Mid-States General & Mechanical Contracting Corp. v. State of Illinois

OPINION

BIRNBAUM, CJ.

THIS MATTER is before the Court on a December 30, 2015, Complaint filed by MidStates General & Mechanical Contracting Corp. against the Illinois Capital Development Board (CDB). The Complaint alleges breach of contract related to construction contract CDB Project No. 830-010-337 and CDB Contract No. 13053781. The Complaint alleges damages of $986,400.47 plus additional costs and interest.

A hearing was held before Commissioner Reid beginning April 29, 2019, and continuing through May 2, 2019, at the Court of Claims building in Springfield, Illinois. The record consists of a Stipulation of Facts consisting of 88 paragraphs, several exhibits, and the testimony of adverse and expert witnesses, among them Registered Structural Engineer John Frauenhoffer, expert witness for the Claimant.

The Court notes that the Commissioner made rulings on Motions in Limine as follows: (1) The Commissioner denied Claimant’s Protective Motion in Limine filed on April 12, 2019. The Motion contained questions and answers from the Deposition of Mr. MacGibbon, CDB’s Project Manager, and objected to any testimony in contravention of the deposition. The Commissioner found that any objections could be raised at the hearing and ruled upon at that time. (2) The Respondent filed a Motion in Limine to bar the expert witness, John Frauenhoffer, from providing any expert opinion on the need for shoring. The Commissioner found that the expert witness could review the exhibits, depositions and trial testimony and provide his expert opinion and denied Respondent’s Motion. The Commissioner similarly denied a broad Motion in Limine by Respondent to bar Claimant from providing any testimony regarding contract interpretation. Both Claimant and Respondent raised “legal conclusion objections” to terms of the contract during the hearing. The objections were noted in the transcript. The Commissioner found that the witness can acknowledge the written terms of the contract without drawing a legal conclusion as to the language. Finally, in a post-hearing order, the Commissioner reversed his ruling to bar Exhibit LLL from coming into evidence because it had not previously been identified by the parties as an Exhibit. The Commissioner’s reason for reversing his decision is that the Exhibit LLL is helpful to the trier of fact.

[*120] FACTS

Mid-States was the successful bidder on Project No. 830-010-337, otherwise known as “Interior and Exterior Renovations to the Education Building” on the Urbana-Champaign campus of the University of Illinois (“project”). As originally envisaged, completion of Mid-States’ preconstruction demolition work was scheduled for August 1, 2013. On June 21, however, MidStates’ site superintendent, Doug Williams, discovered and immediately thereafter reported a changed condition which, ultimately, altered and re-oriented the project’s focus and timetable. Specifically, removal of a plaza deck or “topping slab” at the Education Building exposed not only the upper surface of that building’s structural slab, but the unexpectedly advanced state of the structural slab’s extensive deterioration. This discovery brought Mid-States’ work at the project to a virtual standstill until the changed condition could be evaluated and an amended construction plan could be devised.

Due to these above-reference events, which occurred on and after June 21, 2013, two (2) separate, but interrelated, sets of contractual provisions were created to govern the parties’ conduct and responsibilities. Significantly, Mid-States was never relieved of its obligations relative to the original (or pre-June 2013) contact and specifications, aside from a modest extension of time in which to achieve substantial completion (extended from October 30 to December 20, 2013).

The first set of contract documents included the following provisions:

“Stability of walls and structure during construction is the responsibility of the contractor.”

“Site safety during construction is the responsibility of contractor.”

“The structure has been designed for in-service loads only.”

“Contractor is responsible for taking the necessary precautions to maintain and ensure the

integrity of the structure during construction. Contractor shall immediately notify the

structural engineer of any condition which compromises the structure.”

“If shoring is required, the contractor’s structural engineer registered in the State of Illinois

shall submit details and design calculations stamped and sealed.”

“The contractor shall provide all necessary measures to temporary (sic) support existing

walls, slabs, joists, etcetera, during construction.”

“Contractor shall bear full responsibility for design and installation of all temporary

shoring which is to be used.”

