Southern Maryland Hospital Center v. Edward M. Crough, Inc.

• Decision Date: 10 April 1981
• Docket Number: No. 820,820
• Citation: 427 A.2d 1051,48 Md.App. 401
• Parties: SOUTHERN MARYLAND HOSPITAL CENTER et al. v. EDWARD M. CROUGH, INC.
• Court: Court of Special Appeals of Maryland

Page 401

48 Md.App. 401

427 A.2d 1051

SOUTHERN MARYLAND HOSPITAL CENTER et al. v.EDWARD M. CROUGH, INC.

No. 820.

Court of Special Appeals of Maryland.

April 10, 1981.

Warren M. Davison, Washington, D. C., with whom were Earle K. Shawe, Patrick M. Pilachowski and Shawe & Rosenthal, Baltimore, on the brief, for appellants.

Gregory J. Miner, Washington, D. C., with whom were Paul M. Rhodes, Craig B. Dunbar and Rhodes, Dunbar & Lomax, Chartered, Washington, D. C., on the brief, for appellee.

Argued before MASON, LISS and WILNER, JJ.

LISS, Judge.

This case arises out of a petition to enforce an arbitration award filed by appellee, Edward M. Crough, Inc., in the Circuit Court for Prince George's County.The award was rendered in a construction contract dispute between appellants, Southern Maryland Hospital Center, et al., and appellees.Appellants filed an answer to appellees' petition, as well as a counterclaim seeking to have the arbitration award vacated or set aside pursuant to the provisions of Maryland Code, Uniform Arbitration Act, Section 3-201, et seq., of the Courts and Judicial Proceedings Article(1974, 1980 Repl. Vol.).Both parties filed cross-motions for summary judgment based upon the record of the proceedings before the American Arbitration Association's panel of three arbitrators and applicable law, and on May 12, 1980the Circuit Court for Prince George's County(Melbourne, J.) denied appellants' motion for summary judgment, upheld the arbitrators' award, and granted appellees' motion for summary judgment.Appellants thereafter filed this appeal on the grounds that the court below failed to apply properly the standards of Sections 3-224(b)(1) and (3) of the Courts and Judicial Proceedings Article and controlling precedent.Appellants raise two questions to be determined by this appeal:

1.Did the trial court err in granting summary judgment confirming the arbitration award based upon issues presented and considered by the arbitration panel and the decision of the panel?

2.Did the court below err in granting summary judgment confirming the arbitration award in the light of the established standards of review of arbitration awards in Maryland?

The Facts

In May 1976, appelleeEdward M. Crough, Inc., (hereinafter referred to as "Crough") and Dr. Francis P. Chiaramonte entered into a "Construction Management Agreement" by which Crough agreed (a) to provide design consultation, including efficient scheduling of the work and limiting the costs of the construction of a 300 bed full service hospital in Prince George's County, Maryland, and (b) to organize and direct the actual construction of the hospital.The agreement was supplemented by two American Institute of Architect (AIA) Forms (A201 and A201/SC) entitled, respectively, "General Conditions of the Contract for Construction" and "Supplementary Conditions of the Contract for Construction."Crough's fee for these services was contractually set at $334,520.

The contract contained a "Guaranteed Maximum Price" of $11.4 million.Crough's owner and chief executive officer, Edward M. Crough, testified that his counsel reviewed the CM Agreement and Crough both had prior experience with such clauses and understood them.

Dr. Chiaramonte is the only general partner in the limited partnership which owns the appellant hospital and will hereafter be referred to as the "owner."The owner testified that by entering into a CM Agreement containing the Guaranteed Maximum Price (hereafter, "GMP"), it was his intent to limit the cost of construction to a sum certain of $11.4 million.

Pursuant to its undertaking to perform this job at or below $11.4 million, Crough segregated the work into approximately 25 "line items" or "bid packages," such as excavation, concrete work, mechanical, electrical, landscaping, etc.Crough estimated the cost of each of these bid packages, which were then let out for competitive bidding.After Crough awarded contracts based upon the bids received, a surplus of over $798,000 was generated from the difference between Crough's bid package estimates and the actual contracts awarded.Stated another way, the projected cost of building the hospital was approximately $10.6 million at that point well below the $11.4 million GMP, providing a "cushion" or "surplus" for the parties.

