Melcara Corp. v. Dep t of Housing Preservation & Development OATH Index No. 926/13, mem. dec. (Mar. 13, 2013)

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1 Melcara Corp. v. Dep t of Housing Preservation & Development OATH Index No. 926/13, mem. dec. (Mar. 13, 2013) Applicable unit prices in bid documents must be used to determine credit for omitted and extra work. Credit for the omitted work is $8,557. Since there are no applicable unit prices for the extra work, matter is remanded to determine actual and reasonable cost of the work. NEW YORK CITY OFFICE OF ADMINISTRATIVE TRIALS AND HEARINGS CONTRACT DISPUTE RESOLUTION BOARD In the Matter of MELCARA CORP. Petitioner - against - CITY OF NEW YORK DEPARTMENT OF HOUSING PRESERVATION & DEVELOPMENT Respondent MEMORANDUM DECISION ALESSANDRA F. ZORGNIOTTI, Administrative Law Judge/Chair LISETTE CAMILO, ESQ., Deputy General Counsel, Mayor s Office of Contract Services ROBERT D. LANG, ESQ., Prequalified Panel Member Pending before the Contract Dispute Resolution Board ( CDRB or Board ) is an appeal filed by petitioner, Melcara Corporation ( Melcara ), on behalf of Prisma Construction Inc. ( Prisma ), a subcontractor. The dispute arises out of Melcara s contract with respondent, Department of Housing Preservation and Development ( HPD ) to renovate a city-owned building in Manhattan. Petitioner alleges that unit prices in the bid documents must be used to value omitted and extra work for a net credit of $7,792. Respondent alleges that the credit should be $18,007 based on fair and reasonable prices. Oral argument was held on February 25, The Board finds that applicable unit prices in bid documents must be used to determine the value of omitted and extra work. In their

2 - 2 - absence, HPD may determine the actual and reasonable cost of the work by considering the factors listed in the governing contract. Here, the applicable unit prices for the omitted work require an $8,557 credit. As for the extra work, there are no applicable unit prices and the record is insufficient to determine whether the proposed value represents the actual and reasonable cost of the work. Accordingly, the matter is remanded to HPD to determine the actual and reasonable cost of the extra work and to issue a credit consistent with this decision. BACKGROUND In March 2002, HPD entered into a $17 million lump sum contract with Melcara to provide construction management services to facilitate the rehabilitation and construction of buildings scheduled for disposition through HPD s Tenant Interim Lease Program ( Contract ). Section 8.1 of the Contract requires that HPD approve all subcontractors selected by Melcara. Section 8.2 requires that all services provided by a subcontractor be procured pursuant to a competitive bidding process and that bid documents be subject to review and approval by HPD. Section 8.5 requires that Melcara use the City s form subcontract. Pursuant to these requirements, Melcara entered into a $1,068, subcontract with Prisma to provide labor, materials, and equipment to renovate a building in Manhattan ( Subcontract ). All bidding subcontractors were required to fill out a pre-printed bid sheet prepared by HPD (Tr. 8, 37-38). The bid sheet lists specific items from the scope of work and provides blank spaces for the bidders to list the quantity, unit cost, and total for each item. Prisma submitted the required bid sheet to HPD and listed the cost of each requested item (Resp. Ex. K at 9). Pursuant to section 1.1(j), the bid sheet became part of the Subcontract. During performance of the work, HPD issued change orders that resulted in the deletion of four items from the scope of work and added one item. The deleted items included: a concrete sidewalk; a six inch steel curb; three trees; and a concrete stoop. The extra work involved the enlargement of three tree pit guards. The four omitted items are listed on the bid sheet. Article 6 of the Subcontract entitled Changes and Extra Work sets forth the method of calculating payment for omitted and extra work based on whether there are existing applicable unit prices. Specifically, Article 6 provides in relevant part:

