In re D. Federico Co., Inc., Bankruptcy No. 79-2289-HL
| Decision Date | 23 November 1982 |
| Docket Number | Bankruptcy No. 79-2289-HL,Adv. No. A80-0619. |
| Citation | 25 BR 822 |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
| Parties | In re D. FEDERICO COMPANY, INC., Debtor. D. FEDERICO COMPANY, INC. and United States Fidelity and Guaranty Company, Plaintiffs, v. NEW BEDFORD REDEVELOPMENT AUTHORITY and the City of New Bedford, Defendants. |
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Edward Kutchin, Kline & Gordon, Boston, Mass., for plaintiffs, debtor and U.S. Fidelity and Guar. Co.
Raymond A. Letourneau, New Bedford, Mass., for defendants New Bedford Redevelopment Authority and City of New Bedford.
FINDINGS AND RULINGS ON DAMAGES
This proceeding centers around a construction contract entered into between the plaintiff, D. Federico Company, Inc. ("Federico"), and the defendant, New Bedford Redevelopment Authority ("Authority"). Jurisdiction is based on 28 U.S.C. § 1471, an Order for Relief on behalf of the D. Federico Company, Inc. having been entered on September 18, 1980. The plaintiff, United States Fidelity and Guaranty Company ("U.S.F.G.") is the surety on the payment and performance bonds naming the Authority as obligee and Federico as principal. It is uncontested that U.S.F.G., by virtue of its obligations under the bonds, has expended monies to complete the project. U.S.F.G. bases its standing on its right of equitable subrogation and its status as assignee of all Federico's contract balances and claims. The defendant, City of New Bedford, has assumed the liabilities of the Authority in connection with the contract in issue by virtue of a Closeout Agreement executed by and between the Department of Housing and Urban Development and the Authority.
The plaintiff, Federico, a general contractor, held five public contracts with the defendant, Authority, as part of a substantial urban renewal program in the City of New Bedford. At issue in this case is Contract No. 5 of the South Terminal Urban Renewal Project, a contract for the reconstruction of the two earth-filled bulkhead piers, Homer's Wharf and Leonard's Wharf.
By agreement, the trial was bifurcated. The Court issued its opinion on liability in December of 1981.1 The damages trial began in April of 1982 after some preliminary hearings, and the trial was completed in July of 1982, with seven days of evidence in total.
On April 5, 1982, the parties stipulated to the retainages on the following items in the following amounts:
1) TOTAL RETAINAGE
DUE AFTER
APPROVAL OF
ESTIMATE NO. 53 $160,064.53
2) RETAINAGE
WITHHELD ON
CHANGE ORDERS 2 &
3 31,587.11
3) AMOUNT OF ESTIMATE
NO. 53 17,610.68
4) AMOUNT DUE LINE
ITEM 33 SITE
PREPARATION 43,095.00
5) AMOUNT DUE LINE
ITEM 31 FIELD
OFFICE 100.00
___________
TOTAL BEING
WITHHELD BY THE
AUTHORITY $252,457.52
In addition to these amounts, the Court had determined in the liability section that $140,000 was due the plaintiff on line item 34, traffic and maintenance, and that the Authority was entitled to a credit of $1,552.26 for overpayments on Change Orders No. 2 and 3. The final total of $390,905.26 was subject to any additional amount of damages awarded to the contractor and any offsets that the Authority might be entitled to under its counterclaim as previously ruled on in the Court's December 29, 1981 Memorandum. The parties further agreed that to the extent it was necessary, Ex. FD1 gave the varying interest rates under Mass.Gen.Laws ch. 30 § 39G.
On May 17, 1982, well after the Court had made its findings in the liability trial, which defined and limited the issues to be heard in the damages trial; after several pre-trial hearings and after the trial on damages had begun, the Authority sought for the first time to amend its counterclaim and challenge eight line items in Ex. 6, Estimate No. 53, the Authority's semi-final estimate of January, 1979. The Court denied the Authority's motion to amend its counterclaim not only because at this belated date the trial had already commenced, but also on the theory that the parties had stipulated to the accuracy of the Authority's semi-final estimate and that the plaintiff's trial preparation had been completed on the basis that the issues open had been defined in the liability findings based on the Authority's then set of counterclaims. Vargas v. McNamara, 608 F.2d 15 (1st Cir.1979); Johnston v. Holiday Inns, Inc., 595 F.2d 890 (1st Cir.1979); Span East Airlines v. Digital Equipment Corp., 486 F.Supp. 831 (D.Mass. 1980). Therefore, the defendants were not allowed to offer evidence in conflict with the semi-final estimate.
