Opinion
# 2018-015-126 Claim No. 120992 Motion No. M-91112 Motion No. M-91113
05-15-2018
TUTOR PERINI CORPORATION, f/k/a PERINI CORPORATION v. STATE OF NEW YORK
Duane Morris LLP By: Mark A. Canizio, Esq. and Jessica Singh, Esq. Hon. Barbara D. Underwood, Acting Attorney General By: Michael I. Getz, Esq. and Brett R. Eby, Esq., Assistant Attorneys General
Synopsis
On a motion and cross motion for summary judgment, defendant's fraud defenses and counterclaims were dismissed and several extra work claims were dismissed for failure to comply with the record keeping provisions of the contract. Claim for quantum meruit was permitted in the alternative to claimant's breach of contract claim.
Case information
| UID: | 2018-015-126 |
| Claimant(s): | TUTOR PERINI CORPORATION, f/k/a PERINI CORPORATION |
| Claimant short name: | PERINI |
| Footnote (claimant name) : | |
| Defendant(s): | STATE OF NEW YORK |
| Footnote (defendant name) : | |
| Third-party claimant(s): | |
| Third-party defendant(s): | |
| Claim number(s): | 120992 |
| Motion number(s): | M-91112, M-91113 |
| Cross-motion number(s): | |
| Judge: | FRANCIS T. COLLINS |
| Claimant's attorney: | Duane Morris LLP By: Mark A. Canizio, Esq. and Jessica Singh, Esq. |
| Defendant's attorney: | Hon. Barbara D. Underwood, Acting Attorney General By: Michael I. Getz, Esq. and Brett R. Eby, Esq., Assistant Attorneys General |
| Third-party defendant's attorney: | |
| Signature date: | May 15, 2018 |
| City: | Saratoga Springs |
| Comments: | |
| Official citation: | |
| Appellate results: | |
| See also (multicaptioned case) |
Decision
Claimant, Tutor Perini Corporation, seeks damages for extra work and delays allegedly incurred during the performance of certain work by its predecessor in interest, Perini Corporation (Perini), pursuant to a contract with the New York State Department of Transportation (DOT).
Claimant moves for an Order pursuant to CPLR 3212 dismissing defendant's first and second counterclaims and first and second defenses alleging fraud in both the inducement and performance of the contract. Defendant opposes the motion and separately moves for summary judgment pursuant to CPLR 3212 dismissing the claim or, in the alternative, dismissing several of the extra work/delay claims by reason of Perini's failure to comply with the notice and recordkeeping provisions of the contract and prior payment of one or more of the claims.
The Fraud Defenses and Counterclaims
The contract was for the reconstruction of 3.2 kilometers of highway and 14 bridges on Interstate 495 (the Long Island Expressway) at or near the Cross Island Parkway Interchange in Douglaston, New York (the LIE contract). The Standard Specifications of the contract include the requirement that Perini utilize Minority and Women's Business Enterprises (M/WBEs) in accordance with the goals set forth in the contract proposal (defendant's Exhibit 1, §108-05). These goals required that Perini utilize 9% Minority Business Enterprises and 9% Women's Business Enterprises for a total M/WBE participation of 18% of the total bid price (defendant's Exhibit 4).
By Decision and Order dated December 9, 2013, the Court granted the defendant's motion to supplement its first and second affirmative defenses and first and second counterclaims alleging fraud in both the inducement (first affirmative defense and first counterclaim) and performance of the contract (second affirmative defense and second counterclaim) and denied claimant's motion, made pursuant to CPLR 3211 (a) (7) and CPLR 3212 (a) and (e), to dismiss these defenses and counterclaims.
In granting defendant's motion to supplement its first and second affirmative defenses and first and second counterclaims and denying claimant's motion to dismiss these defenses and counterclaims, the Court found defendant's allegations stated causes of action for fraud in both the inducement and performance of the M/WBE portion of the contract. The Court also concluded, however, that defendant knew or should have known of the alleged fraud no later than January 30, 2009, shortly after the indictment against two Perini employees, Zohrab Marashlian, President of Perini's Civil Division, and John Athanasiou, Perini's Director of Purchasing, was unsealed, when Perini notified the DOT of certain M/WBE irregularities. The indictment arose from allegations that Perini orchestrated a scheme to commit fraud in the performance of the M/WBE requirements of various contracts throughout the State, including the LIE contract at issue here. The indictment charged Marashlian and Athanasiou with conspiracy to commit mail fraud and wire fraud; mail fraud; wire fraud and money laundering conspiracy.
In its December 9th Decision and Order, the Court concluded that the defendant's fraud counterclaims were time-barred by the statute of limitations set forth in CPLR 213 (8) at the time the causes of action asserted in the claim were interposed on March 6, 2012 (see CPLR 203 [d]). As a result, the provisions of CPLR 203 (d) did not save the defendant's claims for affirmative relief arising from the alleged fraud. Nevertheless, the Court found that the defendant's affirmative defenses and counterclaims were not time-barred to the extent of the demand in the claim since they allegedly "arose from the transactions, occurrences, or series of transactions or occurrences, upon which a claim asserted in the complaint depends" (CPLR 203 [d]). The Court therefore denied claimant's motion to dismiss these defenses and counterclaims. With respect to the defendant's motion to supplement these defenses and counterclaims, the Court granted the motion and defendant was permitted to supplement its fraud defenses and counterclaims with additional factual allegations. Thus, claimant's motion to dismiss defendant's first two defenses and counterclaims was denied and defendant's motion to supplement these defenses and counterclaims was granted with any recovery on the counterclaim permitted only as an offset.
Claimant now moves, once again, for summary judgment dismissing the defendant's first two defenses and counterclaims and, in a separate motion, defendant moves for summary judgment dismissing the claim on the ground of fraud in the inducement and performance of the contract.
Claimant contends that the M/WBE requirements of the contract were immaterial because they were not the object of the contract, that the use of any particular M/WBE subcontractor was not a material representation on which the Department of Transportation (DOT) relied in awarding the contract, and that the State was not caused to suffer damages as each of the alleged "fronts", Northeast Construction, Inc. (Northeast), Land-Site Contracting (Land-Site), Andrea Doreen Construction, Inc. (Andrea Doreen), Fairview Construction (Fairview), and A. Morrison Trucking (A. Morrison), were replaced with legitimate M/WBEs that performed the work. On this later point, claimant contends that the defendant's first two defenses and counterclaims must be dismissed because the evidence revealed during the course of discovery establishes the fact that Perini cured any deficiency in its M/WBE compliance and, in the end, satisfied the contract's M/WBE goals through the use of certified M/WBE companies which performed a "commercially useful function" (defendant's Exhibit 1, Standard Specifications, §102-21 [E]).
The contract's Standard Specifications make clear that "[t]he Prime Contractor is responsible for ensuring that M/WBEs performing work on the contract perform a commercially useful function. A M/WBE is considered to perform a commercially useful function when it is responsible for the execution of a distinct element of work on a contract and carries out his/her responsibilities by actually performing, managing, and supervising the work involved in accordance with normal industry practice (except where such practices are inconsistent with the M/WBE regulations). Regardless of whether an arrangement between the Contractor and the M/WBE represent standard industry practice, if the arrangement erodes the ownership, control or independence of the M/WBE or in any other way does not meet the commercially useful function requirement, the Contractor shall receive no credit toward the goal" (defendant's Exhibit 1, Standard Specifications, § 102-21 [E] [1]).
In opposition to claimant's motion defendant contends, first, that the prior Decision and Order denying claimant's prior motion for summary judgment dismissing defendant's fraud defenses and counterclaims is law of the case and claimant has failed to demonstrate a basis for renewal. Defendant also contends both in opposition to claimant's motion and in support of its motion that Perini's pre-award representations regarding the use of M/WBEs were material representations on which the DOT relied in awarding the contract; that the representations were false and fraudulent, and that Perini's fraud in both the inducement and performance of the contract requires recission of the contract and dismissal of the claim. In support of these contentions, defendant argues that claimant is collaterally estopped from relitgating the issue of fraud in the inducement and performance of the contract by reason of the criminal convictions of Athanasiou and Marashlian.
Alternatively, defendant contends that the claimant's claims, denominated as Fourth, Fifth, Sixth, Eighth, Ninth, Tenth, and Eleventh, must be dismissed for claimant's failure to comply with the notice and recordkeeping provisions of the contract. Defendant also contends with respect to the claimant's Fourth Claim for additional costs relating to the maintenance of concrete barrier that project delays are not a basis for additional compensation under § 619-5.03 of the Standard Specifications, which defendant contends is the controlling contract provision. With respect to claimant's Eleventh Claim alleging damages under the total cost method, in addition to the contention that claimant failed to abide by the contractual notice and record-keeping provisions, defendant contends that the total cost method of computing damages is not a remedy included in the parties' contract.
The Court will first address defendant's contention that the denial of claimant's prior motion for summary judgment constitutes law of the case and precludes claimant's present motion for summary judgment dismissing the defendant's first two defenses and counterclaims.
In response to defendant's prior motion to supplement its first two affirmative defenses and counterclaims alleging fraud, claimant cross-moved to dismiss these defenses and counterclaims pursuant to both CPLR 3211 (a) (7) and 3212 (a) and (e). Claimant argued that these defenses and counterclaims were barred by the applicable statute of limitations and that the defendant's first two defenses and counterclaims alleging fraud in the inducement and performance of the contract were duplicative of a breach of contract claim because they amount to nothing more than an insincere promise to perform a future act. Claimant also argued, as it does again here, that Perini's representations regarding its intent to enter into a subcontract with any particular M/WBE subcontractor were immaterial because the M/WBE utilization plan was subject to modification and the defendant therefore could not have justifiably relied upon these representations.
Absent a showing of newly discovered evidence or other sufficient cause, multiple motions for summary judgment are discouraged (Burbige v Siben & Ferber, 152 AD3d 641 [2d Dept 2017]). "That rule, however, is discretionary" (Town of Angelica v Smith, 89 AD3d 1547, 1549 [4th Dept 2011]). Where a successive motion for summary judgment "is substantively valid, and the granting of the motion will further the ends of justice and eliminate an unnecessary burden on the resources of the courts" such a motion may be properly entertained (Fuller v Nesbitt, 116 AD3d 999, 1000 [2d Dept 2014]; Valley Natl. Bank v INI Holding, LLC, 95 AD3d 1108, 1108 [2d Dept 2012]). In this case, the thrust of claimant's prior motion was the timeliness of defendant's fraud defenses and counterclaims and whether the defendant alleged sufficient facts to state a cause of action for fraud in the inducement and performance of the contract. While the claimant also raised the argument it again raises here, i.e., that its pre-award representations regarding any particular M/WBE were immaterial and that the defendant could not have relied upon these representations because changes in the M/WBE schedules were permitted, claimant's motion was made during the early stages of the litigation before any significant degree of discovery had transpired. Claimant now supports its motion with the fruits of its discovery, including the M/WBE audit report and certain deposition testimony of defendant's employees, to support its contention that the M/WBE goals of the contract were fulfilled through its utilization of certified M/WBE companies to replace those which served merely as fronts. Accordingly, the Court will exercise its discretion to entertain claimant's motion for summary judgment.
