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Take Notice! Commonwealth of Virginia, et al. v. AMEC Civil, LLC

The Virginia Supreme Court has released its opinion in the first of the pending Case Watch. Commonwealth of Virginia v. AMEC Civil, LLC, and the companion case of AMEC Civil, LLC v. Commonwealth of Virginia had twenty-two assignments of error on AMEC’s part, along with two assignments of error and seven assignments of cross-error on VDOT’s part.

At issue was a $72.5 million contract to construct the Route 58 Bypass in Mecklenburg County, and AMEC’s demand for over $21 million. The trial court – which issued two letter opinions – awarded AMEC its full $21 million. The Court of Appeals – which issued its own published opinion – and the Supreme Court were not as kind to AMEC.

The Virginia Supreme Court did an excellent job narrowing down the case to five main issues:

  1. Did AMEC gave timely notice of its claims to VDOT?
  2. Were unanticipated sustained high water levels a “differing site condition”?
  3. Was AMEC entitled to home office overhead damages?
  4. Should AMEC have been able to use the Rental Rate Blue Book to establish damages related to equipment costs?
  5. Was AMEC entitled to prejudgment interest?

Notice was the primary focus of the case, requiring an in-depth look at Virginia Code Sections 33.1-386, which says that a

… claim shall set forth the facts upon which the claim is based, provided that written notice of the contractor’s intent to file such claim shall have been given to [VDOT] at the time of the occurrence or beginning of the work upon which the claim and subsequent action is based.”

Section 33.1-387 makes this claims process a condition precedent to filing suit against VDOT.

The trial court, which awarded the full judgment of $21 million to AMEC, found notice of AMEC’s claims to VDOT in various meeting minutes, emails and other documents. The trial court reasoned that these “writings” gave VDOT actual notice of the claim and VDOT suffered no prejudice with that notification. The Supreme Court wasn’t buying it, and directly held that actual notice is insufficient to satisfy Section 33.1-386. As to form, the Supreme Court held that:

At a minimum, to satisfy the written notice requirement, the written document at issue must clearly give notice of the contractor’s intent to file its claim and must be “given to [VDOT]” by letter or equivalent communication directed to VDOT at the appropriate time. As to timing, the Court looked to Section 33.1-386 (A) to say that notice has to be given either: (1) “at the time of the occurrence” of the claim; or (2) at the “beginning of the work upon which the claim…is based.”  The Court split the baby on these claims, finding at times AMEC gave sufficient notice, and at times not.

As to the second issue of “differing site conditions,” AMEC argued that the water level of Kerr Lake fluctuated so far outside of the U.S. Army Corps estimations that its sustained elevated water levels constituted a “differing site condition” that delayed the project to the point that AMEC was entitled to delay damages. VDOT granted two work orders extending the project, but refused to give AMEC delay damages.

The contract between AMEC and VDOT contained a specification called “differing site conditions” that would entitle AMEC to delay damages for: (1) subsurface or latent physical conditions differing materially from the contract; or (2) unknown physical conditions of an unusual nature, differing materially from those ordinarily encountered and generally recognized as inherent in the work provided for in the contract.

The Supreme Court found that, as neither subsurface nor latent, the elevated levels could not be a Type 1 differing site condition. But they were a Type 2 differing site condition. The contract adopted the U.S. Army Corps estimates, and the the lake levels remained above those estimates for a length of time that even VDOT’s witnesses agreed was “unusual.” VDOT benefited from accurate bidding by allowing the contract to adopt the U.S. Army Corps’ estimates, and therefore bore the risk on this issue.

Regarding home office overhead damages, the Supreme Court noted that, for a contractor to prove it suffered unabsorbed overhead damages, the contractor need not show its overhead increased due to delay, but only that it could not otherwise reasonably recoup its pro rata home office expenses incurred while its workforce was idled by the delay. AMEC’s expert merely calculated a per diem rate multiplied by the number of days of delay. The Supreme Court rejected this model, finding that AMEC failed to prove it was entitled to overhead expenses because no fact or expert witness presented evidence that AMEC could not have recouped its home office overhead from some other revenue-producing work.

As to equipment costs, AMEC used the “Rental Rate Blue Book,” just as Specification 109.05 (d) in the contract allowed it to do. The parties agreed that “actual costs” were the proper measure of damages, but disagreed as to whether AMEC could just rely on the Blue Book, without making adjustments such as for the equipment’s age. AMEC also presented expert testimony – unchallenged by VDOT – that the Blue Book represented the industry standard to determine equipment costs. That was enough to satisfy the Supreme Court.

For the last issue, the Court had no problem affirming both the trial court and the Court of Appeals, which refused to grant prejudgment interest to AMEC. The only way AMEC could prevail on this issue was to show statutory or contractual waiver of VDOT’s sovereign immunity, which it failed to do.