Also, one other item from the period before discovery of the changed condition should be noted here. Specifically, during the project’s design phase (i.e. prior to Mid-States’ successful bid to become the project’s general contractor), CDB’s architect retained the services of a firm which specialized in the non-destructive evaluation of concrete building components (viz, Universal Construction Testing, Ltd. or “UCT”). This firm’s fieldwork at the Business Education Building [*121] took place on January 4-5, 2012, and was focused on a determination of “the as-built layout and profile of the structural slab reinforcement as well as to identify concrete anomalies within the structural slab”. Further, the firm, Rubinos and Mesia, and its employee, Henry Jelen, selected areas of the slab for inspection. However, Mr. Jelen does not appear to be a licensed or Registered Engineer in the State of Illinois. Neither UCT’s findings and conclusions, nor its January 19, 2012 report were ever provided to bidders or Mid-States before the filing of its Complaint in this case.

A second or supplemental set of contract provisions materialized after the changed condition had been investigated by CDB’s architect and the architect’s consulting engineer. The architect, Karla Smalley of Baily Edward Architecture, eventually prepared a design drawing to which was appended a one-page document entitled, “NEW SLAB CONCRETE NOTES”. Therein, Ms. Smalley wrote on July 12, 2013: “IT IS THE CONTRACTOR’S RESPONSIBILITY TO DETERMINE THE NECESSITY OF SHORING AND TO PROVIDE SHORING DESIGNED BY A STRUCTURAL ENGINEER REGISTERED IN THE STATE OF ILLINOIS.”

On July 25, 2013, CDB’s project manager, construction manager and architect signed a Request for Proposal & Change Order (or “RFPCO”). This RFPCO not only extended the substantial completion of the project but increased the Contract Sum to be paid to Mid-States by $708,439.09. It is important to emphasize that language employed in the July 25, 2013, RFPCO was exclusively a product of architect Karla Smalley’s draftsmanship. Therein, Ms. Smalley explained the reason for the project’s requested change in the RFPCO as follows:

“When demolition was completed on the plaza deck, the structural slab was found to be in a state of advanced deterioration. The current condition of the existing structural slab poses a safety concern. The existing structural slab was surveyed thoroughly and tested during design; however, the full extent of the damage was indeterminable due to the 6” concrete topping slab which existed at the top side of the structural slab and adhered ceiling tiles at the underside of the structural slab.”

Obtaining pre-construction approval of the July 25, 2013, RFPCO was, for all practical purposes, not possible due to standard contract provisions. The dilemma derived from the timesensitive imperative that the building’s classrooms had to be re-opened for spring semester of the 2014 school year (the last day of final exams during fall semester was on December 20, 2013). Accordingly, CDB addressed this issue through the use of a Proceed Order. At the same time, Proceed Order No. G-3 contained the standard provisions “approval and issuance of this document does not eliminate the requirement for the subsequent RFPCO to be reviewed and approved by CDB to determine it to be fair and reasonable.” As before, the language of the proposed Proceed Order was solely a product of draftsmanship on the part of CDB’s employees and CDB’s architect.

In this regard, Proceed Order G-3 was somewhat unclear. Specifically, the Proceed Order was represented by Project Manager MacGibbon as an “authorizing placeholder.” However, this term is not described and is not presented as a contract term. In other words, the meaning and results of the application of this term are unknown to all, but the author, namely Respondent’s Project Manager, Mr. MacGibbon. Further Mr. MacGibbon is neither a Professional Engineer nor Registered Structural Engineer. Also, the Proceed Order drafted by Respondent’s Project Manager MacGibbon did not include a “detailed explanation of the work required and the reason a Proceed Order is being requested.” During his testimony, Project Manager MacGibbon stated that the [*122] language in Proceed Order G-3 was purposely broad to allow flexibility on implementation. In fact, no “Change Order” was forthcoming. The failure to provide a “Change Order” could be considered a further breach of contract. For example, in CDB’s Executive Summary for Board Level Proceed Order, the following appears:

“We are requesting approval of a Not-to-Exceed Proceed Order Number G-3 in the amount of $655,000.00, which is to provide an approximate 4” standard weight concrete slab with reenforcing bar in lieu of the 1.5” lightweight concrete slab (per the contract documents) over the existing structural slab. The Proceed Order includes all the associated work required to pour, reinforce, shore, waterproof, and tie-insecure the existing structural slab. Note 1: This work needs to be completed by December 20, 2013, in order for the University of Illinois at Urbana-Champaign to utilize the space for the spring 2014 semester. Note 2: CDB Estimating has reviewed the proceed order in depth.”

