Nova Contracting, Inc. v. City of Olympia

• Decision Date: 27 September 2018
• Docket Number: No. 94711-2,94711-2
• Citation: 426 P.3d 685
• Court: Washington Supreme Court
• Parties: NOVA CONTRACTING, INC., a Washington Corporation, Respondent, v. CITY OF OLYMPIA, a Washington Municipal Corporation, Petitioner.

426 P.3d 685

NOVA CONTRACTING, INC., a Washington Corporation, Respondent,

v.CITY OF OLYMPIA, a Washington Municipal Corporation, Petitioner.

No. 94711-2

Supreme Court of Washington.

Argued May 17, 2018

Filed SEPTEMBER 27, 2018

William Allen Linton, Jacob James Stillwell, Inslee, Best, Doezie & Ryder PS, 10900 NE 4th Street, Suite 1500, Bellevue, WA 98004, Annaliese Harksen, City of Olympia, P.O. Box 1967, Olympia, WA 98507-1967, for Petitioner.

Benjamin D. Cushman, Deschutes Law Group, PLLC, 400 Union Avenue SE, Suite 200, Olympia, WA 98501-2060, for Respondent.

Lindsay Taft Watkins, Ahlers Cressman & Sleight PLLC, 999 3rd Avenue, Suite 3800, Seattle, WA 98104-4023, for Other Party Associated General Contractors of Washington.

Daniel G. Lloyd, Vancouver City Attorney's Office, P.O. Box 1995, 415 W. 6th Street, Vancouver, WA 98668-1995, for Amicus Curiae Washington State Association of Municipal Attorneys.

GORDON McCLOUD, J.

¶ 1 The city of Olympia (City) contracted with NOVA Contracting Inc. to replace a deteriorating culvert. Their contract contained a "notice of protest" provision, standard specification section 1-04.5 (Section 1-04.5), taken from the Washington State Department of Transportation’s Standard Specifications for Road, Bridge, and Municipal Construction (2012), www.wsdot.wa.gov/publications/manuals/fulltext/M41-10/ss2012.pdf [https://perma.cc./77X9-Z593]. See Clerk’s Papers (CP) at 90-91. Section 1-04.5 required NOVA to "give a signed written notice of protest" "[i]mmediately" if NOVA "disagree[d] with anything required in a change order, another written order, or an oral order from the [City] Engineer, including any direction, instruction, interpretation, or determination by the Engineer." Id. at 90. NOVA later sued the City for breach of the implied covenant of good faith and fair dealing. The City moved to dismiss NOVA’s claim, arguing (in part) that NOVA’s failure to file a written notice protesting the "written order[s]" on which the claim of breach was based violated Section 1-04.5 and hence barred NOVA’s claim.

¶ 2 The trial court dismissed NOVA’s claim, but the Court of Appeals reversed in part. NOVA Contracting, Inc. v. City of Olympia , No. 48644-0-II, slip op. at 1-2, 2017 WL 1382883 (Wash. Ct. App. Apr. 18, 2017) (unpublished), https://www.courts.wa.gov/opinions/pdf/D2%2048644-0-II%20Unpublished%20Opinion.pdf, review granted , 189 Wash.2d 1038, 413 P.3d 565 (2017). This court has twice held that such written notice is mandatory and that actual notice does not suffice. Mike M. Johnson, Inc. v. Spokane County , 150 Wash.2d 375, 377, 391, 78 P.3d 161 (2003) ; Am. Safety Cas. Ins. Co. v. City of Olympia , 162 Wash.2d 762, 773, 174 P.3d 54 (2007). The Court of Appeals interpreted those holdings, however, as applying only to claims for cost of work performed, not to claims for expectancy and consequential damages. NOVA Contracting , slip op. at 6 n.3. We hold that Mike M. Johnson applies even to claims for expectancy and consequential damages. We therefore reverse the Court of Appeals’ decision as it relates to Section 1-04.5.

FACTUAL HISTORY

¶ 3 In early 2013, the City began soliciting bids to fix a deteriorating cement culvert along Woodland Creek in Olympia, Washington. Because the culvert was located next to a wetland, the City wanted to minimize land disturbance. Thus, rather than seeking bids to excavate the land to remove the cement pipe, the City sought bids to use the "pipe bursting" method. That method "consist[s] of bursting the existing pipe while simultaneously installing [the] new steel pipe, driven forward from the back using a percussive hammer and guided forward from the front using a winch cable." CP at 72. After two failed bidding periods, id. at 274, the City eventually awarded the contract to NOVA in May 2014, id. at 70.