It is undisputed that claimant's M/WBE utilization plan and worksheets listed Fairview, Northeast, Land-Site, Andrea Doreen and others as M/WBEs (seedefendant's Exhibits 6 and 10; Canizio Exhibit 3). Defendant also established that, with the exception of Andrea Doreen Construction, each of these subcontractors performed little or no commercially useful function on the project and served merely as fronts for the work that was performed by either non-M/WBE contractors or Perini's own forces. In this regard, the following facts are undisputed:
In September 2004 Stephen Funny, owner of Fairview, pled guilty to conspiracy to defraud (defendant's Exhibit 50). As stated in the criminal Information "[i]t was part of the conspiracy that the defendant STEPHEN FUNNY and others, using a practice commonly referred to as 'fronting,' agreed that Walter [Construction], a non-DBE subcontractor, would transfer all invoices and expenses related to Walter to the books and records of Fairview, a certified DBE, to permit Perini to convey falsely to NYSDOT that Fairview was actively performing the subcontracting work" (defendant's Exhibit 49, p. 4; see also defendant's Exhibit 51, pp. 972-974; 976).
Defendant also contends that Fairview's contract price was inflated due to the purchase of materials by Perini that were included in Fairview's subcontract (Getz affidavit sworn to Sept. 20, 2017, ¶ 47; defendant's Exhibit 48; defendant's Exhibit 58, p. 121-122).
In October 2005 Walter Bale of Walter Contracting pled guilty to money laundering arising from his conspiracy with Perini and Fairview to perform the work subcontracted to Fairview (defendant's Exhibit 45). This occurred on the LIE project as well as others (defendant's Exhibit 46, pp. 46-47).
Charles Kupfer and William Gelson, principals of Seneca Contracting, were charged with conspiracy to defraud and failure to file tax returns arising from their scheme to perform work for Land-Site, the M/WBE front, thereby defrauding the DOT, the City of New York and the USDOT. They pled guilty on August 6, 2004 for their part in the fronting scheme on various projects (defendant's Exhibit 39).
Defendant also supports its motion with the criminal Information of Vijay Havaldar, principal of VVSS Co., Inc., which allegedly allowed his company to be used an a M/WBE front for Perini on the Westside Highway project (defendant's Exhibit 36). Brian Hotton, principal of BCM Industries, Inc., pled guilty to conspiracy to defraud the United States for performing the work of VVSS Co., Inc., on both Perini's Westside Highway project and the Vortex Waste Water Treatment Plant in Queens, New York (Getz affidavit sworn to Sept. 20, 2017, ¶¶32-34).
Adiano Lott, the owner of Land-Site, was indicted in 2007 for mail fraud conspiracy, mail fraud, wire fraud conspiracy, wire fraud and money laundering conspiracy arising from his participation in the scheme to act as a M/WBE front for Seneca Construction on subcontracts with Perini and other prime contractors on public works projects in New York State (defendant's Exhibit 42). Mr. Lott pled guilty to a money laundering conspiracy on January 25, 2008 (defendant's Exhibit 43).
In 2009, the President of Perini's Civil Division, Zohrab Marashlian, and its Director of Purchasing, John Athanasiou, were indicted. The Superceding Indictment (defendant's Exhibit 35), filed September 23, 2010, asserted, as relevant here, the following:
"13. The defendants ZOHRAB B. MARASHLIAN and JOHN ATHANASIOU, also known as 'Johnny A.,' together [and] with others, devised a scheme to defraud government contracting agencies, to wit: the USDOT, the NYSDOT, the City of New York . . . , by falsely representing in proposals and other documents submitted by Perini to those agencies for public works contracts, to wit: . . . the Long Island Expressway/Cross Island Parkway project in Queens, New York, . . . that Land-Site, VVSS, Fairview and other DBE subcontractors . . . would perform commercially useful functions in satisfaction of [the] DBE requirements on the public works contracts"
14. Contrary to the representations made by Perini, when Perini was awarded the public works contracts , MARASHLIAN, ATHANASIOU and others did not have the DBE subcontractors perform commercially useful functions on the public works contracts. Instead, MARASHLIAN, ATHANASIOU and others used non-DBE subcontractors to perform work on the public works contracts that should have been performed by the DBE subcontractors (defendant's Exhibit 35, pp. 5-6).
On October 29, 2010, Mr. Athanasiou pled guilty to money laundering conspiracy (count seven) (defendant's Exhibit 35). During the plea allocution, Mr. Athanasiou stated, in pertinent part:
"From 1988 to 2007 I work[ed] for this company Perini Corporation and . . . I understood that every contract we got with the City or the State or the DEP or the Port Authority have requirements for minority [participation]. And what the company did . . . they were using no[n] minorities to do the job but they put the contract to a minority and they were paying those guys three to five percent of the job. So these guys, they made all the payrolls, they made all the required forms for the owner. It was just like a front. And I was there (defendant's Exhibit 56, p. 26) . . . So instead of my company going to the owner, saying I only have 5 percent not 15 percent [of the M/WBE goals fulfilled], they cover up, use other companies they knew but they put it through minorities, like the guy never did a 5 million-dollar job, but they put it through him so he was writing the payroll but the men [doing the work] belong to another company" (defendant's Exhibit 56, p. 27).
In 2011, subsequent to Athanasiou's guilty plea, Mr. Marashlian was convicted by a jury of mail fraud, conspiracy to commit money laundering, and conspiracy to commit mail and wire fraud. He committed suicide two days after the verdict (Getz affidavit sworn to Sept. 20, 2017, ¶ 61).
Defense counsel's recitation of the criminal charges that Mr. Marashlian was convicted of is unsupported by documentary evidence.
At Marashlian's criminal trial, Walter Bale testified that he performed work through H and M Contracting, another M/WBE front, and when the owner passed away, he informed Gerard Bassi, Perini's Equal Employment Opportunity Officer, that he "was no longer able to provide H and M Contracting to Perini" (defendant's Exhibit 47, p. 621). Some months later, John Athanasiou asked him whether he was able to find another "pass-through" for the LIE project and others (id. at p. 622). When Mr. Bale advised Athanasiou that he was unable to find a company willing to be his front, Mr. Athanasiou agreed to find him one. A week later they met at a restaurant where Mr. Athanasiou told Mr. Bale that Zohrab Marashlian wanted him to use Fairview (defendant's Exhibit 47, pp. 622-623). Mr. Bale testified that he contacted Mr. Funny of Fairview and the two agreed between them that Bale would do all the subcontract work and Fairview would handle the payroll and the paperwork (id. at 624). Mr. Bale testified that he and Mr. Funny agreed to the same pass-through arrangement on Perini's Brooklyn-Queens Expressway project and another bridge project (id. at pp. 627-628). Mr. Bale testified that he was unable to finance the manpower necessary to continue work on the LIE project and Perini terminated Fairview's subcontract. Following the execution of a search warrant by federal agents, the relationship between, Perini, Walter Construction and Fairview soured and Fairview was terminated from the remaining Perini projects (id. at 644). During the course of an examination before trial in the instant action, Mr. Bale testified that in addition to Mr. Athanasiou's participation in the fronting scheme, both Mssrs. Marashlian and Bassi were aware of it (defendant's Exhibit 46, p. 47).
Mr. Funny testified at Marashlian's criminal trial that after performing work at Mr. Marashlian's home in New Jersey, Mr. Marashlian told him to expect a call from Walter Bale regarding rebar work on the LIE project, a $4 million subcontract (defendant's Exhibit 51, pp. 971-974). After the fronting arrangement was agreed upon for the LIE project, Fairview agreed to act as a front for Walter Construction on two other projects in New York (id. at pp. 975-976). Mr. Funny testified that Fairview did none of the work on these projects (id. at p. 976).
John Athanasiou also testified at Mr. Marashlian's criminal trial regarding Perini's use of fronts on six different projects in the State and Mr. Marashlian's knowledge of this arrangement (defendant's Exhibit 57, pp. 1748-1750). Mr. Athanasiou testified at Marashlian's criminal trial and during the course of a deposition in the instant action that M/WBE fronts were used prior to the start of the LIE project and on the LIE project. According to Mr. Athanasiou, both Mssrs. Marashlian and Bassi were aware of the use of M/WBE fronts on the LIE project (defendant's Exhibit 58, p. 180). These fronts included Land-Site as a front for the work performed by Seneca, Fairview as a front for the work performed by Walter Construction and A. Morrison Trucking as a front for the work performed by Schiarino Trucking.
Mr. Athanasiou testified that when the federal investigation started, Perini's lawyers advised them to re-calculate the M/WBE credit for trucking services to reflect only the trucking services actually provided by the M/WBE, A. Morrison (id. at p. 115; defendant's Exhibit 79). Mr. Marashlian held a meeting attended by Mssrs. Bassi and Athanasiou at which time they were advised that the services of the various M/WBE fronts on the LIE project had to be terminated (defendant's Exhibit 58, p. 132). In addition to the reduction in M/WBE credit for the services rendered by A. Morrison, Perini advised the DOT in 2002 that counting the work performed by Land-Site, Fairview and J. Blanco "may not be consistent with applicable M/WBE regulations, and Perini has determined not to seek M/WBE credit for work performed to date by these subcontractors" (defendant's Exhibits 16, 64, 81). Notwithstanding Perini's decision to claim no M/WBE credit for the work performed by the various M/WBE fronts, defendant does not dispute claimant's contention that upon completion of the contract work, Perini had satisfied the contract's 18% M/WBE goals through the use of legitimate M/WBEs.
" 'The elements of a cause of action for fraud require a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff[,] and damages' " (Carlson v American Intl. Group, Inc., 30 NY3d 288, 310 [2017], quoting Eurycleia Partners, LP v Seward & Kissel, LLP, 12 NY3d 553, 559 [2009]). Claimant contends, first, that its representations regarding its intent to comply with the contract's M/WBE goals were immaterial because they were not the object of the contract, and because M/WBE subcontractors could, with the DOT's approval, be replaced with other M/WBE subcontractors.
The contract itself makes clear that the M/WBE requirements set forth therein constituted material terms of the contract. The Standard Specifications state the following in this regard:
"The Department's acceptance of the Bidder's proposal is conditioned upon the Bidder's fulfillment of the requirements of [§ 102-21 applicable to M/WBE utilization]. If the Bidder fails to submit a complete utilization package as defined in Section G by the seventh calendar day after the bid opening and/or fails to attain the M/WBE utilization goals, and to satisfactorily document his/her good faith efforts as defined in Section F above, the bid may be declared incomplete and the deposit may be subject to forfeiture pursuant to § 103-02 of the Standard Specifications" (defendant's Exhibit 1, § 102-21 [H], p. 1-40).
William Howe, the Director of DOT's Contract Management Bureau, states in an affidavit that a bidder may be rejected for failing to qualify as a responsible bidder or "satisfy the Department that it had met the contract's minority participation goal or of its unsuccessful good faith efforts to do so" (Howe affidavit, sworn to Sept. 14, 2017, ¶ 7). Consequently, the Court agrees with the defendant that Perini's representations regarding its intent to fulfill the contract's M/WBE goals were material representations on which the defendant relied in awarding the contract work to Perini (cf. San Francisco Bay Area Rapid Transit District v Spencer, 2006 WL 8431021, *10 [ND Ca, Dec. 5, 2006, 04-04632 SI] [no evidence supported the assertion that the M/WBE status of a subcontractor was relied upon by the municipal defendant]). While changes in the M/WBE schedules were permitted with the approval of the DOT, defendant was entitled to rely upon Perini's representation that the subcontract work allocated to the designated M/WBEs would be and was performed by M/WBE-certified firms.
Claimant's reliance on United States of America v Larry Davis and DCM Erectors, Inc., Case No. 13-cr-923, SDNY [August 3, 2017]) to support its contrary assertion is misplaced. DCM was a criminal case involving defendants who were convicted of Wire Fraud (18 USC § 1343) and Conspiracy to Commit Wire Fraud in connection with the performance of the M/WBE requirements of a contract with the Port Authority of New York and New Jersey (Port Authority). This criminal case involved the interpretation of the Wire Fraud statute that had nothing to do with fraudulent inducement or performance of a contract. Moreover, the DCM Court was interpreting the provisions of a different contract that did not include a penalty provision for non-compliance with the M/WBE requirements as exists in the instant contract (see defendant's Exhibit 1, § 102-21 [H]).
