckrodt included a copy of the Phase II plan in its Request for Proposal, which described Mallinckrodt's efforts to measure the level of radioactivity at the site. Based on these efforts, the Phase II plan estimated that there was potentially 129,000 cubic feet of subsurface radioactive waste to be decontaminated or removed. (Docket Nos. 88–7:25, 88–12:23).

AECOM emerged as a candidate for the project and entered into negotiations with Mallinckrodt. On one occasion, AECOM asked:

You previously indicated that the volume and footprint of the contamination is considerably larger that [sic] outlined in the decommissioning plan. Should [AECOM] address the additional cost and schedule impacts to project logistics, schedule and price?

(Docket No. 94–5:3). Mallinckrodt responded:

As with any remediation job, you can do all the pre-characterization you want but will never exactly know how big the excavation will be until you put a shovel in the ground. The scope of the work is to excavate until cleanup criteria is met. The area identified in the Phase II plan was estimated based on the pre-characterization data and should not be considered the limits of excavation or scope. For the purpose of preparing the Final Status Survey as required by the [Nuclear Regulatory Commission] the entire area of the CT processing buildings will need to be addressed in some matter whether it be removing concrete pads and foundations or excavating contaminated soils.

(Docket No. 94–5:3).

After a competitive bidding process, Mallinckrodt selected AECOM's bid proposal. AECOM stated that it would employ the "most cost-effective methods" to complete the project. For example, AECOM proposed to use "real-time instrumentation" such as GPS–correlated gamma survey equipment and high resolution gamma spectrometers to detect the relative levels of radiation coming from different parts of the site. Using this data, AECOM stated that it would be able to calculate and compare the cost of decontamination versus bulk disposal for any given area. AECOM referred to this approach as a "surgical" technique to decrease the volume of material that would be excavated and shipped off-site for disposal, thereby minimizing costs.

With respect to pricing, AECOM's bid proposal stated that the project involved several logistical and operational challenges including: (1) unknown quantities of materials, radioactivity levels of materials, and the cost-benefit of segregation and decontamination; and (2) unknown subsurface conditions that may impact excavation techniques and excavation production. Given these unique variables, AECOM explained that the project was not conducive to a Lump Sum or Unit Rate pricing structure because of how "site unknowns" might potentially affect the project. Instead, AECOM proposed a "Partnered Payment Structure" that included a Target Cost of $2.7 million and a fee based on the difference between actual costs and the Target Cost. According to AECOM, the Target Cost was based on the estimates in Mallinckrodt's Phase II plan.

The parties entered into two contract documents, a Master Environmental Services Agreement and a First Amendment. In relevant part, the Master Environmental Services Agreement stated in a section titled "BILLING AND PAYMENT/MECHANIC'S LIENS":

[Mallinckrodt] shall not be obligated to pay to [AECOM] any amount in excess of the Contract Price for a project. However, if requested by [AECOM], [Mallinckrodt] may approve by way of a written Change Directive an increase to the Contract Price or Budget from time to time and in [Mallinckrodt's] sole discretion.

(Docket No. 88–18:5). The First Amendment further stated in a section titled "Compensation":

AECOM shall be reimbursed for actual costs incurred with incentives ... The contract shall be based on the Target Price described in Section 5.2 of this Amendment. This Target Price shall be based on AECOM's Costs plus the incentive fees described in Section 5.5 and 5.6

...

Target Price: The Target Price for this Project is $3,700,000. This price includes all Costs associated with conducting all activities described in the Contract Documents

...

Adjustments to the Target Price: The Target Price will only be adjusted if there is a significant unforeseen event, material, or site condition which is outside of the scope of the work described in any and/or all Contract Documents. Any such Adjustment must be agreed to in writing by both parties

...

Target Volume: The parties recognize that efficient soil management and environmental practices will minimize the volume of soil that must be disposed of off-site. Based on pre-excavation characterization and volumetric estimates by [Mallinckrodt], a Target Volume of 3,419 tons of regulated soils from Plant 5 for removal has been established.

Incentive Project Fee: The Incentive Project Fee will be based on the difference between the Target Price and the total project Costs. Should the total Cost of the Project be less than the Target Price ... [Mallinckrodt] and AECOM will share equally the savings ... Should the total costs of the Project exceed 94% of the Target Price, AECOM will be reimbursed a minimum of Cost plus three percent (3%) or the Incentive Project Fee described in this section, whichever is the greater amount.

(Docket No. 88–22:7–8).

B. Delays and AECOM's Requests for Additional Funding

AECOM began working at the site towards the end of 2010, but issues regarding the magnitude and cost of the project soon came to the surface. In May 2011, AECOM stated in a progress report that "based on revised estimates of contaminated material in place, the current budget is likely to be insufficient." (Docket No. 94–77:3). A month later, AECOM submitted a Change Request and Authorization seeking an additional $4.5 million over the Target Price and estimating that it would complete the project by October 31, 2011. AECOM stated that it needed the increased budget because: (1) the radioactive contamination volume was larger than originally estimated; and (2) the project had suffered unexpected costs relating to weather delays, delays caused by other Mallinckrodt contractors, and support to other Mallinckrodt projects. AECOM now estimated that the total volume of radioactive material to be removed was nearly 684,000 cubic feet (25,333 cubic yards x 27 cubic feet/cubic yard), which is over five times the volume of radioactive material estimated in the Phase II plan. Mallinckrodt responded that it did not approve any adjustment to the Target Price. Nevertheless, Mallinckrodt stated that "for internal AECOM accounting purposes ... AECOM may spend up to an additional $4 MM in order to continue performing the Services." (Docket No. 90–104:1).

Three months after submitting the change request, AECOM submitted a second one in September 2011, seeking to spend an additional $5.66 million and bringing the proposed total budget to $13.36 million. (Docket Nos. 94–111, 94–112). AECOM also further pushed back its estimated date of completion to March 2012. These new estimates, AECOM stated, were based on a "more detailed analysis" of the amount of excavation that remained. AECOM also described the new estimate as "conservative" and reassured Mallinckrodt that the company was seeking efficiencies wherever possible and intended to complete the project under the total amount requested and within the timeframe outlined in the new proposed schedule. Mallinckrodt again refused to adjust the Target Price but authorized AECOM to spend up to an additional $4 million, bringing the total budget to $11.7 million.

AECOM submitted a third request for additional funds in February 2012. The company now requested authorization to spend an additional $3.57 million and to increase the budget to $15.3 million. (Docket No. 94–129). AECOM stated that its request was based on the "factors cited in the previous request." Additionally, AECOM stated that water...