Opinion
Case No. 00-4024-JAR
August 27, 2003
MEMORANDUM ORDER AND OPINION GRANTING PARTIAL JUDGMENT TO PLAINTIFF
In this action, Plaintiff Pro Controls Corp. brings claims for negligent misrepresentation, breach of contract, payment on a bond pursuant to the Miller Act, as well as claims of quantum meruit and for violation of the Federal Prompt Payment Act. Defendant Conectiv Services, Inc. brings a counterclaim for breach of contract. Conectiv was awarded a government contract to renovate four military barracks at Fort Riley, Kansas. Conectiv in turn awarded a subcontract to Pro Controls to design and install the automatic temperature controllers for the HVAC systems in the four barracks. On March 3 and 4, 2003, the Court conducted a bench trial in this matter. The parties have now filed memoranda of law on certain issues and the Court is prepared to rule.
40 U.S.C. § 270b (now cited as 40 U.S.C. § 3133).
31 U.S.C. § 3901, et seq.
The government awarded the contract to Hutchinson Contracting Co., Inc., which was Conectiv's predecessor in interest.
Having reviewed the evidence and memoranda of law, the Court concludes that partial judgment should be granted to Pro Controls on its claims for breach of contract and under the Miller Act, as Pro Controls has not been paid in full. Conectiv breached the contract by: (1) failing to notify Pro Controls of delays and work stoppages in time for Pro Controls to submit its delay damages for inclusion in Conectiv's claim for delay damages submitted to the government; (2) failing to comply with the statutory 7-day payment requirement in the Federal Prompt Payment Act as well as the 60-day payment requirement in the parties' contract; and (3) failing to comply with the contractual provisions for notification and timely communications by not timely responding to Pro Controls' inquiries regarding shipment of VAV controllers for factory mounting.
The Court denies Pro Controls' claim under the Federal Prompt Payment Act, because it creates no private right of action; and denies Pro Controls' claim of negligent misrepresentation because it failed to prove it relied on the misrepresentation. The Court further denies Pro Controls' claim for quantum meruit, because there was an express contract; and denies Conectiv's counterclaim for breach of contract, as Conectiv failed its burden of proving that Pro Controls failed to submit proper lien waivers and affidavits.
FINDINGS OF FACT
The Court makes the following findings of fact; and also makes findings of fact in its analysis and discussion of the legal issues in this case.
Conectiv awarded a subcontract to Pro Controls, to design and install automatic temperature controllers in new HVAC systems in four barracks buildings at Fort Riley, Kansas. Conectiv awarded the contract to Pro Controls after a negotiated bid process in which Conectiv received bids from a number of companies. On May 21, 1997, Conectiv and Pro Controls entered into a contract. Pro Controls agreed to design and install the temperature control systems for a contract price of $410,000. Thereafter, a number of problems arose.
Conectiv's project was not completed until August 1999, some 274 days behind schedule. The project delays delayed Pro Controls' work, which was anticipated to take only 6 months. Much of the delay was attributable to Conectiv having to do asbestos remediation in the four barracks. In April 1997, even while Conectiv was finalizing its negotiations with Pro Controls and even when it gave Pro Controls its letter of intent, Conectiv was aware that the project would be delayed because of asbestos remediation. Although Conectiv had anticipated some remediation, by April 1997, it was already aware that the problem was more extensive than anticipated. Yet, Conectiv did not advise Pro Controls of the anticipated delays before or after the parties entered into the contract on May 21, 1997. Nor did Conectiv advise Pro Controls of actual delays or work stoppages after May 21, 1997.
Conectiv gave the government notice of delays or stoppages in letters dated August 15, 1997 and March 12, 1998, but did not give Pro Controls such notice. By November 26, 1997, Pro Controls had learned about a change order Conectiv negotiated with the government based on a delay for asbestos remediation. Pro Controls referenced its awareness of the situation in a letter to Conectiv on that date. Pro Controls complained that Conectiv had not given it notice of that delay; and asked that Conectiv give it notice of any future delays. But Conectiv never gave Pro Controls notice of any further or future delays or work stoppages.
On March 12, 1998, Conectiv submitted to the government a claim for delay damages. The contract allowed Pro Controls to submit its claim for delay damages to Conectiv, so that its damages could be included in Conectiv's claim to the government. But, Conectiv did not give Pro Controls written notice of the length or scope of past or future anticipated delays. Thus, Pro Controls did not submit a claim to Conectiv. When Pro Controls finally submitted its claim, on September 13, 1999, for $36,051.36 in delay damages, Conectiv denied the claim as untimely.
Conectiv's failure to give Pro Controls notice of the asbestos delay and work stoppage also cost Pro Controls additional expenses. Pro Controls unnecessarily scheduled work by Israel Nunez and unnecessarily bore $2500 for his labor and travel expenses. Pro Controls also incurred the expense of custom mounted VAV controllers, after Conectiv failed to respond to Pro Controls' inquiries about where to ship the controllers to have them factory mounted.
Conectiv paid the $410,000 contract price in progress payments. The first such progress payment was made on August 15, 1997, in the amount of $6200. The last and final contract payment was made on December 18, 1999, in the amount of $32,751.08, which Conectiv contends paid in full the balance due Pro Controls. In fact, Conectiv's accountant, John Malone, testified that based on his audit of billings and payments, he concluded that Conectiv had actually overpaid Pro Controls. Malone determined that, at most, Pro Controls was due $558 in interest for late payments, but that Conectiv had overpaid this as well, with a $700 interest payment to Pro Controls.
Conectiv did not pay all of the invoices in full at the time requested, holding retainages or limiting payments on the basis of percentage of project completion. During 1997, Conectiv withheld ten percent from some of Pro Controls' invoices, as retainage. Beginning in 1998, Conectiv did not withhold any retainage. Conectiv's contract with the government required the government to pay Conectiv on the basis of the percentage of project completion. In turn, Conectiv did not always pay Pro Controls' invoices in full, but limited payments based on the percentage of completion of Conectiv's project work for the government. Nevertheless, Malone's audit revealed that from July 1997 to August 1999, on a monthly basis, Conectiv had paid Pro Controls a higher percentage of its contract price than the government had paid Conectiv. For example, by February 1998, the government had paid Conectiv 22.5% of its contract price; but Conectiv had paid Pro Controls 26.1% of its contract price.
