FABE, Chief Justice.
This appeal arises from a contract dispute between North Pacific Erectors, Inc. and the Alaska Department of Administration. North Pacific and the Department contracted for a renovation and asbestos removal project in the Juneau State Office Building. After work began, North Pacific requested additional payment for the asbestos removal, claiming there was a differing site condition that made the project more labor-intensive than it had expected. The Department denied the differing site condition claim, and North Pacific filed an administrative appeal. A hearing officer recommended that North Pacific was entitled to additional compensation. But the hearing officer's recommendation was rejected, and a final agency decision was issued denying North Pacific's claim for additional compensation. North Pacific challenged the agency decision in superior court, arguing that the agency decision was procedurally flawed and incorrectly resolved the contract issues. The superior court affirmed the agency decision.
North Pacific appeals the superior court's judgment, arguing that it has a valid differing site condition claim, that the Department breached its duty to disclose information about the project, and that the agency decision was procedurally flawed. We conclude that even if North Pacific could prevail on its differing site condition claim or its procedural claims, North Pacific's failure to comply with the express provisions of the contract requiring the contractor to keep records of
In 2006 the Alaska Department of Administration solicited a bid for asbestos abatement and the renovation of one floor in the Juneau State Office Building. The Department's bid solicitation notified potential bidders that they were responsible for investigating the project site. The bid solicitation provided that by submitting a bid, the contractor represented that it had "visited and carefully examined the site and is satisfied as to the conditions to be encountered in performing the Work." At a prebid meeting, the Department provided an opportunity for contractors to visit the project site. One bidder visited the project site. It is uncontested that North Pacific and its subcontractor did not visit the job site or participate in the prebid meeting before bidding on the contract. Contractors would not have been able to see the pan deck surface
North Pacific was the successful bidder for the renovation and asbestos abatement project. The contract between North Pacific and the Department included the same site investigation provision as the bid solicitation, which provided that the contractor had "visited and carefully examined the site and is satisfied as to the conditions to be encountered in performing the Work." The contract also contained detailed provisions establishing procedures for measuring and documenting damages and maintaining cost records of claims for additional compensation.
North Pacific hired a subcontractor for the asbestos abatement. Once work began, North Pacific asserted that its asbestos abatement subcontractor was entitled to additional compensation beyond the contract price for the project. North Pacific claimed that the asbestos removal was significantly more difficult and time-consuming than it could have foreseen because the pan deck surface was dimpled rather than smooth.
After the subcontractor began work on the project, its project manager made a note in his daily report about the dimpled pan deck surface and described the cleaning process for the "indentations" and "prot[ru]sions" in the pan deck that "cost[] us considerable time." The workers had to use toothbrushes to clean the bumpy surface, but the contractor's daily report did not contain any time estimate for the additional cleaning efforts. The hearing officer found that "[t]his [initial] entry [was] the only entry ... made in the daily reports relating to the embossed pan deck." By contrast, the subcontractor repeatedly referred to other problems in the daily reports, including problems with air pressure and containment, foam that failed to expand, and issues with metal flashing.
The subcontractor notified North Pacific about the pan deck problem, and North Pacific then transmitted the information to the Department, requesting additional compensation. The Department denied the initial request for additional compensation.
North Pacific next filed a claim pursuant to the contract's differing site conditions clause. The clause provided:
The contract expressly required that the contractor keep an "accurate and detailed record" of the actual cost of work performed under the alleged differing site condition:
(Emphasis added.) After considering numerous exhibits, including the contract, bid documents, and a construction report, the Department's procurement officer found that North Pacific was not entitled to additional compensation under the differing site conditions clause.
North Pacific brought an administrative appeal of the procurement officer's decision. While this matter involves a contract between North Pacific and the Department of Administration, AS 36.30.625(a) dictates that the Department of Transportation and Public Facilities hears construction contract appeals.
This case primarily involves five underlying decisions: (1) the hearing officer's initial recommended decision; (2) the Department of Transportation and Public Facilities's decision to remand the case to the hearing officer; (3) the hearing officer's recommended decision on remand; (4) the Department of Transportation and Public Facilities deputy commissioner's final decision; and (5) the superior court's decision.
The hearing officer concluded that there was a differing site condition entitling North
The Department of Transportation and Public Facilities remanded the hearing officer's recommended decision, explaining that "the recommended decision fails to address a number of fundamental issues bearing on liability and damages."
On remand, the hearing officer again decided that North Pacific was entitled to additional payment. The hearing officer recommended three conclusions of law: (1) that the Department of Administration was obligated to disclose the condition of the embossed pan deck and failed to do so; (2) that the pan deck was a differing site condition; and (3) that the Department's failure to comply with the contract precluded it from relying on the strict damages provisions. On these grounds, the hearing officer recommended an award of $156,539 in damages, slightly less than his initial recommendation of $158,821.