While defendant established that its contract award was based, in part, upon Perini's representations that it intended to comply with the contract's M/WBE requirements, it failed to refute claimant's assertion, supported by the evidence set forth below, that such reliance resulted in no damages.
Claimant contends that notwithstanding the criminal convictions of Athanasiou and Marashlian arising from Perini's M/WBE fraud on several of its New York contracts, including the LIE contract at issue here, Perini satisfied the contract's M/WBE goals by replacing the M/WBE fronts with legitimate M/WBEs that performed the work. In support of this contention, claimant submits the final audit report of Snehal Shah, the defendant's Engineer in Charge (EIC), in which he requested final acceptance of the contract work, indicating, among other things, that Perini "demonstrated partial good faith efforts to meet the EEOC goals" and Perini "exceeded the MBE and WBE Goals, completed the Champ requirements and successfully completed the training for 4 workers" (Exhibit 5, p. 4, attached to Canizio affidavit sworn to Sept. 20, 2017). When questioned about this aspect of Shah's letter, Ann Maestri, Civil Rights Compliance Manager for the Office of Construction and the Local Programs Bureau, testified at a deposition that she could recall nothing to the contrary (Exhibit 16 to Canizio affidavit sworn to Sept. 20, 2017, pp. 79-80). In addition, Compliance Specialist Maria Ramirez testified that Mr. Shah's statement that Perini exceeded the M/WBE contract goals was based on "consulting the civil rights unit for sure" (Exhibit 15, p. 168, attached to Canizio affidavit sworn to Sept. 20, 2017). Accordingly, claimant demonstrated that notwithstanding the criminal convictions of Athanasiou and Marashlian, Perini claimed no credit for the work performed by the M/WBE fronts and, in the end, satisfied the contract's M/WBE goals through the use of certified M/WBEs that performed the work (cf. People ex rel. v E & E Hauling, Inc., 153 Ill2d 473 [1992]). Claimant therefore established that defendant suffered no damages as the result of the alleged fraud in the inducement of the contract thereby shifting the burden of proof to the defendant to raise an issue of fact (see generally Zuckerman v City of New York, 49 NY2d 557, 562 [1980]). This it failed to do.
Defense counsel concedes that the M/WBE goals were eventually met but contends that this would not have been the case absent the criminal investigation and DOT's dogged insistence upon contract compliance (Defendant's Reply Memorandum of Law in Support of Motion for Summary Judgment, p. 10). While it may be true that Perini intended to and did induce defendant's reliance by misrepresenting its intent to comply with the contract's M/WBE requirements, this conduct merely rendered the contract voidable, not void ab initio (Ettinger v National Sur. Co., 221 NY 467 [1917]). "If a contract is voidable because of a misrepresentation and, before notice of an intention to avoid the contract, the facts come into accord with the assertion, the contract is no longer voidable unless the recipient has been harmed by relying on the misrepresentation" (Restatement [Second] of contracts § 165 [1981]; Harmony Rockaway LLC v Gelwan, 58 Misc 3d 1202 [A], 2017 NY Slip Op 51743 [U] [Sup Ct, Queens County 2017]). Here, the claimant established that it did not seek credit for the work performed by the M/WBE fronts and subsequently satisfied the contract's M/WBE goals through its utilization of legitimate M/WBEs to perform the work. Inasmuch as claimant's satisfaction of the M/WBE goals ultimately fulfilled Perini's representations, the contract is no longer voidable on the basis of fraudulent inducement. Simply stated, defendant failed to show either that claimant did not satisfy the M/WBE requirements or that it was otherwise harmed by the alleged fraud in the inducement of the contract.
Nor does public policy preclude recovery on the instant contract. In support of its contrary contention, defendant cites, inter alia, S.T. Grand, Inc. v City of New York (32 NY2d 300 [1973], rearg denied 33 NY2d 658 [1973]) and Jered Contr. Corp., New York City Tr. Auth. (22 NY2d 187 [1968]). These cases, however, involved contracts that were illegal in their inception because they were procured in violation of the public bidding statutes. Nothing short of a complete forfeiture of the vendors interest was appropriate to effectively deter fraudulent and collusive bidding on public works projects (cf. Gerzof v Sweeney, 22 NY2d 297 [1968], rearg denied 22 NY2d 884 [1968] [court was able to fashion a remedy that did not involve a complete forfeiture of the vendor's interest]). Here, by contrast, Perini's post-award remedial efforts placed defendant into the same position it would have been in had there been no misrepresentation at all. In other words, defendant suffered no harm from the claimant's alleged fraudulent inducement of the contract because, in the end, claimant satisfied the M/WBE goals in the contract.
Defendant's claims regarding Perini's fraudulent performance of the contract fare no better. While a party's illegal acts in the performance of a legal contract may vitiate its right to recover under the contract, "[t]here must at least be a direct connection between the illegal transaction and the obligation sued upon" (McConnell v Commonwealth Pictures Corp., 7 NY2d 465, 471 [1960]; see also Alpha Interiors, Inc. v Tulger Constr. Corp., 101 AD3d 660 [2d Dept 2012]; FCI Group, Inc. v City of New York, 54 AD3d 171 [2008], lv denied 11 NY3d 716 [2009]). No such direct connection has been shown to exist in this case. Here, unlike the facts in McConnell, claimant is not seeking recovery for the fruits of an admitted crime. Rather, claimant demonstrated that it sought no credit toward the contract's M/WBE goals for the work performed by the M/WBE fronts and, most importantly, the M/WBE goals were ultimately fulfilled through the performance of 18% of the work by legitimate M/WBEs. The public policy underlying the Court's decisions in McConnell and its progeny - preventing one from profiting from his own fraud or taking advantage of his own wrong - has no application where, as here, recovery is not sought as a reward for fraud or wrongdoing. Accordingly, claimant's motion for summary judgment dismissing defendant's fraud defenses and counterclaims (defendant's first and second defenses and first and second counterclaims) is granted and these defenses and counterclaims are dismissed. Defendant's motion for summary judgment dismissing the claim on the grounds of fraud in the inducement and performance of the contract is denied.
Notice and Recordkeeping
Defendant alternatively seeks dismissal of the claimant's fourth, fifth, sixth, eighth, ninth, and tenth claims on the ground Perini failed to comply with the notice and recordkeeping provisions of the contract and, with respect to the Fourth Claim for concrete barrier, that the unit price basis for payment set forth in the contract is controlling. All of these claims seek damages for delays or extra work (Eighth Claim) that were allegedly caused by major changes in the project's original design or other unforeseen circumstances.
The contract was awarded to Perini on July 19, 2000 for a total contract sum of $130,212,422.60 and a contract completion date on or before July 31, 2003 (Shah affidavit sworn to Sept. 20, 2017, ¶ 3; defendant's Exhibit 20, Verified Claim, ¶ 12). The contract was divided into two parts: the A-Portion representing the cost of materials, labor and equipment totaling $130,212,422.60 and the B-Clock portion for completion of the project by January 24, 2003 for the additional sum of $17,040,000 (defendant's Exhibit 20, Verified Claim, ¶ 12). Snehal Shah, the DOT's EIC of the project, describes the B-Clock portion as "a contractual option that allowed Perini to value the time for earlier completion of the project in addition to the contract price of $130,212,422.60 for the [LIE project]" (Shah affidavit sworn to Sept. 20, 2017, ¶ 27). Both parties agree that Perini bid $17,040,000 on the B-Clock portion based on a projected completion in 852 days or by January 24, 2003 (id.; defendant's Exhibit 20, Verified Claim, ¶ 12).
Claimant commenced work in July 2000 and alleges that the project was plagued by delays and disruptions caused by the DOT's defective designs, plans, drawings and site conditions. Claimant alleges that as a result of these design errors and site conditions, "nearly every major structure, element and system on the Project was redesigned", which forced Perini to perform its work out of sequence and at a significantly greater cost (defendant's Exhibit 20, Verified Claim, ¶ 2). According to claimant, the pervasive design defects and interferences by the DOT caused a ripple effect of delays and required Perini to incur additional expense over an extended period of time.
It is undisputed that the B-Clock completion date was extended twice, first from January 24, 2003 to July 2, 2003 (Lemisch Exhibit 2, p. 4 of 4) and again from July 2, 2003 to April 28, 2004 (Lemisch Exhibit 27, p. 10 of 10). The contract completion date (the A-portion) was extended four times, from the original date of July 31, 2003 to the final extension date of October 25, 2004 (defendant's Exhibit 20, Verified Claim at ¶¶ 28-29; Shah affidavit sworn to Sept. 24, 2017, ¶ 27). The claims for time-related dispute compensation arise from these delays.
The first B-Clock extension was due to the need to relocate the Con Edison facilities at the West Alley Road (see Lemisch Exhibits 24, 26). According to Adam Lemisch, Perini's Project Engineer, the contract specified that "only delays to the project's 'critical path' can be the basis of a schedule extension [and,] [i]n this case, all parties agreed that the critical path of the project ran through the West Alley Road Bridge and all project extensions were based on this critical path" (Lemisch affidavit, ¶ 50). By letter dated May 7, 2002, the DOT advised Perini of the appropriate extension (Lemisch Exhibit 23) and Order-On-Contract (OOC) #17 was approved and provided to Perini on June 11, 2003 extending the B-Clock portion of the work from January 24, 2003 to July 2, 2003, a period of 159 days (Lemisch Exhibit 24). OOC #17 indicated that there was "No Change in Funds" (id.).
By letter dated January 17, 2003, Perini notified the DOT of its request for compensation in the amount of $8,728,788.37 for extended overhead relating to the first B-Clock extension and submitted supporting documentation (claimant's Exhibit 29). Mr. Lemisch, identifies this letter as Perini's specific notice to the State of its First, Fourth and Fifth claims for damages (Lemisch affidavit sworn to Dec. 8, 2017, ¶ 29).
A meeting was held at the DOT's regional office on January 29, 2003 to discuss processing of change orders, quantity overruns, force account work and scheduling (Lemisch Exhibit 1). According to the Perini-recorded meeting minutes, Perini was advised by a DOT representative that certain charges were not payable as extended overhead (id.). According to Perini's minutes (id.), DOT advised Perini of the following:
"Moving Forward. The Request for Extension of B-Clock and the Extended OH was to begin on Jan. 24, 2003. As of that day both sides need to track the various applicable charges. To do this will place a burden on both Ralph and Perini. I would like to have a meeting to minimize the difficulty of this on both sides.
Per Phil's comments, several of the categories presented in our Jan 16th request are 'time related charges' which he felt [were]outside the envelope of OH. We agree. But these 'time related' charges are still valid charges and must be similarly tracked. These being Survey, MPT, etc." (Lemisch Exhibit 1, Transmittal Memorandum).
Mr. Lemisch indicates that Perini subsequently revised its estimate of anticipated costs relating to the first B-Clock extension and forwarded it to the DOT on February 5, 2003 (Lemisch affidavit sworn to Dec. 8, 2017, ¶ 31; Lemisch Exhibit 30). According to Mr. Lemisch, "certain time related costs (Perini's Fourth, Fifth, and Tenth claims) were removed from the estimate of extended overhead and we advised the State that: 'These additional costs plus additional and or escalated insurance and bond costs will be analyzed and submitted at a future date in a separate package' " (Lemisch affidavit, ¶ 31). Accordingly, the revised estimate relating to the first B-Clock extension was lowered to $5,893,508.85 (id.). The cover letter accompanying the revised estimate stated: "As requested, all equipment associated with MPT [maintenance and protection of traffic] were deleted from the original submittal, as well as all [t]ime related costs" (Lemisch Exhibit 30).