On the issue of the excavations, two things must be said before any consideration of the evidence on damages. First, we are dealing with an issue where neither party is entitled to be totally vindicated. The Court determined in the liability trial that the Authority had information that would have been helpful to the bidders, which disclosed in more detail the composition of the collapsed pier and therefore revealed the material which was likely to be encountered in the required excavation. On the other hand, the Court also found that had the contractor made a reasonably thorough low tide visual examination of the remains of the collapsed portion of the pier and its environs, the contractor would have observed everything that was in fact encountered in excavation including the likely existence of Raymond concrete piles. Second, the contractor's bid made it clear that its examination might charitably be called superficial and it was in fact unaware of the Raymond concrete piles though even on its superficial examination, it was or should have been aware of everything else. Therefore, the only reason for not holding the contractor to its bid is that it would result in an unwarranted benefit to the Authority. The Authority was accordingly required to pay for the removal of the Raymond concrete piles that it would have been charged for had the Goodkind & O'Dea Engineering Report (Report) been made available.
As a matter of equity and in the context of this case where each party acted imprudently, I originally concluded that an appropriate measure of damages would be the reasonable bid that would have been made to remove the Raymond concrete piles.
Evidence has been presented of what a knowledgeable contractor might bid ranging from the Authority's expert's bid of $11.25 per cubic yard, to the plaintiff's engineer's bid of $43.58 per cubic yard through four more figures of the plaintiff's expert based on various assumptions resulting in bids of $54.53, $63.52, $89.81, to finally $292 per cubic yard. Everybody's proposed bid was then analyzed and cross-examined in depth so that there was laid bare all of the basic assumptions as to the cubic yards that had to be dealt with, the contemplated daily amount of cubic yards removable under different assumptions, the various equipment and personnel necessary and the selective hindsight being used. All of the bids reflected an air of complete unreality in either grandiose labor cadres or totally inadequate personnel. Each side in its cross-examination effectively demonstrated the lack of reality surrounding the estimates and the flaws in the underlying concepts. Probably as a result of a lack of clarity on my part, the plaintiff's estimates seemed to assume a total lack of the competitive bidding process allowing the building in of any and all potential costs including direct and indirect overhead and profit. The point may best be illustrated by the plaintiff's expert's answer to the Court's question as to pencil sharpening in competitive bidding in the real world when he stated he doesn't shave any bids to be competitive. He does not try to beat other bidding contractors.1A On the other hand, the Authority's expert had no real experience in this type of underwater excavation and his calculations were based on a book entitled "1974 Dodge Manual for Building Construction Pricing and Scheduling", which is not designed for marine or heavy construction.
If bids are going to be based on such intangibles as bidding psychology, how much at any given time a contractor desires the work and ideal reconstructions of hypothetical situations, which ignore the available actual costs even as possible check points, then different measurements must be resorted to by the Court in striking a fair balance between the parties in this case.
The parties must bear in mind that we are not starting at the actual bidding date in 1974. The Court has already, after a lengthy trial, determined that the plaintiff's problem could have been avoided but for its own imprudence and it would be forced to live with its original bid but for the Authority playing its own disclosures a little too close to the vest.
Neither party should expect to profit from the tangled events, but neither should be required to bear the full cost.
I am therefore forced to conclude that trying to reconstruct the hypothetical bidder is not likely to produce the desired equitable result but rather a variant is appropriate. That variant is what would be the fair and reasonable competitive charge for removing the Raymond concrete piles and anything so inexorably entwined or attached so as to have become a part of the piles, while recognizing that in the liability findings all of the other material was found to be covered by the contract bid price.
Fortunately, the trial ranged widely and included ample evidence for the Court to determine both the number of cubic yards involved and a cost per cubic yard which can be further supported by evidence of the actual cost.
In determining a fair and reasonable unit price...
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