On July 24, 2006, Subcontractor and General entered into a subcontract (“Silo Point subcontract”) under which Subcontractor would perform demolition work on a construction project located in Baltimore, Maryland (“Silo Point project”). The project entailed converting an old grain silo into condominiums Id. Suffolk, as general contractor, was under contract with the site's owner, Silo Point II, LLC (“Silo Point” or “Owner”).
On or about November 6, 2006, while Subcontractor was engaged in demolishing certain of the silo's vertical storage bins, one bin detached and fell to a floor below, damaging a portion of the building. Subcontractor stopped work to take stock of the damage and assess how it would proceed. It ultimately modified the demolition method it was using, resulting in significantly increased costs. Id. at 586. Subcontractor initially told General that it would submit a claim to its own insurance carrier to cover these additional costs. Id. However, on December 14, 2006, Subcontractor notified General of its intention to submit a change order related to the unforeseen condition (also called a differing site condition). Id. The Silo Point subcontract required notice of intent to submit a change order within ten business days of the event triggering the claim. Silo Point Subcontract, Ex. J–2, art. 812. Under the Silo Point general contract, Owner would be responsible for any increased costs due to a valid differing site condition claim. Gen. Conditions of Silo Point Contract, Ex. J–1, art. 4.3.4.
On December 20, 2006, Subcontractor submitted to General its formal notification of a pending change order based on the differing site condition. On January 10, 2007, Subcontractor submitted an invoice related to the pending change order, on which General requested additional documentation and support. On February 15, 2007, Subcontractor submitted Change Order No. 1, which more thoroughly documented its request. General denied it as insufficiently supported.
In re Red Rock, 480 B.R. at 586. On April 16, 2007, Subcontractor submitted Change Order No. 2, which supplemented the first change order and related to additional work performed. Id. General did not acknowledge this submission. Id. In April 2007, the parties executed a Memorandum of Understanding, wherein Subcontractor agreed to accept new staffing requirements, completion dates, and delayed payment, and to retain a consultant to report on the differing site condition. Mem. Understanding, Ex. J–30, ¶¶ 4–11. General agreed to provide reasonable cooperation with Subcontractor's differing site condition claim and to make several advance payments on behalf of Subcontractor, which Subcontractor was obliged to make to its own subcontractors, vendors, and suppliers. Id. ¶¶ 6, 11.
On July 27, 2007, Subcontractor submitted Change Order No. 3, encompassing and superseding the previous two change orders and requesting a contract price increase. In re Red Rock, 480 B.R. at 587. Change Order No. 3 was supported by a report from Subcontractor's consultant Hill International, which concluded that the bin collapse had been caused by an unforeseeable differing site condition and calculated the resulting cost increases borne by Subcontractor. Id. General forwarded Change Order No. 3 on to Owner, who rejected it for its untimeliness and for other reasons. Id.
On September 6, 2007, General notified Subcontractor that it was in default under the subcontract. Id. When Subcontractor failed to remedy the default within the required time, General hired Terra Drilling to complete Subcontractor's work. Id. at 588. On September 13, 2007, Subcontractor filed for bankruptcy in the Eastern District of Pennsylvania.
On October 15, 2007, General responded to Owner's denial of Subcontractor's differing site condition claim (i.e., Change Order No. 3) by challenging Owner's decision and requesting a claims meeting on behalf of itself and Subcontractor. Id. at 587. On March 21, 2008, General sent Owner a Request for Equitable Adjustment (“REA”), which asserted a number of claims and specifically included Subcontractor's differing site condition claim. Id. at 588. Owner rejected the REA and, on April 25, 2008, General filed a mechanic's lien against Owner, again including Subcontractor's differing site condition claim as support. Id. In February 2009, General and Owner settled the mechanic's lien action for $9,991,231, which represented a little under half of the total amount sought. Id.
On August 30, 2006, Subcontractor and General entered into a subcontract (“McCormack subcontract”) under which Subcontractor would perform demolition work on a construction project located in Boston, Massachusetts (“McCormack project”). The project involved rehabilitating a federal office building. Id. at 588. During the project, Subcontractor fell behind schedule and failed to fulfill various contractual duties. Id. at 589. On April 9, 2007, General notified Subcontractor that it was in default; on April 11, 2007, General terminated the McCormack subcontract. General subsequently hired its affiliate Liberty Construction (“Liberty”) to complete Subcontractor's work, although Liberty's lack of competence and General's failure to adequately supervise significantly increased costs. Id. at 609. In October 2007, after Liberty had completed a portion of the work, General hired NASDI Construction (“NASDI”) to complete the remaining demolition work for a fixed fee.Id.