Bagwell Coatings, Inc. v. Middle South Energy, Inc.
| Decision Date | 22 August 1986 |
| Docket Number | No. 85-4326,85-4326 |
| Citation | 797 F.2d 1298 |
| Parties | BAGWELL COATINGS, INC., Plaintiff-Appellee, Cross-Appellant, v. MIDDLE SOUTH ENERGY, INC., et al., Defendants-Appellants, Cross-Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
J. Leray McNamara, Wise, Carter, Child & Caraway, Jackson, Miss., for defendants-appellants, cross-appellees.
William R. Purdy, Ott & Purdy, Jackson, Miss., for plaintiff-appellee, cross-appellant.
Appeals from the United States District Court for the Southern District of Mississippi.
Before WILLIAMS, GARWOOD, and JONES, Circuit Judges.
Bagwell Coatings, Inc. (Bagwell) brought this Mississippi diversity suit against Middle South Energy, Inc. (Middle South) and Bechtel Power Corporation (Bechtel), Middle South's agent, for breach of contract. Bagwell sought damages for its increased costs allegedly resulting from breach, and interference with performance, of its contract with Middle South to fireproof steel members in a nuclear facility under construction in Mississippi. Following a five-day-bench trial, the magistrate awarded Bagwell some $280,000 in damages against Middle South for Bechtel's actions in the contract's second mobilization. The magistrate also held that Bechtel was not liable to Bagwell because Bechtel was the agent of Middle South, a disclosed principal. The district court adopted these findings. Middle South appeals the judgment against it, claiming that pursuant to the provisions of the contract as interpreted under Mississippi law, Bagwell was not entitled to damages, and that in any event Bagwell did not sufficiently prove the amount of its damages. Bagwell cross-appeals, claiming that it was also entitled to damages it incurred during its first mobilization under the contract, and that Bechtel should have been held liable in tort for the damages that Bagwell incurred. We affirm the judgment of the district court.
Middle South, the owner-operator of the Grand Gulf Nuclear Station (Grand Gulf) in Claiborne County, Mississippi, hired Bechtel as its agent for procuring, scheduling, supervising, and administering the construction of this facility. In connection with the construction of the facility, Bechtel, as Middle South's agent, solicited bids for the cementitious fireproofing of the structural steel members of Grand Gulf. On August 27, 1976, Bechtel caused the structural steel fireproofing contract to be awarded to Bagwell.
Under this contract with Middle South, Bagwell was obligated to apply cementitious fireproofing to structural steel members. When applied, this type of fireproofing resembles mortar and dries into a hard, cement-like material. The contract specified the spray method of application, which uses heavy mixing equipment to pump the fireproofing material through hoses and out a spray gun or nozzle.
The contract between Middle South and Bagwell incorporates the instructions of the Carboline Company (Carboline), the manufacturer of "Pyrocrete," a product specifically approved in the contract. The contract further states that "[m]ixing and application of fireproofing material shall be in accordance with the manufacturer's published instructions." Bechtel also approved the published instructions of Carboline, which Bagwell furnished pursuant to the contract requirement that it submit for Bechtel's approval "detailed written procedures, instructions, and drawings required to correct or install material or equipment." These published Carboline instructions state that Pyrocrete was to be "install[ed] ... after all steel is in place but before ducts, pipework, equipment, and other similar obstructions are in place."
Bagwell's trial evidence showed that it relied on these provisions regarding the absence of obstructions when it calculated its bid. The bid documents furnished by Bechtel include only civil and architectural drawings, which do not reflect any attachments to the structural steel. Testimony by persons who prepared Bagwell's bid established that Bagwell, in calculating its bid amount, relied on Bechtel's representation that fireproofing would be applied in advance of obstructing work by other trades.
Bagwell also expected to perform its work in one continuous flow. As one of its employees testified, Bagwell thought the job would be finished in a process whereby "you get in and get out, so if you have a room like this, you're fireproofing the structural steel members in it, there's no desk and no chairs, you get some rolling scaffolding and you can just roll right on through it, and when you hit that end wall you're finished and you go to the next room."
