Case History 65
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[00:00:00] Liz: Welcome to the GBA case history series brought to you by the GBA podcast. My name is Elizabeth Brown and I'm the principal Geotechnical Engineer at JLT Consultants.

[00:00:10] Abi: And I am Abi Corbet, a project consultant at SME.

[00:00:13] Liz: Today we're tackling case history number 65, which centers on a massive city-owned Brownfields project that went sideways, primarily due to failure to read the fine print, or as we often call it, the boilerplate language.

[00:00:30] Abi: This case is a perfect example of why you should all assume every single word of a contract is important because every word can and will be enforced.

[00:00:43] Liz: Right. Let's set the scene. This project involved a large coastal city undertaking the construction of a substantial structure on a Brownfield site. Which was formally a coal gasification plant, and it's located right on the edge of a bay.[00:01:00] 

[00:01:00] Abi: The City retained a nationally prominent architect engineer firm as the lead design professional. They sought separate proposals for various critical services. Including geotechnical engineering, environmental services and construction materials, engineering and testing or CoMET.

[00:01:19] Liz: Our focus today is on a GBA member firm. They're a locally based firm, and so they submitted three proposals to cover the geotechnical engineering, the environmental services, and the third proposal that was specifically just for periodic bay water sampling.

[00:01:38] Abi: The city ended up selecting out of town firms for the geotechnical and environmental services, but they did retain the member firm only for that periodic bay water sampling assignment.

[00:01:50] Liz: This is where the trouble begins. The city issued a contract that referenced the member firm's proposal for the Bay Water sampling. But [00:02:00] like asterisk here, the contract also incorporated a construction contract specification.

[00:02:10] Abi: That specification radically altered the member firm's role. Instead of simply sampling water, the contract designated the member firm as the city's environmental inspector.

[00:02:23] Liz: Ooh. So what that means is that this environmental inspector on the project, they had significant duties. They were required to serve as like the city's representative. They needed to file daily inspection reports, monitor the constructor's compliance with the hazardous materials containment plan, notify the contractor of non-compliance, and critically, they had the authority to immediately stop the contractor's work if there was a failure to comply.

[00:02:57] Abi: That is a huge [00:03:00] jump in responsibility. I mean, going from water testing to having unilateral stop work authority on a major city project. Yet neither the member firm's designated project manager nor any administrative staff viewed the signed contract thoroughly and they just couldn't catch the massive scope increase.

[00:03:22] Liz: Oh, it's such a, such a bad thing to happen there.

[00:03:25] Abi: Yes.

[00:03:27] Liz: So they simply assumed that the city had agreed to the services of their proposal, and they didn't go and read the fine print. They didn't read that extra contract wording that most of us just, you know, we just kind of gloss over and consider it boilerplate.

[00:03:46] Abi: Absolutely. I mean, I'm not a lawyer for sure, so it gets really easy to have those glazed over eyes with all those, legalese words and that kind of is the absolute first lesson here. Beware of [00:04:00] contractual boilerplate language. The sources warned that assuming standard language is unimportant and doesn't need to be read, and that's just fundamentally wrong.

[00:04:09] You have to realize that alteration has to be thoroughly looked at and language might just not even be standard at all.

[00:04:18] Liz: Right. While the member firm was blissfully unaware of their new found authority, the construction project was moving forward. The two out of town geoprofessional firms had designed a pile and lagging containment wall that was, you know, it was meant to stop site contaminants from migrating into the bay during construction.

[00:04:42] Abi: But the constructor did not build the wall according to the design, of course. And adding insult to the injury, subsequent analysis revealed that even the original design wouldn't have prevented the contamination migration.

[00:04:59] Liz: Ooh, [00:05:00] let's just add another layer to the problems.

[00:05:02] Abi: Seriously.

[00:05:04] Liz: So what happened within a short, really a short amount of time, this wall that was designed and built began to move, and it continued to move for approximately five weeks until the constructor finally installed shoring to prevent total failure.

[00:05:21] And at that point, the constructor stopped work and demanded a resolution from the city. But five weeks, it took them

[00:05:30] Abi: It's, you know, just a quick five weeks.

[00:05:33] Liz: right.

[00:05:34] Abi: Uh, so now the member firm's project manager was documenting all the events and regularly notifying both the city and the constructor. However, the AE firm later sued the member firm claiming they should have provided notification in the form of a red flag letter, something that would've really called attention to the seriousness of the whole situation.

[00:05:59] Liz: [00:06:00] And crucially, the AE firm also alleged that the member firm should have exercised their stop work authority, that they had been, you know, unknowingly assigned at the first sign of wall movement.

[00:06:16] Abi: And that'll just lead us to our next major lesson, be professionally proactive. Once a project experiences problems related specifically to your area of concern, you need to exert leadership to find a fix quickly.

