Sweetman Const. Co., Inc. v. State

• Decision Date: 18 June 1980
• Docket Number: No. 12741,12741
• Citation: 293 N.W.2d 457
• Parties: SWEETMAN CONSTRUCTION COMPANY, INC., A South Dakota Corporation, Plaintiff and Respondent, and Western Engineering, Inc., Intervening Plaintiff and Respondent, v. STATE of South Dakota, Herb Teske, As Secretary of the Department ofTransportation; Robert Osborn, Manley Feinstein, Thomas Schlacter, DonaldGarry, and Gerry G. Schoener, as members of the Board of Transportation, Defendants and Appellants.
• Court: South Dakota Supreme Court

Page 457

293 N.W.2d 457

SWEETMAN CONSTRUCTION COMPANY, INC., A South Dakota

Corporation, Plaintiff and Respondent, and Western Engineering, Inc., Intervening Plaintiff and Respondent, v. STATE of South Dakota, Herb Teske, As Secretary of the

Department ofTransportation; Robert Osborn, Manley

Feinstein, Thomas Schlacter, DonaldGarry, and Gerry G.

Schoener, as members of the Board of Transportation,

Defendants and Appellants.

No. 12741.

Supreme Court of South Dakota.

Argued March 14, 1980.

Decided June 18, 1980.

Lee M. McCahren, Vermillion, for plaintiffs and respondents.

Carl W. Quist, Asst. Atty. Gen., Pierre, for defendants and appellants; Mark V. Meierhenry, Atty. Gen., Pierre, on the brief.

FOSHEIM, Justice.

This action arises from a public improvement contract for a highway project let by public bid by the South Dakota Department of Transportation. From a judgment entered in favor of plaintiffs Sweetman Construction Company (Sweetman) and Western Engineering, Inc. (Western), the Department appeals. We affirm.

Plaintiff Sweetman contracted with the State for construction of a portion of Interstate 90 near Chamberlain, South Dakota, in early 1972. Sweetman subcontracted with plaintiff Western for asphalt work, which constituted approximately 31% of the entire project. The State made no contract with Western. However, in a letter of approval, the State consented to the subletting. That approval was required to assure compliance with specifications that prohibited subcontracting more than 50% of the work. Section 9.11 of the "Special Provision for General Requirements" (incorporated in the prime contract) allowed compensation for freight rate increases or decreases "provided the materials are shipped from the nearest available source of satisfactory material."

The oil (asphalt) used by Western for the project was transported by truck from Laurel, Montana, and the necessary aggregate material was shipped by rail from Hudson, South Dakota. At the time of bid-letting, the freight rate for asphalt was $20.40 per ton by truck. 5943.53 tons of asphalt were hauled, which at that rate amounts to $121,249.23. The freight rate for rail shipment of aggregate at the time the bids were let was $1.84 per ton. 38,673 tons were shipped by rail, which at the original rate, amounts to $71,158.22. At such rates, Western would have incurred expenses in the total amount of $192,407.45.

The OPEC oil embargo struck after the 1972 bid-letting and freight rates increased dramatically during the construction project. It is uncontroverted that due to rate increases allowed by the Interstate Commerce Commission and South Dakota Public Utilities Commission, Western actually paid $256,745.87, resulting in increased freight rates of $64,338.42. Invoices and receipts were submitted, but the Department of Transportation refused to reimburse plaintiffs for the increase, contending that the closest available sources of oil and aggregate were Sioux Falls and Spencer, South Dakota, and that compensation (if any) for freight increases must be determined on the basis of increased rates from those locations.

Western was allowed to intervene as a plaintiff in this action brought by Sweetman. Following a trial to the court, judgment for $64,338.42, plus interest, was entered in favor of plaintiffs. From that judgment, the State appeals, raising several issues for our consideration.

