Barbaro Electric Co., Inc. v. Dep t of Environmental Protection OATH Index No. 1841/14, mem. dec. (June 24, 2014) Claim by electrical company for costs of replacing and repairing temporary electrical system for pumping station damaged by Hurricane Sandy. CDRB determined that company had an obligation under the Contract to replace and repair work damaged prior to final acceptance. Claim denied. NEW YORK CITY OFFICE OF ADMINISTRATIVE TRIALS AND HEARINGS CONTRACT DISPUTE RESOLUTION BOARD In the Matter of BARBARO ELECTRIC CO., INC. Petitioner - against - CITY OF NEW YORK DEPARTMENT OF ENVIRONMENTAL PROTECTION Respondent MEMORANDUM DECISION JOHN B. SPOONER, Administrative Law Judge/Chair VICTOR O. OLDS, ESQ., Mayor s Office of Contract Services KYLE-BETH HILFER, ESQ., Prequalified Panel Member Presently pending before the Contract Dispute Resolution Board ( CDRB or the Board ) is the petition of Barbaro Electric Co., Inc. ( Barbaro ). The petition arises from a contract with the Department of Environmental Protection ( DEP ) for electrical work at the Gowanus Canal Flushing Tunnel in Brooklyn ( the Contract ). Barbaro seeks an additional $326,275.64 for the costs associated with replacing and repairing electrical equipment and machinery damaged by flooding during Hurricane Sandy. In response, the City argues that the Contract obligated Barbaro to replace and repair the damaged work without further compensation.
- 2 - Upon review of the parties submissions and arguments, the CDRB finds that petitioner is not entitled to additional compensation under the applicable terms of the Contract and that the claim must be denied. BACKGROUND This claim arises out of a contract between Barbaro and DEP for electrical work on a project known as the Gowanus Tunnel Flushing Reactivation. In July 2009, DEP awarded the Contract to Barbaro for $13,770,599, and the term of the Contract was from October 2009 to June 2013. The Contract work included the installation of a temporary electrical system to provide power during construction on the pumping station at the Gowanus Canal Flushing Tunnel. The specified location of the temporary system was near the Gowanus Canal at the 100-year flood mark (Tr. 33). In addition to installing the temporary system, the Contract work included maintaining and repairing the temporary system while in use, and subsequently removing the temporary system and installing a permanent electrical system. The Contract provided that the contractor shall provide all labor, equipment, material, and incidentals required to furnish and install [the] temporary electrical system... (specification 16020E, section 1.01A). Further, the contractor shall keep the temporary power and lighting system alive throughout the duration of construction, 24 hours per day, and [t]he temporary electrical system shall be maintained and repaired until it is no longer required (specification 16020E, sections 3.02A, 3.03A). Once the pumping station construction is complete, the contractor shall remove the temporary electrical system when directed by the Engineer (specification 16020E, section 1.08E, see also section 3.04A), and install a permanent electrical system (specification 16010E). In March 2010, Barbaro began installation of the temporary electrical system, which it completed in June 2010 (Pet. 4-5). In July 2010, DEP tested and accepted the system, and paid Barbaro in full for this portion of the work (Pet. 5). The temporary system operated without interruption until Hurricane Sandy hit New York City on or about October 29, 2012 (Pet. 5-6). During the storm, floodwaters rose two feet above the bottom of the temporary electrical system and ruined the electrical equipment (Pet. 6). The flooding also exposed the temporary system to salt water and sewage, which compromised the integrity of the system (Pet. 6). On October 31, 2012, two days after the storm, Barbaro began to repair the temporary
- 3 - system by identifying the damage caused to the system (Pet. Ex. D). During the next few months, the system was repaired and returned to service (Pet. Ex. D). On December 11, 2012, Barbaro submitted a change order request in the amount of $510,600.64, 1 to cover the costs of replacing the machinery and equipment damaged by Hurricane Sandy (Pet. Ex. C). The Portfolio Manager denied the request for a change order on June 3, 2013 (Pet. Ex. E). On June 27, 2013, Barbaro filed a Notice of Dispute with DEP (Pet. Ex. F). DEP denied the claim on November 18, 2013, indicating that Barbaro assumed the risk of floodwater damage and waived its claim by failing to obtain a builders risk insurance policy with flood coverage. DEP also asserted that Barbaro