
    TOBIN QUARRIES, INC. v. THE UNITED STATES
    [No. 46433.
    Decided July 11, 1949]
    
      
      Mr. Frank L. Martin for the plaintiff. Messrs. John M. Martin and Martin <& Martin were on the briefs.
    
      Mr. John B. Miller, with whom was Mr. Assistant Attorney General 3. G. Morison, for the defendant.
   Madden, Judge,

delivered the opinion of the Court:

On April 11, 1940, plaintiff entered into a contract with defendant to construct a rock-fill dike extending from Moose Creek Butte to Tanana Biver in Alaska. In the construction of this dike the plaintiff was required to get the rock from Moose Creek Butte, which was represented to be “a solid rock formation.” . The specifications required that 90 percent of the rock placed in the dike should range in size from % cubjlc foot to 1 cubic yard, and that rock weighing less than 25 pounds should not exceed 10 percent of the total.

It turned out that the rock in the butte was quite friable, and it proved impossible to get rock of the required size without excessive waste. The contractor called this condition to the attention of the contracting officer and asked for a change in the specifications and for compensation for all the rock excavated, whether placed in the dike or not. The contracting officer made an examination of the site and issued Change Order 1, which permitted the placing in the dike of rock weighing less than 10 pounds, instead of 25 pounds, to the extent of 15 percent of the total volume, but the Change Order made no allowance for the excessive waste already encountered.

However, even under this Change Order it was found impossible to secure rock of the required sizes without excessive waste, and the contracting officer then issued Change Order 2, which further modified the specifications to permit the use of quarry-run rock, irrespective of size, except between certain stations in the dike. This Change Order, however, required both faces of the dike to be armored with rock not less than 14 cubic foot in size and with smaller rock, which was not to exceed, however, 15 percent of the volume. Later, the plaintiff asked for a further modification of the specifications due to its inability to secure the required sizes, and finally Change Order 3 was issued eliminating the necessity for armoring the dike on its down-stream face, as required in Change Order 2, except between certain stations. The contract was completed under this Change Order.

The plaintiff sues for its excess costs incurred prior to the issuance of Change Order 2, and also from the time the cost of performance under Change Order 2 became excessive until it was relieved from its requirements by Change Order 3. It also sues for another item to be mentioned later.

The plaintiff sues on the ground that the Government misrepresented the character of the rock in the butte, and also that the plaintiff was entitled to an equitable adjustment of compensation under Article 4 of the contract, because it encountered unforeseen conditions during the progress of the work.

There was no intentional misrepresentation on the part of the Government. There was innocent misrepresentation, but that is only another way of saying that the Government, as well as the plaintiff, was unaware, at the time the contract was made, of the true character of the rock in the butte. The fact that the plaintiff was required by the contract to get its rock from the butte shows that both parties supposed that the rock to be obtained there was suitable for the work, and could be used on a reasonably economical basis. Neither party expected that, to get proper rock from the butte, great quantities of material would have to be picked over, most of which would have to be disposed of as waste. We think, therefore, that the problems of misrepresentation, and of unf oreseen conditions not contemplated by the parties really constitute a single problem. And we think that unforeseen conditions, within the meaning of Article 4 of the contract were encountered.

The Government urges that the following provision, contained in each of the three change orders,

It is further understood and agreed that all other terms and conditions of said contract shall be and remain the same,

forecloses the plaintiff from any relief under Article 4. We do not agree. This provision, usual in change orders, is not inconsistent with the continuing right of a contractor to have the benefit of other contract provisions, such as Article 4. A change order, in a particular case, might be intended as a settlement of an asserted right under that article, and if so, it would have that effect. Here there is no showing of such an intent. The change orders looked only to the future, and contained no provision except what was regarded as adequate to keep the contract work going in the future. There was no element of compensation in them for already incurred costs due to-unforeseen conditions. And they did not eliminate Article 4 for the future, if still further unforeseen conditions should be encountered. The extensive conversations and correspondence which, took place between the plaintiff and the officials of the Government do not indicate that either party intended the provision in the change orders to constitute a waiver by the plaintiff of its right to relief under Article 4. If the Government officials had so intended, the short answer to the plaintiff’s claim would have been to say that the matter had already been settled. Instead, the matter was carried along for some two years, and was concluded by a decision of the Chief of Engineers that “a changed condition has not been shown”. This conclusion was not based upon any finding of fact by the Contracting Officer, to which the plaintiff was entitled under Article 4. The Contracting Officer could not have made such a finding, in view of the reports which his own agents had made to him. Since the Government did not follow the procedure provided in the contract for the making of administrative decisions, the question is open for our decision on the merits. We think that the decision of the Chief of Engineers was wrong, and that the plaintiff was entitled to an equitable adjustment under Article 4. We have allowed the plaintiff, on this item of its claim, the difference between what it cost it to do the work and what it would have cost it if the unforeseen conditions had not been encountered. As shown in Finding 50, this difference is $23,658.63.