The State first contends that Sweetman has no contractual claim against it for the freight rate increases. The specifications incorporated in the contract between Sweetman and the State provided that the bid prices for items of work involving materials "are assumed to be based on common carrier rates in effect on the date of opening bids." Section 9.11(2) of the special provision stated an exception:

If, between the date of bid opening and the date on which the designated materials are shipped to the project, the freight rates are increased, causing an additional cost to the Contractor, the State will reimburse the Contractor in the exact amount of cost caused by such increase provided the claim is supported by proper certification originating with the common carrier.

Section 9.11(9), however, provided:

Compensation for increased freight rates will be limited (1) to materials shipped direct to or in care of the Contractor and on which he pays the freight separately and apart from the purchase of the materials, and (2) to the materials which he purchases F.O.B. delivery site for the project, with a clause in the purchase agreement whereby the purchase price of the material will be adjusted on the account of a change in freight rates, provided the materials are shipped from the nearest available source of available materials. If the materials are not shipped from the nearest available source of satisfactory materials, compensation will be on the basis of the calculated increase in freight from the nearest available source of satisfactory materials. (emphasis supplied)

Had the materials been purchased by or shipped to Sweetman, it is clear that Sweetman would have a claim against the State for the freight rate increases. The fact that the materials were purchased by and shipped to Western, however, does not negate the existence of a legitimate claim for the rate increases by Sweetman against the State. Paragraph 6 of the subcontract provided:

CONTRACTOR shall not be liable for extras, unless allowed and paid for by the OWNER; and CONTRACTOR may assign to SUB-CONTRACTOR the right to recover for extras on claims from the OWNER (.)

The term "extras", as used in connection with construction contracts, means work or costs arising outside of and entirely independent of the contract; that is, something not required in its performance, not contemplated by the parties, and not controlled by the contract. Alexander v. State, 74 S.D. 593, 57 N.W.2d 121 (1953); Kansas City Bridge Co. v. State, 61 S.D. 580, 250 N.W. 343 (1933); C. F. Bolster Co. v. J. C. Boespflug Construction Co., 167 Cal.App.2d 143, 334 P.2d 247 (1959). We need not determine whether the rate increases here would properly be denominated "extras". Payment of increased freight rates in the present case was unavoidably required to expeditiously complete the project; the possibility of such increases was clearly contemplated by the parties to the prime contract and was expressly controlled by Sections 9.11(2) and 9.11(9) therein. It is further apparent that it was contemplated between Sweetman and the State that these provisions would apply to work sublet. Section 8.1 of the Standard Specifications, made a part of the prime contract, provided that " . . . the Contractor shall give his assurance that all pertinent provisions of the prime contract . . . shall apply to all work sublet . . . " (emphasis supplied). It hardly requires saying that Sections 9.11(2) and 9.11(9), which provide for the payment of freight rate increases, are "pertinent provisions of the prime contract." In addition, Leonard Peterson, Construction Engineer for the Highway Department, testified that Western was, in fact, considered a subcontractor, not a mere supplier or materialman. Mr. Peterson further conceded that it is generally envisioned by the State that significant portions of such highway construction projects will be sublet, and there is no evidence of any contrary expectation in the present case. The corporate presidents of both Sweetman and Western testified that subcontractors' cost increases previously had been passed on to the State by prime contractors under very similar contracts and that such claims had never before been denied by the State. We believe that this contract must be viewed in terms of such custom and usage, Hardware Specialties, Inc. v. Mishara Const. Co., Inc., 2 Mass.App. 277, 311 N.E.2d 564 (1974); Baccari v. B. Perini & Sons, 293 Mass. 297, 199 N.E. 912 (1936), and accordingly hold that Sweetman does have a claim against the State for the freight rate increases. To find that Section 8.1 of the prime contract operated to extend Sweetman's responsibilities with respect to work sublet, and yet find no corresponding extension of the State's obligation with regard to costs reasonably to be anticipated, would be manifestly unreasonable in view of the evidence.

The State next contends that there is no privity of contract between Western and the State and that Western thus has no standing to sue the State. The State relies upon SDCL 31-2-34, which provides, in pertinent part:

The state of South Dakota may be sued and made defendant in any court in which an action is brought against the South Dakota department of transportation respecting any claim, right, or controversy arising out of the work performed, or by...