See Exhibit 28, Bates stamp page D 05691.
Pro Controls incurred about 65% of its costs and expenses up front, on designing and procuring the automatic temperature controllers. The other 35% of Pro Controls' contract costs were incurred later, in installation of the systems. But, there is no evidence that Pro Controls submitted invoices to Conectiv for the 65% of the $410,000 attributable to such early or up front costs and expenses. Rather, Pro Controls submitted invoices totaling less than $100,000 from June 1997 to December 1997.
See Exhibit 30, "A/P vendor Activity Report by Job" through December 31, 1997.
One significant problem for Pro Controls, was that the $410,000 contract price that it negotiated proved to be inadequate. Pro Controls' negotiations and bid were handled by Steve Sublette. Although Pro Controls had bid on prime contracts with the government, these past negotiations and bids had been handled by Doug Reitmeyer, the acting vice president and one of Pro Controls' two shareholders. Steve Sublette was inexperienced in negotiating and bidding such contracts; and, Reitmeyer was not very involved in Pro Controls' operations at the time that it was negotiating and bidding on the contract with Conectiv. Reitmeyer testified that at that time he was devoting only about ten percent of his time to Pro Controls. Reitmeyer did not review Conectiv's specifications, and did not review the numbers or bid prepared by Sublette before they were submitted to Conectiv. Reitmeyer was not involved in Sublette's negotiations with Bill Hutchinson of Conectiv.
Reitmeyer testified that he was aware of Sublette's inexperience, so he checked with Hutchinson before Pro Controls submitted its final bid, seeking assurance that the number negotiated by Sublette was an appropriate amount. Reitmeyer testified that Hutchinson assured Reitmeyer that Pro Controls' bid was comparable, stating that its bid was "close" to the others, or "in the ballpark." Reitmeyer testified that had Hutchinson not given him such assurance, Reitmeyer would have investigated and satisfied himself that the bid was good before approving Pro Controls' submission of the bid to Conectiv.
But Hutchinson's statement was not accurate. Pro Controls' bid was not close to the other bids. Pro Controls' bid of $410,000 was $200,000 less than most of the other bids. In fact the other bids, by Johnson Controls, C C, Bironas, Trane and Siebe, averaged $614,046.25. And, Hutchinson was well aware of the substantial difference between Pro Controls' bid and the other bids. Hutchinson had prepared a spreadsheet that compared all of the bids. Because Conectiv engaged in a negotiated, rather than sealed, bid process, Hutchinson had discussed Pro Controls' bid with Bironas, who advised that Pro Controls' bid was less than Bironas' estimated costs. And, in formulating its bid to the government, Conectiv had valued the work on this particular subcontract at $930,356.
The parties dispute when the conversation between Hutchinson and Reitmeyer occurred, however. Reitmeyer contends that they had this discussion before Pro Controls submitted its final bid. Hutchinson contends that this conversation occurred much later, sometime after Pro Controls submitted its bid and after the parties entered into the contract on May 21, 1997.
The Court finds that the conversation at issue occurred long after May 21, 1997. This finding is based on the undisputed facts in this case, as well as on circumstantial evidence and inferences drawn from a number of exhibits. First, Reitmeyer and Hutchinson agree that they only spoke once, and that during this conversation, they also discussed Pro Controls obtaining a bond. Reitmeyer testified that the conversation was by phone, and that Pro Controls' employees George Zucca and Sublette were also present. Reitmeyer further testified that Sublette's participation proves that the conversation occurred during the negotiation and bid process, because Sublette's involvement ended after he submitted the final bid. While it is true that after the bid was accepted, Hutchinson's contacts were with other personnel from Pro Controls, Reitmeyer's recollection about a phone conversation involving him, Hutchinson and Sublette is corroborated by other evidence. A letter dated November 26, 1997, referenced a phone conversation that date between Hutchinson, Sublette, Reitmeyer, and George Zucca of Pro Controls.
The letter references their discussion about Conectiv's failure to notify Pro Controls about delays attributable to asbestos remediation. The letter stated: "Reference is made to the Fort Riley, Kansas project, specifically to our phone conference today with you, Mr. Doug Reitmeyer, Mr. Stephen Sublet [sic] and myself. I was very disappointed to hear that you negotiated a change order with the government about direct overhead cost and delay of work that the Asbestos in BLD 7614 caused you, and without considering our direct overhead expenses in your change order. In the future, please notify us about such delays or change orders."
This November 26, 1997 conversation was well after the parties entered into the contract. By November 26, the parties had modified the contract to delete the retainage provision and substitute it with a requirement that Pro Controls obtain a bond. Pro Controls had determined that it would be cheaper for it to obtain two bonds, totaling $410,000; and to that end, Conectiv had split the contract into two, allowing Pro Controls to obtain the two bonds in September 1997.
Yet, it is conceivable that on November 26, Hutchinson and Reitmeyer would have nevertheless discussed the bonds, as well as the contract price. By November 26, Pro Controls was in a somewhat tenuous position. It had expended 65% of the contract price in expenses related to the design and procurement of the automatic temperature controllers, yet it had not yet received even 25% of its contract price in progress payments. Conectiv had not notified Pro Controls of any project delays, yet Pro Controls had become aware that Conectiv had negotiated a change order with the government because of delay. Things were not going well, and it is not inconceivable that Reitmeyer might have sought assurance that at least their contract price would be profitable.