had an ongoing obligation to protect the work because DEP had not issued final acceptance (Pet. Ex. G). On January 28, 2014, the Office of the Comptroller denied Barbaro s December 16, 2013 Notice of Claim for the same reasons cited by DEP (Pet. Exs. A, B). Barbaro filed its petition with the CDRB on February 21, 2014. The parties presented oral arguments before the CDRB on May 13, 2014. After oral argument, the Board requested that the parties confirm the Contract did not include a force majeure clause, and that Barbaro submit evidence of its attempts to obtain flood insurance and documentation of payments received by DEP. Barbaro submitted the requested documents on May 22 and 27, 2014, at which time the record closed. ANALYSIS Barbaro seeks compensation in the amount of $326,275.64 for the costs associated with replacing and repairing the temporary electrical system which was damaged by the Hurricane Sandy floodwaters. Barbaro argues that it is entitled under the Contract to be compensated for these costs based upon several alternate theories. As noted by DEP, the Contract obligated Barbaro to replace and repair all work damaged prior to final acceptance. Article 7.1 of the Contract provides the following: During the performance of the Work and up to the date of Final Acceptance, the Contractor shall be under an absolute obligation to protect the finished and unfinished Work against any damage, loss, injury, theft and/or vandalism and in the event of such damage, loss, injury, theft and/or vandalism, it shall promptly 1 After Barbaro was able to account for the actual costs of the repair work it reduced its claim to $326,275.64 (Pet. 7).
- 4 - replace and/or repair such Work at the Contractor s sole cost and expense, as directed by the Resident Engineer. The obligation to deliver finished Work in strict accordance with the Contract prior to Final Acceptance shall be absolute and shall not be affected by the Resident Engineer s approval of, or failure to prohibit, the Means and Methods of Construction used by the Contractor. (Contract, Art. 7.1) (emphasis in original). Work is defined as all services required to complete the Project in accordance with the Contract Documents... (Contract, Article 2.1.33). In a past case, the Board relied upon this clause in rejecting a similar claim for work destroyed by Hurricane Sandy. In William A. Gross Construction Associates Inc. v. Department of Parks & Recreation, OATH Index No. 1894/13, mem. dec. (Aug. 7, 2013), the contractor had completed approximately 75 percent of the work at the time Hurricane Sandy struck, and there was no dispute that the City had not issued final acceptance before the storm destroyed the work. The Board found that it is well settled that Article 7.1 imposes an obligation on the contractor to replace and repair work damaged prior to final acceptance. Id. at 5. Since there was no final acceptance of the work prior to the damage, the Board denied the contractor s appeal for compensation. Id. at 10. See also L&L Painting Co., Inc. v. City of New York, 69 A.D.3d 517, 517 (1st Dep t 2010) (interpreting Article 7.1, CDRB correctly found that under the contract it is petitioner s absolute obligation to protect its work... and to replace or repair the work in the event of such damage. ). Barbaro argues that, despite Article 7.1, DEP should bear the cost of repair because Barbaro had completed its work with regard to the temporary system and that DEP had assumed exclusive dominion and control over the system (Tr. 8, 12-13). However, installing the temporary electrical system was only a portion of the required Contract work. The Contract work included, in addition to installing the temporary electrical system, maintaining and repairing the temporary system while in use, removing the temporary system when it is no longer required, and subsequently installing the permanent electrical system (specification 16020E, sections 1.01, 1.08, 3.02, 3.03, 3.04; specification 16010E). Barbaro acknowledged that even after it had completed installation of the temporary system it had a continuing obligation to repair the system if it were to malfunction (Tr. 8). As the Contract provides that the temporary system shall be in service for years, Barbaro was also aware that it would be required to maintain and repair the temporary system for an extended period of time (specification 16020E,
