Pro-Spec Corp. v. Chester Water Auth., CIVIL ACTION NO. 16-4728

• Decision Date: 28 June 2017
• Docket Number: CIVIL ACTION NO. 16-4728
• Parties: PRO-SPEC CORPORATION v. CHESTER WATER AUTHORITY, et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

PRO-SPEC CORPORATION v. CHESTER WATER AUTHORITY, et al.

CIVIL ACTION NO. 16-4728

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

June 28, 2017

KEARNEY, J.

MEMORANDUM

Citizens may expect contractors awarded work from our water authorities following a competitive bid process will perform their contract obligations, including through subcontractors hoping to work for the contractor who won the bid from the water authority.We also expect the water authority and contractors act in accordance with their contract and commercial expectations just like a party to any contract.When the water authority, contractor and subcontractor each claim a failure in performance and ascribe a wide variety of disputed reasons, we cannot enter summary judgment on disputed issues of fact.After review of substantial discovery relating to the water authority's and a contractor's motion for summary judgment, we find certain claims must be dismissed as a matter of law.We cannot draw the same legal conclusions based on disputed facts relating principally to competing contract claims.Ferreting through several genuine issues of material fact, we need the adversarial process at trial to understand if there is a breach of contract and by whom.

I.Background¹

Chester Water Authority (the "Authority") delivers potable water to customers in Delaware and Chester Counties.²It owns and operates the Village Green Tank Farm.Water tanks at the Tank Farm require periodic maintenance, and in the past, the Authority contracted with DN Tanks to work on the tanks.³

In December 2014, the Authority solicited bids for a contract relating to the "Rehabilitation of Village Green TanksNo. 2andNo. 9"(referred to as the "Tanks Contract").⁴Pro-Spec Corporation submitted the lowest bid for the Tanks Contract, and DN Tanks submitted the second lowest bid.⁵

On March 16, 2015, the Authority and Pro-Spec agreed to the Tanks Contract, which the parties agree is enforceable and governed by Pennsylvania law.⁶The underlying project is a public works project requiring Pro-Spec to recoat the exterior of TankNo. 9, install a line stop and two manholes at TankNo. 2, and apply an elastomeric coating membrane to areas within both tanks' interiors.⁷The Tanks Contract required DN Tanks or Preload install manholes.⁸

A.Before Pro-Spec agrees to the Tanks Contract, it begins negotiating a subcontractor agreement with DN Tanks.

On January 9, 2015, DN Tanks sent an initial subcontractor proposal to Pro-Spec to install manholes and perform other work on the project.⁹Pro-Spec did not accept this proposal in writing and proceeded to agree to the Tanks Contract with the Authority on March 16, 2015 even though it lacked a subcontractor agreement with DN Tanks.¹⁰

Pro-Spec responded to DN Tanks' initial proposal on April 8, 2015 by sending a draft subcontractor agreement to DN Tanks, which contradicted many terms in DN Tank's initial proposal.¹¹DN Tanks did not agree to these terms, and instead returned the draft subcontractor agreement with "proposed modifications" on April 29, 2015.¹²For example, DN Tanks proposed delaying the manhole installation start date by approximately three and a half months.¹³DN Tanks also demanded the agreement incorporate DN Tanks' initial proposal by reference.¹⁴Pro-Spec responded it would never incorporate DN Tanks' initial proposal into a subcontractor agreement, calling this term a "deal breaker."¹⁵

During Pro-Spec's negotiations with DN Tanks, project engineer Gannett Flemming issued Pro-Spec a "Notice to Proceed" requiring Pro-Spec commence work on May 4, 2015.¹⁶The Tanks Contract required Pro-Spec to achieve substantial completion of all work by December 30, 2015, and final completion by January 29, 2016.¹⁷Pro-Spec admittedly did not complete the work by these deadlines, but the parties dispute whether Pro-Spec is responsible for not meeting the deadlines.¹⁸

B. Pro-Spec and DN Tanks continue to negotiate the terms of the subcontractor agreement.

On April 30, 2015, Pro-Spec requested design submittals from DN Tanks.¹⁹DN Tanks responded it would not provide design submittals until the parties agreed to a subcontract.²⁰On May 5, 2015, Pro-Spec sent DN Tanks a Letter of Intent requesting design submittals.²¹The cover email enclosing the Letter of Intent stated "issue[s] related to the Subcontract will proceed but should not delay the non-site work."²²Pro-Spec President Ron Yarbrough acknowledged the parties were still negotiating "issues" concerning the subcontract.²³

Pro-Spec's Letter of Intent did not include all of DN Tanks' proposed terms.²⁴For example, the Letter of Intent did not incorporate by reference DN Tanks' initial proposal, and it required DN Tanks dispose of waste rather than Pro-Spec.²⁵

On May 7, 2015, DN Tanks returned a marked-up copy of the Letter of Intent, which re-proposed DN Tanks' requested incorporation of the initial proposal and Pro-Spec's disposal of waste.²⁶On May 11, 2015, Pro-Spec rejected DN Tanks' marked-up Letter of Intent, stating "I trust that an amicable subcontract will include any concerns of both parties and an amicable subcontract will be agreed to."²⁷