DISCUSSION AND CONCLUSIONS OF LAW
Pro Controls seeks to recover $200,000 on its claim of negligent misrepresentation, the difference between its contract price of $410,000 and what it should have bid. Pro Controls also sues for payment on its Miller Act bond, and for breach of contract. It contends that Conectiv failed to fully and timely pay its contract price, by wrongfully withholding retainages, by failing to pay its invoices within 7 days as the Federal Prompt Payment Act requires, and by failing to make progress payments that coincided with Pro Controls' up front work. Pro Controls contends that Conectiv further breached the contract by failing to advise Pro Controls where to ship controllers for factory mounting and by failing to notify Pro Controls of project delays and work stoppages. Pro Controls also brings claims under the Federal Prompt Payment Act and for quantum meruit. Conectiv brings a counterclaim for breach of contract, contending that Pro Controls failed to submit the requisite lien waivers and affidavits with its request for payments.
Negligent Misrepresentation
Negligent misrepresentation is a recognized tort in New Jersey, the parties choice of law in their contract. Pro Controls claims damages of $200,000, the approximate difference between Pro Controls' contract price of $410,000 and $610,000, what it contends would have been a reasonable contract price, based on the other bids. Pro Controls claims that it was damaged as a result of justifiably relying on Hutchinson's negligent misrepresentation to Reitmeyer, that Pro Controls' bid was "close" to the other bids.
See, e.g., Pabon v. Hackensack Auto Sales, Inc., 63 N.J. Super. 476, 497-98, 164 A.2d 773, 784-85 (1960) (citations omitted).
The elements of a claim of negligent misrepresentation are: 1) that Conectiv made an incorrect statement; 2) that the statement was negligently made; 3) that Pro Controls justifiably relied on the incorrect statement; and 4) that Pro Controls sustained damage as a result of that reliance. Hutchinson does not deny telling Doug Reitmeyer that Pro Controls' bid was close to, or in the ball park of, the other bids. This was a misrepresentation, for Pro Controls' bid was substantially less than the other bids and substantially less than Conectiv's estimated value of this subcontract. And, there is no question that Hutchinson knew his representation was false. He had prepared a spreadsheet comparing the bids; and he had also been advised by one bidder, that Pro Controls' bid would not even cover a subcontractor's costs.
Kaufman v. I-Stat Corporation, 165 N.J. 94, 754 A.2d 1188, 1195 (N.J. 2000); H. Rosenblum, Inc. v. Adler, 93 N.J. 324, 461 A.2d 138, 142-43 (N.J. 1983) (citation omitted).
But, Pro Controls must also show that it relied, and justifiably relied, on Hutchinson's misrepresentation. Pro Controls has failed to prove by a preponderance of the evidence, that it relied. Hutchinson made this false statement long after Pro Controls submitted its final bid, and long after the contract was entered into on May 21, 1997. Therefore, Pro Controls could not have relied on Hutchinson's statement in bidding or in entering into the contract. Reitmeyer testified that his conversation must have occurred before May 21, because it would have been futile for him to seek assurance from Hutchinson after the contract had been made. Yet, the recollections of Reitmeyer and Hutchinson, as well as other corroborating evidence, prove that the conversation occurred after the contract was made, and included a discussion of Pro Controls' bond. On May 21, 1997, when the parties entered into the contract, Conectiv was protected with a retainage clause in the contract; only later did the parties negotiate a modification to the contract that substituted a bond provision for the retainage clause. Although futile, perhaps Reitmeyer sought assurance after the fact. Reitmeyer had not been involved during the negotiation and bid process. But by November 26, 1997, Reitmeyer may have been aware that Pro Controls had expended 65% of its contract price but had received less than 25% in progress payments from a contractor who was already experiencing project delays.
Because Pro Controls has failed to prove reliance, the Court need not address the issue of whether any reliance would have been justifiable. In New Jersey, negligent misrepresentation includes the element of justifiable reliance, a lesser standard than reasonable reliance. Zielinski v. Professional Appraisal Associates, 326 N.J. Super. 219. 227, 740 A.2d 1131, 1136 (N.J.Super. App. Div. 1999) (citing H. Rosenblum, Inc. v. Adler, 461 A.2d 138, 142-143 (N.J. 1983)). Pro Controls offers justification for its reliance, in: (1) Reitmeyer's prior history of doing business with Hutchinson; (2) Pro Controls' bid having been calculated by Sublette, an inexperienced estimator; (3) Pro Controls' lack of experience in bidding subcontracts, as opposed to prime contracts on government projects; (4) Reitmeyer's lack of involvement in Pro Controls' daily operations at that time; and (5) Hutchinson's sharing of Pro Controls' bid with other bidders, without extending the same courtesy to Pro Controls, such that Pro Controls had no independent means to compare its bid with the bids of its competitors. Yet, other than his one conversation with Hutchinson, Reitmeyer made no other efforts to oversee or review the negotiations or bid. Reitmeyer did not review the contract, specifications or bid.
Breach of Contract
Pro Controls contends that Conectiv breached their contract in the following ways: (1) Conectiv wrongfully withheld retainages from progress payments; (2) Conectiv failed to pay Pro Controls' invoices within 7 days as the Federal Prompt Payment Act requires; (3) Conectiv failed to make progress payments that coincided with Pro Controls' schedule of work, that required 65% of Pro Controls' work be completed up front; (4) Conectiv failed to advise Pro Controls where to ship controllers for factory mounting; and (5) Conectiv failed to notify Pro Controls of project delays and work stoppages so that Pro Controls' damages could be included in Conectiv's claim for delay damages.
Conectiv breached the contract by withholding retainages
Hutchinson admitted that Conectiv had withheld ten percent retainages from some of Conectiv's progress payments to Pro Controls. Exhibits 26-28 and Exhibit 30 reveal that Conectiv withheld such retainages from some of its progress payments in 1997; but withheld no retainages in 1998 and 1999. Section 5.2.2 of the parties May 21, 1997 contract allowed Conectiv to withhold a ten percent retainage from progress payments. However, in July 1997, the parties began negotiating a modification, that would allow Pro Controls to obtain a bond, in lieu of Conectiv withholding retainage. After Pro Controls determined that it could obtain two bonds at a lower cost than one big bond, in a July 11, 1997 letter Pro Controls suggested to Conectiv that the contract be split into two, which would allow Pro Controls to obtain two bonds. On August 6, 1997, the parties agreed to modify the contract, and in a revised "Rider 1," the retainage provision was deleted and substituted for a bond provision. On August 27, 1997, Conectiv split the contract in two; and on September 3, 1997, Pro Controls obtained two bonds, in the amount of $268,000 and $142,000, for a total of $410,000.