First, the hearing officer concluded that the Department was obligated to disclose the condition of the pan deck surface because the Department had information that "an ordinary bidder would not reasonably acquire... without resort to [the Department]" and the Department was aware that the contractor had no knowledge or reason to obtain the information. Reasoning that North Pacific had bid and performed the abatement work without "vital information," the hearing officer concluded that the Department's failure to disclose the pan deck condition "was a breach of its contractual obligations" and justified recovery. The officer explained that the Department's knowledge "(a) came from prior projects and an intimate and unique understanding of the actual conditions in the facility and (b) was well-based in fact and first-hand involvement."
Second, the hearing officer determined that the pan deck was a differing site condition because the contractor was unaware of the condition, the contractor could not have anticipated the condition from a site inspection or from general experience, and the pan deck surface varied from the norm.
Third, based on the Department's failure to disclose the condition, the hearing officer "decline[d] to enforce strictly the construction contract limitations in Section 15.1.4" that required "complete, accurate, and specific daily records" regarding "every detail of the potential claim including actual costs incurred."
At North Pacific's request, the Department of Transportation and Public Facilities commissioner recused himself and delegated
To analyze the differing site condition claim, the deputy commissioner applied a three-part test from a construction law treatise: (1) the contractor "did not know about the relevant condition encountered; (2) it could not have anticipated the condition from site inspection, reasonable investigation, or general experience; and (3) the condition varied from the norm in similar contracting work."
But under the second prong of the test, North Pacific had to show that it could not have anticipated the condition.
The deputy commissioner relied on several facts to conclude that a reasonable investigation would have revealed the uncovered pan deck. Many of these facts are based on the hearing officer's factual findings. But the deputy commissioner made an error of fact in his decision. The deputy commissioner mistakenly found that "at the alternative site [the Department] had offered to show comparable ceiling pan deck [that] was exposed
The Department acknowledges that the deputy commissioner's "decision referred to [the] incorrect information" from an email exchange between O'Brien and the hearing officer. O'Brien inquired of the hearing officer:
The hearing officer responded that
Thus it is undisputed that, based on this exchange, the deputy commissioner incorrectly stated that the Department had affirmatively offered participants at the prebid meeting an opportunity to view an uncovered pan deck.
The deputy commissioner also cited an uncontested fact in the hearing officer's decision that stated "[o]nly one contractor, during the pre-bid conference, asked to see the area from which asbestos would be removed" and "[a] ceiling tile was removed so the contractor could see the area." Aside from the factual error, the deputy commissioner relied on North Pacific's failure to conduct a site investigation or to request any photos or other related information on the site to reject the claim. In short, the deputy commissioner concluded that North Pacific had not met the second prong of the differing site conditions test because a "reasonable investigation would have revealed the exposed pan deck and its embossing."
The third prong of a differing site condition is whether the condition varied from the norm in similar contract work.
The deputy commissioner next addressed North Pacific's contention that the Department had a duty to disclose relevant information regarding the pan deck surface. Because North Pacific could have acquired the relevant information on the pan deck through an independent investigation, the deputy
The deputy commissioner considered and rejected the hearing officer's recommendation for damages. The deputy commissioner stated that he did not find the Department's investigation of the claim to be unreasonable. In addition, the deputy commissioner pointed to the fact that North Pacific had failed to maintain an accurate daily record of alleged damages as required by the contract.
North Pacific appealed the agency decision to the superior court, arguing that the decision was procedurally flawed and that the agency had incorrectly resolved the contract claims.
The superior court conducted a limited trial de novo on North Pacific's procedural objections to the administrative process. As to the contract claims, the superior court intended "to play its traditional role as an intermediate appellate court." While the superior court was "troubled" by some of the procedural issues, it ultimately held that the final agency decision "was not legally flawed" and the State's "resolution of the legal questions raised by [North Pacific] was reasonable."
The superior court held a limited trial de novo to consider North Pacific's procedural arguments regarding (1) the timing of the deputy commissioner's decision, (2) the decision-making role of the deputy commissioner, (3) the role of Department of Transportation and Public Facilities staff in the decision, (4) the alleged deprivation of a hearing, and (5) the alleged ex parte contact. After trial, the superior court made thorough findings of fact on the agency appeals process, the agency's factual error, communications between the deputy commissioner and the staff, and the lack of bias in the agency decision-making process. Finally, the superior court concluded that the agency decision was not procedurally flawed.
