Asphalt Roads & Materials Co. v. Commonwealth

Present: Carrico C.J., Compton, Lacy, Keenan, Koontz, and
Kinser, JJ., and Whiting, Senior Justice

ASPHALT ROADS & MATERIALS
COMPANY, INCORPORATED
OPINION BY
v. Record No. 980805 SENIOR JUSTICE HENRY H. WHITING
FEBRUARY 26, 1999

COMMONWEALTH OF VIRGINIA,
DEPARTMENT OF TRANSPORTATION, et al.

FROM THE COURT OF APPEALS OF VIRGINIA

The dispositive issue in this appeal is whether a

provision in a construction contract allows extra compensation

to a contractor for certain additional work on a highway

project.

In June 1992, Asphalt Roads and Materials Company,

Incorporated (Asphalt Roads) contracted with the Virginia

Department of Transportation (VDOT), an agency of the

Commonwealth, to widen a section of Landstown Road in Virginia

Beach. The contract incorporated by reference VDOT's "January

1991 Road and Bridge Specifications" and any amendatory and

supplemental specifications. Section references herein will

be to the "1991 Road and Bridge Specifications," as amended

and supplemented.

Asphalt Roads subcontracted with Kevcor Corporation

(Kevcor) to install the utility pipes in conformance with the

terms of Asphalt Roads' contract with VDOT. The contract
required the contractor to remove and replace any soil that

was unsuitable for use as backfill under the utility pipes. 1

The contract drawings indicated that there were 940 cubic

yards of such soil. However, during excavation, Kevcor

discovered that there were many more than 940 cubic yards of

unsuitable soil and VDOT's inspector required that Kevcor

remove and replace that extra unsuitable soil with "borrow,"

which is defined by § 101.02 as “[s]uitable material from

sources outside the roadway.”

Asphalt Roads, on behalf of Kevcor (collectively the

contractor), claimed additional compensation for the excess

unsuitable material that was discovered, removed, and replaced

with borrow. Agreeing that the contractor was entitled to a

part of its claim, VDOT paid for the removal of some of the

material as an "unforeseen condition" covered by § 104.02. 2

VDOT also paid for some of the backfill under § 303.06(d)

(quoted later herein). VDOT declined to pay the balance of

1
Section 101.02 defines backfill as "[m]aterial used to
replace or the act of replacing material removed during
construction; may also denote material placed or the act of
placing material adjacent to structures."
2
Section 104.02(a) provides, in pertinent part:
"Alterations of Quantities[.] [VDOT's] Engineer reserves the
right to make, in writing, at any time during the work, such
changes in quantities and such alterations in the work as are
necessary to satisfactorily complete the project." (Emphasis
added.)

2
the claim for a number of reasons, some of which are involved

in this appeal.

After exhausting the administrative remedies provided by

Code § 33.1-386, the contractor sued VDOT in the Circuit Court

of the City of Virginia Beach under the provisions of Code

§ 33.1-387. At issue was the contractor's right of recovery

and, if it had such a right, how much borrow had been required

and how much unsuitable material had to be removed and

disposed of.

The circuit court resolved these factual disputes by

holding that the contractor was entitled to payment for an

additional 8,657 cubic yards of backfill and 8,807 cubic yards

of unsuitable material. The court adopted VDOT's contention

that compensation for the backfill should be awarded at the

contract-stated unit price of $6.18 for select borrow and

awarded the contractor $53,500.26 on that claim. 3 With regard

to the disposal of unsuitable material, the court adopted the

contractor's contention that compensation should be in the

amount of $11.16 per cubic yard, the unit price stated in the

contract for the disposal of similar materials, and awarded

the contractor $98,286.12 for that claim.