By August 15, 1997, when Conectiv made its first progress payment to Pro Controls, the parties had already modified their contract and deleted the retainage provision. Thus, Conectiv breached the contract when it withheld retainage from some of the progress payments in 1997.
Conectiv breached the contract by failing to make timely progress payments
In addition to withholding retainages, which were paid later, past the time due, Conectiv also failed to make progress payments within 7 days of Conectiv receiving progress payments from the government. Conectiv ignored its statutory duty to pay its subcontractor within seven days of receipt of progress payments from the government. The Federal Prompt Payment Act, 31 U.S.C. § 3901, et seq., imposes a duty on general contractors on federal construction contracts to include in their contracts with subcontractors and suppliers a clause that they will pay the subcontractor within seven days of their receipt of payment from the federal government. If such payments are not timely made, the Act requires that interest be paid as a penalty for late payment. The Act requires that notice of a failure to timely pay the subcontractor should be sent to both the government and the subcontractor.
See, 31 U.S.C. § 3905 (b)(1).
31 U.S.C. § 3905 (b) or (c).
See, 31 U.S.C. § 3905 (e) and (g).
Conectiv violated the Act by failing to include these mandatory provisions in the contract, and further violated the Act by failing to comply with these provisions. Conectiv did not make all payments within 7 days, nor did it give the requisite notice under the Act. A review of Exhibits 26-28 and 30 reveals that in 1997, none of the progress payments were made within 7 days of Conectiv's receipt of payment from the government. Although it is difficult to match progress payments received and paid by Conectiv in 1998 and 1999, it appears that in 1998 and 1999 Conectiv did not pay Pro Controls within 7 days of its receipt of payment from the government.
While the contract in this case is an Association of General Contractors form contract apparently drafted to comply with the Federal Prompt Payment Act, Conectiv modified these provisions in Rider No. 1, deleting the statutorily mandated seven day payment requirement.
See Articles 5.2 and 5.6.
Although § 5.2.5 of the contract originally required that Conectiv make payments to Pro Controls ". . . no later than seven (7) days after receipt by the Contractor of payment from the Owner for the Subcontractor's work," on or about August 11, 1997, the parties modified § 5.2.5 in "Rider No. 1," to state: "[t]he Subcontractor shall await payment from the Contractor after the Contractor has received payment from the Owner if, and only if, the Owner makes timely payments to the Contractor. However, in no case, shall the Contractor delay payments for more than 60 days after acceptance of the Subcontractor's work."
Conectiv contends that the contract did not require payment within 7 days, and that the 60-day payment provision is controlling. Yet, most of Conectiv's payments to Pro Controls in 1997 were also not made within 60 days of Pro Controls' invoices. In fact, as of October 16, 1997, Pro Controls had received only one payment, $6200, despite having performed for 80 days under the contract, and despite having submitted invoices on June 24, August 18, August 31 and September 30, 1997. It appears that most of the payments in 1998, and all of the payments in 1999 were paid within 60 days of Pro Controls' invoices, although not within the statutorily required 7 days. In 1998 and 1999, Pro Controls and other suppliers complained to the government about Conectiv's tardy payments; and the government warned Conectiv in letters dated November 17, 1997 and July 8, 1999.
Although revised § 5.2.5 of the contract requires payment within 60 days of Conectiv's acceptance of Pro Controls work, and although § 5.1.8 states that payment is not to be deemed acceptance, in its exhibits and pleadings, Conectiv does not distinguish between invoice date and the date it accepted Pro Controls' work. Thus, the Court, like Conectiv, considers Pro Controls' invoice date as the date that triggered the 60 day payment period.
Conectiv, however, has not shown that its contractual provision constitutes a legal waiver of the statutory requirement under the Federal Prompt Payment Act. In fact, in Conectiv's requests for payment from the government it certifies that it will timely make payments to the subcontractors in accordance with the Federal Prompt Payment Act. Therefore, the Court concludes that all of Conectiv's progress payments were untimely. And, based on Pro Controls' calculations, the Court concludes that Conectiv's untimely payments caused Pro Controls damages in the form of $11,751.47 in accrued interest through March 3, 2003, plus $7.51 interest per diem thereafter.
See 31 U.S.C. § 3905 (d)(3) (in order to modify to allow withholding, a notice conforming to the standards of subsection (g) must be furnished to the subcontractor and a copy furnished to the Government).
See Exhibit 29.
Pro Controls points out that its accrued interest is not chargeable against the payment bond, if the Court awards the interest under the Federal Prompt Payment Act. But, the Court does not award this interest under that statute. As discussed infra, the Federal Prompt Payment Act does not create a private right of action. Thus, the Court dismisses Pro Controls' separate claim under that statute. Nevertheless, because Conectiv failed to abide by the Federal Prompt Payment Act, the Court awards damages under the contract. The contract provides in § 5.4, "LATE PAYMENT INTEREST. To the extent obtained by the Contractor, under the Contract Documents, progress payments or final payment due and unpaid under this Agreement shall bear interest from the date payment is due at the rate provided in the Contract Documents, or, in the absence thereof, at the legal rate prevailing at the place of the Project."
Section 5.2.6 of the contract provides that if the subcontractor is not timely paid, it has an option to cease work (with notice to the contractor) or it can recover its ". . . reasonable cost of shutdown, delay, and start-up, which shall be effected by appropriate Change Order." The interest claimed by Pro Controls would be one such reasonable cost of the delay in payments. In addition, § 5.4 of the contract provides for "Late Payment Interest."
See FN. 18.