- 5 - section 1.01C). Thus, the work was not complete once Barbaro had installed the temporary system. There was also no final acceptance under Article 7.1 when DEP approved the temporary system in July 2010. Article 2.1.17 of the Contract defines Final Acceptance as final written acceptance of all the Work by the Commissioner... (emphasis added). Here, Barbaro still has not completed all of the electrical work covered by the Contract, and Barbaro does not dispute that DEP has not issued final acceptance as to the entirety of the Contract work (Tr. 8-9). As DEP has not issued final acceptance, the Board finds that under Article 7.1 Barbaro had an obligation to replace and repair any damage to the temporary electrical system caused by Hurricane Sandy in October 2012. In its reply to DEP s answer and at oral argument, Barbaro also argued that it should not bear the costs of repairing the temporary system because DEP s plans were defective (Pet. Reply at 4-7; Tr. 11). In support of its argument, Barbaro relied on United States v. Spearin, 248 U.S. 132 (1918). In Spearin, the construction contract required the contractor to build according to the plans and specifications prepared by the government. The contract also included the usual clauses requiring builders to visit the site, to check the plans, and to inform themselves of the requirements of the work. The United States Supreme Court held that, despite the exculpatory clauses and the requirement that the contractor build according to plans and specifications prepared by the government, the contractor would not be responsible for the consequences of defects in the plans and specifications if he was misled by erroneous statements in the specifications. Id. at 136. See also Grow Construction Co., Inc. v. State of New York, 56 A.D.2d 95, 98 (3d Dep t 1977) (a contractor is only relieved of its duties under an investigation clause when the State has made misrepresentations about the site conditions which the contractor s inspection would not have revealed were incorrect, or when the representations were made in bad faith). Here, Barbaro asserts that DEP s plans were defective because DEP was aware that the temporary system was located in a flood-prone area and should have chosen a higher location for the system (Tr. 11, 19). Barbaro, however, has not presented any evidence that DEP s plans and specifications were misleading or that DEP concealed information concerning the location s vulnerability to flooding. Rather, the Contract expressly placed Barbaro on notice that the work site was prone to flooding. Specification 01417 provides that the Contractor s attention is
- 6 - directed to the fact that parts of work required for this Contract are subject to daily tidal influences (section 1.04B), and that the Contractor shall be responsible for all his additional costs for labor, material, equipment, etc., related to his work within the floodprone areas (section 1.04E). In this instance, Barbaro s reliance on Spearin is misplaced, and there is no basis to find that the City s plans were defective. Barbaro further argues that the City has breached the implied covenant of good faith and fair dealing by requiring Barbaro to bear the loss which resulted from DEP choosing a defective location for the temporary system (Tr. 41-43; Pet. Reply at 8-9). In New York, all contracts imply a covenant of good faith and fair dealing in the course of performance. 511 W. 232nd Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144, 153 (2002); see also Dalton v. Educ. Testing Serv., 87 N.Y.2d 384, 389 (1995). The implied covenant stands for the proposition that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.... Kirke La Shelle Co. v. Paul Armstrong Co., 263 N.Y. 79, 87 (1933). Here, as discussed above, the Contract requires Barbaro to repair and replace work damaged prior to final acceptance, and there is no evidence that the location chosen for the temporary system was defective. The Board therefore finds that there is no support in the record for Barbaro s assertion that DEP has breached the implied covenant of good faith and fair dealing. Barbaro s failure to obtain flood insurance further undermines its claim. Article 22.1.5 of the Contract requires the contractor to obtain a builders risk insurance policy which covers all risks in completed value form (emphasis added). Further, pursuant to Article 7.5, the contractor waives all rights against the City for any damages or losses which are covered by an insurance policy required under Article 22, regardless of whether the policy was actually procured. Barbaro argued that it was unable to obtain flood insurance (Tr. 17-18, 21, 44-45). In support of this assertion, Barbaro submitted an e-mail from an underwriter at Liberty Mutual Middle Markets dated July 21, 2009, which states that the project is outside [its] Builders Risk appetite range so [it] must decline to quote (Attachment to e-mail from Barbaro to ALJ Spooner of May 27, 2014). This single rejection for a quote, which does not specifically mention flood coverage, is insufficient evidence to prove that Barbaro was unable to obtain flood insurance. The Board also agrees with respondent that the assignment of risk under Article 7.1 and the insurance clause in Article 22.1.5 are separate and distinct, in that a failure to obtain
