Pennsylvania Turnpike Commission v. Sanders & Thomas, Inc.
| Decision Date | 11 March 1974 |
| Citation | 12 Pa.Cmwlth. 145,316 A.2d 127 |
| Parties | The PENNSYLVANIA TURNPIKE COMMISSION, Petitioner, v. SANDERS & THOMAS, INC., Respondent. |
| Court | Pennsylvania Commonwealth Court |
Pepper Hamilton & Scheetz, Howard D. Vengie, Jr., Kenneth M. Cushman, Philadelphia, for Pa. Turnpike Commission.
Edward H. Cushman, Pepper, Hamilton & Scheetz, Philadelphia, for Turnpike Commission, John R. Rezzolla, Gen. Counsel, Jay R. Braderman, Asst. Gen. Counsel, Harrisburg, of counsel.
Blank, Rome, Klaus & Comisky, Marvin Comisky, Gilbert Stein, Alan C. Gershenson, William E. Taylor, III, Philadelphia, for respondent.
Before CRUMLISH, Jr., KRAMER, WILKINSON, MENCER, ROGERS and BLATT, JJ.
The parties to this appeal are the Pennsylvania Turnpike Commission (hereinafter referred to as PTC), appellant, and Sanders & Thomas, Inc. (hereinafter referred to as S&T), appellee. The thing appealed from is an award to S&T by arbitrators appointed and acting pursuant to the Act of April 25, 1927, P.L. 381, 5 P.S. § 161 et seq.
The parties entered into a written agreement, prepared by PTC and dated June 30, 1969, for the performance by S&T of engineering and design services for new and revised toll collection facilities at nine interchanges at the eastern portion of the Pennsylvania turnpike. The agreement provided that S&T should be paid for its work a fee of 4 1/2% Of the construction costs as determined from accepted bid prices on construction contracts, or, in the event that construction contracts were not awarded, the same rate of 4 1/2% Of construction costs as estimated by the Chief Engineer of PTC. The contract further required, with regard of S&T's compensation, that PTC should make partial payments monthly based upon an estimated construction cost of $8,000,000. The contract contained the following provision crucial to this appeal:
PTC appointed another engineering firm, Michael Baker, Jr., Inc., as its consultant with regard to the work under S&T's contract and directed S&T to communicate with PTC through Baker.
Several months after undertaking the work, S&T became aware that the $8,000,000 estimate of cost for what it was being asked to design was unrealistic. It provided PTC with a new cost estimate in the amount of $14,600,000 and offered to reduce its fee to 4.25%. By resolution made January 6, 1970, PTC accepted the revised estimated cost figure and approved the reduction of S&T's design fee to 4.25%.
In June and August of 1970 bids were taken for two of the facilities designed by S&T in consulation with Baker and the bids came in higher than expected. By November 1970, it became apparent to S&T that the construction cost for the work it was designing would approximate $27,000,000. It so informed Baker and it also offered to reduce its fee to 4.165% Of this estimate. In January 1971, when its work was 96.7% Completed, S&T billed PTC, through Baker, for services based upon a fee percentage of 4.165% Of $27,153,047. Baker would not approve this payment until PTC approved.
In early April, 1971, S&T asked PTC to amended their agreement to provide a fee of amend their agreement to provide a fee of PTC adopted a resolution approving an increase in the construction costs estimate to $21,000,000 and approved a fee of 3.5% For partial payment purposes.
Negotiations concerning the fee continued. On July 7, 1971 a conference for the purpose of resolving the differences was held, attended by the Chairman and one other Commissioner of PTC, PTC's General Counsel and his assistant, PTC's Chief Engineer, and representatives of both Baker and S&T. A memorandum of that meeting was prepared by one of Baker's representatives. Its accuracy as a report of what happened is not disputed and it was admitted into evidence by the arbitrators without objection by PTC's able assistant general counsel who had attended the conference. It includes the following sentence: 'It was recognized by all present that due to additional cost escalation and as a result of more recent cost estimates, the latest construction cost estimate presented by Sanders & Thomas and in turn by the Commission's Chief Engineer, is 29.3 million.' At this conference, S&T offered to settle for a fee of 4.1% Of 29.3 million, or $1,201,300, and the PTC countered by suggesting a lump sum payment of $1,170,000. S&T accepted PTC's counter-offer and it was agreed that other Commissioners of PTC would be consulted by telephone and that if they concurred the settlement would be formally approved by the Commission at a meeting to be held on July 20, 1971. For reasons undisclosed in the record, PTC did not finally approve this settlement.