3
Section 101.02 defines select borrow as "[b]orrow
material that has specified physical characteristics."

3
 On VDOT's appeal, the Court of Appeals reversed the

portion of the judgment awarding the additional compensation,

affirmed a part of the judgment, and remanded the case for

further proceedings on issues not material here. We awarded

the contractor an appeal limited to the hereinafter described

issues. 4

Here, the dispute is whether the Court of Appeals

properly denied the contractor's described claim for extra

compensation for excavating, removing, and replacing

unsuitable material under and around the utility pipes. Among

other things, the contractor contended that §§ 104.03 and

303.06 applied, not only to allow the claim, but also to fix

the amount of the contractor's compensation. 5 The Court of

4
Because this case originated before an administrative
agency, the judgment of the Court of Appeals is ordinarily
final and not subject to further appeal. Code § 17.1-410.
However, we granted this appeal because we consider the
primary issue involved to be a matter of significant
precedential value. Id.
5
We reject VDOT's contention that the contractor did not
assert the differing site conditions clause either in the
trial court or in the Court of Appeals. Our inspection of the
record indicates that the contractor argued that § 104.03 was
the applicable section on several occasions. First, the
contractor introduced written correspondence with VDOT into
evidence in which it asserted that § 104.03 was applicable.
Second, at least one witness was specifically questioned by
the contractor's counsel about § 104.03. Third, the
contractor argued that § 104.03 was the applicable term on
page 10 of its brief in the Court of Appeals. And indeed, the
same attorney for VDOT who contends here that the differing
site conditions clause was not asserted by the contractor in
the courts below specifically responded to that contention

4
Appeals adopted VDOT's contention that §§ 302.04 and 520.06

were the controlling sections and that they did not provide

for extra compensation.

For the reasons which follow, we do not think that

§§ 302.04 and 520.06 control or conflict with the sections

relied upon by the contractor to sustain its claim. As

pertinent, §§ 302.04 and 520.06, both entitled "Measurement

and Payment," provide generally that excavating, backfilling,

disposing of unsuitable material, and restoring existing

surfaces, are included in the contract unit price for pipe.

However, neither deals specifically with the problems at hand,

as do the sections relied upon by the contractor.

First, we decide whether the contractor is entitled to

compensation for the backfill that had to be obtained from

offsite sources to replace the unsuitable material. VDOT

argues that §§ 302.04 and 520.06 preclude the payment of

additional sums for obtaining borrow to replace the excess

unsuitable soil removed by the contractor. For the following

reason, we find no merit in this contention.

Section 303.06, also entitled "Measurement and Payment,"

provides, in subsection (d) that:

when asserted by the contractor not only in his oral argument
for VDOT in the trial court, but also in VDOT's brief in the
Court of Appeals.

5
 Furnishing and placing backfill material,
including backfill for undercut, will be included in
the price for excavation. . . unless. . . suitable
material is not available within the construction
limits. When suitable backfill is not
available within the construction limits, the
material furnished and placed by the Contractor will
be paid for in accordance with Section 109.05.

Section 303.06 is specific in providing that when

suitable backfill is not available on the job site, the

contractor will be compensated for the backfill provided from

off-site sources. Hence, we hold that § 303.06 authorizes

additional compensation to the contractor for having provided

the additional backfill material. Accordingly, the trial

court did not err in allowing additional compensation for that

claim.

Next, we consider whether the contractor is entitled to

additional compensation for removing and disposing of the

excess unsuitable material. The contractor claims that it is

entitled to such compensation under § 104.03, the differing

site conditions clause. That section provides, in pertinent

part, that

[d]uring the progress of the work, if subsurface or
latent physical conditions are encountered at the
site differing materially from those indicated in
the contract,

then upon notification to VDOT and its determination that the

conditions are materially different, "an adjustment, excluding

6
anticipated profit, will be made and the contract modified" to

compensate the contractor for the contractor's increased cost.

The purpose of the differing site conditions clause and

similar clauses, described in a number of cases as the

"changed conditions clause," has been stated in several cases.

The North Carolina Court of Appeals, for example, has stated

that its purpose is "[t]o encourage low, competent bids," Ray

D. Lowder, Inc., v. North Carolina State Highway Comm'n, 217

S.E.2d 682, 696, (N.C. Ct. App.) cert. denied, 218 S.E.2d 467

(N.C. 1975).

Similarly, the Court of Claims stated that the purpose of

the clause was:

[T]o take at least some of the gamble on
subsurface conditions out of bidding. Bidders need
not weigh the cost and ease of making their own
borings against the risk of encountering an adverse
subsurface, and they need not consider how large a
contingency should be added to the bid to cover the
risk. They will have no windfalls and no disasters.
The Government benefits from more accurate bidding,
without inflation for risks which may not eventuate.
It pays for difficult subsurface work only when it
is encountered and was not indicated in the logs.