In fact, the Fifth Claim for the concrete barrier was not removed from this estimate, as Mr. Lemisch concedes later in his affidavit (Lemisch affidavit, ¶¶ 87-88).
Mr. Lemisch states that weekly change-order meetings were held to discuss the many project changes and increasing extra work and delay claims. Following a meeting with DOT personnel on February 10, 2003 (Lemisch Exhibits 31 and 70), Mr. Lemisch indicates that Gaby Antoun, Perini's Project Executive, recorded in his handwritten notes that the completion of MURK forms for submission to the DOT were unnecessary and that extended overhead costs would be invoiced monthly with a separate submission applicable to maintenance and protection of traffic (MPT) and time-related items (Lemisch affidavit, ¶ 32; Lemisch Exhibits 31 and 70). However, the handwritten notes of Mr. Antoun are not without ambiguity. Interpreting the notes without the benefit of elaboration by the author, it appears equally likely that they reflect the parties' mutual assent to dispense with MURK forms for work when the price was agreed-upon, but not for force account work. They state, as pertinent here, the following:
"MURK Manual for Uniform Record Keeping" is defined in the contract as a "Manual setting up uniform project record procedures to be followed by the Engineer in Charge (defendant's Exhibit 1, §101-35).
"- Bill on monthly basis
- Track it & agree on $ every week
- No need to use Murks
Approval of MURK: (for FA's [Force Accounts] GPI will review form & get back to us)" (Lemisch Exhibit 31, first page of handwritten notes).
By letter dated February 25, 2003, Mr. Lemisch provided a monthly summary of extended overhead costs for January 2003, together with supporting documents (Lemisch Exhibit 32). This covered the period January 25, 2003 through January 31, 2003, which represents the 7-day period of January 2003 in the first B-clock extension period. The documents detailed field personnel, equipment, barrier remaining and lane rentals for the period January 25, 2003 through January 31, 2003 and Lemisch's cover letter stated that "All costs related to MPT and Time related items as well as additional costs due to escalated insurance and bond costs will be analyzed and submitted at a future date in a separate package" (id.). The DOT responded to Perini's summary of extended overhead costs by noting some inappropriately included items and, with respect to the claimant's Fourth Claim for the costs associated with the concrete barrier, the following comment: "The temporary concrete barrier was paid for under the Contract unit items. As such, its full rental cost is inappropriate" (id. at DOT's letter dated March 24, 2003).
In accordance with the DOT's instructions at the February 10, 2003 meeting, Mr. Lemisch relates that Perini submitted monthly invoices of its extended overhead costs (Lemisch Exhibits 32,71- 72). The monthly invoices submitted in opposition to the defendant's motion include backup information regarding field personnel, equipment, barrier remaining and lane rentals for the period (id.).
At Perini's request, a meeting was held at the DOT's Regional office on May 21, 2003 to discuss extended overhead issues and Perini's concern that only critical path work is to be considered as extended overhead (Lemisch Exhibit 25). According to the meeting minutes, "Perini agreed to analysis [sic] the work items on the Critical Path Method (CPM) (update 10) shown as non-critical and submit detailed reasons as to why they feel these activities should or should not be included in the extended overhead and what were the causes of the delay" (id.).
Mr. Lemisch indicates that a second extension of the B-Clock was necessary due to additional critical path delays during the first B-Clock extension period. By letter dated May 27, 2003, Perini requested a second extension of the B-Clock, from July 3, 2003 to April 28, 2004 (301 calendar days) (defendant's Exhibit 20, Verified Claim ¶ 34; Lemisch affidavit, ¶ 27; Lemisch Exhibit 26).
On July 10, 2003, an "advance copy" of OOC #21 (Lemisch Exhibit 2) was sent to Perini in which DOT sought approval for additional extended costs for the first B-Clock extension from January 25, 2003 until July 2, 2003. OOC #21, which was approved and forwarded to Perini on September 16, 2003, was in the amount of $4,631,000 and included $1,975,000 in equipment costs. Included in the accompanying explanations of payment was the following note:
"The Contractor is requesting compensation for the additional costs for Field Office and Field Office Personnel, Labor Escalation Cost, Material Escalation Cost, Equipment Cost, Service Cost and Indirect Cost as they are incurred rather than waiting until the end of the project. This OOC is a FAW for time related dispute compensation as defined by NYSDOT Standard Specification Section 109-05D for expected delay in the completion of the Project from January 24, 2003 to July 2, 2003 for a total of 159 calendar days. An agreed price cannot be accurately or promptly determined at this time (Lemisch Exhibit 2, p. 2 of 4) . . .
As this force account work progresses, daily records shall be kept in accordance with the specifications and this section. Progress payments will be made based on the reviewed daily records of the work performed within the estimate period, to a maximum of 90% of the initial FAW dollars-cents quantity. No payment will be made under these items for any FAW's or Agreed Price Work that have previously been approved and accepted.
After the force account work is completed, the actual costs to perform the work will be calculated based on the summary of all daily records, and the difference between the actual cost and this initial FAW is then computed.
A subsequent OOC will then be processed to adjust this FAW item by increasing or decreasing the quantity by the required amount" (Lemisch Exhibit 2, p. 4 of 4).
On July 21, 2003, Resident Engineer, Ralph Csogy, transmitted to Construction Director Salerno of DOT's Region 11 a Project Records Review and Processing Plan (Lemisch Exhibit 34). This plan memorialized pending OOCs and set forth the dispute procedure, indicating: "If an agreement on a price cannot be reached, an OOC will be prepared creating and [sic] FAW item for the work" (Lemisch Exhibit 34, § III). This report also states that "[o]n a daily basis a check is made for contractor personnel and equipment to track costs for extended overhead . . . Upon completion of this work a final adjustment will be made to the FAW's" (id.). The report documented the progress of the various OOCs and Table #5 (attached thereto) memorialized the then-existing "disputed work" (id.). It was also noted in the report that the status of the various OOCs was the subject of weekly change-order meetings.
Mr. Lemisch indicates that none of Perini's claims, with the exception of its Fourth Claim for concrete barrier placement, are mentioned in Csogi's report or in a force account OOC because "the State and Perini were continuing to attempt to negotiate an 'agreed price' for each Claim" (Lemisch affidavit, ¶ 36). According to Mr. Lemisch, "[o]nly after the negotiation process had been exhausted did the State determine the Claims to be 'Disputed Items' and by that time the work subject to Perini's Claims had long been completed" (id.).
On August 25, 2003, in response to Perini's meeting with the DOT on May 21, 2003, Perini provided the DOT with a 66-page report from its scheduling consultant, Vey, Bertolini & Co., together with 8 volumes of documents and its formal request for additional compensation (Lemisch Exhibit 8). The report is represented to provide an outline of the causes of the delays and the operations impacted by them.
Mr. Lemisch states the first payment for extended overhead was made in October 2003 (Lemisch affidavit, ¶ 43). The payment covered 90% of Perini's previously invoiced extended overhead (id.). The Engineer's Daily Project Diary, dated October 3, 2003, states the following with respect to this payment:
"We are making the 1st payment on the 1st 'B' clock extended overhead. We still contend that Perini is only entitled to approx 70% of the 3.8 million invoiced based on areas of work that Perini should have finished by 1/24/03 but elected to delay until placed on extended overhead. We are paying 90% of this 3.8 million, AOBE, since there is still ext. overhead on a 2nd B-clock. Decision of 90% payment made with in consultation with Region. As the projects 2nd 'B' clock extension work are overlapping with the first 'B' clock and at this time it is not possible to come up with correct % [I] spoke with Perini's Project Manager Mr. Gaby Antoun and advise[d] him that 90% payment is only a[n] interim payment as he is facing a cash flow issue due for large amount. Positive or negative adjustment will be made upon achievement of final conclusion" (Lemisch Exhibit 38).
By cover letter dated November 20, 2003, Perini provided a report prepared by its scheduling consultant, entitled "Analysis/Evaluation/Documentation of Increased Costs of Performance on Original Contract Work Through June, 2003 in Support of Perini's Request for Additional Compensation", together with "twenty-four appendix volumes" documenting its increased costs of performance through June 2003 (Lemisch Exhibit 51; Lemisch affidavit ¶ 57). The report presented a cost versus revenue analysis "with mark ups through June, 2003 in excess of revenues in an amount of $39,935,546.70", with reductions for payments made to Perini subsequent to June 30, 2003 (Lemisch Exhibit 51; see also Lemisch Exhibit 9 [flashdrive]; Lemisch Exhibit 52, follow-up letter from Perini dated Feb. 23, 2004]).
OOC #36 approving Perini's second B-Clock extension request was issued on February 2, 2004, nearly nine months after Perini's request and only after the project was substantially completed on January 9, 2004 (Lemisch Exhibit 27). It is undisputed that the second B-Clock extension was necessitated by "[t]he myriad of problems of record at the West Alley Road Bridge, and at the adjoining Soldier Pile Wall 2A/Ramp ES" (Lemisch Exhibit 27, p. 10 of 10).
OOC #38 was issued on February 25, 2004 (after the substantial completion date of January 9, 2004) in the amount of $5,065,000 to fund the second B-Clock extension (Lemisch Exhibit 3). Like the OOC that funded the first B-Clock extension (OOC #21), each item covered by OOC #38 was set up as a force account (id.). OOC #38 indicates that Perini "will be compensated for Field and Office Personnel, Labor Escalation Cost, Material Escalation Cost, Equipment Cost, Services, Indirect Costs [and] reasonable expenses as permitted in Section 109-05D of the Standard Specifications" (id. at p. 4 of 5). In language identical to that which was included in OOC #21, OOC #38 states the following:
"As this force account work progresses, daily records shall be kept in accordance with the specifications and this section. Progress payments will be made based on the reviewed daily records of the work performed within the estimate period, to a maximum of 90% of the initial FAW dollars-cents quantity. No payment will be made under these items for any FAW's or Agreed Price Work that have previously been approved and accepted.
After the force account work is completed, the actual costs to perform the work will be calculated based on the summary of all daily records, and the difference between the actual cost and this initial FAW is then computed.
A subsequent OOC will then be processed to adjust this FAW item by increasing or decreasing the quantity by the required amount" (Lemisch Exhibit 3, p. 4 of 5).
Two letters from the DOT to Perini dated March 9, 2004 addressed the propriety of Perini's claims for extended overhead (Lemisch Exhibit 46). One letter addressed Perini's November 20, 2003 report (Lemisch Exhibit 51), which utilized a cost versus revenue analysis to support its extended overhead claim for $39,935,546.70. In this letter, the DOT rejected Perini's cost versus revenue methodology as improper since "it does not account for any of Perini's inefficiencies or areas of work that were under bid, or bid incorrectly" (Lemisch Exhibit 46). In the second letter, DOT summarized its meeting with Perini on May 21, 2003 in which the work activities that DOT believed Perini could have completed prior to the first B-Clock extension were discussed. As stated in the letter, although Perini agreed during the May 21st meeting to analyze the non-critical work items (those that were not in the critical path as indicated on the CPM schedule) and submit detailed reasons regarding the causes for the delays and why Perini believed it should be compensated for the work as extended overhead, it failed to do so. As a result, DOT notified Perini of the following:
"As of this date we have not received Perini's analysis so our field office performed an independent analysis based on the original baseline schedule to determine the percentage of responsibility (NYSDOT delayed or Perini delayed) to calculate compensation . . . We have determined in our preliminary review that Perini is responsible for 35% (on average) of the contract work (based on CPM tab location and dollar value of work performed) after January 24, 2003" (Lemisch Exhibit 46, first of two letters dated March 9, 2004).