3 Methods of Payment for Extra Work (a) Extra Work for which there are applicable Contract unit prices shall be paid for at such unit prices. Where there are no applicable Contract unit prices, the price to be paid for Extra Work... shall be the actual and reasonable cost of: 1. Necessary materials (including transportation to the Site); plus 2. Necessary direct labor; plus * * * 4. Sales and personal property taxes, if any, required to be paid...; plus 5. Maintenance, operation, and rental of... necessary... equipment...; plus 6. Necessary installation and dismantling of... equipment... (Subcontract 6.2(a) (emphasis added)). Section 6.2(b) of the Subcontract also provides: Where there are no applicable Contract unit prices, the agency may make its own determination of the actual and reasonable cost of extra work by considering various factors listed in section 6.2(a). Section 6.2(c) of the Subcontract further states: Where a change is ordered involving both Extra Work and omitted or reduced Contract Work, the Contract price shall be adjusted.... The cost... shall be computed in accordance with Subparagraphs 6.2(a)(1) through 6.2(a)(6), if there are no applicable unit prices. (Subcontract 6.2(c) (emphasis added)). In January 2011, Melcara submitted a proposal, on behalf of Prisma, calculating a net credit of $7,792, for the omitted and extra work to be taken against payment to Prisma. Melcara stated that the credits, based on negotiated costs, were: $5,744 for the concrete sidewalk; $213 for the six inch steel curb; $735 for the three trees; and $2,000 for the stoop. The extra cost for the enlarged pit guards was $900 (Resp. Ex. A). HPD initially approved the proposed credit (Tr. 10, 12-13). However, on March 3, 2011, HPD notified Melcara that it disagreed with the calculation and authorized a net credit for $21,073 as follows: $5,744 for the concrete sidewalk; $3,124 for the six inch steel curb; $5,700 for three trees; and $6,955 for the stoop. The extra cost of the enlarged pit guards was $450 (Resp. Exs. A, B). On April 4, 2011, Melcara challenged HPD s calculation and submitted a letter from Prisma with supporting documentation (Resp. Ex. C; Resp. Appendix 1). HPD notified Melcara

4 - 4 - that the $21,073 credit is independent from the bid breakdown quotes submitted (Resp. Ex. D). Melcara objected and noted that HPD s determination was contrary to standard practice that the bid breakdown is independent from the contract (Resp. Ex. I; Resp. Appendix 4). On May 18, 2011, Melcara submitted its notice of dispute with supporting documentation (Resp. Ex. E). HPD denied the claim on July 19, 2011 (Resp. Ex. F). On August 19, 2011, Melcara submitted a notice of claim to the Office of the Comptroller ( Comptroller ) (Resp. Ex. G; Resp. Appendix 3). Prisma submitted additional documentation to the Comptroller (Resp. Ex. L). On January 12, 2012, HPD s Engineering Audit Division ( EAD ) reviewed the disputed items and reduced the credit to $17,407. EAD noted that it can not use the bid breakdown but rather as per the fair and reasonable cost according to estimating books and any other cost evaluation methods (Resp. Ex K at 1). The audit is summarized as follows: Item 1: $5,744 credit for the omitted sidewalk is not in dispute. Item 2: Credit for curb with metal face. The scope of work called for the removal of sidewalks and the provision of new ones with metal faces. However, HPD replaced a sidewalk with 71 linear feet ( LF ) of metal faced curb. Melcara provided a $213 credit using line 303 of the bid breakdown. EAD stated this does not cover the cost of replacing a curb with a steel face and used $44 per LF as per the EAD Price Guidelines for a credit of $3,124. Item 3: Credit for three trees not planted. Line 222 of the bid sheet states, Provides new street tree & pit at $200 per tree for a total of $600. Melcara provided a nursery invoice of $245 per tree for a $735 credit. EAD noted this does not include soil, delivery, digging, restoring the sidewalk, and installing pit guards and posts. EAD used guidelines for tree replacements by the Parks Department for $1,900 a tree for a credit of $5,700. Item 4: Credit for entrance stoop not installed. Melcara provided a $2,000 credit using line 308 of the bid breakdown. EAD stated this does not represent the market value of the item. Based on RS Means Construction Cost Data EAD gave a $6, credit which includes demolition ($1,488), disposal ($2,397), concrete ($975), and railings ($2016).