Pro Controls also complains that Conectiv failed to request payment from the government for Pro Controls' considerable up front design and procurement of controllers. Conectiv argues that the government had to approve the schedule of values and progress payments to subcontractors, and that the contract did not require Conectiv to pay Pro Controls at a rate faster than Conectiv received progress payments from the government. The government paid Conectiv on a percentage of completion basis. In Exhibit 28, Conectiv demonstrates that its progress payments to Pro Controls were more accelerated than the progress payments it received from the government. Exhibit 28 includes a spreadsheet that compares, on a monthly basis, Conectiv's progress payments to Pro Controls, as a percentage of Pro Controls' contract price, with the government's progress payments to Conectiv, as a percentage of Conectiv's contract price. The exhibit shows that for every month, Conectiv's total progress payments to Pro Controls were at a higher percentage of its contract price than the government's total progress payments to Conectiv.
Section 5.1.1 of the contract states that "[t]he Subcontractor shall provide a schedule of values satisfactory to the Contractor and the Owner. . . ." Section 5.2.1 of the contract requires the subcontractor to submit an itemized application for payment,
supported by substantiating data as required in the Contract Documents for the Contractor's payment application . . . The Subcontractor's progress payment application for work performed in the preceding payment period shall be submitted to the Contractor per the terms of this Agreement and specifically Subparagraphs 5.1.1, 5.2.2, 5.2.3, 5.2.4 for approval of the Contractor and Owner. The Contractor shall forward. without delay, the approved value to the Owner for payment.
Yet, the contract between Conectiv and Pro Controls did not limit Conectiv's progress payments to Pro Controls on a percentage of completion basis; and did not limit its progress payments to Pro Controls on the basis of what Conectiv had been paid by the government. Although Paragraph 11 of the Supplementary Terms and Conditions of Agreement made Conectiv's progress payments to Pro Controls subject to ". . . receipt by the Contractor of payment from the Owner for the Subcontractor's work"; and stated that ". . . payment shall only be made in proportion to the payment received by the Contractor for the Work," this provision was modified in Rider No. 1, in which Conectiv agreed that ". . . in no case, shall the Contractor delay payments for more than 60 days after acceptance of the Subcontractor's work." Thus, Conectiv agreed to make progress payments to Pro Controls within 60 days, whether or not it had yet received the government's payment for such work. Although this modification may not be enforceable, it is disingenuous for Conectiv to attempt to modify the 7-day payment provision, yet ignore the other language in the modification provision which does not make its progress payments to Pro Controls contingent on payment from the government and does not limit such progress payments to any percentage of completion formula used in Conectiv's contract with the government.
Pro Controls did not breach by failing to submit lien waivers and affidavits
Conectiv contends that Pro Controls breached the contract, by failing to submit the requisite lien waivers and affidavits with its invoices. Conectiv implies that this affected the timing of its progress payments to Pro Controls. However, Conectiv has failed its burden of proving that Pro Controls' requests for payment were inadequate. Moreover, to the extent Conectiv is claiming that Pro Controls had to submit the lien waivers and affidavits referenced in the Miller Act, Conectiv's claim is without merit. The provision of the Miller Act that Conectiv relies on is not applicable to Pro Controls, because it was a subcontractor with a direct contractual relationship with Conectiv, the general contractor.
Paragraph 11 of the contract states in pertinent part,
Progress Payment
Requisitions for payment must be certified and submitted to the Contractor in the format attached along with a completed AIA Continuation Sheet, AIA Document G703, with Subcontract Schedule of values (Attachment E). . . . The Subcontractor is responsible for duplication of attached Form FF 115, for submitting invoices. . . .
40 U.S.C. § 270b(a) states,
Every person who has furnished labor or material in the prosecution of the work provided for in such contract, in respect of which a payment bond is furnished . . . who has not been paid in full therefor before the expiration of a period of ninety days after the day on which the last of the labor was done or performed by him or material was furnished or supplied by him for which such claim is made, shall have the right to sue on such payment bond for the amount, or the balance thereof, unpaid at the time of institution of such suit and to prosecute said action to final execution and judgment for the sum or sums justly due him; Provided, however, That any person having direct contractual relationship with a subcontractor but no contractual relationship express or implied with the contractor furnishing said payment bond shall have a right of action upon the said payment bond upon giving written notice to said contractor within ninety days from the date on which such person did or performed the last of the labor or furnished or supplied the last of the material for which such claim is made. . . ." (Emphasis added)
Conectiv breached by failing to advise Pro Controls where to ship controllers
Pro Controls needed to ship the VAV controller boxes to the manufacturer so that the controllers could be factory mounted. To that end, sometime before June 12, 1997, Pro Controls asked Conectiv where to ship the controllers. In a letter dated June 12, 1997, Pro Controls reminded Conectiv that it had not responded to this inquiry. In a July 18, 1997 letter, Pro Controls again asked Conectiv where to ship the controllers. Conectiv's failure to respond to these inquiries was a breach of Paragraphs 10 and 11 of Rider No. 2, which stated that: Pro Controls would forward the VAV controllers to the VAV box manufacturer; the manufacturer was responsible for mounting and wiring the controllers and transformers; and Conectiv would ". . . provide Pro Controls Corporation with the name, address and phone number of manufacturer." Although Pro Controls contends that Conectiv's breach resulted in Pro Controls having to pay the additional expense of having the controllers custom mounted in the field, Pro Controls has offered no evidence of the additional expense.
Conectiv breached by failing to give notice of project delays and work stoppages.
Conectiv experienced periods of delay and periods of work cessation; ultimately completion of the project was delayed a total of 274 days. In April 1997, while Conectiv was negotiating Pro Controls' bid, and giving Pro Controls its letter of intent, Conectiv was aware that there was asbestos, and that more extensive remediation than Conectiv originally contemplated might be necessary. Exhibit 22 reflects a number of meetings about the asbestos remediation and cessation of work in April and May 1997. Conectiv did not mention this to Pro Controls before they entered the contract on May 21, 1997.
After May 21, 1997, there were project delays and work stoppages. On June 24, 1997, the government gave Conectiv a written cure notice based on the project delay at that point. Conectiv never gave Pro Controls written notice of any delays or work stoppage.
