Opinion
No. 82-02771.
Decided November 6, 1990.
Joseph A. Brunetto, for plaintiffs.
Anthony J. Celebrezze, Jr., Attorney General, and Teri Jo Ravetto, Assistant Attorney General, for defendant.
This case was tried by a referee appointed by the court. Plaintiffs' filed the following objections to the referee's report recommending judgment for defendant:
1. The sum withheld by ODOT represents a penalty;
2. The state, by its conduct, caused or substantially contributed to the failure of the concrete to meet the specification requirements;
3. The parties made a mutual mistake at the time the contract was entered into, i.e., the written specification did not truly reflect the intent or expectations of the parties;
4. ODOT erred in its determination of the amount to be paid to plaintiffs. This failure is attributable to ODOT's failure to adhere to the contract terms in its testing procedures and, also, basing its determination on inaccurate test results.
Counsel for the parties filed extensive briefs.
Civ.R. 53(E)(2) requires that: "Upon consideration of the objections the court may: adopt, reject or modify the report; hear additional evidence; return the report to the referee with instructions; or hear the matter itself."
A hearing before a referee is not fair and complete until a judge, exercising independent and careful consideration, along with an opportunity to review objections, has acted upon the referee's report. Ivywood Apts. v. Bennett (1976), 51 Ohio App.2d 209, 5 O.O.3d 351, 367 N.E.2d 1205. The clear import of Civ.R. 53(E) is to provide litigants with a meaningful opportunity to register objections to a report of the referee before judgment is entered thereon, and a failure to provide such an opportunity to object is prejudicial error. Pinkerson v. Pinkerson (1982), 7 Ohio App.3d 319, 7 OBR 415, 455 N.E.2d 693. Practices which lead to " rubber stamping" of referees' reports should be avoided. Haag v. Haag (1983), 9 Ohio App.3d 169, 9 OBR 235, 458 N.E.2d 1297.
In order to properly review the objections to the referee's report, the court has read the entire transcript of the hearing, and re-read the testimony of several of the witnesses, including the testimony of David A. Breitfeller and William Brewer. The court then heard additional testimony from Breitfeller and Brewer in order to better evaluate and understand the testimony, and the basis for each of their opinions, which provided the court with the opportunity to fully evaluate the witnesses' credibility.
Complete General Construction Company entered into a contract in the fall of 1978 with the Ohio Department of Transportation, for Project 810-78, to improve parts of State Route 315 in Franklin County. The contract between Complete General and ODOT was for a total of approximately $16,000,000. Complete General then contracted with Ocotillo Plastics, Inc., d.b.a. Arrow Concrete, to provide the concrete required for the base pavement on the project. The consideration which Ocotillo was to receive for providing concrete was approximately one tenth of the total contract price.
The contract with ODOT, by its Supplemental Specification 851 (SS 851), dated June 20, 1978, called for the construction of a concrete pavement base pursuant to performance specifications. These specifications required the contractor to formulate the concrete mixture, subject to defendant's approval, and to administer a program of quality control for the manufacture and placement of the concrete. Under previous road paving contracts, the concrete mixture was designed by defendant, and the contractor could not vary from its content requirements.
By the terms of the contract, the concrete provider was to be paid in proportion to the degree that the concrete complied with the standards established in SS 851 and he would receive one hundred percent of the bid price only if the concrete met the minimum quality specifications. To this end, all of the concrete installed on the highway was subdivided into lots. Defendant extracted a single sample from each lot and later tested the sample in its laboratory. The sample cores were evaluated for air content, compressive strength, and the pavement's actual thickness. From these tests, a "percent within limits" was calculated, which summarized the degree of compliance with the minimum specifications for each category.
Pursuant to the formula in SS 851, the category with the lowest score ultimately controlled the amount paid for the entire lot of concrete. For example, if the tests for acceptance within a lot showed that both the air content and the pavement thickness were one hundred percent yet the compressive strength was calculated as only eighty-three percent, the compressive strength calculation would determine the portion of the unit bid price to be paid. In this example, the tables in SS 851 specify that ninety percent of the unit bid price would be paid to the plaintiff for that particular lot.
Based upon these formulae, as applied with the tables of SS 851 and its addendum, plaintiff Complete General was paid less than one hundred percent of the bid price for the concrete pavement it supplied. Plaintiff seeks recovery of $113,280, plus prejudgment interest, withheld by defendant. The $113,280 prayed for is the difference between one hundred percent of the bid price and the amount actually paid. Plaintiffs assert that they have satisfied all enforceable provisions of the contract and that denying payment of the sum sought constitutes an impermissible penalty to them and a windfall to the defendant.
Upon review of this matter, the court is of the opinion that the referee correctly applied the law and accurately concluded that the contract at issue provides only a performance requirement and not a penalty. Furthermore, the contract provided for reasonable liquidated damages and is, therefore, valid and enforceable. Jones v. Stevens (1925), 112 Ohio St. 43, 146 N.E. 894.