On May 19, 2015, DN Tanks emailed Pro-Spec asking if it would send a revised Letter of Intent soon.²⁸On June 18, 2015, Pro-Spec asked DN Tanks if it would provide an executed subcontractor agreement.²⁹The following day, DN Tanks asked Pro-Spec to include its requirements into an acceptable subcontract, and DN Tanks reminded Pro-Spec they did not have an agreement.³⁰DN Tanks also worried the delayed start date would push DN Tanks' work into cold weather and Pro-Spec would need to make provisions to protect DN Tanks' work.³¹

As of June 19, 2015, DN Tanks and Pro-Spec still disagreed about incorporating DN Tanks' initial proposal by reference in the subcontractor agreement.³²On July 1, 2015, Pro-Spec sent DN Tanks a revised subcontractor agreement, but the proposed agreement failed to address many of DN Tanks' concerns and incorporate many of DN Tanks' material terms, including DN Tanks' initial proposal and its work schedule.³³DN Tanks responded by returning a list of its material terms to Pro-Spec on July 15, 2015.³⁴These terms included:

• Pro-Spec had not agreed to exempt DN Tanks from providing "permits, fees and inspections";

• Pro-Spec had not updated the schedule to match DN Tanks' most recent schedule;

• Pro-Spec had not incorporated DN Tanks' initial proposal by reference;

• Pro-Spec had not incorporated DN Tanks' most recent schedule by reference; and,

• Pro-Spec had not agreed it would bear the costs associated with protection of winter work.³⁵

On July 23, 2015, Pro-Spec sent DN Tanks another proposed subcontract.³⁶On July 27, 2015, DN Tanks responded by calling the proposed subcontractor agreement unacceptable and again requested DN Tanks' material revisions be incorporated into the proposed subcontractor agreement.³⁷

On July 28, 2015, Pro-Spec purported to send DN Tanks a Notice to Proceed even though it had not revised the subcontractor agreement to address DN Tanks' concerns.³⁸The same day,DN Tanks responded by reminding Pro-Spec it did not agree to a subcontractor agreement and requested Pro-Spec correct several unacceptable provisions in the proposed agreement.³⁹

C. Pro-Spec claims to reach a subcontractor agreement with Preload.

On August 19, 2015, Pro-Spec wrote a letter to Gannett Fleming admitting it "just couldn't get a fair agreement with [DN Tanks] as a Subcontractor."⁴⁰The same day, Pro-Spec informed Gannet Fleming it terminated its purported agreement with DN Tanks and issued a subcontractor agreement to Preload.⁴¹

On September 18, 2015, the Authority sent Pro-Spec a letter regarding Pro-Spec's delays, reminding them the Tanks Contract allows the owner to assess liquidated damages against Pro-Spec for late completion.⁴²Pro-Spec forwarded this letter to Preload, threatening it would hold Preload responsible for all damages resulting from the delay.⁴³Preload ultimately declined to enter a subcontractor agreement with Pro-Spec.⁴⁴

D. Pro-Spec reaches out to DN Tanks to reinstitute negotiations.

In October 2015, Pro-Spec approached DN Tanks regarding a subcontractor agreement.⁴⁵On October 27, 2015, DN Tanks and Pro-Spec discussed necessary revisions to the subcontractor agreement.⁴⁶On November 2, 2015, Pro-Spec sent DN Tanks another proposed subcontractor agreement.⁴⁷The following day, DN Tanks responded by advising Pro-Spec certain agreed-upon revisions were not included in the recent draft subcontract.⁴⁸

During November 2015, DN Tanks and Pro-Spec participated in several conference calls and exchanged several emails regarding the revisions to the subcontractor agreement.⁴⁹On November 20, 2015, Pro-Spec and DN Tanks agreed to a subcontractor agreement.⁵⁰

DN Tanks did not perform work or provide any deliverables to Pro-Spec before signing the agreement on November 20, 2015.⁵¹DN Tanks and Pro-Spec did not have a course of dealing before this project because they did not work together in the past.⁵²

E. DN Tanks performs under the subcontractor agreement.

On November 30, 2015, DN Tanks began work on the project.⁵³The November 20, 2015 subcontractor agreement between DN Tanks and Pro-Spec defined the scope of the work in Article 8, which refers to Schedule A and Schedule D.⁵⁴ These Schedules explain the scope of the work is contained in "Bid Item B6."⁵⁵Despite this clear language, Pro-Spec president Ron Yarbrough testified DN Tanks' responsibilities are not limited to Bid Item B6, but are also found in the bid forms.⁵⁶Pro-Spec does not point to any contract language directing DN Tanks' responsibilities are included in the bid forms or elsewhere.Nor does Pro-Spec identify DN Tanks' specific responsibilities encompassed in these documents.

DN Tanks' subcontract price for performing work under Contract Item B6 is $475,000.⁵⁷DN Tanks invoiced Pro-Spec for this amount, but Pro-Spec paid only...