Jeffrey R. Mullen | Pepper Hamilton LLP | July 1, 2016
Dallas/Fort Worth International Airport Board v. INET Airport Systems, Inc., et al., 2016 U.S. App. LEXIS 6646, 819 F.3d 245 (5th Cir. Apr. 12, 2016)
This action arose out of a construction project in terminal E of the Dallas/Fort Worth International Airport (“DFW”), in which pre-conditioned air and rooftop air handling units were to provide conditioned air (cooling and heating) to passenger boarding bridges and aircrafts parked at terminal gates (the “Project”). In August, 2009, following a competitive bidding process, owner Dallas Fort Worth International Airport Board (the “Owner”) entered into a contract with contractor INET Airport Systems, Inc. (the “Contractor”) to construct the Project. The plans and specifications for the contract included detailed drawings, the precise rooftop units and parts to be used, approved manufacturers and performance requirements. Under the contract and these plans, the Contractor was obligated to install operational rooftop units that were required to use 30 percent ethylene glycol/water supplied through DFW’s existing piping system. The Contractor was not allowed to substitute products or designs for those agreed upon in the contract documents without authorization from the Owner. The contract also required that if anything in the agreed-upon plans needed to be changed, the Contractor would alert the Owner and the parties would collaborate to come up with a workaround that would be incorporated into the contract by written change order issued by the Owner with agreed prices for performing the change order work.
Trouble arose when the Contractor expressed concern that the rooftop units specified in the plans might not function properly with the ethylene glycol/water mixture supplied by DFW’s existing piping system. In an October 2009 construction kick-off meeting, the Contractor advised the Owner that the plans needed adjusting because the coolant used in the rooftop units was kept at sub-zero temperatures, risking a damaging freeze. After receiving no immediate response to this concern, the Contractor submitted a request for information asking how it should proceed. The parties’ ensuing discussions resulted in two proposals for how to add control sequences (“Control Sequence Proposal”) or revised piping (“Revised Piping Proposal”) to the units to prevent potential problems. While the Contractor rejected the Control Sequence Proposal, the record was unclear as to what happened with the Revised Piping Proposal, other than that the parties did not formally price the change or incorporate it into their contract. Despite significant communication on the matter, the parties were never able to agree on how to proceed. Months later, the Owner told the Contractor it failed to meet the substantial completion deadline and subsequently refused to pay at least two invoices from the Contractor. In 2012, after contracting with another company to complete the construction, the Owner initiated litigation against the Contractor in which each party accused the other of breaching the contract. Both the Owner and the Contractor moved for summary judgment on their claims.
The district court determined that the case turned on which party first breached the contract and concluded that the contract placed the risk of defects in the designs and specifications on the Owner, that the Owner had admitted the designs and specifications were defective, and that the Owner therefore breached the contract by failing to acknowledge the defects and issue appropriate change orders. As a result, the district court granted summary judgment for the Contractor and, after a bench trial on damages, awarded damages and attorneys’ fees to the Contractor in the amount of $1.29 million. The Owner appealed.
The United States Court of Appeals for the Fifth Circuit concluded it was error for the district court to grant summary judgment for the Contractor because the record contained disputed facts regarding which party first prevented performance by failing to fully cooperate in arriving at a solution once the parties discovered defects in the plans and specifications. Finding that there was no dispute that the plans and specifications were defective, the Court focused on which party was responsible under the contract for defective plans and specification and what the contract required of each party once the Contractor alerted the Owner to a defect that would prevent its performance.
First, the Court disagreed with the district court’s finding that the contract allocated the risk of defective plans and specifications solely to the Owner. The Court found that while the Owner partly bore the risk of defective plans and specifications, the contract allocated some duties to the Contractor as well, duties that required the Contractor to cooperate or take other actions in this case to help resolve the discrepancy between the contract’s requirements and the plans and specifications. For example, the Court noted that if the engineer or the Owner determined that changes were necessary after the Contractor pointed out a potential error, the contract required that the parties mutually agree upon the workaround and how to adjust for the change or modify the contract. Thus, the Court concluded that the contract contained a mixture of provisions that placed the risk of defects on both the Owner and the Contractor, and that both parties had a duty to cooperate in finding a solution to the defect.
The Court then considered which party breached the contract by failing to participate in resolving the defect and agreeing to the associated change order or modification to the contract. The Contractor acknowledged that it rejected the Control Sequence Proposal, but pointed to requests for information to support its claim that the Owner breached the contract by failing to issue a change order and incorporate the Revised Piping Proposal into the contract. However, the Owner argued that the Contractor had rejected the Revised Piping Proposal as well, pointing to correspondence between the parties and deposition testimony on the subject. The Court found that this non-conclusory evidence created a dispute of material fact as to whether the Contractor rejected the Revised Piping Proposal outright or hindered the process of agreeing to this or another solution. The Court concluded that, “[s]ifting through the evidence to determine whether the parties reached agreement on a contractual modification is a task ill-suited for summary judgment on this record. For these reasons, and because disputes of material fact remain regarding whether [the Owner] or [the Contractor] breached the contract by preventing an agreement about how to address defects in the contract’s plans and specifications, we reverse the district court’s grant of summary judgment for [the Contractor].”
Consequently, the Court reversed the district court’s grant of summary judgment for the Contractor and remanded the case for the breach of contract claims to proceed to a fact finder.