5 - 5 - Item 5: Extra for large-sized tree pit guards. The scope of work called for three 4 x 4 tree pit guards. That was changed to 4 x 10 pit guards. Melcara charged $300 per pit guard for a total of $900. EAD used the unit price from line 222 for new trees and pits, and stated that bid breakdown price for pit guard was $200/16 = $12.50LFt and therefore extra for 12LFt x $12.50 x 3 = Extra $450 (Resp. Ex K at 2). EAD reduced HPD s $21,073 credit to $17,407. The $3,666 reduction was based on subsequent work by Prisma including: installation of a stoop railing ($2,016) and three tree pit guards ($600). 1 Moreover, due to a reduction in the Parks Department fee for tree planting, a savings of $350 per tree was applied for the omitted trees. On September 10, 2012, the Comptroller denied Melcara s claim but offered to reduce the credit from $18,007 to $11,603 based on its own valuation of the items (Resp. Ex. H). On October 1, 2012, Prisma wrote that it was disputing the Comptroller s findings because they do not rely on the bid breakdown that was part of the bid package (Pet. at 4). Melcara filed a petition on Prisma s behalf with the CDRB on October 15, The petition is a cover letter with attached correspondence and documentation. Respondent filed an answer with attached documents, some of which were incomplete. Prior to oral argument, the parties provided additional information at the CDRB s request. ANALYSIS The Board s authority to resolve contract disputes between the City of New York and a vendor is set forth in the Procurement Policy Board rules ( PPB rules ). The PPB rules were incorporated into Article 29 of the Contract between HPD and Melcara. The PPB rules authorize the Board to hear claims concerning the amount to be paid for extra work or disputed work performed in connection with the contract. 9 RCNY 4-09(a)(2) (Lexis 2012). The Board reviews the decision of the agency head. 9 RCNY 4-09(g). The Board s decision must be consistent with the terms of the contract. 9 RCNY 4-09(g)(4) (Lexis 2012). 1 In its February 5, 2013 submission, respondent noted that the $600 reduction for the subsequently installed tree pit guards was erroneously included in the EAD audit and that the net credit should be $18,007 (Tr ).

6 - 6 - At issue here is the calculation of a net credit for the deletion of four items from the scope of work and the addition of one item. Petitioner argues that unit prices in Prisma s bid documents should be used to calculate the credit for the omitted and extra work. Respondent contends that Prisma s unit prices are unreasonable and that HPD properly assessed the fair and reasonable value of the work based upon estimating books and other cost evaluation methods. Contrary to respondent s assertion, nothing in the Contract, Subcontract, PPB rules, or other cited sources, allows HPD to substitute its own fair and reasonable evaluation for existing unit prices. To the contrary, the governing contract provisions state that the actual and reasonable cost of extra work is utilized when there are no applicable unit prices. (See Subcontract 6.2(a), (b), (c)). Respondent had the opportunity to review the unit prices on the bid sheet to determine whether they were fair and reasonable prior to awarding the Subcontract. Respondent points to: sections 6.5 of the Subcontract and 6.6 of the Contract which set forth HPD s right to audit payments made pursuant to these contracts; and Comptroller Directive 7 section 3.5.1(d) that governs audits to ensure that change order costs are reasonable based upon appropriate price and cost analysis, consistent with the contract terms and adequately documented in accordance with PPB rules (Resp. Ex. J; see also Contract 21.3 (books and records generated under the Contract are subject to an audit by HPD and the Comptroller)); see also New York City Charter 93(h) (Lexis 2013) ( agencies shall prepare and audit vouchers before payment... and shall forward vouchers to the comptroller for payment. ). Respondent failed to provide support for the proposition that the right to audit payments allows HPD to ignore competitively bid unit prices that were incorporated into the Subcontract. Indeed, the Comptroller s Directive requires that an audit be consistent with the contract. Respondent s contention that bid breakdowns cannot be used because contractors will underbid items that they foresee will be omitted in order to realize extra profits is without merit. Such an action could result in contractors losing money when they underbid items and the agency enforces the contract since the CDRB has rejected claims for extra compensation when contractors fail to anticipate the cost of the work. See, e.g., Parking Systems Plus, Inc. v. Dep t of Transportation, OATH Index No. 2350/11, mem. dec. (Oct. 28, 2011), aff d, 2012 NY. Misc. LEXIS 3357 (Sup. Ct. N.Y. Co. July 10, 2012) (no additional compensation for increases to