Although Bagwell based its bid on being able to fireproof structural steel by the spray method in one continuous workflow prior to the installation of any obstructions by other trades, it also made normal allowances for downtime in equipment, loss of material, and reduced labor productivity in its bid calculations. While Bagwell did take into account the necessity of moving its equipment from one plant elevation to the next, it apparently anticipated that all work would be completed on one elevation before it would have to go to another. In all, Bagwell submitted a bid on a unit price basis for $2.46 per square foot. Despite its unit price being two cents higher than the lowest bid submitted, Bagwell received the job because Bechtel evaluated its bid to be the lowest based on price escalation factors.
Bagwell first began fireproofing under the contract in July 1977, nearly one year after it was awarded the contract (the first mobilization). Upon arriving at the job site, Bagwell found that there were some obstructions in the areas it was to fireproof, including some installed heating, ventilating, and air conditioning equipment. Bagwell asserted that it experienced further inconvenience due to Bechtel's failure to issue a smooth flow of work releases so that Bagwell could fireproof continuously. Under the contract, Bagwell was not authorized to perform work in any area unless Bechtel issued a work release.
In January 1978, approximately five months after the first mobilization began, Bagwell wrote Bechtel and requested that work be released for continuous fireproofing operations. On March 17, 1978, Bagwell notified Bechtel that all work released would be completed in a week and again requested that work areas be made available. On March 28, 1978, Bechtel responded that Bagwell's request for additional work releases was not "beneficial in terms of cost to the client [Middle South]," and, as authorized by article 42 of the contract, it ordered Bagwell to suspend all operations until further notice. Bagwell thereupon demobilized.
Bechtel, as authorized by the contract, remobilized Bagwell in August 1979 (the second mobilization). Immediately upon its return, Bagwell discovered a dramatic increase in the number of obstructions that would hinder its contractual performance. Charles Monroe, Bagwell's superintendent for the work at Grand Gulf, refused to go forward with the fireproofing work without the express authority of Luis Gonzalez, Bagwell's president. Monroe advised Gonzalez that Bagwell should not remobilize until the problem with the obstructions was clarified and resolved. Bechtel employees were present during this phone conversation between Monroe and Gonzalez, and at least one of them implored Bagwell to continue with the work, claiming that Bechtel would "work out" additional compensation problems with Bagwell if it would begin performance. Gonzalez agreed to remobilize.
Throughout the second mobilization, Bagwell attempted to fireproof the structural steel, but its efforts were seriously hindered by the heating, ventilation, and cooling vents, electrical conduits, pipe work, and numerous other obstructions installed after the first mobilization. Congestion also impeded Bagwell's progress. Bagwell's employees had to climb over and around various obstructions in order to complete their work. There was evidence that some employees quit because of these conditions. These obstructions also prevented Bagwell from getting its mixing equipment close to the work, and Bagwell was forced to use much longer lengths of hose than recommended, an event that apparently caused some equipment breakdowns and higher maintenance costs. Bechtel admitted that the decision to place obstructions on the steel in advance of fireproofing and Bechtel's lack of work releases hampered Bagwell's performance and increased its costs, although the amount of the increase is disputed. On September 24, 1979, shortly after Bagwell's second mobilization began, Bechtel published a construction cost Trend Report No. 41. This report assigned $340,000 as an allowance for increases in costs for extra work claims due to interference or congestion, of which approximately $80,000 was assigned to go to Bagwell for related work under this contract.
Both Bagwell and Bechtel maintained detailed records on a daily basis of Bagwell's labor and material expenditures, and there is no dispute as to their accuracy. These records reflect the names of Bagwell's personnel, their hours of work, where they worked, the type of work, and the quantity of material applied and the type of equipment employed.
Once Bagwell realized that its performance would be impaired by various physical obstructions, it attempted to negotiate a higher price to compensate for its increased costs. Bagwell first attempted to notify Bechtel of its desire for additional compensation in the interim between mobilizations in which Gonzalez advised Bechtel that there needed to be some discussion of pricing. Upon remobilization, Bagwell repeatedly requested revised rates. Bagwell asked Bechtel first to increase the unit price of the contract, then to approve cost-plus compensation, and then to agree to a combination of the two. Bechtel consistently refused to increase the price specified in the...
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