Foster Constr. C. A. & Williams Bros. Co. v. United States,

435 F.2d 873, 887 (Ct.Cl. 1970).

Although the differing site conditions clause included in

the contract at issue must be included in most federal highway

construction contracts pursuant to 23 C.F.R. § 635.109 (1997),

apparently VDOT voluntarily inserted the clause to obtain its

7
benefits in securing the lowest competent bids. VDOT does not

question the wisdom and utility of the differing site

conditions clause, but instead contends that it does not apply

to mere increases in government-estimated quantities of

material as distinguished from the character and nature of

materials. We disagree.

Since we apparently have not been confronted with this

issue and the clause in question is similar to those in

federal construction contracts, both parties cite, and we

consider, cases arising under those contracts. Although VDOT

cites cases allegedly supporting its contention that changes

in quantity are not cognizable under the differing site

conditions clause, we note that most of those cases deal with

substantially different factual situations. We think that the

better view is expressed by the following statement of the

Court of Claims:

The legal conclusion of the Appeals Board that
a 39 percent overrun [in clearing all trees and
brush along a 20 mile stretch of a river], in the
facts and circumstances of this case, was a material
change and warranted a price adjustment [under the
change of conditions clause], is supported by
numerous decisions in this court. To do otherwise,
and hold the contractor to its original lump-sum
bid, would negate one of the prime reasons for
incorporating a "changed condition" article into
these contracts, i.e., "to induce bidders not to
increase their prices to cover possible misfortunes
which might result from unforeseen developments."
This is true even though the Army attempted to

8
 protect itself by inserting caveatory and
exculpatory provisions in the contract.

Schutt Construction Co., Inc. v. United States, 353 F.2d 1018,

1021 (Ct.Cl. 1965) (internal citations omitted).

We think that whether the changed conditions are

“conditions . . . differing materially from those in the

contract” under § 104.03 is a question of fact regardless of

whether the claimed changes result in quantitative or

qualitative changes to the work to be performed.

Even so, VDOT argues that the contractor has failed to

make the necessary showing that it could not reasonably have

ascertained from information available to it at the time of

bidding that there would be an excess amount of unsuitable

soil. Part of the evidence suggests that the contractor's

employees should have anticipated the excessive amount of

unsuitable material which would be encountered from their

excavation experience of similar nearby areas. On the other

hand, the contractor's employees testified that there was no

practical way of ascertaining whether there was much more

unsuitable soil to excavate than that contemplated by the

contract.

Thus, the evidence conflicted on this issue, and that

conflict has been resolved by the trial court's decision

9
implicitly rejecting VDOT's contention. 6 Since credible

evidence supports that decision, we, as the reviewing court,

must reverse the judgment of the Court of Appeals and

reinstate the circuit court's judgment on that issue. See

Rogers v. Marrow, 243 Va. 162, 166, 413 S.E.2d 344, 346 (1992)

(circuit court must reinstate jury verdict if credible

evidence to support it).

Next, VDOT argues that the Court of Appeals correctly

applied § 102.04 to deny the claim on the ground that this

section made the contractor responsible for any alleged excess

quantities of unsuitable soil. As pertinent, § 102.04

provides:

The submission of a bid will be considered
conclusive evidence that the bidder has examined the

6
Although the record does not indicate which section of
the specifications the trial court applied in awarding a
judgment on this claim, in the absence of clear evidence to
the contrary in the record, we presume that it correctly
applied the provisions of Code § 104.03 to the facts and that,
in doing so, it resolved any conflict in the facts in favor of
the contractor. See Bottoms v. Bottoms, 249 Va. 410, 414, 457
S.E.2d 102, 105 (1995) (absent clear evidence to contrary in
record, appellate court assumes trial court correctly applied
law to facts and also views facts in light most favorable to
party prevailing in trial court).
We do not think that the trial court could have made an
award under § 104.02 as set forth in the concurring opinion,
because these were not "changes" that were made by VDOT's
engineer, as expressly provided in that section and no such
"changes" were made in writing, as further provided in that
section. Indeed, VDOT, in making its payment of a part of
these claims, characterized them as arising from an
"unforeseen condition," one of the predicates for payment
under § 104.03.