As shown in Findings 38, 39, and 40, the Government, in issuing Change Order No. 3, reduced the price to be paid for quarry-run rock from the contract price of $1.09 to 60 cents per cubic yard, which change the plaintiff protested, saying that it would be accepted only so that it would be possible for it to finish the job. We think that, in the circumstances, the Government had no right to so change the contract price, and that for it to insist upon the reduction at a time when the plaintiff was so involved in the job that it had no choice in the matter, amounted to economic coercion. The plaintiff should receive the amount of which it was deprived by the reduction, which is $6,384.21.

The plaintiff may have a judgment for $30,042.84. It is so ordered.

Howell, Judge; LittletoN, Judge; and Jones, Chief Judge, concur.

Whitaker, Judge,

dissenting:

I dissent. My view of the case is set out in the opinion heretofore filed.

At the time the first change order was issued plaintiff had pending a request for a change in the specifications for future work and an additional payment for work already done. The change order was issued in response to this claim. It was a settlement of it. It lowered the specifications for future work, but made no allowance for work already done. Instead, it said that “all other terms and conditions of the contract should remain the same.” This I think constituted a denial of the claim for an additional payment for work already done.

The fact that the contracting officer and the head of the department did not raise this defense does not prove, in my opinion, what the majority says it proves, because the contracting officer who ruled on the claim after the work had been finished was a different person from the one who issued the change order. There is no showing that he knew what was in the mind of the contracting officer who issued the change order.

His failure to raise this defense is not a waiver of it. A Government officer has no right to waive a defense available to the Government except in the compromise of a claim. No compromise is involved here.

OPINION OP MARCH 7, 1949

The opinion referred to in Judge Whitaker’s dissenting opinion above was as follows:

Whitaker, Judge,

on March 7,1949, delivered the opinion of the court:

On April 11, 1940, plaintiff entered into a contract with defendant to construct a rock-fill dike extending from Moose Creek Butte to Tanana River in Alaska. In the construction of this dike plaintiff was required to get the rock .from Moose Creek Butte, which was represented to be “a solid rock formation.” The specifications required that 90 percent of the rock placed in the dike should range in size from y2 cubic foot to 1 cubic yard, and that rock weighing less than 25 pounds should not exceed 10 percent of the total.

It turned out that the rook in the Butte was quite friable, and it proved impossible to get rock of the required size without excessive waste. The contractor called this condition to the attention of the contracting officer and asked for a change in the specifications and for compensation for all the rock excavated, whether placed in the dike or not. The contracting officer made an1 examination of the site and issued Change Order 1, which permitted the placing in the dike of rock weighing less than 10 pounds, instead of 25 pounds, to the extent of 15 percent of the total volume, but the Change Order made no allowance for the excessive waste already encountered.

However, even under this Change Order it was found impossible to secure rock of the required sizes without excessive waste, and the contracting officer then issued Change Order 2, which further modified the specifications to permit the use of quarry-run rock, irrespective of size, except between certain stations in the dike. This Change Order, however, required both faces of the dike to be armored with rock not less than % cubic foot in size and with smaller rock, which was not to exceed, however, 15 percent of the volume. Later, plaintiff asked for a further modification of the specifications due to its inability to secure the required sizes, and finally Change Order 3 was issued eliminating the necessity for armoring the dike on its downstream face, as required in Change Order 2, except between certain stations. The contract was completed under this Change Order.

Plaintiff sues for its excess cost incurred prior to the issuance of Change Order 2. It also seeks its excess costs from the time the cost of performance under Change Order 2 became excessive until it was relieved from its requirements by Change Order 3. It also sues for another item to be mentioned later.

Plaintiff sues on the theory that the Government misrepresented the character of the rock in the butte.

There is no doubt about the fact that the rock was exceedingly friable. It was so friable that it would often break into fragments when struck by a steam shovel, or when being hauled, or when it was dumped. The Government’s inspector reported as follows:

As a result of the blasting the quarry run is at present composed of about 20 percent dirt, 50 percent rock weighing less than 25 pounds, and 30 percent rock weighing more than 25 pounds.

Defendant, nevertheless, says that its representation that the butte was a solid rock formation was correct, and it introduced quite a good deal of testimony to this effect. It introduced two contractors who had bid on the job, who so testified, and also a number of Government engineers. Plaintiff’s testimony, in rebuttal, is not convincing. We are of opinion that the butte was a solid rock formation, as the Government had represented it to be.

However, we think the Government’s representations went further than this. We think the Government impliedly represented to bidders that the rock in the butte was suitable for the purpose for which it was to be used, that is to say, that the contractor could secure from this butte rock of the required sizes without excessive waste.

The contractor was not at liberty to get its rock wherever it might choose. It was required to get it from this butte and it was required to get rock of certain sizes. It must be inferred from this, it seems to us, that the Government thereby impliedly represented that such rock could be obtained without excessive waste. Indeed, two of the Government’s engineers so testified.