7 - 7 - prevailing wages for its employees); Dart Mechanical Corp. v. Dep t of Sanitation, OATH Index No. 1815/06, mem. dec. (Nov. 9, 2006), aff d, Index No /07 (Sup. Ct. N.Y. Co. Oct. 10, 2007), aff d, 57 A.D.3d 263 (1st Dep t 2008) (no additional compensation for increased costs of gas absorption chillers). Under the express terms of the Subcontract as incorporated by the Contract, applicable unit prices must be used to determine the value of omitted and extra work. In the absence of applicable unit prices, HPD may make its own determination of the actual and reasonable cost of the work by considering the factors listed in section 6.2(a) of the Subcontract. Here, four of the original five items are in dispute. Item 1, the $5,744 credit for the omitted sidewalk is not in dispute. Item 2 is a credit for the omitted curb with a metal face. The unit price on line 303 of the bid sheet provides for Concrete footings, Haunches, Post footings & curbs at $3.00 per LF. HPD s unit price of $44 per LF as set forth in the EAD Price Guidelines may not be substituted for the applicable unit price that corresponds to this work. The parties agree that 71 LF of curb was deleted. The credit for Item 2 is $213. Item 3 is a credit for three trees not planted. The unit price on line 222 of the bid sheet states, Provides new street tree & pit at $200 per tree for a total of $600. HPD s unit price of $1,550 a tree as per the revised Parks Department guidelines may not be substituted for the applicable unit price that corresponds to this work. The credit for Item 3 is $600. The fact that Prisma did not rely on the bid sheet and seeks $245 per tree based on an invoice is of no moment because this decision must be consistent with the contract. 9 RCNY 4-09(g)(4). Item 4 is a credit for an omitted concrete stoop. The unit price on line 308 of the bid sheet states, Conc. entrance at $2,000. HPD s unit price of $6,955 as set forth in the RS Means Construction Cost Data may not be substituted for the applicable unit price that corresponds to this work. The credit for Item 4 is $2,000. At oral argument, the parties agreed that installation of a stoop railing was not part of the scope of work but was an extra item (Tr , 14, 31). Thus, Prisma s installation of a railing for $2,016 has no effect on this credit. Item 5 involves extra work for the enlargement of tree pit guards from 4 x 4 to 4 x 10 for three trees at the work site. While the scope of work and accompanying drawing called for

8 - 8 - pit guards to surround the now omitted new trees and pits, the bid sheet does not mention pit guards. However, Prisma acknowledged that line 222 ( Provides new street tree & pit at $200 per unit) included pit guards (Tr. 17, 21). In reviewing the extra work, HPD used the unit price for line 222 and came up with $12.50 per LF based on 16 pit guard at $200, for $450. This calculation is flawed because it uses the total unit price for trees and pits. There is no breakdown to calculate the unit price of pit guards. Nor did HPD allege or offer any proof that $450 represents the actual and reasonable cost of three enlarged pit guards. Prisma asked for $300 a pit guard based on the alleged actual cost of the work. Since there is no applicable unit price for Item 5, the actual and reasonable cost of this extra work should be determined. The Board is unable to determine on this record whether the actual cost submitted by Prisma is reasonable. Accordingly, the matter is remanded to HPD to make a determination of the actual and reasonable cost of the three enlarged tree pit guards by considering the various factors listed in section 6.2 of the Subcontract. Gateway Demolition Corp. v. Dep t of Housing Preservation & Development, OATH Index No. 1469/11, mem. dec. (Mar. 23, 2011) (matter remanded to agency for fact finding); Schlesinger-Siemens Electrical, LLC v. Dep't of Environmental Protection, OATH Index No. 1817/10, mem. dec. (June 25, 2010) (same). CONCLUSION Based on the applicable unit prices, the credit for the omitted work is $8,557. Since there are no applicable unit prices for the extra work, HPD may determine the actual and reasonable cost of the extra work. The matter is remanded to HPD to give a credit consistent with this decision by April 29, In the event there is a dispute with the revised credit as it pertains to Item 5 only, Melcara may seek review under the PPB rules. This constitutes the final decision of the Board. All panel members concur in this decision. March 13, 2013 Alessandra F. Zorgniotti Administrative Law Judge/Chair

9 - 9 - APPEARANCES: JOHN SINGH, MELCARA PROJECT MANAGER Representative for Petitioner MICHAEL A. CARDOZO, ESQ. CORPORATION COUNSEL Attorneys for Respondent BY: EVAN SCHNITTMAN, ESQ.