North Pacific pointed out that the deputy commissioner's decision was issued 48 days after the hearing officer's recommended decision. North Pacific argued that the passage of 48 days after the issuance of the first recommended decision triggered AS 44.64.060(e), which governs the timing of agency action on decisions issued by administrative law judges within the Office of Administrative Hearings.
The superior court first concluded that AS 44.64.060(e) applies to administrative law judges and not hearing officers under the Department of Transportation and Public Facilities.
North Pacific argued that there was institutional bias in the decision-making process and that the communications between agency staff and the hearing officer were inappropriate. North Pacific further claimed that the deputy commissioner, as the final decision maker, improperly relied on his staff in rendering the final decision. Rejecting these arguments, the superior court concluded "that all the commissioner needs to do to comply with AS 36.30.675 and .680 is to issue the final decision."
North Pacific argued that Chief Contracting Officer O'Brien and the agency's assigned assistant attorney general could not play any role in the process leading to the final decision. The superior court determined, however, that the involvement of institutional subordinates did not taint the agency's neutrality or "overstep any statutory assignments of authority."
North Pacific argued that it was deprived of a hearing because the final decision maker had minimal exposure to the raw information from the hearing. Specifically, North Pacific objected to the deputy commissioner's failure to review the record before rejecting the hearing officer's decision. Although the superior court acknowledged that this argument had "more than a little surface appeal," it nonetheless rejected North Pacific's argument for two reasons: (1) "the oral testimony was not the entire record," and the agency decisions were based on the hearing officer's decision and the available exhibits; and (2) the "problem is that to enforce an adequate role by the final decision maker would almost always require exploration into the deliberative process." As a result, the superior court concluded that North Pacific had "been provided a hearing process that complie[d] with due process."
North Pacific claimed the final agency decision was based on ex parte communications between O'Brien and the hearing officer and thus violated due process. Again, the superior court rejected North Pacific's argument. While the superior court found that O'Brien requested clarification from the hearing officer and that the hearing officer responded,
After reviewing North Pacific's differing site condition claim, the contract, and the reasoning of the hearing officer and the deputy commissioner, the superior court considered whether North Pacific "could have learned of the condition of the pan deck by a site inspection or other reasonable inspection." The superior court concluded that the
Thus, the superior court affirmed the agency's conclusions denying North Pacific's differing site condition claim.
The State requested attorney's fees and costs as the prevailing party. North Pacific opposed, arguing that AS 09.60.010
The superior court acted in part as an intermediate court of appeal and in part as an initial fact-finder. "When the superior court acts as an intermediate court of appeal from an agency decision we review the agency decision directly."
"Where the superior court conducts a partial trial de novo, we review the court's findings and conclusions."
Generally we review an award of Civil Rule 82 attorney's fees for an abuse of discretion.
North Pacific argues that the hearing officer "properly found that [North Pacific] was entitled to an equitable adjustment to its contract price" because "the State knew of, but did not disclose, concealed dimpling of the pan deck that substantially increased the costs of [North Pacific's] work." The Department contends that "had North Pacific or its subcontractor conducted a reasonable investigation — or simply asked any of the subcontractors who worked on the five prior asbestos-abatement jobs at the State Office
Although the hearing officer concluded that the Department was obligated to disclose the condition and failed to do so, the deputy commissioner determined that the Department did not have a duty to disclose the site condition, reasoning that it was possible for North Pacific to have obtained the information through site visits or an independent investigation. According to the deputy commissioner, "recognition of a superior knowledge claim would effectively reverse the allocation of contractual responsibilities."
In Morrison-Knudsen Co. v. State, we explained our test for imposing on the State a duty to disclose information in its possession:
In Morrison-Knudsen, the contractor claimed that the State should have disclosed information it had received from two other bidders regarding the feasibility of hydraulic dredging at a construction site.
We arrived at a similar conclusion in B-E-C-K Constructors v. State, Department of Highways.
In short, a successful superior knowledge claim by a contractor requires the government to have unique control over information.
Applying this standard, we conclude that the Department did not occupy such "uniquely-favored a position with regard to the information at issue that no ordinary bidder in the plaintiff's position could reasonably acquire that information without resort to the State."