Conectiv breached a number of the provisions of the contract in its failure to give Pro Controls notice. Section 3.1 noted that time was of the essence to both parties, and that "[t]he Contractor shall prepare the Schedule of Work and revise such schedule as the Work progresses." Section 3.2 required that "[t]he Schedule of Work and all subsequent changes thereto shall be submitted to the subcontractor in advance of the required performance." Section 3.4 stated that:
. . . .
The Subcontractor shall commence its work within 2 days of notice to proceed from the Contractor and if such work is interrupted for any reason the Subcontractor shall resume such work within two working days from the Contractor's notice to do so.
And § 6.1 required that
When the Contractor orders in writing, the Subcontractor, without nullifying this Agreement, shall make any and all changes in the Work which are within the general scope of this Agreement. Adjustments in the Contract Price or contract time, if any, resulting from such changes shall be set forth in a Subcontract Change Order or a Subcontract Construction Change Directive pursuant to the Contract Documents. No such adjustments shall be made for any changes performed by the Subcontractor that have not been ordered by the Contractor.
With respect to changes related to project delay, § 6.6 of the contract stated:
DELAY. If the progress of the Subcontractor's Work is substantially delayed without the fault or responsibility of the Subcontractor, then the time for the Subcontractor's Work shall be extended by Subcontract Change Order or Subcontract Construction Change Directive to the extent obtained by the Contractor under the Contract Documents and the Schedule of Work shall be revised accordingly.
Sections 10.3 and 10.6 of the contract similarly required Conectiv to give Pro Controls notice of periods of work stoppage or interruption attributable to either the government's or Conectiv's suspension of work that would include work performed by the subcontractor.
§ 10.3 states in pertinent part,
SUSPENSION BY OWNER. Should the Owner suspend its contract with the Contractor or any part which includes the Subcontractor's Work, the Contractor shall so notify the Subcontractor in writing and upon written notification the Subcontractor shall immediately suspend the Subcontractor's Work.
§ 10.6 states in pertinent part,
SUSPENSION BY CONTRACTOR. The Contractor may order the Subcontractor in writing to suspend, delay or interrupt all or any part of Subcontractor's Work for such period of time as may be determined to be appropriate for the convenience of the Contractor. . . . The Subcontractor shall notify the Contractor in writing within ten (10) working days after receipt of the Contractor's order of the effect of such order upon the Subcontractor's Work. To the extent allowed the Contractor under the Contract Documents, the Contract Price or contract time shall be adjusted by Subcontract Change Order for any increase in the time or cost of performance of this Agreement caused by such suspension, delay or interruption.
Conectiv never gave Pro Controls notice of work delays, interruptions or stoppage. Nor is there any evidence that Conectiv ever notified Pro Controls of a revised work schedule, or gave Pro Controls a change order or construction change directive. Yet, sometime before November 26, 1997, Conectiv negotiated its own $200,000 change order with the government, based on the asbestos remediation and delays.
The reason Conectiv was required to give Pro Controls written notice, was to allow Pro Controls to calculate its delay damages, such that Conectiv could include that amount in any claim it made to the government for delay damages. Section 6.6 of the contract states in pertinent part,
The Contractor shall not be liable to the Subcontractor for any damages or additional compensation as a consequence of delays caused by any person not a party to this Agreement unless the Contractor has first recovered the same on behalf of the Subcontractor from said person, it being understood and agreed by the Subcontractor that, apart from recovery from said person, the Subcontractor's sole and exclusive remedy for delay shall be an extension in the time for performance of the Subcontractor's Work.
On March 12, 1998, Conectiv submitted a claim to the government for delay damages, without first notifying Pro Controls of the project delay. Thus, Pro Controls did not submit its claim for delay damages to Conectiv and Conectiv's claim to the government did not include Pro Controls' damages.
Conectiv argues that Pro Controls was aware of the delay, despite it not giving Pro Controls written notice. In a letter dated November 26, 1997, Pro Controls references its awareness that Conectiv had negotiated a change order with the government, and its disappointment that Conectiv had not considered Pro Controls' "direct overhead expenses in your change order." Pro Controls further stated in the letter, "[i]n the future, please notify us about such delays or change orders."
Pro Controls' actual knowledge of delay, and its after the fact knowledge that Conectiv had negotiated its own change order, does not excuse Conectiv from its contractual obligation to give Pro Controls written notice of delays, interruption, and work stoppages that affected Pro Controls' work. Even if Pro Controls became aware that there were project delays, Conectiv still had an obligation to advise Pro Controls of the duration of each delay, interruption or cessation in work that would affect Pro Controls' work under the contract. Pro Controls' subcontract was but one piece of a large government project. In fact, Pro Controls' contract was supposed to be fully performed in six months. Pro Controls only worked on site, as needed. It did not maintain a constant presence at the job site. Thus, Pro Controls was not in a position to know of every project delay or work stoppage, particularly when some of these delays and stoppages did not immediately affect the progress of Pro Controls' part of the project.
Notably, although there were delays as early as May of 1997, Conectiv did not submit a claim until March 1998. Apparently in the interim, the problem was addressed with change orders. But Conectiv did not give Pro Controls notice of these change orders, either. Thus, Pro Controls was not in a position to make a timely claim for delay damages. In fact, the Court is hard pressed to determine when a "timely" claim was due. Since there were multiple periods of delays, stoppages and change orders before Conectiv made a claim for delay damages, it is impossible to identify when Pro Controls' "timely" claim would have been made.
Because of Conectiv's breach, Pro Controls was unable to exercise its right under § 6.3 of the contract, to give Conectiv notice of Pro Controls' delay damages for inclusion in Conectiv's March 12, 1998 claim to the government. On September 13, 1999, Pro Controls finally submitted a claim to Conectiv for delay damages; but Conectiv denied the claim as untimely, since § 6.3 stated that written notice of delay damage claims must be made ". . . within five (5) days of the occurrence of the event for which claim is made; otherwise, such claims shall be deemed waived." Of course, by September 13, 1999, Conectiv had still not given Pro Controls notice of any delays, interruptions or stoppages. Thus, it is disingenuous for Conectiv to now argue that Pro Controls is not entitled to delay damages because its request was not timely made.
