Facilities Cost Mgmt. Grp., LLC v. Otoe Cnty. Sch. Dist. 66-0111, S-16-1193.
| Decision Date | 26 January 2018 |
| Docket Number | No. S-16-1193.,S-16-1193. |
| Citation | 906 N.W.2d 1,298 Neb. 777 |
| Parties | FACILITIES COST MANAGEMENT GROUP, LLC, appellant, v. OTOE COUNTY SCHOOL DISTRICT 66-0111, also known as Nebraska City Public Schools, appellee. |
| Court | Nebraska Supreme Court |
John A. Svoboda and Adam J. Wachal, of Gross & Welch, P.C., L.L.O., Omaha, for appellant.
Larry E. Welch, Jr., Damien J. Wright, and Larry E. Welch, Sr., of Welch Law Firm, P.C., Omaha, for appellee.
This case, which is before us for a second time, involves a dispute over amounts owed under a contract between Facilities Cost Management Group (FCMG) and Otoe County School District 66-0111, also known as Nebraska City Public Schools (the School District). In the first appeal, we found the jury had been given an erroneous instruction and we reversed a verdict in favor of FCMG and remanded the cause for a new trial.1 On retrial, the jury returned a verdict in favor of the School District. FCMG appeals, assigning error to the admission and exclusion of certain evidence, to the jury instructions, and to the court's ruling on posttrial motions. Finding no reversible error, we affirm.
In 2008, FCMG entered into a contract with the School District to perform certain architectural, owner representative, and project management services related to a large construction project undertaken by the School District. The project spanned almost 5 years. During that time, a dispute arose over amounts due FCMG under the contract.
FCMG ultimately filed a breach of contract action against the School District. After a jury trial, FCMG was awarded approximately $1.9 million in damages. The School District appealed, and we reversed, and remanded for a new trial after finding the trial court had improperly instructed the jury that § 11.2 of the parties' contract was unambiguous.2
The case was then retried. The second jury trial generally focused on two issues. The first was how FCMG's fees were to be calculated under the contractual provision we found was ambiguous, § 11.2, which provided in part:
These fees and costs are intended to be converted to Lump Sum amounts with the initial approval by the Owner and Architect of the Project Scope, Budget, and concept to be advanced for funding. Lump Sum amounts and inclusions shall remain effective for the duration of the Project(s), except in the event of approved changes in the scope of work or alternatives to be bid adding two percent or more to the scope. In such event the Lump Sum fees and costs shall be increased proportionately to reflect the full percentage of changes.
The second issue was the School District's affirmative defenses. The School District asserted that FCMG fraudulently induced it into entering the contract by representing that the contract contained a guaranteed maximum price. In this regard, the School District claimed FCMG led it to believe that once the School District approved the initial scope and budget, FCMG would manage the project to that fixed budget, and that project costs would not change unless the School District approved scope changes or selected alternative construction options. The School District also alleged as an affirmative defense that FCMG misrepresented the fees it intended to charge and that the School District entered into the contract in reliance on that misrepresentation.
In 2006, the School District decided to construct a new grade school and make significant renovations to its existing grade school and high school. Merle Rambo, the sole shareholder, director, and officer of FCMG, submitted a proposal for the project to the School District. The proposal emphasized that FCMG was not a traditional architectural firm, but instead would serve as the project's architect, owner's representative, and manager. It stated that because of this, FCMG had the "unique ability" to "offer guaranteed maximum cost options."
After Rambo presented his proposal, the School District submitted various questions to him. One question asked whether there was a "guaranteed maximum price for the project," and Rambo responded, "Yes," followed by an explanation. Another question asked what happened if the bids came in over the budget, and Rambo responded FCMG would match the bids to the budget. The School District also asked whether the fees FCMG showed in the proposal were "all inclusive," and Rambo responded the "costs are all inclusive, incorporating construction, equipment, site development and related project management expenses."