Under the differing site conditions provision, the contract expressly required a contractor "to keep an accurate and detailed record which will indicate the actual `cost of the work' done under the alleged differing site condition" and further provided that "[f]ailure to keep such a record shall be a bar to any recovery by reason of such alleged differing site conditions." The contract also mandated that for additional compensation claims, the contractor "must immediately begin keeping complete, accurate, and specific daily records concerning every detail of the potential claim including actual costs incurred" and "[i]n computing damages, or costs claimed for a change order, or for any other claim against the Department for additional time, compensation or both, the contractor must prove actual damages based on internal costs for equipment, labor or efficiencies." Under the contract, "[t]otal cost, modified total cost or jury verdict forms of presentation of damage claims are not permissible to show damages." Finally, "[l]abor inefficiencies must be shown to actually have occurred and can be proven solely based on job records." Thus, the parties contracted to require detailed records for differing site condition claims and to establish the actual cost method as the only permissible method to calculate damages.
We conclude that North Pacific's failure to comply with these provisions in the contract bars recovery for the differing site condition claim. A fundamental rule in contract interpretation is that "[u]nless a different intention is manifested, where language has a generally prevailing meaning, it is interpreted in accordance with that meaning."
Not only did the contract call for actual cost data, under Alaska law, "[t]he preferred method is the actual cost method, `in which each element of extra expense incurred because of the [alleged breach] is added up for a total claimed amount.'"
Here the hearing officer found that the subcontractor wrote only one daily report discussing problems encountered at the outset with the embossed pan deck and that the subcontractor "did not segregate its labor costs." We note that the single daily report concerning problems cleaning the pan deck surface is worded in broad, general terms and does not contain any estimate of additional costs or work hours. And instead of relying on the contractually mandated method to calculate damages, North Pacific's expert relied on the modified total cost method, and the hearing officer relied on the jury verdict method to calculate damages. We have occasionally approved of the jury verdict method to calculate damages when the contractor has put forth some actual cost data, in addition to other evidence, and when specific contractual record-keeping requirements were not at issue.
Our conclusion is supported by federal decisions in this area.
Despite the express contract provisions requiring detailed records and use of the actual cost method to calculate damages, North Pacific argues that it is entitled to additional compensation because (1) it maintained cost records and (2) the contractual remedy "failed of its essential purpose." Citing the contract's requirement for "complete, accurate, and specific daily records concerning every detail of the potential claim including actual costs incurred," the Department responds that "[t]he undisputed evidence established that neither North Pacific nor its subcontractor maintained the detailed cost records that the contract required."
First, North Pacific claims that the contract "just requires keeping actual records of the costs, which the hearing officer found was done." But the hearing officer did not find that North Pacific had complied with the contractual records requirement. Rather, the hearing officer pointed out that the subcontractor had made only one daily report on the alleged differing site condition and did not separate or track additional costs. The hearing officer further acknowledged that the subcontractor's expert used "a method of requesting damages which is prohibited by the contract." Nonetheless, the hearing officer "decline[d] to enforce strictly the construction contract limitations in Section 15.1.4," reasoning that the "limitation in this contract for damages should not be enforced as an equitable matter because [the Department] failed to disclose the embossed pan deck prior to bid."
Second, North Pacific argues that "[a]s applied to [North Pacific]'s differing site condition claim, the State's clause would deny any remedy at all because [North Pacific]'s added costs are not distinguishable from its as-planned costs without using one of the prohibited quantification formulas" and the remedy thus "failed of its essential purpose." But North Pacific does not offer any explanation why it was unable to provide a contemporaneous record of the actual additional costs incurred and how the agreed-upon contractual method of calculating damages would deny any remedy. North Pacific relies on Pierce v. Catalina Yachts, Inc.
North Pacific also cites Illinois case law to support its argument that the express contract provisions are inapplicable.
In sum, North Pacific is barred from recovery for any alleged differing site condition because it did not substantially comply with the damages and records provisions of the contract.
North Pacific challenges the superior court's legal conclusions following the court's trial de novo on procedural issues. North Pacific raises several procedural claims: (1) the deputy commissioner did not review directly the hearing officer's recommended decision or the hearing transcripts; (2) the deputy commissioner relied on a false finding of fact that was not supported by evidence at the hearing; (3) any procedural defects were not cured by a delegation of authority to staff; and (4) the hearing officer's recommended decision should be deemed final when a valid commissioner's decision was not "appropriate" or timely issued.
The Department of Transportation and Public Facilities awarded the Department of Administration attorney's fees and costs following the administrative proceeding.
Alaska Statute 09.60.010(c)(2) prohibits a court from ordering a party to pay the attorney's fees of the opposing party where the claims concerned "constitutional rights if the ... plaintiff ... did not prevail in asserting the right, the action or appeal asserting the right was not frivolous, and the claimant did not have sufficient economic incentive to bring the action or appeal regardless of the constitutional claims involved." Although North Pacific alleged due process violations, we conclude that North Pacific had "sufficient economic incentive to bring the action or appeal regardless of the constitutional claims involved."
We AFFIRM the judgment of the superior court.