10
 site of the proposed work, proposal, plans, standard
drawings, specifications, . . . and any other
documents specified in the proposal before
submitting a bid and is satisfied as to the
conditions to be encountered in performing the work
and requirements specified in the proposal.

. . . .

The submission of a bid will be considered
conclusive evidence that the bidder is satisfied
with regard to the subsurface conditions to be
encountered in the work.

Additionally, VDOT notes other warnings in § 102.04 which

advise bidders that the available subsurface data are accurate

with regard to test borings only and disclaim any warranty

regarding subsurface conditions or the condition, amount, or

nature of the material which may be encountered.

We reject these contentions. If we applied these

sections to the change of condition shown in the evidence in

this case, we would render meaningless the language of

sections like § 104.03 and negate their salutary purposes.

See Schutt Constr. Co., 353 F.2d at 1021. For these and other

reasons, a number of cases have rejected similar contentions

dealing with the relation of clauses like § 102.04 to clauses

like § 104.03. See e.g., United Contractors v. United States,

368 F.2d 585 (Ct.Cl. 1966); Fehlhaber Corp. v. United States,

151 F. Supp. 817 (Ct.Cl.), cert. denied, 355 U.S. 877 (1957);

Ray D. Lowder, Inc., 217 S.E.2d 682; Morrison-Knudsen Co. v.

United States, 397 F.2d 826 (Ct.Cl. 1968).

11
 Finally, and contrary to VDOT's contention, we conclude

that since § 104.03 applies to a specific situation,

"differing site conditions," it controls, rather than the

general language in §§ 302.04 and 520.06. We hold, therefore,

that the contractor was entitled to additional compensation

for the disposal of the excess material under § 104.03 of the

contract.

For these reasons, we will reverse the judgment of the

Court of Appeals, which reversed the circuit court's judgment

awarding $151,786.38 to the contractor on the above claims.

We will also enter final judgment in favor of the contractor

on those claims, as provided in the judgment of the circuit

court. 7 We will remand the case to the Court of Appeals for

its remand to the trial court for further action in

conformance with the balance of the opinion of the Court of

Appeals.

Reversed,
final judgment in part,
and remanded.

JUSTICE LACY, with whom JUSTICE KOONTZ and JUSTICE KINSER
join, concurring.

7
Because neither VDOT nor the contractor questioned the
trial court's computation of the amounts due the contractor,
the Court of Appeals did not, and we will not, review the
trial court's method of determining the amount of extra
compensation due to the contractor.

12
 I concur with the majority's conclusion that contract

§ 303.06(d) entitled Kevcor to additional compensation for

backfill because that section specifically authorizes payment

for backfill brought onto the site from off site in accordance

with the provisions of § 109.05. This specific section of the

contract overrides the more general contract provisions relied

upon by VDOT, §§ 302.04 and 520.06, which do not address

additional compensation for backfill acquired off site.

Because Asphalt Roads did not appeal the amount of additional

compensation awarded by the trial court for backfill, I agree

with the majority and would reinstate that part of the trial

court's judgment awarding Kevcor $53,500 for the backfill.

Section 303.06, does not address additional compensation

for disposal of unsuitable material. I disagree with the

majority's conclusion that § 104.03, the Differing Site

Conditions Clause of the contract, is the source of such

compensation. The majority reached its conclusion through a

two-step process. First, it announces that the issue whether

the asserted changed conditions qualified as conditions

"differing materially from those in the contract" under

§ 104.03 was one of fact. And second, the majority concludes

that, in this case, the trial court resolved conflicting

evidence and made the requisite finding of fact in Kevcor's

favor, that is, that the site conditions differed materially

13
from those in the contract. Assuming, arguendo, that the

first step is correct, the record does not support a

conclusion that the trial court made the factual finding

asserted by the majority.

Although the trial court found that the evidence

supported the additional compensation, there is nothing in the

record that indicates that this conclusion was based upon an

application of § 104.03 or upon any finding by the trial court

of "materially different conditions." The absence of such a

finding is readily understood in light of the posture of the

case when it reached the trial court.