Colonel Talley was a colonel in the United States Army, and at the time of his testimony was the District Engineer of Louisville Engineers District. During a part of the time the contract was being performed he was the Executive Officer of the Portland, Oregon, Engineering District. In company with Colonels Lee and Dunn he made an inspection of the operations at Moose Creek Butte. He testified that this butte was a solid rock formation. “But,” he said, “when we speak of a butte or quarry site being solid rock we mean that the rock in it is solid.” He was then asked:

How solid would you say? Solid enough that it would be feasible and practical enough to use it for the purpose for which the contract is being awarded?

His answer was: “Yes.” He was further asked:

* * * you think in this particular case when you say Moose Creek Butte is a solid rock formation that they meant to convey tbe impression that the rock was sufficiently solid rock to be reasonably suitable for the use the contractor expected to make of it?

His answer was: “That is correct,”

Mr. Lottsfeldt was the resident engineer on this particular construction. He testified that Moose Creek Butte was a solid rock formation, but he was asked:

I asked you if the definition of solid, in your opinion, is one that would mean this rock is sufficiently solid to be suitable for the purpose for which it was to be used?

His answer was: “As far as I am personally concerned, it would, yes.”

When this contractor bid on the work we think it had a right to assume that it could secure the requisite sizes of rock from this butte without excessive waste. As the report of the Government’s inspector shows, quoted above, only 30 percent of the rock in the quarry came up to the required sizes. Seventy percent of it was either below the required size or was dirt. The dirt could not be used at all, and rock weighing less than 25 pounds could not be used to a greater extent than 10 percent.

The Government’s representations, therefore, were not correct, and the contractor was misled thereby. However, there is no proof that the Government knew at the time it made these representations that they were false; it was merely mistaken, and when it discovered that a mistake had been made and that the required sizes of rock could not be obtained without excessive waste, it amended its specifications, three different times, to meet the conditions as they developed.

It was recognized in the contract that subsurface or latent conditions might be encountered which were unknown at the time the contract was entered into and which might be materially different from the conditions which were supposed to exist, and that is what happened. It was for this reason that article 4 was incorporated in the contract, which provided for a modification of the contract to meet conditions that might be disclosed during the progress of the work.

When these latent conditions were discovered, showing that the specifications could not be complied with without excessive waste, the contractor called this condition to the attention of the contracting officer, as it was required to do by article 4, and the contracting officer in due time issued change orders modifying the specifications. But the contractor, in addition to calling the changed conditions to the attention of the contracting officer, also asked to be paid for all the rock excavated whether or not it had been placed in the dike; in other words, it asked for the equitable adjustment provided for in article 4. Inasmuch as the conditions encountered differed materially from those which were supposed to exist, and had been represented to exist, the contractor was entitled to an equitable adjustment. It was not only entitled to a modification of the specifications for work to be done from then on, but it was also entitled to payment for the excess cost it had incurred by reason of running into conditions different from those represented and which it had a right to expect.

Since an equitable adjustment for work already done was not made, we would hold the contractor was entitled to recover except for the terms of the change orders and the contractor’s acceptance of them. Each of the three change orders which modified the specifications for work to be done from then on contained this provision:

It is further understood and agreed that all other terms and conditions of said contract shall be and remain the same.

And it was further said:

If the foregoing modification of said contract is satisfactory, please note your acceptance thereof in the space provided below.

All three change orders were accepted by the contractor in the following language: “The foregoing modification of said contract is hereby accepted.” The last one, however, was accepted under protest against the decrease in the amount to be paid for quarry-run rock. This will be mentioned later.

Although the contractor was entitled to an equitable adjustment for work already done, nevertheless the contract was modified only as to work to be done in the future, and it was expressly stated that all other terms and conditions of the contract should remain the same, and this was accepted by the contractor.

This, in our opinion, forecloses it from now demanding for the work done prior to the issuance of the change orders more than the price set out in the contract. If the contractor intended to insist on payment for the rock excavated which did not come up to the required sizes, it should have accepted the change order reserving the right to do so. Since it accepted it without qualification, we think it is foreclosed from now demanding the payment upon which it insists.

When Change Order 3 was issued permitting the contractor to use an estimated amount of 38,000 cubic yards of quarry-run rock, the unit price was reduced from $1.09 to 60 cents. When this change order was accepted the contractor protested against this reduction. We think the reduction was unauthorized. That quarry-run rock had to be used was the result of the Government’s mistake in thinking that rock of the specified sizes could be secured from the butte. Plaintiff should not be penalized for using smaller sized rock when the required sizes were not reasonably available, as the defendant had represented they would be. A total of 13,029 cubic yards of quarry-run rock were placed in the dike, for which plaintiff has received a unit price of 60 cents per cubic yard. It is entitled to an additional 49 cents per cubic yard for this amount of rock, or a total of $6,384.21. Judgment for this amount will be entered. It is so ordered. 
      
      Vacated.
     