[00:06:32] Liz: Right. You gotta jump right in. Don't assume somebody else is going to take that ownership.

[00:06:37] Abi: Mm-hmm.

[00:06:38] Liz: So the sources note that in this case, had the firm's management been more proactive, an earlier resolution could have been achieved. Instead, no one assumed that take charge role, and as a result, almost an entire year passed before the parties could agree upon a solution.

[00:06:59] Whole [00:07:00] year. Right. Talk about, delays in the project. The member firm's representative later commented that their failure to act, their quote, "head in the sand attitude" just allowed this whole situation to play out.

[00:07:18] Abi: You know, I've always found that hiding doesn't make a problem suddenly go away.

[00:07:22] Liz: Agreed.

[00:07:24] Abi: So that delayed resolution led to significant project delays, obviously, and of course, cost overruns. Eventually, a new containment wall was designed. The constructor submitted a change order and resumed construction based on an oral assurance from a city representative that outstanding invoices would be paid.

[00:07:47] Liz: Oh. 'cause we all know an oral assurance is golden, right?

[00:07:51] Abi: Especially with invoicing.

[00:07:54] Liz: Right. So you know, predictably that didn't happen. Their [00:08:00] invoices were not paid, and so after two weeks of no payment, the constructor filed a demand for payment for the original work, the new wall, and delays.

[00:08:13] Abi: Then the city turned around and demanded indemnity from all the design firms involved. This caused the lead AE firm to sue the two out of town firms and our member firm.

[00:08:27] Liz: Dun, dun.

[00:08:32] Abi: So what happened when this massive, I mean, year long dispute finally came to a head? The dispute was resolved through mediation.

[00:08:42] Liz: It's amazing how many, disputes can get handled that way.

[00:08:45] Abi: Better than court.

[00:08:46] Liz: Exactly. So the financial outcomes though were staggering. The AE design team was covered by a project professional liability insurance policy that paid out [00:09:00] $6.5 million.

[00:09:03] Abi: That number's big, but the GBA member firm who thought they were just really sampling Bay Water paid $850,000 and remarkably, the city paid nothing.

[00:09:17] Liz: Ooh, it's a lot. That's a lot of money for just sampling Bay Water.

[00:09:22] Abi: I would be very interested to see what the actual cost was for that project.

[00:09:28] Liz: Agreed. So the member firm's representative summed up their experience by admitting that the failure to read the contract caused them great financial pain, but that they really shot themselves in the foot by allowing the situation to play out. They now have a policy to immediately alert participants and push for resolution as soon as problems arise.

[00:09:55] Instead of taking that, you know, "head in the sand" approach.

[00:09:59] Abi: Ooh. [00:10:00] So much better. I mean, if they take that proactive approach, they could have probably achieved a resolution in weeks instead of months, and really that could potentially reduce their costs significantly too.

[00:10:13] Liz: Beyond the contractual missteps this case really teaches us about joint and several liability risk. The member firm and the two out of town geoprofessional firms, they were joined as a single entity in the pleadings. So this is like an important thing because had the other firms not been adequately insured, which in this case thankfully they were, the member firm, might have been required to pay for more than their $850,000 share.

[00:10:46] Abi: Oh, that's very scary. I'm glad it didn't play out that way. And finally, let's treat a big deal, like a big deal. The continued movement of that containment wall was definitely a big deal. [00:11:00] Yet the member firm failed to treat it as such. If something needs to be noticed, you need to make it noticeable. I mean, you can use special alerts, even boldface type highlighting.

[00:11:11] There's so many options.

[00:11:14] Liz: Or even, you know, a phone call

[00:11:16] Abi: Yeah.

[00:11:18] Liz: goes a long way sometimes. So this case is a stark reminder. Contractual requirements won't be ignored just because everyone thinks the requirement is misstated. You must be absolutely positive that the contract reflects what you actually agreed to do. And if it doesn't like a hundred percent, you should not sign it until it's corrected and all parties are in agreeance with what's happening.

[00:11:48] Abi: Big emphasis on all parties agreeing. If we were to summarize this case, case History 65 in one metaphor, it's that a contract is not like a [00:12:00] brochure you skim. It's a detailed map, and ignoring the tiny detour marked on the map can lead you to a giant financial sinkhole.

[00:12:09] Liz: Oh, excellent analogy, Abby. I like that.

[00:12:13] Abi: And if anyone else wants a deeper dive on these lessons, remember, never assume and ensure your professional teams are educated about contract reviews and proactivity.

[00:12:25] Liz: Agreed. And that concludes this episode of the Case History Series brought to you by the GBA podcast. I hope you're able to take away some useful information that will help you and others at your firm make good risk-based decisions in the future.