At the time the project was bid, VDOT, Asphalt Roads, and

Kevcor were aware that some of the material excavated would be

unsuitable for use as backfill. The contract estimated that

there would be approximately 940 cubic yards of material

unsuitable for backfill. During the course of the excavation,

however, VDOT's inspector informed Kevcor that none of the

material being excavated would be suitable for backfill. As a

result of this change, Kevcor had to remove the unsuitable

material and replace it with suitable backfill material

obtained from sources outside of the project and also had to

dispose of the unsuitable material outside of the project

area.

14
 VDOT, Kevcor, and Asphalt Roads engaged in many

discussions regarding compensation for the backfill Kevcor

brought to the site and the unsuitable material it disposed of

off site. At this time, Kevcor claimed additional

compensation under §§ 303.06 and 109.05 of the contract. VDOT

agreed that Kevcor was entitled to additional compensation

pursuant to § 104.02, entitled "Alteration of Quantities,"

which allows VDOT's engineer to change the quantities and make

alterations in the work which are necessary to complete the

project. 8

8
Section 104.02 of the contract provides:

The Engineer reserves the right to make, in
writing, at any time during the work, such changes in
quantities and such alterations in the work as are
necessary to satisfactorily complete the project. Such
changes in quantities and alterations shall not
invalidate the contract nor release the surety, and the
Contractor agrees to perform the work as altered.

If the alterations or changes in quantities
significantly change the character of the work under the
contract, whether or not changed by any such different
quantities or alterations, an adjustment, excluding
anticipated profits, will be made to the contract. The
basis for the adjustment shall be agreed upon prior to
the performance of the work. If a basis cannot be
agreed upon, then an adjustment will be made either for
or against the Contractor in such amount as the Engineer
may determine to be fair and equitable.

At the option of the Engineer, the Contractor may
be directed to accomplish the work on a force account
basis in accordance with the provisions of Section
109.05 of the Specifications.

15
 However, a dispute arose between the parties over the

amount of backfill needed and the amount of unsuitable

material disposed off site for which additional compensation

was due. In quantifying its claim, Kevcor asserted that it

had delivered 18,742 cubic yards of backfill and disposed of

the same amount of unsuitable material off site. VDOT

insisted on measuring the compensable amount of backfill by

using the PB-1 Pipe Bedding "X" dimensions as shown in the

contract. Using that measurement, VDOT agreed to pay, and did

pay, Kevcor for about half of the amount of backfill claimed

by Kevcor, but refused to pay for the remainder. Kevcor

If the alterations or changes in quantities do not
significantly change the character of the work to be
performed under the contract, the altered work will be
paid for as provided elsewhere in the contract.

The term "significant change" shall be construed to
apply only to the following circumstances:

(1) When the character of the work as altered differs
materially in kind or nature from that involved or
included in the original proposed construction or

(2) when a major item of work, as defined elsewhere in
the contract is increased or decreased more than 25
percent of the original contract quantity. Any
allowance for an increase in quantity shall apply
only to that portion in excess of 125 percent of
original contract item quantity, or in case of a
decrease below 75 percent, to the actual amount of
work performed or

(3) When overruns and underruns of piling amount to more
than 25 percent of the original bid quantity,

16
asserted that it was entitled to payment for the additional

9,323 cubic yards of backfill.

Kevcor, in its claim letter dated October 16, 1995,

asserted that payment for the backfill was not limited by the

measurement applied by VDOT, arguing that neither

§§ 303.06(d), 109.05, nor any other provision in the contract

limits the compensation for additional backfill to the amount

measured by the PB-1 Pipe Bedding "X" dimensions. Kevcor also

asserted that, under OSHA standards, it was required to

protect workers by "means of sheeting, shoring, bracing or

sloping the sides of the trenches" in which they worked.

