The Tunnel Boring Machine (“TBM”) known as “Bertha,” built by Hitachi Zosen Corp in Osaka, Japan, was the world’s largest TBM at 57.5 ft. in diameter.  The TBM was built to drill the Seattle SR 99 Viaduct replacement tunnel.  Seattle Tunnel Partners (“STP”) has a contract with the Washington State Department of Transportation (WSDOT) to dig the two-mile tunnel which is now complete.

In December of 2013, tunneling was stopped ostensibly because a 119 ft.-long, eight-inch diameter steel well casing halted the TBM.  See 2/15 Blog “Bertha is Stuck and She Remains Mired in Controversy.”  Reports are that WSDOT installed the pipe in 2002 to measure groundwater levels and the pipe was allegedly mentioned in the reference material provided to bidders.  STP had assumed that the pipe had been removed until the steel casing got stuck in Bertha’s cutting teeth, halting progress.  See 1/30/14 Blog “Big Bertha Stuck: Differing Site Condition Principles Revisited.”  STP had a design-build contract with WSDOT.  The contract contains a Differing Site Conditions (“DSC”) clause pursuant to which if the contractor can prove that the eight-inch pipe was an unforeseen condition (not disclosed in the contract documents), and that the unforeseen condition caused the TBM’s failure, STP is entitled to an equitable adjustment of its contract.

The TBM breakdown caused an almost two-year delay to the Project.  Not only did STP, its subcontractors, WSDOT, and others incur substantial extended duration costs, there were significant costs associated with the repair of the TBM.  Current estimates are that STP and its subcontractor claims are over $480 million, and WSDOT is alleging administration, rent, and engineering costs due to the delay of $120 million.

In May of 2015, a three-person Dispute Review Board (“DRB”) decided that the eight-inch steel well casing within the work zone was not adequately identified in the contract, thus recognizing it as a differing site condition.  Generally, as is the case here, recommendations made by a DRB are not legally binding, they are merely the first step in a contract-mandated process to aid the owner (WSDOT) and contractor (STP) in resolving a dispute.  However, WSDOT has historically accepted DRB decisions, and the DRB’s decision would at least be admissible (and likely authoritative) in any court proceeding (for further discussion of the effect of the DRB’s decision, see our prior blog article). Regardless, simply having a decision in STP’s favor that the eight-inch pipe is a DSC does not automatically mean that STP will prevail in its request for an equitable adjustment.  STP must still demonstrate that the cause of the TBM breakdown was related to the DSC (eight-inch steel pipe).  Here is where the interests of the parties diverge and where significant posturing is occurring. There are a number of potential outcomes here, some of which include:

  1. The DSC caused the TBM to breakdown:STP still carries the burden to demonstrate that the DSC was the cause of the TBM breakdown. If it does so, STP will likely be awarded a significant equitable adjustment (aka STP will prevail). STP’s damages will be paid by WSDOT, which is likely to be borne by the State’s taxpayers unless WSDOT can shift that liability to the engineering firm that failed to show the offending eight-inch pipe in the drawings.
  2. The DSC did not cause the TBM to Fail:  If STP fails to demonstrate that the eight-inch pipe caused the TBM breakdown, and this is a very likely outcome (See Seattle Times article), the taxpayers of the State of Washington will breathe a sigh of relief, and STP will have to direct its request for payment to others. There are several scenarios that would play out if this is the case:
    • Under-designed TBM: WSDOT has already gone on record that it believes that Bertha was under designed.  See 8/12/15 Blog: Governor Inslee Flashes His Cards as to Defenses Against Tunnel Contractor. In August 2015, Governor Inslee, in defending WSDOT in an interview, indicated that the State would be assessing STP liquidated damages and making a counterclaim against STP for the under-designed TBM. In support of its case, WSDOT has already noted that over 100 tons of new steel was added to the TBM along with reconfiguring the electronics of the machine, as mentioned in the Governor’s interview. WSDOT’s position is that the TBM was inadequately designed to begin with, and that the eight-inch pipe was not the cause of the TBM breakdown.
    • Insurance Recovery: STP is seeking recovery from its insurers.  Both the insurance company and the State of Washington are named in the lawsuit in which STP is asserting its $480 million in damages. Insurance companies from whom STP is seeking recovery (STP is seeking recovery both from its insurers and those of WSDOT) argue that they are not required to cover damage to Bertha that is self-imposed.  The insurance companies contend that STP and Hitachi Zosen knew the TBM was inherently flawed in 2013, but arranged to blame the eight-inch steel pipe as the cause of the damage.  Bertha did overheat and stall on December 6, 2013, three days after the eight-inch pipe got tangled in the machine’s cutting teeth.  The insurance companies have found internal emails, notes, and deposition testimony, through legal discovery, that they argue indicates that STP and Hitachi Zosen were well aware of the design limitations of Bertha.  Since adding the steel (86 tons of new steel and the refurbished drives) and electronics to the TBM, Bertha has performed flawlessly and finished the tunneling.   The insurers have hired a Germany-based engineering firm that has concluded that Bertha was “under dimensioned” for the extreme Seattle soil loads when it was first built in Japan (see Seattle Times article).
    • Hitachi Zosen’s Liability: Irrespective of what the root cause of the breakdown was, we can expect that STP will vigorously pursue Hitachi Zosen.  As a manufacturer of a piece of equipment (the TBM), we can expect that the contract between Hitachi Zosen and STP will be front and center in any litigation, particularly damage limitation clauses and waivers of consequential damages will be come into play.

There are also numerous subcontractors and suppliers to STP who have been significantly damaged by the two-year delay to the Project, and who bear no fault for the TBM’s breakdown.Irrespective of the outcome of the legal action of STP, WSDOT, and the insurance companies, these subcontractors who sustained significant extended duration damages in the two-year shutdown, will make claims against STP and its Project payment bond to protect their long-term interests.

As the legal proceedings wind their way through the courts, the posturing of the parties is being played out in the local press.Political careers and significant damages hinge on the outcome of these questions which will have precedential value for construction law for many years in the future.

Source: AC Lawyers

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