¶ 4 The City provided designs for the project but left decisions regarding project implementation—such as the fill material for sand bags and the designation of access routes—to NOVA. The contract expressly stated that some of those implementation plans "must be submitted ... prior to construction." Id. at 81-82. The contract also required compliance with a Department of Ecology (DOE) hydraulic project approval permit conditioned on "[e]rosion control measures ... be[ing] in place prior to any clearing, grading, or construction." Id. at 466. The City interpreted these contractual and permit conditions as requiring city approval of all implementation plans—which the parties refer to as "submittals"—before on-site construction began. NOVA disputes whether preapproval of all submittals was actually required under the contract.

¶ 5 Nevertheless, by early August 2014, NOVA had submitted implementation plans for at least 12 different aspects of the project. Id. at 499-502. The City rejected many of them and asked NOVA to revise and resubmit. NOVA did, but never to the City’s satisfaction.

¶ 6 On August 7, before the City finished reviewing NOVA’s first batch¹ of revised submittals, the City informed NOVA that seven "key" plans still needed city approval "before work related to these submittals can begin on site." CP at 77. Those plans related to (1) access and haul routes, (2) temporary bypass pumping, (3) temporary work area excavation, (4) work description, (5) steel pipe specifications, (6) pipe sealing, and (7) habitat boundary fencing. Id. Additionally, the City asked NOVA for a revised project schedule detailing how NOVA intended to make up for the delays due to outstanding submittals. Id. The City also asked NOVA to submit a "Request to Sublet Work" form confirming that NOVA’s subcontractor, rather than NOVA, would perform the pipe bursting portion of the construction project. Id.

¶ 7 The City issued a "notice to proceed" letter a few days later, on August 11, despite the missing plans, schedule, and sublet form. Id. at 79. The City likely issued the notice to proceed letter before the submittals were approved because of the tight timeline: the hydraulic project approval permit would expire on October 15, id. at 156; the contract gave NOVA 45 working days from issuance of the notice to proceed letter for project completion, id. at 79; so an August 11 notice to proceed letter gave NOVA until October 14 (the day before the DOE permit expired) to complete the project. Id. at 219. Both NOVA and the City agree that this left ample time to complete the project if NOVA could get past the submittal stage.

¶ 8 That did not happen. The City rejected NOVA’s first batch of revised submittals the following week. The City again asked NOVA for a revised project schedule. Id. at 103.

¶ 9 NOVA did not submit a revised schedule or a sublet work form. Instead, NOVA defended the adequacy of its submittals and blamed the City’s "rebarbative requirements" throughout the submittal process for the project’s inertia. Id. at 103. NOVA acknowledged that its prior submittals did not include every detail that the City demanded but explained that such detail was unnecessary because "much of the required information necessary in the submittals or plans [was] redundant or already specified by the contract specifications." Id. at 116. NOVA also argued that any perceived inadequacy in its submittals resulted from the City’s design flaws. Id. NOVA suggested that the City was abusing the submittal process to clarify and correct the City’s own design flaws and that those flaws should have been addressed through the change order process instead. Finally, NOVA complained that it was receiving mixed messages from city employees about what information the City needed in the submittals and asked the City to clarify the proper lines of communication for the contract. Id. at 116-17. But NOVA did not file a formal notice of protest regarding any of these matters. NOVA continued to believe, as of August 25, that there was still adequate time to complete the project by the October deadline. Id. at 117.

¶ 10 The City did not respond to NOVA’s complaints about the submittal process.

¶ 11 After some back and forth with the City about the inadequacy of NOVA’s submittals, NOVA submitted a second batch of revised submittals. The City rejected it. NOVA did not file a notice of protest at that time either.

¶ 12 Then, on September 4, the City issued a notice of default letter, demanding that NOVA cure its delinquent performance or risk termination of the contract. Id. at 156-58. The City identified four delinquencies: (1) failure to submit sufficient information or acceptable submittals, (2) failure to mobilize to the work site, (3) failure to submit a revised project schedule, and (4) failure to present written documentation confirming TT Technologies Inc. (NOVA’s subcontractor) would perform the pipe bursting. The City gave NOVA 15 days to cure these delinquencies but emphasized that "[w]ithout submittals that include specific and sufficient design and work details, the City cannot allow work to proceed." Id. at 157.

¶ 13 Upon receipt of the notice of default letter, NOVA submitted a third batch of revised submittals. It also provided the City with a revised project schedule. Id. at 286. But NOVA refused to provide the City with the requested written confirmation from its subcontractor about pipe bursting because the subcontractor had provided verbal confirmation several times. Id. at 297-99. Because the default notice listed failure to mobilize as a delinquency, NOVA also began moving equipment to the work site, even though it did not have keys to the jobsite. Although there were some earlier communications about giving NOVA access to the jobsite, the City never did so. Id. at 472-73. To gain that access, NOVA cut the padlock on the City’s fence. NOVA then installed its own padlock and began implementing parts of the previously approved traffic control plan. Id. at 160.

¶ 14 The City ordered NOVA to stop work immediately and vacate the jobsite. Id. at 160, 166. The City did so because NOVA failed to obtain all the...