Public Bldg Auth V & St Paul Fire & Marine Ins Co

¶ … Public Bldg. Auth. v. Marine Ins. Co. & St. Paul Fire

The case of The PBA (Public Building Authority) v. Marine Insurance / St. Paul Fire is a consolidated appeal to the summary judgement in favor of Marine Insurance Company/St. Paul Fire.

Facts and Procedural History

On February 2004, Dawson Company which was a building contractor entered into a contract agreement with PBA. In pursuance of the contract, Dawson would act as a contractor and be in charge of some construction works such as building the attendant facilities and modular jail as well as servicing the Madison County and the City of Huntsville. After drafting the contract agreement, St. Paul issued a bond worth of $24,364,218, and Dawson was asked to secure the bond from Marine Insurance and St. Paul Fire (St. Paul) naming PBA as the owner of the bond. Under the contract agreement, PBA has the right to terminate the contract for convenience and Dawson will incur no obligation. Thus, the bond insists that PBA should satisfy some conditions.

However, when PBA issued Dawson to start the project, some subcontractors informed PBA about some structural problems which affected the project. Following an investigation conducted by PBA to identify the sources of the problems, Dawson informed the PDA that they were incurring substantial costs because of the delay from the investigation. Meanwhile, the PDA made a notification on June 20, 2006, that they intend to terminate the contract, and the PDA stipulated that the contractor should settle the claims and liabilities arising from the contract termination.

After the contract termination, the PDA continued investigating the construction and design effects. Afterward, they assigned the project to Lee Builders, Inc. to complete the project without informing the St. Paul Fire. The new contractor works include design modification, project plans modifications, and specifications. In 2007, Lee Builder performed some remedial works in the project based on upon the remedial drawing, which the Lee Builder was able to achieve substantial part of the project. Thus, the problem aroused after the PBA terminated the contract making Dawson sued the PDA for the breach of the project

On September 27, 2006, Dawson seek for the payment PDA owed them under § 12.2.1.4 code of the contract and seek for the payment of the contract performed. However, PBA responded by filing a separate claim against Dawson that includes fraud, wantonness, negligence, and suppression. On November 2006, Dawson filed a partial summary judgement arguing that they have the right for the contractual payments. Dawson also counterclaims the breach of contract wantonness, negligence, fraudulent suppression and fraudulent misrepresentation. The PDA amended the complaint by adding St. Paul as a defendant as well as asserting claims for bad faith and breach of contract.

"The trial court granted summary judgment to the subcontractors on the breach of contract claim but denied summary judgment on the tort claims asserted against the subcontractors. The Court also agreed with the trial court that PBA failed to satisfy the conditions precedent in the bond prior to cancelling the contract." (Balch & Bingham, 2010 p 1).

According to the Supreme Court, the contract agreement contained a clause that allows a conversion of a contract cancellation and not vice versa. Thus, the PBA conversion was not effective. The Court also affirmed that the PBA failed to satisfy the laid down conditions of the bonds requirement before cancelling the contract.

Part 2

A termination for convenience is a standard clause in both the private and public construction works settings that allow a party to the contract to terminate a contract when there is the absence of other party's fault without incurring financial consequences from the breach. For example, a contractor was awarded a contract to build a magnificent skyscraper in the heart of the city. When the skyscraper is more than 65% complete, expected to finish on budget and time. The contractor does not default in the contract. Suddenly, the project owner notifies the contractor that the works have been terminated for the owner's convenience. In the United States, the termination for convenience is enforceable under the federal government regulation. For example, FAR 52.249-2(a) provides that

"[t]he Government may terminate performance of work under this contract in whole or, from time to time, in part if the Contracting Officer determines that a termination is in the Government's interest." (Richey, 2007 p 1).

The contract for convenience may be issued if the contract owner intends to avoid paying for the damages caused by terminating the contract, however, the procurement law allows a contractor to secure some statutory damages. The owner may attempt to negotiate for a lower payout of the damages.

On the other hand, termination for cause occurs when the contract owner seeks to end the contract for failure of the contractor to meet the project delivery schedule or failure of the contractor to comply with the contract terms and conditions. However, the termination for cause is generally more adverse than the termination for convenience. Under EJCDC C-700, the owner can terminate the contract for cause if the contractor fails to perform the project in accordance with the contract document that includes supplying skills works, equipment, a suitable material, and progress schedule. Moreover, the owner may terminate the contract for cause if the contractor violates a provision of agreed contract document. However, the owner must notify the contractor 7 days before the termination of the contract. After 7 days of the written notice, and the contractor corrects the error, the contractor services will not be terminated.

However, under AIA A20, a government can terminate work by convenience if there is a national emergency. Moreover, if the owner fails to issue payment or certificate of payment, the contract can be stopped for convenience. While there are similarities between the EJCDC C-700 and AIA A201, the fundamental difference between the two contract agreements is that that the AIA A201stipulates that there should be a written notice of 30 days before the contract termination, however, the EJCDC C-700 stipulates written notification of 7 days before the contract termination.