The School District decided to hire FCMG, and Rambo sent a standard form agreement for architectural services to Thomas Farrell, the School District's representative. The parties customized certain parts of the standard form agreement, including the fee agreement in § 11.2.
Rambo signed the customized contract on July 18, 2007. Farrell did not sign until August 9. During the interim, Farrell asked Rambo questions regarding § 5.2.2 of the contract, which stated that "[n]o fixed limit of Construction Cost shall be established as a condition of this Agreement...." Farrell thought this was inconsistent with FCMG's responsibility, as outlined in its proposal, to perform as the owner's representative and project manager and to manage the project to a fixed budget. To address these concerns, the parties added § 12.7 to the contract. This section states that FCMG's earlier proposal was attached "for general reference purposes." Farrell testified that by doing this, he thought the parties were incorporating a guaranteed maximum price into the contract. He further testified that he would not have signed the contract if a guaranteed maximum price was not part of the deal.
Farrell also discussed fees with Rambo prior to signing the contract. Farrell was confused because there was a fee schedule in § 11.2, but other sections of the contract referenced "OR/PM" or "Owner Representative/Project Management" fees. According to Farrell, Rambo told him the final fees would be approximately 11 percent of the project budget, plus reimbursables. Farrell testified that he would not have signed the contract had he known this was not the fee agreement.
At trial, Rambo acknowledged telling Farrell the fees would be 10 to 12 percent, but explained he thought Farrell was asking about only architectural fees, and not owner representative or project management fees. Rambo also explained that the fee rates in his proposal covered only architectural fees and did not cover owner representative or project manager fees.
In January 2008, Rambo prepared a project budget and presented it to the School District at a school board meeting. The budget was presented in the form of a grid, which showed the costs for the project broken down into categories such as site and construction, equipment, professional services, and connection systems.
The parties generally agree that this was the point where FCMG's fees were to be converted into a "Lump Sum" pursuant to § 11.2 of the contract.
The January 2008 budget grid showed a project cost of $24.6 million. During Rambo's presentation, the School District asked him to identify the lump-sum fee in the grid. He indicated the fee was shown in the category titled "professional services" in the amount of $1,944,000. At trial, Rambo testified that this answer referred only to his architectural fees, as that is what he thought the School District was referencing. Rambo prepared a trial exhibit showing that in aggregate, the 2008 budget grid actually showed fees, in various categories, in the amount of $3,824,000. Trial testimony established, however, that at least some of these fees were not ascertainable by the School District at the time the budget grid was presented in January.
In August 2008, Rambo presented the School District a list of alternatives to consider for the construction projects. Each alternative was presented with a corresponding cost. The School District understood the costs associated with the alternatives were "the cost that would be incurred to the overall Project"3 if selected. The School District approved the alternatives with associated costs listed by Rambo of $1.4 million. The School District understood this should have increased the project budget from $24.6 million to $26 million.
In May 2009, FCMG emailed the School District a revised budget. This budget showed total project costs of $27.5 million. The School District asked why the budget was shown as $27.5 million, when it understood it was now $26 million. FCMG responded with a one-page memorandum attempting to explain several scope increases. The School District also asked Rambo to explain how his fees were being calculated, but he did not respond.
FCMG presented evidence that the School District approved and added over $4.8 million in scope changes to the projects. The School District presented evidence that it added only approximately $2.9 million in scope changes.
Both parties presented expert testimony on how FCMG's fees should be calculated under the provisions of § 11.2 of the contract. Robert Mabrey, an architect who testified for the School District, explained how to calculate FCMG's "proportionate" adjustment of fees under § 11.2. Mabrey testified that the calculation required determining the proportionate relationship between fees and construction costs at the time the original lump sum was agreed upon, and then applying that percentage to determine FCMG's fees for increases in the scope of construction. As a hypothetical example, if the initial approved construction costs were $20 million, and the initial lump-sum fee was $2 million, then FCMG would be entitled to an additional fee of 10 percent of the cost of any approved scope increases or selected alternatives.
Mabrey then looked to the January 2008 budget grid to...
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