Triad Elec. & Controls, Inc. v. Power Systems Engineering, Inc.

• Decision Date: 30 June 1997
• Docket Number: No. 94-20783,94-20783
• Citation: 117 F.3d 180
• Court: U.S. Court of Appeals — Fifth Circuit
• Parties: TRIAD ELECTRIC & CONTROLS, INC., Plaintiff/Counter-Defendant Appellant/Cross-Appellee, v. POWER SYSTEMS ENGINEERING, INC., et al., Defendants, Power Systems Engineering, Inc.; Century Contractors West, Inc.; Employers Insurance of Wausau, Inc., Defendants/Counter-Claimants Appellees/Cross-Appellants.

Page 180

117 F.3d 180

38 Fed.R.Serv.3d 107

TRIAD ELECTRIC & CONTROLS, INC., Plaintiff/Counter-Defendant Appellant/Cross-Appellee, v. POWER SYSTEMS ENGINEERING, INC., et al., Defendants Power Systems Engineering, Inc.; Century Contractors West Inc.; Employers Insurance of Wausau, Inc. Defendants/Counter-Claimants Appellees/Cross-Appellants.

No. 94-20783.

United States Court of Appeals Fifth Circuit.

June 30, 1997.

Rehearing Denied July 29, 1997.

Fredrick R. Tulley, Kathleen Campbell Mason, Taylor, Porter, Brooks & Phillips, Baton Rouge, LA, Russell Barry Starbird, Gibbs and Bruns, Houston, TX, for Triad Elec. Controls, Inc.

Harold K. Watson, Gregory F. Burch, Liddell, Sapp, Zivley, Hill & LaBoon, Houston, TX, for Power Systems Engineering, Inc.

John R. Dingess, Richard F. Paciaroni, Kirkpatrick & Lockhart, Pittsburgh, PA, for Century Contractors West, Inc.

Appeals from the United States District Court for the Southern District of Texas.

Before HIGGINBOTHAM, SMITH and BARKSDALE, Circuit Judges.

RHESA HAWKINS BARKSDALE, Circuit Judge:

The primary issues arising out of this Texas diversity action, concerning a construction contract dispute tried to the district court, are whether the court reversibly erred first, by allowing, after close of the evidence, the addition of a fraud counterclaim, and second, by then ruling in favor of that new claim, including awarding punitive damages of $3 million, without allowing the counterclaim defendant, Triad Electric & Controls, Inc., to defend, post-addition, against the claim. Triad, the electrical subcontractor on a construction project, appeals a take-nothing judgment on its contract-based claims against both the project owner's engineer, Power Systems Engineering, Inc. (PSE), and the general contractor, Century Contractors West, Inc.; the judgment for Century on its counterclaim for overpayments; and the judgment for Century and PSE on their counterclaim for fraud. Century cross-appeals the denial of attorneys' fees. We AFFIRM in part, REVERSE in part, and REMAND for further proceedings.

I.

The following factual scenario is based primarily on the voluminous and detailed findings of fact by the district court, which, for the most part, Triad does not contest. In mid-1983, PSE invited Century and other general contractors to submit bids for the construction of a cogeneration facility (electricity and steam) at a refinery near Houston, Texas. The PSE-provided bid package consisted of engineering drawings, which included cable schedules describing the electrical connections to be installed and setting forth the approximate wire footage; the Specification for General Construction, which established the quality and quantity standards for the facility, specified types of material and construction codes and practices, and incorporated by reference the PSE Standard Specifications; and the Design Control Specification (DCS), a narrative document describing generally the facility's systems, operating parameters, and major items of equipment.

At that time, the facility's design was only partially complete; portions of it were described in detail in the engineering drawings and the Specification for General Construction, but other portions were described only in a narrative manner in the DCS. In fact, the facility was to be constructed as a "fast track" project; construction was to begin before the design drawings were complete, and PSE continued to work on the design after issuing the bid package.

PSE requested two bid prices from each invited general contractor: a "base" bid, based on the incomplete drawings included in the bid package; and a "guaranteed maximum" bid, which was to include all work necessary to complete the project in accordance with the DCS. Pursuant to the base/guaranteed maximum concept, the successful bidder would receive extra payment above the base price, for any changes in the work described in the incomplete drawings, up to the amount of the guaranteed maximum; but, generally, the cost above that maximum, due to further changes to the drawings, would be at the successful bidder's risk. The successful bidder would, however, be entitled to receive payment above the guaranteed maximum price for work performed pursuant to changes to the DCS.