Even before the owner signed the CM Agreement, the parties were aware of a problem that the structural engineer was having with regard to some soil borings.As a result of ground conditions, the engineer advised changing the nature of the foundation, which had originally been designed to use "spread" footings.The CM Agreement was signed by the owner and the parties then discussed possible alternative foundations.Ultimately it was determined that construction could only proceed with a "mat" foundation, i. e., an approximately two foot-thick slab of concrete underlying a layer of sand and the building's floor slab.

As a result, the original plans and specifications had to be changed to reflect the required mat foundation and the subcontractors, such as the excavator, whose contracts had already been awarded, were notified of the changes.Those subcontractors asked for and received additional funds to perform the changed work.

The foundation redesign affected not only the excavating bid package, but also a number of other items, such as concrete, mechanical and electrical work.Crough advised the owner that the increased costs caused by the mat foundation could easily be absorbed by the nearly $800,000 surplus.

Article 12 of the General Conditions Section of the CM Agreement sets forth the exclusive method for changing the GMP under the contract.It provides, in relevant part (at Sections 12.1.2and12.2.1), as follows:

12.1.2 A Change Order is a written order to the Contractor signed by the Owner and the Architect, issued after the execution of the Contract, authorizing a Change in the Work or an adjustment in the Contract Sum or the Contract Time.Alternatively, the Change Order may be signed by the Architect alone, provided he has written authority from the Owner for such procedure and that a copy of such written authority is furnished to the Contractor upon request.A Change Order may also be signed by the Contractor if he agrees to the adjustment in the Contract Sum or the Contract Time.The Contract Sum and the Contract Time may be changed only by Change Order.

12.2.1 If the Contractor wishes to make a claim for an increase in the Contract Sum, he shall give the Architect written notice thereof within twenty days after the occurrence of the event giving rise to such claim.This notice shall be given by the Contractor before proceeding to execute the Work, except in an emergency endangering life or property in which case the Contractor shall proceed in accordance with Subparagraph 10.3.1.No such claim shall be valid unless so made.If the Owner and the Contractor cannot agree on the amount of the adjustment in the Contract Sum, it shall be determined by the Architect.Any change in the Contract Sum resulting from such claim shall be authorized by Change Order.

It is conceded that Crough neither prepared, nor requested anyone else to prepare, a change order during construction of the project, either for the mat foundation work or for any other work (including "extras," which are the subject matter of this dispute).Nor did the owner's architect prepare or request Crough to prepare a change order even though the architect did order and approve many of the changes proposed during the course of the construction of the project.It is clear from the record extract that the owner knowingly permitted non-compliance with the strict terms of the agreement providing the cost of completion of the project did not exceed the $11.4 million GMP.

The hospital was completed sometime in November of 1977, purportedly well within the confines of the $11.4 million GMP.In August of 1978, Crough submitted to the owner a bill for "extras" and thereby sought to recover costs in excess of the GMP.

The facts set forth above were presented to a Board of Arbitration in six days of hearing, following which voluminous briefs were filed by the parties.On February 8, 1980, the Board of Arbitration issued its award, in favor of Crough in the amount of $357,888.72 plus 8% interest.

Cross-motions for summary judgment were filed in the Circuit Court for Prince George's County.Crough's motion sought enforcement of the award, while the owner's motion sought to have the award set aside.The court denied the owner's motion and granted Crough's motion, upholding the Board of Arbitration's decision.From this judgment, the owner appeals.

1. and 2.

The proceedings below established beyond dispute that both parties agreed to submit the issues raised in the appellee's demand for arbitration to the arbitration panel for resolution.No issue has been raised contesting the jurisdiction or authority of the arbitration panel to decide the issues submitted.Arbitration is a "favored" process in Maryland where disputes are resolved privately by a tribunal rather than publicly by a court.¹Maryland Courts have consistently held that when the arbitration agreement is "clear and precise" as in this case any controversy arising out of the agreement or breach thereof shall be settled by the arbitration procedure where all issues must be submitted, unless expressly and specifically excluded.²

Appellant at the arbitration hearing presented evidence, examined and cross-examined witnesses and filed a post-hearing brief.Appellant raised the following issues to be decided: (1) whether the owner reasonably believed that the contract's Guaranteed Maximum Price remained intact throughout the construction contract; (2) whether the contractor can recover for work done without securing a "change order" as defined in the parties' contract; and (3) whether the owner ever waived or modified the...