Further in CDB Ex. #T, (Proceed Order No. G-3) Project Manager MacGibbon answered the fill-in-the-blank question, “Why are we making the changes?” with the following: “When the contractor removed the existing 6” topping slab on the East Plaza deck, it was discovered that the existing structural slab was highly deteriorated. The cracks observed were more numerous and widespread than anticipated over the entire length of the East side of the building. This poses a threat to the structural integrity of the building, specifically the classrooms and office space below the deck.” The foregoing appears in a CDB form entitled, “Board Level Change Order, Proceed

Orders & Modifications.”

Proceed Order No. G-3 was subsequently presented to CDB’s Board on September 10, 2013. Before the Board convened, specifically between August 29 and September 3, 2013, Proceed Order No. G-3 had been approved and signed by the CDB Project Manager Christopher MacGibbon (on August 29); CDB Regional Manager Kirk Fernandez (on August 29); CDB Construction Administrator Ronald White (on August 29); CDB’s Executive Director, James Underwood (on September 2); and CDB’s Deputy Director for Construction, Josh Wegner (on September 3). On September 16, Proceed Order No. G-3 was also signed by Chief Procurement Officer Frederick W. Hahn.

Proceed Order No. G-3 provided, explicitly, that construction performed in accordance therewith should include “all associated work required to pour, reinforce, shore, waterproof, and tie-in/secure…the existing structural slab.” The “time and material” format for Mid-States’ compensation in connection with this work was also explicitly stated: “General contractor is to provide all material supplier tickets and all labor timesheets related to the proceed order to allow CDB to verify the actual cost.” There were no proposed revisions to the contractual documents changed by Proceed Order No. G-3 other than to extend the completion date to December 20, 2013.

Upon approval of Proceed Order No. G-3, Mid-States immediately began to make arrangements for its work on the revised remediation plan. Claimant arranged for the rental and delivery of an extensive array of shoring apparatus (from Goedecke Construction Equipment & Supplies of St. Louis) for placement beneath “the existing structural slab.” This shoring was designed to facilitate the pouring of “an approximate 4” standard weight concrete slab with re[*123]enforcing bar…over the existing structural slab.” Mid-States’ employees would, throughout their forthcoming remediation efforts, be working both above and below “the structural slab [that] was found to be in a state of advanced deterioration.” This was the same slab, that, according to CDB’s architect, “poses a safety concern.”

A week after Deputy Director Wegner signed Proceed Order No. G-3, Project Manager MacGibbon advised Mid-States’ Gary Sebens and George Hill in an email dated September 12, 2013, that “[s]horing of the existing slab is not required for Proceed Order No. G-3 (RFP/CO G02) work…” Mid-States’ principal, George Hill, responded by email:

“Chris:

Whew, what a reversal in thought at this stage of the game. Please immediately forward

your revisions to the previous RFP and Proceed Order.

Our means and methods were predicated on over 2 months observation, 2 months of

conversation, an opinion from our licensed structural engineer, our experience and finally

your RFP and Proceed order, all of which indicate shoring to be required.

Mid-States is requesting that CDB direct us in writing to eliminate the shoring, along with

the acknowledgement that CDB will assumes (sic) the liability to persons and property for

this direction. We will then give you a letter objecting to this directive, and will forward

your directive to our insurance company and our lawyer, to see if your directive is sufficient

to transfer liability to the State. If we can get this done to our satisfaction, we will

immediately proceed with the work as directed.”

Project Manager MacGibbon rejected Mid-States’ September 12, 2013, request with the following: “CDB will not assume liability nor will CDB provide a directive to eliminate the shoring, that decision is left with Mid-States. If Mid-States feels that shoring of the slab is necessary and they should be compensated for the shoring, then Mid-States should provide their engineer’s calculations. The calculations shall consider that the existing slab cracks of concern have been (will be) repaired with an epoxy bonding agent.” Notwithstanding this CDB directive to the Claimant’s Registered Engineer, Daniel Allen, the record shows that Mr. Allen was unable to confirm that any slab cracks had been repaired with an epoxy-bonding agent. As a result, Mr. Allen correctly made no such assumption.

Thereafter, CDB refused to reimburse Mid-States for its rental, erection, and eventual removal of shoring apparatus at the jobsite. Simultaneously, CDB steadfastly refused to accept, much less share, potential liability exposure for “site safety,” the “stability of the walls and structure during construction,” and/or “the integrity of the structure during construction.” Throughout this impasse, time and increasingly inclement weather marched forward enroute to the aforementioned December 20, 2013, deadline for substantial completion.

