Robert E. McKee, Inc. v. City of Atlanta

• Decision Date: 11 May 1976
• Docket Number: Civ. A. No. C74-2506A.
• Citation: 414 F. Supp. 957
• Parties: ROBERT E. McKEE, INC. v. The CITY OF ATLANTA.
• Court: U.S. District Court — Northern District of Georgia

414 F. Supp. 957

ROBERT E. McKEE, INC. v. The CITY OF ATLANTA.

Civ. A. No. C74-2506A.

United States District Court, N. D. Georgia, Atlanta Division.

May 11, 1976.

Harry L. Griffin, Jr. and John D. Sours, of Smith, Currie & Hancock, Atlanta, Ga., for plaintiff.

Henry R. Bauer, Jr., Asst. City Atty., Atlanta, Ga., for defendant.

ORDER

EDENFIELD, Chief Judge.

This is a diversity action brought by plaintiff contractor against the City of Atlanta for compensation for additional work performed under a contract for the construction of the Utoy Creek Water Pollution Control Plant. The case is currently before the court on defendant's motion for summary judgment.

The City awarded the construction contract in question to the plaintiff after plaintiff submitted the lowest bid for the work at $5,978,000. In order for the plaintiff to construct the facility in question it was necessary for it to undertake a certain amount of excavation of dirt and rock. Prior to bidding, the defendant City engaged a private firm to undertake subsurface investigations, and this was done by taking borings at selected locations. Upon undertaking the excavation, the plaintiff allegedly discovered that the level of rock was substantially higher than had been represented by the borings, and was therefore required to expend an additional $245,500 in order to complete the excavation. The defendant contends that it is not liable for any additional expenses incurred by the plaintiff since the contract specified that the subsurface information provided was not intended as a representation or warranty and that the defendant was not liable for any inaccuracy contained in that information.¹ The defendant also argues that the contract clearly placed the burden of risk for unknown obstacles upon the plaintiff,² and that the plaintiff should therefore be made to absorb the cost for miscalculation.

The defendant is correct in its claim that the mere showing of subsoil conditions unexpected by either party does not automatically release the contractor from his obligations under the contract. If the contract clearly places the risk of uncertainty on one of the parties, then that party must absorb the losses resulting from the unexpected condition, Flippin Materials Co. v. United States, 312 F.2d 408, 160 Ct.Cl. 357 (1963). The defendant is also correct in its conclusion that this contract explicitly places the risk of uncertainty on the plaintiff. But this conclusion does not itself resolve the issue before the court: whether the defendant is liable to the plaintiff because it materially misrepresented facts about the subsoil in question.

The Supreme Court held long ago, in a series of cases relating to government contracts, that the government is liable to the contractor when it makes positive statements of material facts concerning the nature of the work in question, when those facts are false, Hollerbach v. United States, 233 U.S. 165, 34 S.Ct. 553, 58 L.Ed. 898 (1914), Christie v. United States, 237 U.S. 234, 35 S.Ct. 565, 59 L.Ed. 933 (1915), United States v. Spearin, 248 U.S. 132, 39 S.Ct. 59, 63 L.Ed. 166 (1918).³ Moreover, general exculpatory clauses which disclaim any responsibility for the accuracy of that data have been held to be of no effect when the positive specifications made by the government were obviously intended to be used by the bidding contractors in formulating their bids, Hollerbach, supra, 233 U.S. at 172, 34 S.Ct. 553. This implied warranty as to job-site conditions "is not overcome by the general clauses requiring the contractor to examine the site, to check up the plans, and to assume responsibility for the work until completion and acceptance," Spearin, supra, 248 U.S. at 137, 39 S.Ct. at 61. The reason for holding the government liable for certain material misrepresentations is simple: certain jobsite investigations are not expected to be performed by each and every bidder; rather, the government performs certain basic tests in order to provide each bidder with some information on which he may make his bid. If every bidder were required to perform all the investigations, even though the chance of receiving the bid was remote, the number of bids would decrease and the dollar amount of the bids would increase.

Of course, the government does not become an insurer merely by providing certain information. State courts, in applying the principles enunciated above, have imposed two implied conditions on a claim for recovery for misinformation. The first requirement is that the bidder is not reasonably able to discover the true facts for himself. This factor was touched upon in Christie, supra, where the Supreme Court found not only that the borings performed by the government were misleading, but also that the contractors did not have sufficient time to take borings themselves.⁴ The New York courts have held therefore that the state is liable for misrepresentations as to conditions only if "inspection would have been unavailing to reveal the incorrectness of the representations", or if the representations were made in bad faith. Warren Bros. Co. v. NYS Thruway Authority, 34 A.D.2d 97, 309 N.Y.S.2d 450 (A.D.1970). The New York Court of Appeals, in affirming the decision in Warren Bros. in favor of the state, concluded that no misrepresentations were made and that "an appropriate inspection of the job site by claimant, a requirement imposed by the proposal and the contract, would have revealed the actual condition had not such inspection been confined to driving along the highway in an automobile," 34 N.Y.2d 770, 358 N.Y.S.2d 139, 314 N.E.2d 878 (1974). What inspection is "appropriate", of course, depends on the facts of each case, and the central question in each case is whether the bidder placed "justified reliance" on the data provided by the government, Haggart Construction Co. v. State Highway Commission, 427 P.2d 686 (S.C.Mont.1967). In Haggart, the court concluded that the bidders had neither sufficient time nor adequate facilities to verify the state's data. It was obvious to the court that the state provided the data with the expectation that bidders would rely on it in submitting their bids. In Condon-Cunningham, Inc. v. Day, 22 Ohio Misc. 71, 258 N.E.2d 264 (Ct.C.P., Ohio, 1969), the Ohio court, in finding against the state on a contract claim, stressed the fact that the soil borings at issue could only be performed at considerable expense, and concluded that it would be unrealistic to expect each bidder to perform the boring himself:

"* * * Was each bidder to run these tremendously expensive core boring tests not knowing whether or not he would get the contract? Under defendant's contention there would be practically no bidders. A bidder would be faced with this dilemma. Shall I bid on what is presented to be and run the risk of loss if the information is not correct or shall I run core boring tests at great expense, amounting to thousands of dollars, which expense I must bear on my own if I do not secure the contract?" 258 N.E.2d at 274-5.

Thus, the first question that must be asked in each contract case involving misrepresentation is whether the contractor could have discovered the true facts through reasonable investigation. In determining whether such investigation should have been done the court should consider the time constraints involved, the cost of the investigation in comparison to the total bid price, and the detailed nature of the government's data. If the court finds that it would be unrealistic to expect bidders to uncover the error on their...