Section 10.7 of the contract allows Pro Controls to recover damages for Conectiv's failure to give notice of delays or work stoppages, including the reasonable value of the work Pro Controls performed prior to Conectiv's breach, including reasonable overhead and profit, less prior payments made. Thus, Pro Controls is entitled to delay damages of $36,051.36, as of September 13, 1999, and $2500 in damages from the demobilization and remobilization costs associated with the work by Nunez. Pro Controls is also entitled to recover attorneys fees, costs, charges and expenses, as well, pursuant to §§ 10.7 and 15.4 of the contract.
§ 10.7 provides that "[i]f the Contractor wrongfully exercises any option under this Article [10], the Contractor shall be liable to the Subcontractor solely for the reasonable value of work performed by the Subcontractor prior to the Contractor's wrongful action, including reasonable overhead and profit on the Work performed, less prior payments made, and attorney's fees."
Pro Controls claims delay damages (Exhibit 20) were calculated as follows: contract costs for 821 days minus contract costs for 547 days (because contract supposed to be performed in 547 days).
Delay claims are also allowed under the Miller Act. See Arnold v. United States, 470 F.2d 243, 246 (10th Cir. 1972).
Miller Act
Under the Miller Act, a subcontractor in a federal government project may bring actions against the project's general contractor and surety for claims sounding in contract or quasi-contract. The Miller Act provides for a payment bond to ensure full payment to all subcontractors. To prevail on its Miller Act claim, Plaintiff must show:
United States ex rel. Virginia Beach Mech. Servs., Inc. v. SAMCO Constr. Co., 39 F. Supp.2d 661, 670 (E.D. Va. 1999) (citations omitted).
(1) that it furnished labor or materials in prosecution of the work provided for in the contract for repair of public buildings or work of the United States;
(2) that it had a direct contractual relationship with the prime contractor, Conectiv;
(3) that it performed work under the contract;
(4) that it sent proper notice to Conectiv of the amounts due; and
(5) that it was not paid the full amount it was entitled to.
The first three elements are not controverted. With respect to the fourth element, as discussed above, Conectiv has failed its burden of proving its counterclaim that Pro Controls breached the contract by failing to send proper notice to Conectiv. The Court concludes that Pro Controls sent proper notice to Conectiv. Finally, as discussed above, Conectiv failed to pay Pro Controls the full amount it was entitled to, at the time of the payment requests, because Conectiv improperly withheld retainages, did not timely make all progress payments, and failed to pay interest on these amounts.
Conectiv contends, based on an audit by its accountant, John Malone, that Conectiv actually overpaid Pro Controls. Malone testified that Conectiv had paid Pro Controls more than its $410,000 contract price. Malone further calculated that at most, Pro Controls was due $558 in interest for late payments, but that Conectiv had overpaid this as well, with a $700 interest payment to Pro Controls.
The Court has no confidence in Malone's audit and conclusions for several reasons. First, in matching payments Conectiv received from the government with payments it remitted to Pro Controls, Malone ignored the fact that Conectiv was not entitled to withhold 10% retainages. Malone calculated interest only on payments made more than 60 days after the work was accepted; he did not account for payments that were made more than 7 days after Conectiv received payment from the government. Nor did Malone account for Pro Controls' delay damages.
Damages
Pro Controls has established the following damages resulting from Conectiv's breach of contract, and failure to fully pay under the Miller Act: $11,751.47 in accrued interest as of March 3, 2003, for progress payments not made within the required 7 days, plus continuing accrued interest after March 3, 2003 at the rate of $7.51 per diem; $36,051.36 in delay damages as of September 13, 1999, and accrued interest thereafter; $2500 for demobilization and remobilization expenses related to Nunez; and $39,518.73, in attorney fees as of March 25, 2003. Thus, as of March 2003, Pro Control's damages totaled $89,821.56.
Generally, pre-judgment interest is allowable at the discretion of the court. In Continental Casualty Co. the Court held that interest was allowable under Miller Act claims if the local state law allows such interest. Both Kansas and New Jersey state law allow recovery of pre-judgment interest. Kansas courts have allowed pre-judgment interest recovery under K.S.A. 16-201, which sets the rate at 10% per annum. New Jersey law under N.J.S.A. 52:32-41, allows subcontractors within public contracts to recover pre-judgment interest amounts due at a rate 1% above the prime rate as well as any court costs incurred by the subcontractor. And, New Jersey courts generally allow recovery of pre-judgment interest at the court's discretion, based on principles of equity. The Court will allow Pro Controls' damages of $89,821.56 through March 2003. The Court will deny interest beyond this amount. In a previous order this Court found that if Pro Controls prevailed in this case, the Court should consider Pro Controls' delay in determining any award of prejudgment interest.
Arnold v. United States, 470 F.2d 243, 246 (10th Cir. 1972) (citations omitted).
Continental Casualty Co. v. Clarence L. Boyd Co., 140 F.2d 115, 117 (10th Cir. 1944).
See generally, Arnold v. United States, 470 F.2d 243, 246 (10th Cir. 1972); United States ex rel. National Roofing Services, Inc. v. Lovering-Johnson, Inc., 53 F. Supp.2d 1142, 1148 (D. Kan. 1999); United States ex rel. Concrete Specialists of Omaha, Inc. v. Lovering-Johnson, Inc., No. 98-1390-JTM, 2001 WL 584351, *7 (D. Kan. May 22, 2001).
See generally, A.J. Tenwood Associates v. Orange Senior Citizens Housing Co., 200 N.J. Super. 515, 491 A.2d 1280, 1284 (N.J.Super. App. Div. 1985); Musto v. Vidas, 333 N.J. Super. 52, 74, 754 A.2d 586, 598 (N.J.Super. App. Div. 2000); Tobin v. Jersey Shore Bank, 189 N.J. Super. 411, 414, 460 A.2d 195 (N.J. Super App. Div. 1983).
See October 20, 2000 Order, Report, and Recommendation (Doc. 42); November 9, 2000 Order (Doc. 52) (adopting Doc. 42).