Based on this determination of responsibility for the delays, the DOT calculated the remainder of the partial payment for extended overhead (OOC #21 and #38) to be $2,549,781.86. The DOT also noted in the letter that this was "in no way an agreement to responsibility, but is what we feel at this time is a fair and equitable interim payment"(id.). Lastly, the letter stated "[t]he total amount due to Perini will be adjusted at a future date upon complete review of all relevant facts and CPM updates in accordance with our contract specifications" (id. ).
At a change-order meeting on May 4, 2004, it is documented that Perini is revising its B-Clock extended overhead invoices to address certain issues and recalculate the concrete barrier rental cost by using the CALTRANS barrier rental rate for K-Rail (Lemisch Exhibit 73; see also Lemisch Exhibit 69, pp. 113-115). With respect to the lane rental and concrete barrier claims, it is also noted in Resident Engineer Trapani's meeting minutes of May 14, 2004 that Perini was advised the lane rental and concrete barrier claims should be submitted and negotiated in a separate package, and that one OOC would be submitted for MPT and survey (Lemisch Exhibit 37).
It does not appear from the papers submitted on these motions that an OOC was issued for the MPT or survey items; however, no argument is made that the absence of an order on contract forecloses liability.
By letter dated July 16, 2004, the DOT documented the reasons for the issuance of OOCs #21 and #38:
"The Field Office processed two (2) FAW's (OOC #21 & #38) to compensate as an interim basis to Perini costs associated with the time related dispute as defined by NYSDOT Standard Specifications Section 109-05 D . . . 65% of the invoiced amount was released to Perini by the Field Office after the Field Office calculated the extended overhead responsibility. This percentage was used as an interim because Perini failed to provide information to the Field Office as required by Specification Section 109-5 (E) and 109-16 (B) for the evaluation of Perini's payment request. Please be advised that as of this date Perini still has not provided a detailed analysis of the work items on the CPM which shows what activities should not be included in the extended overhead invoices and what were the causes of the delays . . ." (Lemisch Exhibit 74).
The DOT's July 16, 2004 letter therefore requested that certain corrections be made to the previously submitted invoices, including, with respect to the concrete barrier and lane-rental charges, that back-up documentation as required by the Standard Specifications be provided and that these items would be negotiated separately (id.). With respect to equipment, it was noted that "[o]nly documented additional or escalated equipment costs (including rentals) are allowed" (id.).
A change-order meeting was held on July 23, 2004 to discuss the DOT's interim determination, addressed in a letter dated June 23, 2004, to pay Perini 65% of its extended overhead (Lemisch Exhibit 43). According to the DOT's minutes of this change-order meeting, Perini agreed to verify their extended overhead claim for the first and second B-Clock extensions and subtract all costs related to equipment, master mechanic, shop steward, MPT and survey, lane rental charges and temporary concrete barriers. The meeting minutes also indicate that the actual days Perini worked on non-impacted activities during the extended B-Clock periods would be deducted from the field personnel costs, that Perini's additional production costs on the original contract items that were impacted by the delays would be further documented by Perini, and that "only additional time of the operation will be considered for the claim" (id.). By letter dated August 11, 2004, Perini disagreed with the DOTs determination and requested a further meeting (id.).
This letter is not in the motion record.
OOC #42 (Lemisch Exhibit 4) and OOC #50 (Lemisch Exhibit 39) were written to provide funding for the estimated costs associated with the delay that occurred after the substantial completion date, the postB-Clock period. An advance copy of OOC #42, which was to provide funding in the amount of $3,300,000.00, was sent to Perini on May 11, 2004, however, nothing in the motion record reflects DOT's approval of OOC #42. OOC #50, which provided funding in the amount of $2,550,000, was approved and issued on November 12, 2004. Although both OOCs established a force account for nonB-Clock executive supervision and field personnel, nonB-Clock labor and subcontractor escalation cost, and nonB-Clock material escalation and indirect costs, OOC #42 included funding for nonB-Clock equipment costs in the amount of $774,000.00, whereas OOC #50 did not. Both OOCs stated the following:
"The Contractor met substantial completion (end of b-clock work) on this project 110 days early on January 9, 2004. . . This OOC is . . . FAW [force account work] for time related dispute compensation as defined by NYSDOT Standard Specification Section 109-05D for the delay in the completion of the Project and for the completion of remaining contract work after substantial completion of January 9, 2004 to October 25, 2004 (End of Fall Planting Season). An agreed price cannot be accurately or promptly determined at this time" (Lemisch Exhibits 4 and 39, p. 2 of 4).
OOCs #42 and #58 also stated:
"As this force account work progresses, daily records shall be kept in accordance with the specifications and this section. Progress payments will be made based on the reviewed daily records of the work performed within the estimate period, to a maximum of 90% of the initial FAW dollars-cents quantity (Lemisch Exhibit 4, p. 4 of 4; Lemisch Exhibit 39, p. 3 of 4).
By letter dated November 19, 2004, Perini formally requested compensation for additional costs incurred due to delayed operations "which delayed the accomplishment of Substantial Completion by 350 calendar days from January 24, 2003 to January 9, 2004" (Lemisch Exhibit 10). In support of this request, Perini submitted a report entitled "Analysis -Evaluation-Documentation of Additional Costs on Original Contract Work for Impacted/Extended Operations August, 2000 to December, 2003", together with ten volumes of back-up information (Lemisch Exhibit 10).
By letter dated December 2, 2004, Mr. Marashlian notified Regional Director Salerno of what steps would be taken in response to their meeting of November 30, 2004 (Lemisch Exhibit 54). He indicated that Perini previously informed the DOT of how the extra costs related to the delayed operations but they would nevertheless provide a final summary of this information for each affected operation. Mr. Marashlian also stated in the letter that the cost versus revenue methodology he used to calculate Perini's additional costs was reasonable as Mr. Salerno's suggested alternative methodologies did not account for "interference affecting the performance" and "the scheduling of contract work" as provided for in § 109-16A of the Standard Specifications (id.). Nevertheless, Mr. Marashlian agreed to submit an alternative analysis, which he stated was not expected to result in significant change to the amount of compensation requested.
Perini's meeting minutes from a January 24, 2005 change-order meeting reflect that the DOT was "willing to negotiate barrier rental compensation" but unwilling to negotiate the lane rental charges imposed during the first and second B-Clock periods (Lemisch Exhibit 78). Perini's March 14, 2005 meeting agenda reflects Perini's position with respect to these claims and the DOT's instruction that Perini was "to repackage costs to reflect discussions held with DOT" regarding the barrier rental claim (Lemisch Exhibit 75).
By letter dated April 6, 2005 (Lemisch Exhibit 35), Regional Director Douglas A. Currey responded to a letter from Mr. Marashlian, dated February 9, 2005 (not in the motion papers), in which he expressed the DOT's desire to resolve Perini's request for additional compensation fairly and expeditiously but made clear that "[c]entral to achieving this goal will be for Perini to provide documentation that fulfills the requirements of the Contract specifications. We believe that Perini's submissions to date fail to meet this requirement" (id. at p. 1). Regional Director Currey described in his five-page letter why the cost versus revenue analysis was inappropriate. He indicated in the letter that such methodology fails to consider Perini's share of fault for certain delays or the losses that would have been incurred by Perini as a result of an imbalanced or unnecessarily low bid.
By letter dated April 21, 2005 to Joseph H. Boardman, the DOT Commissioner, Mr. Marashlian filed a Notice of Dispute Per § 105-14 (A) (3) (Time Related Dispute specification). In the letter, Mr. Marashlian disagreed with the Director Currey's position, which he said "ignores the record, and ignores Perini's submissions which are in full compliance with NYSDOT's Specifications" (Lemisch Exhibit 35, letter dated April 21, 2005). The letter outlined Perini's position regarding the cause of the delays and indicated that the West Alley Road Bridge situation controlled both B-Clock adjustments and the need to redesign most of the other structures, including the lighting system, concrete reinforcement, overhead sign structures, sign foundations, utility support systems on the bridges over the Long Island Expressway, and the Alley Pond restoration. According to Marashlian, the impacts began in September of 2000, shortly after Perini mobilized its forces, and continued through the end of 2003. Mr. Marashlian indicated that Perini quantified its compensable additional costs using a performance evaluation methodology, not a cost versus revenue methodology as indicated in Mr. Currey's letter of April 6, 2005. Mr. Marashlian indicated further that although equipment costs were originally included in the OOCs #21 and #38 for time-related dispute compensation, "[t]he Department then reversed itself and revoked the equipment cost payments on the apparent grounds the FAW Orders-on- Contract[s] were for the purpose of compensation reimbursement for extended jobsite overhead [§109-05D (1) (d)] which did not cover additional equipment costs [§109-05D (1) (c)]. Perini was advised to include additional equipment costs in its separate request for Time Related Dispute Compensation, which it has done" (id. at pp. 4-5).
Mr. Marashlian indicated that the complete dispute submission package, consisting of seven large banker boxes of materials, was being provided under separate cover. On April 26, 2005, seven banker boxes of reports were provided to the Commissioner (see Lemisch Exhibits 9 and 48).
By letter dated June 21, 2005 to Commissioner Boardman, Perini filed a notice of dispute in response to the DOT's June 9, 2005 letter (which is not in the record) denying Perini's request to rescind the lane rental charges from April 2003 through December 2003 (Lemisch Exhibit 80). The letter noted that further documentation would be submitted in accordance with the requirements of § 109-05 (E) of the Standard Specifications. By cover letter dated November 18, 2005, further documentation was provided, however, it is not attached to the letter but purportedly included with the documents on a flash drive submitted as Lemisch Exhibit 9 (Lemisch Exhibit 81; Lemisch affidavit, ¶ 114).
OOC #58, issued on August 1, 2005, increased the funding provided in OOC #50 for nonB-Clock executive supervision and field personnel costs in the amount of $900,000 (Lemisch Exhibit 5). This amount was based upon the approximate difference between the amount estimated for this force account in OOC #50 ($1,820,000) and the amount invoiced by the contractor ($2,726,720.57).
By letter dated August 27, 2005, Perini "re-packaged" the additional cost compensation package for contract item #15637.61M, CPM Network Scheduling System, previously submitted to DOT on November 19, 2004, by summarizing the cost on a monthly basis (Lemisch Exhibit 66). The letter indicates that this was done at the request of the DOT.
By letter dated September 24, 2005, Perini "re-packaged" the additional cost compensation package for contract item #619.02M, Construction Signs, previously submitted to DOT on November 29, 2004, by summarizing the cost on a monthly basis (Lemisch Exhibit 65). The letter indicates that this was done at the request of the DOT.
By letter dated October 1, 2005, Perini "re-packaged" the additional cost compensation package for contract item #634.01M, Survey and Stakeout, by summarizing the cost on a monthly basis from January 2003 through January 2004, noting that monthly summaries for February 2004 through December 2004 had already been submitted in its November 29, 2004 and April 13, 2005 submittals (Lemisch Exhibit 64). The letter reflects that this was done at the request of the DOT.
By letter dated October 26, 2005, the DOT memorialized a list of items which would have to be "submitted as disputed items" pursuant to Section 105-14 (C) of the Standard Specifications (Lemisch Exhibit 36). The list includes 15 disputed items, among them the extended overhead claim for the first and second B-Clock extension (claimant's First Claim); the barrier rental claim (claimant's Fourth Claim); the time-related lump sum items (claimant's Fifth Claim); water main design changes (claimant's Sixth Claim); the lane rental charges during the periods of the delay (claimant's Eighth Claim) and extended overhead for two subcontractors, including Sweet Hollow (claimant's Ninth Claim) (Lemisch Exhibit 36).