On the issue of mutual mistake, the court finds it difficult to understand why ODOT would approve the mix design initially submitted by the contractor when an experienced ODOT official was of the opinion that there was "no chance in hell" that the approved mix design would result in the concrete fully meeting the contract specifications. It is even more puzzling that this information was never communicated to the contractor. Nevertheless, the court agrees with the referee's conclusion that the express terms of the contract unambiguously describe the performance specifications. Based on the totality of the evidence, there was no mutual mistake. The failure of ODOT to communicate the opinion noted above had no substantial impact upon the contractual obligation of the contractor to supply a specified quality of concrete, which is the more narrow issue.
On the other hand, a review of the totality of the evidence indicates that plaintiff proved, by a preponderance of the evidence, that the defendant made many serious errors in determining whether the concrete performed as required by the contract. As explained below, the ODOT testing procedures were not reliable and the results ODOT reached are not dependable. Consequently, the court disagrees with the factual conclusion of the referee that: "Defendant did not err in its determination of the amounts to be paid to plaintiffs."
$7,000 must be deducted by ODOT because of the failure of plaintiffs to comply with the thickness requirement.
Turning first to the test results, the evidence presented at trial demonstrated a considerable inconsistency. The lots that originally failed ODOT's tests were later shown to have acquired an average compressive strength gain of thirty-eight percent. Some of these lots demonstrated strength increases of forty to fifty percent. On the other hand, those lots that originally met or exceeded the quality specifications of SS 851 later obtained an average strength gain of only sixteen percent. Contrary to the findings by the referee, this court attaches great significance to these facts and concludes that if the original testing had been accurate, there would have been a substantial uniform strength gain throughout all of the retested lots. This is convincing evidence that, while the original passing test results were accurate, the original failing test results were not.
Based upon the evidence, including that presented at the supplemental hearing, there were several possible explanations for these inaccurate test results. One reason was ODOT's failure to apply sufficient quality control procedures. The demonstrated potential for erroneous test results was present at nearly every stage of the ODOT testing process and, taken together, created the kind of hit-or-miss approach that was altogether unreliable as an indicator of the contractor's compliance with the quality specifications.
Since only one representative core was taken from each particular test location, potential variations (errors) in the testing process were difficult to accurately identify. By way of example, CTL Engineering Inc., a recognized expert in the field, customarily extracts three cores from each lot location in order to determine how precisely their tests are being performed. ODOT, however, extracted and tested only one core from each location.
The potential for erroneous results is increased when a laboratory is required to process voluminous samples from a large number of lots on multiple projects throughout the state. This is because each test requires precise handling from the inception to the end of the testing process. For example, the caps of the compressor must be perfectly square and perpendicular to the sides of a test core so that the core is aligned in the exact middle of the compression machine. Failure to properly align the sample allows the machine to compress through the sample with less pressure, creating the impression that the sample was composed of weaker concrete. Likewise, if the core samples are improperly handled prior to testing, such as by dropping any of them on a hard surface, they will become weakened and create a lower strength reading.
The court concludes from the very persuasive testimony of Breitfeller that the kind of core test selected by ODOT sometimes provided undependable measurements of the quality of the concrete installed. The contract specifications required that the test cores could not be removed from the installed concrete until fourteen to twenty-six days had elapsed. This time period is a most critical strength gain period for concrete, yet one in which the concrete is most sensitive to changes in external conditions. Concrete lots poured on different days will be subject to variations in external conditions. The variable conditions caused by, e.g., precipitation, sunshine, cloudiness and temperature can cause short-term, wide-ranging fluctuations between concrete poured from one day to the next. However, the concrete will ultimately obtain a maximum strength, given sufficient time, and depending upon the quality of the original mix. The evidence in this case indicates that all of the concrete obtained the minimum strength gain required for a one hundred percent payment after it had been in place for six months. However, the testing procedure utilized by ODOT did not detect the later strength gain.
The more reliable technique, and one ordinarily used by ODOT, is the cylinder test. In this process, wet concrete is taken from the batch actually installed and poured into cylinder shaped molds. The molds are then removed from the job site and placed in ideal conditions of temperature and humidity for a specified period of time. This process virtually insures that all of the samples will cure at a uniform rate, and, consequently, that the results of the compression tests will be more scientific and capable of accurate, quantifiable comparisons. Based upon a review of the evidence, it appears that ODOT's procedures did not afford a reliable handling and testing process.
In conclusion, the contractual arrangement at issue in this case was the first attempt at a performance specification for the concrete industry in Ohio. Apparently, there had never been a pay schedule or provision for a reduction in contract price. The object of the performance specification was to eliminate the need to have trained ODOT inspectors located in the batch office of every private contractor. The evidence did not indicate that the intent was to improve the quality of the concrete. In any event, the experiment in this sort of performance specifications as a basis for paying the vendor was short lived and not repeated. The totality of the evidence indicates to the court that the plaintiff proved its compliance with the contract specifications by a preponderance of the evidence, except for the thickness requirement, and is therefore entitled to a judgment.
Accordingly, the report of the referee is hereby affirmed in part and reversed in part. Judgment is entered for plaintiff and against defendant for the sum of $106,280, plus interest at the statutory rate of ten percent from the date the obligation accrued.
Judgment for plaintiff.
FRED J. SHOEMAKER, J., retired, of the Franklin County Court of Common Pleas, sitting by assignment.