A Design Omission Does Not Automatically Create a Contract Ambiguity

Dick Pacific/GHEMM, JV (“Dick Pacific”) was the general contactor for the $138.3 Bassett Hospital at Fort Wainwright, AK.  The owner of the project was the U.S. Army Corps. of Engineers.  Dick Pacific subcontracted the installation of the medical case work to ISEC, Inc. for $2.1 million.

The disputes arose from contract drawings which showed a set of steam prevacuum sterilizers enclosed within walls depicted by unlabeled double lines.  One drawing, that of equipment and furniture, had unlabeled double lines on both sides of, and enclosing, two sets of two vacuum steam sterilizer equipment.  Another drawing, the interior elevation plan, did not include any wall designations.  Dick Pacific took the position that the unlabeled double lines represented a wall or item of equipment that was to be supplied and installed by a follow-on contractor.  The technical specifications, however, called for stainless steel modular walls encasing the prevacuumed sterilizers.

Dick Pacific submitted a request for information to obtain the designation of the wall type.  The Corps responded that the technical specifications provided sufficient information and that no increase in the contract or time was justified for modular walls.  Dick Pacific submitted a proposed change order for stainless steel walls and indicated it would not proceed with the work unless directed.  The Corps. took the position that the modular walls did not constitute a change to the contract.  Dick Pacific, through its contractor ISEC, completed the walls and submitted a change order request for $99,479 for the construction and delay costs.  The Corps. denied Dick Pacific’s request and the matter was appealed to the Armed Services Board of Contract Appeals (ASBCA).

One of Dick Pacific’s arguments on appeal was that the Contract Documents were subject to more than one reasonable one interpretation, thus, the contract was ambiguous.  It reasoned that any contract ambiguity should trigger the order of precedence clause, which expressly stated that the contract drawings governed over the technical specifications.  The technical specifications were last in order of importance in the order of precedence clause.  The Corps. countered by arguing that despite the omission of a wall labeled in the drawings, the contract specifications and drawings read as a whole clearly required modular walls.  It contended that even if there were an ambiguity, Dick Pacific had a duty to make an inquiry or seek bid clarification.

The ASBCA found that the specifications and drawings reasonably read, as a whole, required modular walls for the sterilizers.  It relied primarily on several sections of the technical specifications that designated both sterilizers and modular walls as contractor installed equipment, defined the fabrication requirements for the walls and cited the wall layout on the drawings.  Although the drawings failed to show what type of wall was to be installed, the Board found that the depiction of the sterilizers on the drawings made it reasonably clear that modular walls were required in those locations.  The Board found no ambiguity in the contract.

This case provides important guidance to the industry on what is often a confusing issue.  Some parties think that an order of precedence clause creates an automatic solution to a contract interpretation dispute.  That is however not the case.  First the contractor must demonstrate that the contract documents are contradictory before it can resort to the order of precedents clause.  In this instance, the ASBCA found that the contract documents interpreted together, were not ambiguous and therefore, did not resort to the order of presence clause.

Dick Pacific/GHEMM JV, ASBCA No. 55806, 2007 WL 3265023

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