Kevcor explained that it was "physically impossible for a

contractor to comply with the minimum "X" dimension for

bedding and maintain that trench width to the top of the

excavation and also provide the necessary protection for

workers" as required by OSHA standards. Thus, Kevcor

concluded that VDOT erroneously limited its additional

compensation for both the backfill and the disposal of

unsuitable material to the PB-1 Pipe Bedding "X" dimensions,

and that Kevcor should be paid for an additional 9,323 cubic

yards of backfill and for the off-site disposal of an

additional 9,323 cubic yards of unsuitable material.

whether or not such item has been designated as a
major item. 11-19-91 104(d)

17
 Thus, Kevcor claimed it was entitled to an additional

amount of $56,497.38 for the backfill and $103,112.38 for the

off-site disposal of the unsuitable material based on $11.16

per cubic yard. 9 VDOT refused to pay this claim.

Kevcor, through Asphalt Roads, appealed VDOT's denial of

claim to the Commissioner of Transportation, pursuant to the

administrative review procedure provided by Code § 33.1-386.

The Commissioner also denied the claim, and Asphalt, on its

own behalf and on behalf of Kevcor, filed its motion for

judgment in the Circuit Court of the City of Virginia Beach.

Following an evidentiary hearing, the trial court stated

from the bench that "the evidence established that Kevcor was

entitled to additional compensation" for the backfill and

disposal of unsuitable material, "although not as much, I

would suspect, as [Asphalt] feels that it should have been

entitled to on behalf of its subcontractor Kevcor." The court

went on to award $53,500.26 for the backfill and $98,286.12

for the disposal of unsuitable material, for a total of

$151,786.38. While the trial court stated that the amount

"breaks down to" 8,657 cubic yards at $6.18 per cubic yard for

the backfill and 8,807 cubic yards at $11.16 per cubic yard

9
Although Kevcor also maintained it was entitled to
approximately $10.00 a cubic yard for the backfill under
§ 109.05 of the contract, it agreed to accept the contract
unit price for select borrow of $6.06 per cubic yard.

18
for the disposal of unsuitable material, the trial court did

not indicate the source of these figures or the specific

contract provision that authorized the additional

compensation.

The dispute before the trial court was over VDOT's

assertion that it only had to pay for the amounts as measured

by the PB-1 Pipe Bedding "X" dimensions. In resolving this

dispute, the trial court stated only that it believed the

evidence established a right to additional compensation. This

statement, given the posture of the case, indicates that the

trial court determined only that VDOT and the Commissioner

were wrong in limiting the amount of material for which Kevcor

was entitled to compensation to the PB-1 Pipe Bedding "X"

dimensions. Nothing in the record, in my opinion, indicates

that the trial court found that the additional 9,000 cubic

yards that had to be disposed of off site was a "materially

different condition" under § 104.03 of the contract.

The specific contract provision that authorized this

additional payment was not the crucial issue in the trial

court. 10 VDOT had already paid Kevcor for approximately 9,000

10
In its brief before the Court of Appeals, Asphalt Roads
asserted that the only issue which could be decided by the
trial court was the claim submitted to and denied by the
Commissioner, specifically Asphalt Roads’ attempt to obtain
the difference between the actual cost of supplying suitable
backfill from off site and disposing of unsuitable material

19
cubic yards of unsuitable material deposited off site under

§ 104.02. 11 It logically follows that the trial court assumed

that the authorization for payment of the additional

compensation it awarded was also § 104.02.

This record does not support the conclusion that the

trial court made a factual finding that the site conditions

were materially different than those in the contract. It

does, however, support the trial court's decision that Kevcor

was entitled to additional compensation for the amount of

unsuitable material it disposed of off site, and that such

compensation was not limited to amounts set out in the PB-1

Pipe Bedding "X" dimensions.

Accordingly, I would reverse the decision of the Court of

Appeals and reinstate that portion of the trial court's

judgment awarding Kevcor $98,286.12.

and the amount allowed and paid by VDOT. VDOT did not seek a
set-off or counterclaim for amounts it had already paid.
Virginia Code § 33.1-387 restricts the trial court to a review
of the claims denied by the Commissioner.
11
The record contains a number of documents authored by
VDOT indicating VDOT's understanding that off-site disposal
would be compensable under § 104.02. Similarly, there are a
number of documents authored by Kevcor and Asphalt Roads that
claimed compensation for the off-site disposal under § 104.02.

20