By letter dated November 18, 2005, Perini filed a formal notice of dispute regarding the water main work seeking the amount of $461,992.17 (Lemisch Exhibit 113).
By letter dated December 19, 2005, Perini filed a notice of dispute for additional compensation for time-related lump sum items in the amount of $5,384,655.82, citing § 109-05 (D) (1) of the Standard Specifications (Lemisch Exhibit 67). Perini also submitted seven boxes of records, purportedly in accordance with § 109-05 (E), which were noted to have been previously provided to the DOT (Lemisch Exhibit 67).
The DOT report entitled "Extended Project Costs Analysis and Conclusions", dated January 11, 2008 (Lemisch Exhibit 44), indicates the that "Perini was determined to not be entitled to 100% of its submitted extended overhead costs. A 65% Department and 35% Perini allocation was used for interim payment purposes . . ." (id.). Based upon a closeout review of the CPM schedule submitted by Perini, the DOT stated the following in its closeout report:
"-Perini's failure to stay on schedule with the bid B completion date for work not impacted by the Department requires the Department to apportion responsibility for the B1 extended period. The concurrent offsetting delays must be considered.
- A review of the contemporaneous CPM schedules reveals that the concurrent offsetting delay period ends on 21May03. Simply put, had the Department not delayed any work, Perini still would have finished late and not met their proposed B clock completion date. Therefore, the Department will begin compensation on 22May03 . . . [for any] actual, reasonable and verifiable extended project overhead costs" (Lemisch Exhibit 44, p. 3).
The closeout report also made clear that "[a]ll work done in the Post-B period, starting 10Jan04, was due to decisions made by the Department. As such, all extended overhead costs incurred by the Contractor, accounted for under force account reimbursements, should be considered compensable" (id. at p. 4). With respect to Perini's inclusion of equipment in its extended overhead invoices, the report confirms that Perini was directed to remove it and was advised that it "could be submitted as a separate and specific work item dispute for the Department to consider" (id. at p. 2). The report indicates, however, that the equipment was not removed from the post-B-Clock period "as such the Department has deducted (red-lined) them from the invoices" (id. at p. 2).
In fact, OOC #50, which was approved and issued for the postB-Clock period, did not include equipment (see Lemisch Exhibit 39). OOC #21 and #38, applicable to the B-clock extension periods, included equipment costs which were later "redlined" in OOC #84 and #85.
Several major deductions from the funds provided in OOCs #21 and #38 were effected through OOCs #84 and #85 (Lemisch Exhibits 40 and 41). OOC #84, issued on July 31, 2008 (an "advance copy" of which was provided to Perini on June 4, 2008) deducted $4,167,766.68 from the funds provided in OOC #21, issued to pay for extended overhead during the first B-Clock extension. As stated in OOC #84:
"The original invoices included costs that are not allowed by Specification and were 'redlined' from the monthly packages. These costs included miscellaneous charges such as small tools, safety incentives, supervisor's bonuses, rentals, safety clothing, etc. In addition, all equipment was deleted from the monthly invoic[es] which was base[d] on a directive from the NYS Comptrollers Office that stated equipment which is used for Contract item work cannot be paid for under extended overhead. Also, based on a CPM analysis performed by the Albany main office claims unit, invoiced charges submitted for the time period from January 25, 2003 thru May 21, 2003 were deemed as non-compensable and were deleted from the invoices . . .
It should be noted that the Contractor did not use MURK forms for the invoices submitted (Lemisch Exhibit 40, p. 2 of 3).
OOC #85, issued on August 12, 2008, adjusted OOC #38, which funded the second B-Clock extension from July 3, 2003 through substantial completion on January 9, 2004 (Lemisch Exhibit 41). Although it increased payments to Perini for Executive Supervision and Field Supervision, it deducted funds for Labor Escalation Costs for Prime Contractors and Subcontractors (-$291,775.22), Material Escalation and Indirect Costs (-$692,377.97) and Equipment Costs (-$950,000). With respect to the deduction for equipment costs, OOC #85 states "[A]ll equipment was deleted from the monthly invoice which was base[d] on a directive from the NYS Comptrollers Office that stated equipment which is used for Contract item work cannot be paid for under extended overhead" (id. p. 2 of 3). Defendant has disclosed during the course of discovery, however, that no such written directive exists.
OOC #86, issued on September 9, 2008, made similar deductions from the nonB-Clock extensions, although the deletion of equipment costs was unnecessary since they were not included in OOC #50 or #58 (Lemisch Exhibit 42).
Lemisch Exhibit 42 includes only the cover letter and first of four pages of OOC #86.
The Applicable Law & Analysis
The contract's Standard Specifications entitle a contractor to additional compensation for extra work and delays caused by, inter alia, "different site conditions", "significant changes in the character of the work" and, with certain exceptions set forth in § 109-16 (B), situations "not within the contemplation of the parties at the time of entering into the contract" (Lemisch Exhibit 68, Standard Specifications, § 109-16 [A], p.1-95). "Additional compensation via order on contract(s) shall be made for time related costs, if any, pursuant to [§109-05 (D)]" (id. at § 109-16 [A] (1) [iv]). Where an adjustment in contract price is warranted, the contract requires the DOT to "first attempt to arrive at an agreement with the Contractor. If unsuccessful, the Department will make such adjustments to the contract as is determined to be fair and equitable utilizing Department estimates. When the Department and the Contractor are not in agreement regarding contract adjustment, the work shall be treated as Disputed Work, requiring daily recordkeeping in accordance with the provisions of Section 109-05 C. Force Account Report" (Lemisch Exhibit 68, § 109-16 [A] [4]).
Section 109-16 of the Standard Specification erroneously references § 109-5, which does not exist, but correctly references the correct subtitles, leaving no doubt that the correct reference should be § 109-05 (see Lemisch Exhibit 68, § 109-16 [A] [1] [iv]).
Section 109-05 (C) requires the contractor to deliver to the EIC daily summaries of force account work "not later than closing time on the day following that for which the work is reported" and the summaries are required to be on the appropriate form described by MURK (id. at § 109-05 [C] [1]). Within five days after the end of each pay period, the contractor is required to deliver to the EIC a force account summary of labor (id. at § 109-05 [C] [2]) and, within ten calendar days of completion of the specific force account work the contractor is required to deliver to the EIC a force account summation (id. at § 109-05 [C] [3]; see also § 105-14 [A] [3] and [4]).
In addition to the notice and recordkeeping requirements of § 109-05, the contract provisions applicable to changed conditions and delays (§109-16) requires compliance with the recordkeeping and other requirements of § 105-14 as well as the dispute resolution procedures set forth in § 109-05 (E) (id. at § 109-16 [A] [1] [iv], [3] [v]). With the exception of equipment costs, the increased cost of the work is compensated pursuant to § 109-05 (B) (1) or (2) (id.). Section 109-16 of the contract makes clear that "[f]ailure by the Contractor to notify the Engineer in writing pursuant to the provisions of this contract, or to maintain and furnish cost records of such claims, shall constitute a waiver of the claim" (id. at § 109-16 [A], p. 1-123).
Equipment compensation is governed and controlled by the provisions of § 109-05 (D) (2).
With respect to time-related disputes, § 105-14 (A) of the contract provides the following:
"A. Time Related Disputes. Whenever the Contractor believes that it is or will be entitled to additional compensation for time related disputes, whether due to delay, extra work, disputed work, breach of contract, or other causes, the Contractor shall follow the procedures set forth in this Section . . .
2. Strict compliance with the notice provisions of this Section and compliance with the recordkeeping provisions of this section and §109-05, Extra, Force Account Work, Dispute Compensation and Recordkeeping, shall be an essential condition precedent under the contract provisions to any recovery of time related damages by the Contractor whether it be under the contract provisions, court actions and proceedings or otherwise" (defendant's Exhibit 1, Standard Specifications, § 105-14 [A], [2]).
Written notice regarding time-related disputes must be provided to the EIC "within ten work days after the Contractor has knowledge or should have knowledge of an event, matter or occasion, that will result in time related damages" (id. at § 105-14 [A] [3]). The contract makes clear that, absent a justifiable excuse, the DOT "shall have no liability" for time-related damages which accrued more than ten days prior to filing written notice thereof with the EIC (id.). Where a justifiable excuse is shown, "then said 10 day notice period may be lengthened but only if the Contractor has maintained and submits the specified records set forth in these provisions and the Department has knowledge of the matter or occasion that may result in time related damages" (id.).
If, after notice to the EIC, the contractor considers the matter unresolved, it must notify the Regional Director "within ten (10) work days after receipt of the Engineer's decision"(defendant's Exhibit B, § 105-14 [A] [3]). Should the contractor remain dissatisfied with the disposition, it is required to notify the Commissioner "within ten work days after receipt of the Regional [Director's] decision" (id.).
The Standard Specifications make clear that compliance with the notice and recordkeeping requirements of the contract are conditions precedent to a claim for either delay damages or extra work (see A.H.A. Gen. Constr. v New York City Hous. Auth., 92 NY2d 20 [1998], rearg denied 92 NY2d 920 [1998]). "[A] condition precedent is 'an act or event, other than a lapse of time, which, unless the condition is excused, must occur before a duty to perform a promise in the agreement arises' " (MHR Capital Partners LP v Presstek, Inc., 12 NY3d 640, 645 [2009] [citation omitted]). "Failure to strictly comply with such provisions generally constitutes waiver of a claim for additional compensation" (Fahs Rolston Paving Corp. v County of Chemung, 43 AD3d 1192, 1194 [3d Dept 2007]; see also Schindler El. Corp. v Tully Constr. Co., Inc., 139 AD3d 930 [2d Dept 2016]; Phoenix Signal & Elec. Corp. v New York State Thruway Auth, 90 AD3d 1394 [3d Dept 2011]; Kingsley Arms, Inc. v Sano Rubin Constr. Co., Inc., 16 AD3d 813 [3d Dept 2005]; Promo-Pro Ltd. v Lehrer McGovern Bovis, 306 AD2d 221 [1st Dept 2003], lv denied 100 NY2d 628 [2003]; Sicoli & Massaro v Niagara Falls Hous. Auth., 281 AD2d 966 [4th Dept 2001]; F. Garofalo Elec. Co. v New York Univ., 270 AD2d 76 [1st Dept 2000], lv dismissed 95 NY2d 825 [2000]). Inasmuch as express conditions are those agreed to by the parties, not implied by law to do justice, literal compliance is required (Oppenheimer & Co. v Oppenheim, Appel, Dixon & Co., 86 NY2d 685, 690 [1995]; River St. Realty Corp. v N.R. Auto., Inc., 94 AD3d 848 [2d Dept 2012]; Phoenix Signal & Elec. Corp., 90 AD3d at 1396). The Court of Appeals has noted the important public policy considerations underlying the requirement for strict adherence to the notice and recordkeeping requirements of public work contracts. Such requirements "provide public agencies with timely notice of deviations from budgeted expenditures . . . and allow them to take early steps to avoid extra or unnecessary expense" (A.H.A. Gen. Constr., 92 NY2d at 33-34). Strict compliance with these conditions may " 'only be avoided if the municipality acted in a manner that precluded the other party from complying' " (Marcor Remediation, Inc. v County of Broome, 46 AD3d 1066, 1068 [3d Dept 2007], quoting Tug Hill Constr. v County of Broome, 270 AD2d 755, 756 [3d Dept 2000]). As made clear by the Court of Appeals in A.H.A., "the relevant inquiry is not simply one of the [defendant's] bad faith or negligence in the performance of the contract but additionally whether the alleged misconduct prevented or hindered respondent's compliance with the notice and reporting requirements" (A.H.A. Gen. Constr., 92 NY2d at 31).