Facing the prospect of a breach of contract action brought against it by the State of Illinois, Mid-States proceeded with its slab remediation work in conformity with architect Smalley’s July 12, 2013, design and notes, together with Proceed Order No. G-3. Consistent with these directives, Mid-States retained the services of a registered structural engineer, Daniel Allen, who created a [*124] shoring design and associated calculations. The design and calculations were stamped, sealed, and tendered to CDB and its agents “for record purposes” - again, in conformity with not only Ms. Smalley’s design/notes and Proceed Order No. G-3, but also with item “G13” of the project’s original specifications. During his trial testimony on April 30, 2019, Mr. MacGibbon acknowledged that structural engineering designs and calculations which are submitted “for record purposes” only are not subject to a contractual right contravention, contest, or challenge by CDB or CDB’s architect. Instead, the records are intended to merely document the project’s design and construction history for later reference, if necessary.

Throughout its post-September 10, 2013, work activities, Mid-States submitted to CDB a daily compilation of its employees’ timecards and materials expense invoices, in accordance with the “time and material” provisions of the subject proceed order and its antecedents. These daily labor and material submissions were never once questioned or challenged by CDB on grounds that they were, e.g., excessive, unwarranted, or duplicative. Pursuant to the amended construction schedule created by CDB, Mid-States achieved substantial completion of the project’s revised design prior to the December 20, 2013, deadline. This work was completed without any single untoward event such as a worker injury or compromise of the Education Building’s structural integrity.

ANALYSIS

This is a breach of contract case. The elements of a breach of contract action include: (1) the existence of a valid and enforceable contract; (2) substantial performance by the Claimant; (3) a breach by the Respondent; and (4) damages resulting from breach. Turpin v. Board of Trustees of Southern Illinois University, 65 Ill. Ct. Cl. 189 (2013). The facts show that Respondent breached the contract with Mid-States.

Respondent drafted a contract that stated that Claimant alone would be responsible for determining whether shoring was necessary. After a change of conditions became apparent to Claimant and Respondent, Claimant obtained a shoring design and calculations from a Registered Structural Engineer which determined that shoring was necessary. The Respondent initially approved shoring by signing Proceed Order No. G-3, but then “changed its mind” from the Order through the email dated September 12, 2013. Respondent offered little explanation for this sudden reversal of decision, other than generally citing standard documents for construction provisions in Proceed Order G-3 as follows: “Approval and issuance of this document does not eliminate the requirement for the subsequent RFPCO to be reviewed and approved by CDB to determine it to be fair and reasonable.”

Respondent has argued that shoring was not necessary. Without contracted legal authority, Respondent reversed its original decision and asserted that shoring was an unnecessary course of action and insisted that the project be completed according to the contract date. Further, Respondent had some awareness that the condition of the concrete slab and its support was worse than expected but did not inform bidders or Claimant of this information. Assuming Claimant had known about the actual condition of the slab, it would have accounted for the work of shoring in its bid for construction. Instead, Claimant performed extra work for which it has not been compensated. It is well established that contract law entitles a contractor to additional [*125] compensation under the contract for extra work performed. Kenny Construction Co. of Illinois v. Metropolitan Sanitary District of Greater Chicago, 56 Ill.2d 516; 309 N.E.2d 221 (1974).

We recognize the applicability of the Spearin Doctrine in this case, which states that an owner of a construction project impliedly warrants that the plans and specifications are possible to perform, and adequate for performance and free from defects. United States v. Spearin, 248 U.S. 132, 39 S.Ct. 59 (1918). The testimony of Claimant’s expert witness John Frauenhoffer is illustrative. Frauenhoffer testified that the concealment of the report on the condition of the slab was negligent, and the placement of workers on an unsupported slab created a safety issue. He also testified that Respondent could have obtained analysis by its architect to opine that shoring wasn’t necessary but did not do so because of time constraints. Respondent refused to accept liability for the risk of shoring. Finally, the facts are clear that Respondent did not sign and issue a subsequent Change Order to Proceed Order G-3, and as a result failed to follow through on the agreements with Claimant.