Federal Prompt Payment Act
Pro Controls makes a separate claim under the Federal Prompt Payment Act, 31 U.S.C. § 3901, et seq. But, the Federal Prompt Payment Act does not expressly create a private cause of action for violations of the Act. To demonstrate an implied cause of action, a plaintiff "must overcome the familiar presumption that Congress did not intend to create a private right of action." Whether a federal statute gives rise to an implied private right of action is determined by legislative intent; and the court should consider whether the cause of action is one traditionally relegated to state law, such that implying a federal right of action would be inappropriate.
See United States ex rel. Virginia Beach Mech. Servs., Inc. v. SAMCO Constr. Co., 39 F. Supp.2d 661, 677 (E.D. Va. 1999); Thomas v. Thomas, (In re Thomas), 255 B.R. 648, 654 (Bankr. D. N.J. 2000) (Prompt Payment Act does not give subcontractors an additional cause of action for an alleged breach by the general contractor).
See Casas v. American Airlines, Inc., 304 F.3d 517, 522 (5th Cir. 2002); Scherer v. United States, 241 F. Supp.2d 1270, 1284 (D. Kan. 2003); Medical Supply Chain, Inc. v. US Bancorp, NA, 2003 WL 21479192, *8 (D. Kan. 2003).
Casas, 304 F.3d at 522, n. 6 (citing Cort v. Ash, 422 U.S. 66, 78, 95 S.Ct. 2080, 2088 (1975)).
In this case, Pro Controls has not overcome the presumption against an implied cause of action. Thus, the Court dismisses Pro Controls' Federal Prompt Payment Act claim, as the Court lacks subject matter jurisdiction. There is no federal cause of action, and thus no federal question jurisdiction.
Yet, as discussed above, Conectiv is still bound by the duties imposed by the Federal Prompt Payment Act. Conectiv's failure to include the 7-day payment requirement in its contract, and its failure to abide by the requirement, is the basis for a breach of the contract and damages. Pro Controls can seek its damages related to payments made later than 7 days on Pro Controls' breach of contract claims.
See United States ex rel. Virginia Beach Mech. Servs., Inc. v. SAMCO Constr. Co., 39 F. Supp.2d 661, 675 (E.D. Va. 1999) (finding that subcontracts incorporate, by operation of law, the Act's provisions).
Quantum Meruit
Finally, Pro Controls brings a claim for quantum meruit, a quasi-contractual, equitable remedy for those damaged by breaches of an implied contract. But, when there is an express contract, as there is in this case, an action for quantum meruit does not lie. Pro Controls acknowledges this, but seeks quantum meruit in the alternative, in the event that the Court grants its claim of negligent misrepresentation and rescinds the express contract as one procured by fraud. But the Court has denied Pro Controls' claim of negligent misrepresentation. Given that there is an express contract, the Court dismisses Pro Controls' claim for quantum meruit.
See C.B. Snyder Realty Co. v. National Newark Essex Banking Co., 14 N.J. 146, 162-63, 101 A.2d 544 (N.J. 1953).
Pro Controls cites New Jersey and Kansas cases that recognize that fraud may cause a rescission of the contract terms; and that a plaintiff can seek quantum meruit under an implied contract theory in the alternative to its express contract theory. See, e.g., Liebling v. Garden State Indem., 337 N.J. Super. 447, 767 A.2d 515 (N.J.Super. App. Div. 2001); First American Title Ins. Co. v. Lawson, 351 N.J. Super. 407, 798 A.2d 661 (N.J.Super. App. Div. 2002); Caputo v. Nice-Pak Products, Inc., 300 N.J. Super. 498, 693 A.2d 494 (N.J.Super. App. Div. 1997); Power-Matics, Inc. v. Ligotti, 79 N.J. Super. 294, 191 A.2d 483 (N.J.Super. App. Div. 1963); Western Resources, Inc. v. Union Pacific R. Co., 2002 WL 1462067 (D. Kan.) (citing Whan v. Smith, 130 Kan. 9, 285 P. 589 (1930)).
Conclusion
The Court dismisses Pro Controls' claim under the Federal Prompt Payment Act, as that statute does not create a private cause of action; and the Court dismisses Pro Controls' claim for quantum meruit as there is an express, not an implied, contract between the parties. The Court dismisses Pro Controls' claim of negligent misrepresentation because it failed its burden of proving reliance. The Court also dismisses Conectiv's counterclaim for breach of contract, because it failed its burden of proving that Pro Controls failed to submit proper lien waivers and affidavits in its request for payment.
The Court finds that Conectiv breached the contract by failing to comply with the incorporated statutory duty to pay Pro Controls within 7 days, and breached its contractual duty to pay Pro Controls within 60 days. Although Conectiv paid Pro Controls the accrued interest from those payments made after the 60-day contractual deadline, it has not paid accrued interest on payments made after the 7-day statutory deadline. Thus, Pro Controls is entitled to that accrued interest. The Court further finds that Conectiv breached its duty to notify Pro Controls of delays and work stoppages. Thus, Pro Controls is entitled to its delay damages with accrued interest. Pursuant to the contract, Pro Controls is also entitled to attorneys fees. Accordingly, Pro Controls will be granted judgment in these amounts.
Although the Court finds that Conectiv breached its duty to timely advise Pro Controls where to ship the VAV controllers for factory mounting, Pro Controls failed to prove the amount of its resulting damages.
IT IS THEREFORE ORDERED that Plaintiff's Claim of Negligent Misrepresentation is DISMISSED.
IT IS FURTHER ORDERED that Plaintiff's Claim under the Federal Prompt Payment Act is DISMISSED.
IT IS FURTHER ORDERED that Plaintiff's Claim for Quantum Meruit is DISMISSED.
IT IS FURTHER ORDERED that Defendant's Counterclaim for Breach of Contract is DISMISSED.
IT IS FURTHER ORDERED that Plaintiff is GRANTED JUDGMENT on its Miller Act Claim.
IT IS FURTHER ORDERED that Plaintiff is GRANTED JUDGMENT on its claim for Breach of Contract, in the amount of $89,821.56.