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