It is clear that Claimant has met its burden of proof for breach of contract. With respect to damages, Claimant submitted a Damages Summary which lists categories and descriptions for the sought damages. In this Summary, the Claimant has shown the damages resulting from work to replace the Education Building’s topping slab with a new structural slab. This includes the shoring work, including all accessories and labor needed for the exterior roof and flashing for the reconfigured slab edges. The total amount of damages for time and material work under Proceed Order No. G-3 is $726,191.23. With Claimant’s additional costs stipulated to as shown in the Summary, the total amount of damages Claimant seeks is $1,017,812.90. Based upon the record, the Court finds Claimant’s damages are in that amount.

The Court has reviewed Claimant’s request for penalty interest payments under the State Prompt Payment Act (30 ILCS 540/0.01).

Whether Respondent owes Claimant interest under the Act for possible late payments is not a factual issue but squarely one of statutory interpretation. Section 3-2 of the Act states:

“…in any instance where a State official or agency is late in payment of a vendor’s bill or invoice for good or services furnished to the State…properly approved in accordance with rules promulgated under Section 3-3, the State official or agency shall pay interest to the vendor in accordance with the following:

Any bill approved for payment under this Section must be paid or the payment issued to the payee within 60 days of receipt of a proper bill or invoice. If payment is not issued or mailed to the payee within this 60-day period, an interest penalty of 1.0% of any amount approved and unpaid shall be added for each month or fraction thereof after the end of this 60-day period, until final payment is made.” 30 ILCS 540-2 (as amended effective July 1, 2002, pursuant to Public Act 92-384, sec. 5).

The language provides that the State official or agency shall pay interest for late vendor payments for bills or invoices properly approved. The Act further clarifies that “any bill…must be paid…within 60 days of receipt of a proper bill or invoice.” 30 ILCS 540/3-2 (emphasis added).

[*126] The statute provides that the late penalty interest fee only applies upon a proper bill or a properly approved bill and not simply the date or submission of the bill.

As we have stated in Cahokia Nursing v. State, 59 Ill. Ct. Cl. 278, 289 (2006), the purpose of Section 3-2 of the Act is not only to ensure the State issues prompt payment to vendors such as Claimant, but also to ensure that those payments are based on proper bills or properly approved bills sufficient to put the State on notice that a certain payment is due and owing. We find that to construe that the interest penalty applies simply because the Claimant submitted various bills to Respondent that remain unpaid, does not ensure that the bill is a proper bill or a properly approved bill.

For these reasons, Claimant’s request for penalty interest is denied.

Finally, the question of entering an award is before the Court. This Court cannot enter an award unless sufficient funds remain unexpended in the appropriation made to fund the contract. See Loewenburg/Fitch Partnership v. State, 38 Ill. Ct. Cl. 22 (1986). It is this Court’s policy in breach of contract claims to limit awards so as not to exceed the amount of funds, appropriated and lapsed, with which payment could have been made. James Cape & Sons Co. v. State, 53 Ill. Ct. Cl. 322, 266 (2000). To do otherwise would be the same as granting a deficiency appropriation.

IT IS HEREBY ORDERED that Respondent shall file, within 21 days, a report authored by CDB which includes fiscal information regarding the amount of funds that lapsed in the appropriation designated to pay for the underlying services related to this claim, so the Court can determine the amount to be awarded.

ORDER

This matter is before the Court following supplemental filings by both parties. On May 19, 2020, this Court granted an award to Claimant, finding damages in the amount of $1,017,812.90. Following Court precedent however, the Claimant has received payment of $483,303.59, representing the funds that remained unexpended from the appropriated monies available for the underlying construction project. The Court indicated in its May 19, 2020, Order that the balance, $534,509.31, was not payable by the Court and any further remedy for collection of this balance lies with the Illinois State Legislature.

The parties thereafter have filed additional reports and objections, the latest being a report from Respondent indicating that the using agency, University of Illinois, did not use funds on this project that were appropriated by the General Assembly and confirming that no funds so appropriated remain unexpended. Claimant has not filed anything further. Therefore, the Court deems this issue has resolved itself.

IT IS SO ORDERED that this Court’s Order of May 19, 2020, remains in effect. The balance of the award that was not paid, $534,509.31, was not paid solely due to the lack of remaining unexpended funds. Claimant remedy with respect to this unpaid portion lied with the Illinois State Legislature.