In September 1983, Century and other general contractors bidding on the project invited Triad and other electrical subcontractors to bid the electrical and instrumentation portions. Century furnished Triad with the portion of the bid package pertaining to that portion of the work, including the Specification for General Construction with attachments, the electrical drawings, the piping and instrumentation diagrams, and the DCS. Century invited only prequalified subcontractors to bid on the project; prequalification was based partially on each subcontractor's representation that it was experienced in bidding projects from conceptual design documents. Triad made such a representation.

Addendum No. 1 to the Specification for General Construction, which was included in the bid package furnished to Triad, requested that the electrical and instrumentation contractors "provide (a) a base bid ... and (b) a guaranteed maximum bid". The base bid was defined as the "Scope of Work shown in [the] General ... Specification", which incorporated the engineering drawings. On the other hand, the "guaranteed maximum bid" was defined as the "Scope of Work in [the] General ... Specification ... plus that additional amount necessary to furnish a plant which will start-up and operate as stated in the [DCS]".

The base/guaranteed maximum concept was defined further in PSE's 22 September 1983 Clarifications to Addendum No. 1:

The [DCS] establishes the design basis for an operable and reliable plant as defined by [PSE]. The conceptual design, process design, and detail engineering design will be performed by [PSE]. There is no requirement for detail design evaluation, system evaluation, detail auditing of PSE engineering calculations, etc. The contractor is to provide (a) a base bid based on the bid documents, and (b) a guaranteed maximum bid based on the level of confidence the contractor feels that the plant described in the Bid Documents can start-up and operate as defined in the DCS.

Contrary to the foregoing, however, Triad submitted an unpriced "scope letter" to Century on 28 September 1983, stating that the electrical scope of work was "based on the cable schedules", which were part of the drawings included in the bid package. Triad verbally informed Century that it would perform the scope of work described in that letter for approximately $2.9 million. But, Triad submitted bids of approximately $3.9 million to three other general contractors, Century's competitors.

In November 1983, Century advised Triad that its initial bid was non-responsive because Triad was not allowed to limit its scope of work to the cable schedules; instead, it had to include everything shown, implied, or required by the DCS. Century gave Triad the option to participate in a base/guaranteed maximum bid, as in the Century/PSE contract, but Triad declined.

Triad submitted its final proposal to Century in December 1983. That proposal removed the qualification/limitation to the cable schedules, and proposed a price of approximately $3.1 million.

Subsequent to the 15 November 1984 Century/PSE contract, Century issued a letter of intent to Triad in February 1985, and Triad began work on the project. After several months of negotiations over the Triad subcontract drafted by Century, it was signed in mid-June 1985.

Triad's subcontract consists of a Purchase Order and a Subcontract Agreement which required it to supply all labor and materials required for the installation of complete and operational electrical and instrumentation systems for the "GUARANTEED MAXIMUM LUMP SUM PRICE" of $3.4 million. In defining the scope of work, the Purchase Order referenced the following: (1) the contract specifications, as modified; (2) the DCS; (3) listed drawings, which included the cable schedules; (4) an equipment list; and (5) a list of instruments to be installed, calibrated, and connected by instrumentation wiring. Those listed drawings--the contract drawings--were the same as those included in the bid package.

After construction began, PSE decided, in order to take advantage of tax incentives, to shorten the contract schedule so that it could complete the facility by the end of 1985 (approximately two months earlier than called for in Triad's subcontract). PSE, Century, and Triad anticipated that Triad could experience additional costs as the result of labor inefficiency due to the shortened schedule. PSE and Century agreed to compensate Triad for any man-hours over the number it had originally estimated to perform its contractual scope of work, the assumption being that those extra hours would be the product of inefficiencies caused by acceleration.

In that regard, Triad advised PSE and Century that, without adjusting for extras or acceleration, it had estimated 83,000 man-hours to perform its scope of work. Even though PSE and Century each had independent estimates, the parties agreed to use Triad's estimate as the base.

In mid-July 1985, after several months of negotiations, and approximately one month after the Century/Triad subcontract was executed, PSE, Century, and Triad entered into an agreement governing Triad's compensation for the accelerated work (the acceleration agreement). And, pursuant to acceleration agreement p 1, PSE and Century advanced $372,338 to Triad in a series of progress payments, with each payment the subject of a change order to the Triad subcontract.

In contrast to its accepted 83,000 hours estimate, Triad used approximately 119,000 to complete its portion of the work, and sought additional compensation pursuant to acceleration agreement p 3. PSE and Century refused to pay Triad any amount under p 3, maintaining that the...