Defendant raised the claimant's failure to comply with conditions precedent in its Third through Ninth affirmative defenses (defendant's Exhibit 22) (seeCPLR 3015 [a]).
Claimant's Fourth Claim - Concrete Barrier Costs
In its Fourth Claim, claimant seeks payment for costs related to temporary concrete barrier from January 2003 until December 2003 in the amount of $369,348. In support of its motion for summary judgment, defendant submitted the affidavit of Snehal Shah who states that Perini failed to provide timely written notice and failed to provide records "of any kind to account for daily use and cost of these barriers" (Shah affidavit sworn to Sept. 20, 2017, ¶ 32). In addition, Mr. Shah indicates that there is no method of recovery for this item since Perini owned the concrete barrier and, in any event, concrete barrier is a unit price item for which no additional payment may be made, citing § 619-5.03 of the Standard Specifications (defendant's Exhibit 84).
In opposition to the motion, Mr. Lemisch indicates that Perini's letter of January 17, 2003 (Lemisch Exhibit 29) requesting compensation for extended overhead in the amount of $8,728,788.37 constituted timely notice of Perini's First, Fourth and Fifth claims. Records submitted with the letter reflect that the concrete barrier was included in the estimate under "Indirect Costs" (id.) and the concrete barrier was included in the funding provided in OOCs #21 and #38. During the close-out process in 2008, payment for Indirect Costs was largely reversed in OOCs #84 and #85 (see Exhibits 40, 41). Whether or not Perini provided notice and recordkeeping that satisfies the requirements of the contract need not be decided, however, because the Court agrees with defendant's contention that § 619-5.03 of the Standard Specifications (defendant's Exhibit 84), specifically applicable to concrete barrier, provides compensation on a unit price basis and forecloses compensation for delays. This section states, in pertinent part: "[A]fter placement, payment will be made for ninety (90) percent of the quantity of . . . temporary concrete barrier . . . Temporary concrete barrier . . . required solely by a delay in the Contractor's operations, shall not be included in the measurement or payment for temporary concrete barrier" (defendant's Exhibit 84). Accordingly, the plain language of § 619-5.03 forecloses payment for the alleged additional costs of using concrete barrier where the additional costs were allegedly incurred on account of delays.
Although OOCs #21 and #38 included "material escalation and indirect costs" in the amount of $793,000 and $692,377.97 respectively (Lemisch Exhibits 2 and 3), OOC#84 deleted from OOC #21material escalation and indirect costs in the sum of $747,644.46 and OOC #85 deleted from OOC #38 the sum of $692,377.97.
The Court disagrees with claimant's contention that payment for concrete barrier is controlled by the provisions for self-owned equipment contained in § 109-05 (D). Equipment is defined to include: "All machinery and equipment, together with the necessary supplies for upkeep and maintenance, and also tools and apparatus necessary for the proper construction and acceptable completion of the work" (defendant's Exhibit 1, § 101-22). Concrete barrier does not fall neatly within this definition. Even if an inconsistency could be discerned from the contract provisions for equipment and concrete barrier, however, general principals of contract construction require that a specific provision be given precedence over a more general provision (Muzak Corp. v Hotel Taft Corp. 1 NY2d 42, 46 [1956]; Aguirre v City of New York, 214 AD2d 692, 693 [2d Dept 1995]). Consequently,§ 619-5.03 controls and additional payment for increased indirect costs for concrete barrier is foreclosed by of the Standard Specifications. The claimant's Fourth Claim for concrete barrier is therefore dismissed.
The Fifth Claim - Time-Related Lump Sum Costs
In its Fifth Claim, claimant seeks damages in the amount of $5,384,655.82 for time-related lump sum items related to MPT, extended survey and stakeout, lighting, construction signs, and CPM updates for the extended periods. As with the Fourth Claim, Mr. Shah avers that Perini failed to comply with the notice and recordkeeping requirements of the contract. With respect to notice, however, defendant failed to establish its burden of proving "the timing of the occurrence of the condition that caused the delay" (Nab-tern-Betts v City of New York, 241 AD2d 379 [1st Dept 2017]; see Friends of Animals v Associated Fur Mfrs., 46 NY2d 1065 [1979]). Nevertheless, even accepting as true claimant's contention that Perini's letter dated January 17, 2003 (Lemisch Exhibit 29) requesting compensation for extended overhead in the amount of $8,728,788.37 constituted timely notice of these time-related damages, none of the records required by § 105-14 and § 109-05 were provided. Claimant argues that it was specifically instructed to remove all costs related to MPT and time-related items from the extended overhead invoices to be re-submitted and considered for payment separately. Even if Perini was so advised, and it appears that it was, nothing in the records provided by the claimant in opposition to the defendant's motion expressly relieved Perini of its contractual responsibility to maintain and provide the records of the work contemporaneously with its performance (see § 109-05 [C]). To the contrary, OOC #21, which provided funding during the first B-Clock extension for time-related dispute compensation in accordance with § 109-05 (D), was "advanced" to Perini on July 10, 2003 and expressly indicated that "[a]s this force account work progresses, daily records shall be kept in accordance with the specifications of this section" (Lemisch Exhibit 2, p. 4 of 4). While Perini provided reports and records documenting its affected operations and increased costs of performance, these reports and records were not provided until long after the onset of the delays in 2000 (see Lemisch Exhibits 8, 10, 35, 51). Notably, Mr. Marashlian indicated the delays started shortly after Perini mobilized its forces and commenced work on the project in September of 2000 (See Lemisch Exhibit 35, Notice of Dispute Letter dated April 21, 2005, p. 3 of 10). Neither daily work records nor weekly summaries were provided contemporaneously with the work and the reports and records that were provided failed to comply with the requirements of § 109-05 (C). Strict compliance with the contract's recordkeeping provisions was not met.
The Sixth Claim - Extra Water Main Work
Claimant alleges that in March 2001 the DOT re-designed the project's water main system which required the use of ductile iron piping rather than steel piping as originally required. No OOC for the work was issued and the extra work claim was denied on the ground of untimely notice (see Lemisch Exhibit 112). Although claimant contends that Perini's letter of May 17, 2001 provided notice of the extra work claim, in fact that letter merely referenced the changes without giving any notice of a claim (see Lemisch Exhibit 95). While there were change-order meetings in which the water main changes were discussed (Lemisch Exhibits 102-107), the contract makes clear that the contractor waives its dispute for compensation if it fails to maintain and submit its cost records "notwithstanding the fact that the [DOT] may have actual notice of the facts and circumstances which comprise such dispute and is not prejudiced by such failure" (defendant's Exhibit 1, Standard Specifications, § 105-14 [A] [3]). The documents provided by the claimant in opposition to the motion indicate that a breakdown of the extra costs incurred was not provided until October 22, 2003 (Lemisch Exhibit 98), more than two years after the design changes were made. Neither daily summaries of the work nor force account summaries of the labor were provided as required. Strict compliance with the contract's notice and recordkeeping provisions was not met.
Eighth Claim - Wrongful Lane Rentals
As Mr. Shah explains in his affidavit, every contractor bid on the estimated amount of time it would close down traffic lanes and "it cost the contractor $1,000 per hour to rent lanes on the Project between the hours of 10am and 3pm" (Shah affidavit sworn to Sept. 20, 2017, ¶ 62). Mr. Shah states in his affidavit that Perini was charged for lane rentals in monthly estimates, however, it was not until June 2005 that this contract item was disputed. Review of the records submitted in opposition to the motion indicate that Perini's January 17, 2003 invoice for extended overhead (Lemisch Exhibit 29) included lane-rental estimates as part of its Indirect Costs (along with the concrete barrier), and lane rentals were thereafter included in the monthly extended overhead invoices, which were paid on an interim basis under OOCs #21 and #38. However, no daily work records were submitted and strict compliance with the contract's recordkeeping requirements was therefore not met.
Ninth Claim- Sweet Hollow's Extended Overhead
Claimant seeks payment on behalf of Sweet Hollow, its landscaping subcontractor, for delays which allegedly extended its work from the 2003 planting season to the 2004 planting season. As a result of the delays, claimant alleges Perini incurred damages in the amount of $1,337,752.92 for extended overhead costs and $30,000 for equipment costs relating to the Alley Pond force-account work. Claimant alleges DOT paid $399,740 for extended overhead leaving a balance due of $429,740 (see defendant's Exhibit 20, Claim, ¶¶ 167-176).
It is unclear how claimant arrived at the balance due as alleged in the claim.
Mr. Shah states in support of the defendant's motion that Perini neither provided notice nor the records required by § 109-05 of the Standard Specifications. Review of the materials submitted in opposition to the motion reflect that by letter dated May 2, 2003, Mr. Antoun confirmed the DOT's instruction not to perform work on the landscaping activities until a soil amendment was finalized and that this "exposed" Perini to extra costs as the result of the delays (Lemisch Exhibit 82). A meeting held on July 16, 2003 resolved that Sweet Hollow would delay planting until the following spring season (Spring of 2004) and that "the extra costs associated with the inflation of the plants for purchasing them for the 2004 planting season would be born[e] by the State in a Change Order" (Lemisch Exhibit 83). By letter dated September 5, 2003, Perini noted that the landscaping work was significantly impacted by the "top soil amendment (May 2003) and associated landscape amended drawings", that Perini had already missed two planting seasons, and that the next planting season scheduled for Spring 2004 will cause the need for an acceleration and completion of $4 to $5 million dollars worth of landscaping work in a period of three months (Lemisch Exhibit 84). By letters dated September 8, 2003, September 15, 2003, December 29, 2003, February 24, 2004, March 17, 2004, April 27, 2004, November 17, 2004 and September 9, 2005 Perini provided cost estimates for the delayed work (Lemisch Exhibits 85 -92). Finally, a Notice of Dispute dated December 19, 2005 sought $1,582,173.32 pursuant to § 105-14(C) of the Standard Specifications for extended overhead and replacement of dead trees, turf and equipment costs (Lemisch Exhibit 93). After a preliminary agreement to pay Sweet Hollow's extended overhead costs for material and labor, OOC #84 was proposed in the amount of $399,740.00 (Lemisch Exhibit 95). Contrary to the allegations in the claim, Mr. Lemisch avers the State has not paid any portion of the claim (Lemisch affidavit, ¶ 128).
The claim alleges that Perini incurred damages for extended overhead in the sum of $1,337,752.92 and for equipment costs in the sum of $30,000 (defendant's Exhibit 20; claim, ¶ 167). However, the claim also alleges that the State agreed to the payment of $399,740, that Perini paid Sweet Hollow $191,180, and that claimant seeks damages in the sum of $429,740. From these allegations the Court infers that some portion of the claim has been paid.
The records submitted in opposition to defendant's motion reflect that while DOT was clearly on notice of the claim, daily records were not provided contemporaneously with the performance of the work. Strict compliance with the contract's recordkeeping provisions was therefore not met.
Tenth Claim - Extra and Out-Of-Sequence Work
In its tenth claim, claimant seeks payment for additional costs for "extra, and out-of-sequence work, the amount of which shall be determined at trial, but is not less than $24,071,454" (defendant's Exhibit 20, Claim, ¶ 179). The claim alleges that delays resulted in additional costs for:
"a) Operation Code 0204 - Excavation/Fills, and related items of work ($8,619,822);
b) Operation Code 0300 - Concrete operations ($4,472,727);
c) Operation Code 0301 - Concrete barrier ($1,919,699);
d) Operation Code 0400 - Solder Pile Operations ($2,484,017)
e) Operation Code 0402 - Piling/Sheeting (S1,829,295);
f) Operation Code 0404 - Drainage ($1,765,419);
g) Operation Code 0800 - Structual steel/Rebar ($1,756,722); and
h) Operation Code 0207 - Concrete paving operation ($1,223,753)
(collectively, the 'Impacted Operations')" (defendant's Exhibit 20, Verified Claim, pp. 28-29).