- 7 - insurance does not remove the obligation to protect and repair equipment in the event of weather damage. In William A. Gross, the contractor argued that it was impossible to secure flood insurance. OATH 1894/13 at 9. Despite the contractor s assertion, the Board found that the contractor s lack of insurance did not absolve it of its contractual obligation under Article 7.1. Id. The Board has also found that even where the Contract did not require a builders risk insurance policy, the contractor was not relieved of its obligation to protect the work damaged by a flood because a business decision not to carry such a policy did not shift the risk to the owner. WDF, Inc. v. Dep t of Environmental Protection, OATH Index No. 1078/06, mem. dec. at 10 (Apr. 26, 2006). Here, under the terms of the Contract, Barbaro, not DEP, bore the risk of forgoing the required insurance. The Board recognizes that Hurricane Sandy was an extraordinary occurrence which neither of the parties expected in 2009 when the Contract was created. Yet, as noted above, the provisions in the Contract for Barbaro to assume the absolute obligation to repair (Article 7.1), for Barbaro to take account of floodprone areas (specification 01417, section 1.04E), and for Barbaro to maintain a builders risk insurance policy (Article 22.1.5) suggest that the parties intended that the financial responsibility for repairing damages caused by such an occurrence rested with Barbaro, not DEP. It is also notable that, as confirmed by the parties following oral argument, the Contract contained no express force majeure clause which might have provided both parties with some election of remedies following a natural disaster. Where the parties have entered into a contract without a force majeure clause, there is no legal basis to imply one simply because one of the parties sustains substantial losses. See Connecticut Nat l Bank v. Trans World Airlines, Inc., 762 F. Supp. 76, 81 (S.D.N.Y. 1991) (where the contract did not contain a force majeure clause, and the contractor could have negotiated for such clause, the court declined to read a force majeure clause into the contract). The record suggests that Barbaro should be commended for promptly commencing repairs to the electrical system within days after the storm, and restoring service a few months later (Pet. Ex. D). However, to the extent that Barbaro s arguments imply a claim for equitable relief for losses caused by a weather-related disaster, the Board does not have authority to make equitable findings or provide equitable relief. William A. Gross, OATH 1894/13 at 9; see also Schlesinger-Siemens Electrical, LLC v. Dep t of Environmental Protection, OATH Index No. 1817/10, mem. dec. at 5 (Apr. 28, 2010). The CDRB s jurisdiction is limited to disputes
- 8 - concerning the scope of work articulated in the contract, the interpretation of contract documents, the amount to be paid for extra work or disputed work performed in connection with the contract, the conformity of the vendor s work to the contract, and the acceptability and quality of the vendor s work. 9 RCNY 4-09(a)(2) (Lexis 2013). Further, the Board s decision must be consistent with the terms of the contract. 9 RCNY 4-09(g)(4) (Lexis 2013). See also Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 570 (2002) ( Thus, if the agreement on its face is reasonably susceptible of only one meaning, a court is not free to alter the contract to reflect its personal notions of fairness and equity. ). Assuming that Barbaro s primary justification for its claim is its argument that forcing it to bear the cost of repairs necessitated by Hurricane Sandy would be unfair, Barbaro s remedy must lie in court, not before the Board. CONCLUSION In sum, the Board finds that Barbaro was under a contractual obligation to replace and repair the electrical system damaged by Hurricane Sandy. Accordingly, Barbaro s claim for $326,275.64 is denied. This constitutes the final decision of the Board. All panel members concur. Dated: June 24, 2014 John B. Spooner Administrative Law Judge/Chair APPEARANCES: LEONARD TAUBENBLATT, ESQ. KENNETH ELAN, ESQ. Attorneys for Petitioner ZACHARY W. CATER, ESQ. Corporation Counsel of the City of New York, Attorney for Respondent BY: MARGARET DEVOE, ESQ.