S&T, nevertheless, completed its work and on January 5, 1972 submitted a final bill computed as 4.25% Of a construction cost estimate of $29,301,468, producing a total fee of $1,245,312.39. PTC having made progress payments in the amount of $687,776.25, S&T's net billing was $557,536.14.
It is also important to note for the record that PTC agrees that its engineer calculated at some time the construction cost estimate at $26,734,322, and that an audit made by PTC of S&T's books and records revealed that its cost of performing the contract was $1,178,476.
Its bill remaining unpaid, S&T requested submission to arbitration pursuant to Article VII of the agreement. Each of the parties chose as its arbitrator an experienced and able member of the Bar, and the American Arbitration Association appointed a third arbitrator, apparently an engineer.
After a day and a half of hearings, the arbitrators by unanimous order awarded S&T the sum of $557,474, with interest at 6% Computed from March 1, 1972, representing the balance due for engineer's fee at the rate of 4.25% On estimated construction costs of $29,300,000, producing a total fee of $1,245,250 less credit for payments on account of $687,776.
At the conclusion of the hearing, PTC's counsel stated to the arbitrators that the only things to be decided were the percentage of construction costs to which S&T was entitled and the amount of construction costs estimated by PTC's Chief Engineer. On these two issues S&T depended upon the admitted agreement of the parties on a fee of 4.25% At a time when the estimated construction costs were $14,600,000, and on the Chief Engineer's concurrence in July of 1971 in S&T's then estimate of $29,300,000. The PTC on the subject of percentage of fee relied upon an opinion of a Deputy Secretary of Transportation that a fair and adequate percentage would be 3.55% And on the Chief Engineer's estimate of construction costs of $26,734,322. The arbitrators, based upon the record, which we have reviewed with great care, wholly reasonably concluded that the percentage should be 4.25% As last agreed upon by the parties and that the estimated cost to which that percentage should be applied was the $29,300,000 figure accepted by the Chief Engineer at the July 1971 meeting. At the conclusion of the hearing, counsel for the parties agreed that there would be no necessity for the filing of briefs and that the arbitrators should not be burdened with making detailed findings or conclusions. Although S&T's counsel in his closing statement to the Board requested interest from January 6, 1972, when S&T sent its final bill, or 'perhaps a reasonable time therefore for the bill to have been paid', PTC's trial counsel, in the presence of its General Counsel, made no argument on this point.
Despite the simplicity of the issues as presented to the arbitrators, special counsel for PTC for purposes of this appeal present for our consideration in support of their contention that the arbitrator's award should be either vacated or modified, no less than seven questions, explained in 117 pages of brief. We have concluded that none of these contentions is meritorious, that the arbitrators had power to act, that their award is supported by substantial evidence and that they committed no error of law.
The proposition most vigorously pressed by PTC is that the arbitrators had no power to act and that their award was a nullity because the Act of 1927, P.L. 381, 5 P.S. § 161 et seq., to which we will refer as the Arbitration Act of 1927, insofar as it provides for arbitration thereunder of disputes arising from contracts of the State or its instrumentalities, was repealed by implication by the Act of May 20, 1937, P.L. 728, 72 P.S. § 4651--1 et seq., to which we will refer as the Arbitration of Claims Act of 1937. The argument commences with the indisputable principles founded in Article I, Section 11 of the Pennsylvania Constitution (1) that not only the Commonwealth but also its instrumentalities, such as PTC, are immune from suit except as the Legislature shall provide, citing Rader v. Pennsylvania Turnpike Commission, 407 Pa. 609, 182 A.2d 199 (1962), and Roney v. General State Authority, 413 Pa. 218, 196 A.2d 349 (1969), and (2) that the Arbitration of Claims Act of 1937 was the Legislature's consent to suit on claims arising from contracts entered into with the Commonwealth or its instrumentalities, including Authorities created by it, citing Adam Eidemiller Inc. v. State Highway and Bridge Authority, 408 Pa. 195, 182 A.2d 911 (1962), and Armour Rentals, Inc. v. General State Authority, 4 Pa.Cmwlth. 517, 287 A.2d 862 (1972). It does not follow from these as PTC argues,...
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