Mr. Lemisch summarizes this claim as one for "additional costs incurred for eight construction operations impacted by the State's acts and omissions" (Lemisch affidavit, ¶ 10). Mr. Lemisch identifies a notice of dispute dated April 21, 2005 (Lemisch Exhibit 35) as relating to this claim (Lemisch affidavit, ¶ 35). The April 21, 2005 dispute letter seeks approximately $25,000,000 in damages for delays resulting in the first and second B-Clock extensions. Other than the similarity in the damages approximation, nothing in the dispute letter connects it to the Tenth Claim for damages. Rather, the dispute letter outlined Perini's position regarding the causes of the delays and the operations impacted by them and included a quantification of Perini's total damages using what Mr. Marashlian, the author of the dispute letter, indicated was a performance-based methodology.
Mr. Shah states that the Tenth Claim "attempts to lump one hundred and fifty-seven contract items into one inefficiency claim", however, "the Contract has no method or allowance whatsoever for compensating the contractor for this method devised by Perini" (Shah affidavit sworn to Sept. 20, 2017, ¶¶ 80, 81). Mr. Shah states further that Perini failed to dispute these contract items individually or provide records as required by § 109-05 (C).
In the Court's view, the Tenth Claim fails to comply with the pleading requirements of
Court of Claims Act § 11 (b) because the "nature" of the claim is not adequately alleged. The Court cannot discern from the allegations in the Tenth Claim the nature of the delays that allegedly impacted each of the operations listed or when and where the impacts occurred. Absent this information, the State was unable to investigate the claim or determine its liability which is the "guiding principle in determining the sufficiency of a claim" (Lepkowski v State of New York, 1 NY3d 201, 207 [2003], quoting Heisler v State of New York, 78 AD2d 767, 767 [4th Dept 1980]). Inasmuch as the pleading requirements of Court of Claims Act § 11 (b) are substantive conditions upon the State's waiver of sovereign immunity, the failure to satisfy any one of them is a jurisdictional defect requiring dismissal of the claim (Kolnacki v State of New York, 8 NY3d 277, 280 [2007] [citation omitted], rearg denied 8 NY3d 994 [2007]; see also Fairchild v State of New York, 117 AD3d 780 [2d Dept 2014]; Kobrin v State of New York, 144 AD3d 1542 [4th Dept 2016]; Sommer v State of New York, 131 AD3d 757, 758 [3d Dept 2015]; Nasir v State of New York, 41 AD3d 677 [2d Dept 2007]).
Court of Claims Act § 11 (b) requires that a claim state "the time when and the place where such claim arose, the nature of same, and the items of damage or injuries claimed to have been sustained and the ... total sum claimed."
Moreover, nothing submitted in opposition to defendant's motion establishes strict compliance with the contract's recordkeeping provisions.
Claimant's Contention that Defendant Waived the Recordkeeping Requirements of the Contract
Claimant contends in opposition to defendant's motion that Perini satisfied the notice and recordkeeping provisions of the contract but, if it did not, defendant waived strict compliance with this condition precedent by virtue of the parties' course of conduct. In support of this contention, claimant argues that such contractual recordkeeping requirements may be waived where the conduct of the parties demonstrates an indisputable mutual departure from the written agreement (see Joseph F. Egan, Inc. v City of New York, 17 NY2d 90 [1966]; Luckow v RBG Design-Build, Inc., 156 AD3d 1289 [3d Dept 2017]; Spectrum Painting Contrs., Inc. v Kreisler Borg Florman Gen. Constr. Co., Inc., 64 AD3d 565 [2d Dept 2009]; CGM Constr. v Miller, 263 AD2d 831 [3d Dept 1999]; Austin v Barber, 227 AD2d 826 [3d Dept 1996]). Claimant's primary argument in this regard is that by negotiating and settling most of Perini's claims over extended periods of time without requiring strict adherence to the recordkeeping requirements of the contract, these requirements were waived. With the exception of the wrongful lane-rental claim (Eighth Claim), the Court disagrees.
In negotiating and settling many of Perini's extra work and delay claims, the DOT was doing no more than complying with the terms of the contract. Section 109-16 requires that the DOT "first attempt to arrive at an agreement with the Contractor" (Lemisch Exhibit 68, § 109-16 [A] [4]). Only if the parties are unsuccessful in reaching an agreement is the work treated as disputed work and, in that event, the DOT is required to make such adjustments to the contract as is determined to be fair and equitable" (id.). The dispute procedure outlined in Resident Engineer Csogi's July 21, 2003 memo confirms the procedure utilized: "If an agreement on a price cannot be reached, an OOC will be prepared creating and [sic] FAW [force account] item for the work" (Lemisch Exhibit 34, § III). A force account requires strict compliance with the recordkeeping procedures of the contract (Lemisch Exhibit 68, § 109-05 [C]). Aside from DOT's efforts to reach agreed prices, claimant points to no conduct on the DOT's part which relieved Perini of the contract's strict notice and recordkeeping requirements (see Tougher Indus., Inc. v Dormitory Auth. of the State of N.Y., 130 AD3d 1393, [3d Dept 2015]). Although Perini was directed to remove time-related lump sum items (claimant's Fifth Claim) from its monthly extended overhead invoices to be re-submitted and considered separately, neither the directive itself nor any records created in compliance therewith demonstrate the mutual intention of the parties to relieve Perini of its recordkeeping responsibilities. Nor has claimant identified any misconduct that prevented or otherwise hindered claimant's compliance with the notice and reporting requirements (see A.H.A., 92 NY2d at 31).
Gaby Antoun's handwritten notes (Lemisch Exhibit 31, p.1), which claimant proffers as proof that the submission of MURK forms was excused, does not change the result. These notes are inadmissible hearsay and claimant proffered no excuse for failing to meet the requirement of tender in admissible form (Zuckerman v City of New York, 49 NY2d 557, 562 [1980]). Even if the Court were to consider the notes, however, they do not support claimant's contention that the use of MURK forms was excused. To the contrary, Mr. Antoun's notes appear to indicate that in the absence of agreed prices, MURK forms must be utilized.
A different conclusion is reached with respect to the wrongful lane-rental claim (Eighth Claim). In opposition to defendant's motion, claimant sufficiently established that the parties agreed to a procedure for the payment of Perini's extended overhead claims that required weekly change-order meetings and the submission of monthly invoices. According to Mr. Lemisch, Perini followed this procedure and the monthly invoices submitted in opposition to the defendant's motion indicate that lane-rental charges were included in the monthly invoices as part of Perini's Indirect Costs (see Lemisch Exhibits 32,71-72). Compensation for Indirect Costs was provided as part of the extended overhead compensation in OOCs #21 and #38, issued to fund the first and second B-Clock extensions. Consequently, a question of fact exists as to whether or not the parties' mutual agreement to meet weekly, and for Perini to submit its extended overhead invoices monthly, constituted a waiver of the recordkeeping requirements of the contract with respect to claimant's Eighth Claim alleging wrongful lane-rental charges.
The Eleventh Claim - Total Cost Method
Claimant characterizes its Eleventh Claim as one for the assessment of damages utilizing the total cost method. The total cost method permits computation of damages based upon actual job cost plus allowance for overhead and profit minus amounts thus far paid for the work Whitmyer Bros. v State of New York, 47 NY2d 960 [1979]; Crane-Hogan Structural Sys., Inc. v State of New York, 88 AD3d 1258 [4th Dept 2011], rearg denied 92 AD3d 1267 [2012]). Defendant objects to this methodology as unsanctioned by the terms of the contract. While claimant contends that the contract does not dictate the methodology to be employed in assessing damages, § 109-05 quite clearly does. The total cost method is the same as the quantum meruit basis for computing an award and is appropriately utilized when there is a qualitative change in the work rather than merely a quantitative change contemplated by the contracting parties (Charles T. Driscoll Masonry Restoration Co., Inc. v County of Ulster, 40 AD3d 1289 [3d Dept 2007]; Triple Cities Constr. Co. v State of New York, 194 AD2d 1037 [3d Dept 1993]; Tufano Contr. Corp. v State of New York, 25 AD2d 329 [3d Dept 1966]).
"[T]he test is whether the additional [work] amounted to only a quantitative change . . . or a qualitative change in the nature of the work to be performed. If a mere quantitative change is involved the contract provisions would apply as the State contends (Del Balso Constr. Corp. v. City of New York, 278 N Y 154, 159-162). On the other hand, if there is a qualitative change the [claimant] would be entitled to compensation for the extra work on a quantum meruitbasis (Johnson, Drake, & Piper v New York State Thruway Auth., 22 AD2d 321, 324)" (Depot Const. Corp. v State, 23 AD2d 707, 707-708 [3d Dept 1967], affd 19 NY2d 109 [1967]).
The defendant offered no support for its contention that the computation of damages on a quantum meruit basis was inappropriate. Inasmuch as theories of recovery may be pleaded in the alternative (see M/A-Com, Inc. v State of New York, 78 AD3d 1293,1294 [3d Dept 2010]), defendant failed to establish its prima facie entitlement to summary judgment dismissing this cause of action.
Based on the foregoing, it is hereby
ORDERED that claimant's motion is granted and defendant's first two defenses and first two counterclaims are dismissed, and it is further
ORDERED that defendant's motion is granted to the extent of dismissing the Fourth, Fifth, Sixth, Ninth and Tenth claims and otherwise denied.
May 15, 2018
Saratoga Springs, New York
FRANCIS T. COLLINS
Judge of the Court of Claims Papers Considered:
M-91112
1. Notice of motion, dated September 20, 2017;
2. Affidavit of William Howe, sworn to September 14, 2017;
3. Affidavit of Ann Maestri, sworn to September 14, 2017;
4. Affidavit of Sandra Wilkin, sworn to September 12, 2017;
5. Affidavit of Snehal Shah, sworn to September 20, 2017;
6. Affidavit of Michael I. Getz, Esq., sworn to September 20, 2017, with Exhibits 1-92;
7. Amended memorandum of law by Michael I. Getz, Esq. and Brett R. Eby, Esq., dated October 12, 2017;
8. Affidavit in opposition by Mark A. Canizio, Esq., sworn to December 8, 2017, with Exhibits 1-12;
9. Affidavit of Adam Lemisch, sworn to December 8, 2017, with Exhibits 1-113;
10. Memorandum of law by Mark A. Canizio, Esq., dated December 8, 2017;
11. Affidavit of Ann Maestri, sworn to February 5, 2018;
12. Reply Affidavit of Snehal Shah, sworn to February 5, 2018;
13. Reply memorandum of law by Michael I. Getz, Esq., dated February 6, 2018.
M-91113
1. Notice of motion, dated September 20, 2017; 2. Affidavit of Mark A. Canizio, Esq., sworn to September 20, 2017, with Exhibits 1-21; 3. Memorandum of law by Jessica Singh, Esq., dated September 20, 2017, with Exhibit 1; 4. Affidavit in opposition by Michael I. Getz, Esq., sworn to December 8, 2017, with Exhibits A and B; 5. Memorandum of law by Michael I. Getz, Esq., dated December 8, 2017; 6. Reply affidavit of Mark A. Canizio, Esq., sworn to February 6, 2018.