Defective Track and Unwanted Repairs Give School Lesson In Contract Law
John T. Wolohan
Athletic administrators enter into contracts on an almost daily basis for everything from employment to services to facilities. However, long gone are the days when administrators could establish contracts with a simple handshake. Today, with the help of lawyers, administrators regularly negotiate complex contracts designed specifically to protect the organization. For example, in construction contracts, it is now common to include clauses covering everything from who inspects and signs off on all completed work, the date by which all work must be completed before financial penalties begin to accrue, and the allocation of pre-judgment interest and attorneys' fees.
A good example of why including such clauses in construction contracts is important is Gettysburg School District 53-1 v. Helms and Associates [751 N.W.2d 266 (S.D. 2008)]. In early 2002, the Gettysburg (S.D.) School District entered into a contract with Bituminous Paving for the construction of an outdoor running track and with engineering firm Helms and Associates for the design and inspection of the track's construction. Bituminous Paving's contract with the district required the company to remove the old track, prepare the base of the new track, and lay the new asphalt running surface by the required deadline of September 2002. While Bituminous appeared to have completed the project by the specified date, it failed to adequately compact the soil sub-base and gravel layer that was designed to support the asphalt top. As a result, shortly after Bituminous completed its work, the district's athletic director and track coach reported noticeable problems, including uneven lanes and depressions in the surface. Bituminous was notified of the defects on Oct. 22.
The following spring, Helms provided Bituminous a punch list of needed repairs to the track, including fixes to depressions in the asphalt, uneven surface cracking and areas that held water. Bituminous completed its repair work in August 2003. Shortly thereafter, the school district again reported that the repair work did not fix the problems, and arguably made them worse. Bituminous once again offered to repair the defective areas, and Helms followed up with a letter to the school district on April 1, 2004, proposing how Bituminous could address the known surface deficiencies in the track. The district conditionally accepted Helms' proposal, and Helms wrote up the agreement on May 25, directing Bituminous to complete five specific work items by Aug. 15.
While the district was negotiating with Helms, it asked Sam Fisher, a certified track builder and owner of Boone, Iowa-based Fisher Tracks Inc., to inspect the track's defects. On June 10, Fisher faxed two reports to the district that raised concerns about whether the needed repair work set forth in Helms' letter to Bituminous would address the track's underlying structural defects. According to Fisher, trying to fix or patch the track's structural faults would be nearly impossible.
Reacting to Fisher's concerns, the superintendent of the school district contacted Bituminous and instructed the company not to return to the track or to perform any of the proposed repair work. A full year later, on Aug. 8, 2005, the district officially rescinded the agreement with Bituminous and voted to bring an action against both Helms and Bituminous because of the underlying structural defects and ineffective repairs.
Helms settled with the district prior to trial. The trial jury, however, determined that Bituminous had breached its agreement with the district by negligently constructing the track, and awarded the district $215,500 in total damages, of which it allocated 70 percent liability to Bituminous and the other 30 percent to Helms. The district was also awarded prejudgment interest, statutory costs, disbursements and attorneys' fees. As a result, the final judgment against Bituminous totaled $278,450.
On appeal to the Supreme Court of South Dakota, Bituminous argued that the district should be barred from bringing a claim because it had failed to provide Bituminous with the contractually required seven days written notice of any defects in the track prior to bringing a lawsuit for its defective work.
The court, however, rejected Bituminous' notice argument. In support of its holding, the court stated that under the terms of the agreement, Bituminous was sufficiently provided notice of the known defects and had the opportunity to correct them. Even though additional defects later became apparent to the district (through Fisher's inspection), the court ruled that the district was not obligated to amend the previous notices of defects — especially, the court held, since the full scope of the defects did not become fully known to the district until the discovery phase of litigation.
Bituminous also argued that under a contract provision that made Helms "the initial interpreter" of the contract requirements and "judge" of the work's acceptability, the district was required to seek a decision from Helms prior to filing suit. In holding that the district followed the contract provision, the court noted that the district provided notice to Helms of deficiencies in the work and that Helms, in turn, conveyed to Bituminous a plan of what must be done to remedy the district's concerns. In addition, the district allowed Helms and Bituminous an opportunity to repair the defective track. Having learned of the defects from Fisher, the district had a contractual right to reject Helms' and Bituminous' plan to repair the track, and to sue for recovery under the contract.
The court also noted that since Helms was also being sued for its own negligence, the contract could not require the district to submit its dispute to the engineer. The court noted that the district did not bring this action until nearly three years after the initial completion date of the project and after the final payment had been approved. During that time, the court found, both Helms and Bituminous were provided ample opportunity to remedy the defects. In fact, only when all of Helms' and Bituminous' attempts to repair the problems had failed and the district realized that the track could not be repaired, did the district reject the work. Therefore, it was unreasonable to require the district to submit its dispute to Helms. Nothing in the contract, the court ruled, contemplated infinite opportunities to repair a structurally defective project.
In reviewing the decision of the Supreme Court of South Dakota, athletics administrators should be able to learn a couple of valuable lessons. First, in order to protect your organization from costly construction delays, it is essential that you include a completion date. By including such a clause, the Gettysburg School District was able to put legal pressure on Bituminous to do the job quickly and correctly. Second, since lawsuits are costly, in order to recover as much money as possible, the contract should allow for the recovery of prejudgment interest, statutory costs and attorneys' fees. Third, despite the school district's victory in this case, a year is almost certainly too long to wait to file an action — let alone three. Finally, as the school district learned, in any construction contract, it is wise to require the use of third-party inspectors to sign off on completed work and payments. This not only removes a potential conflict of interest, but it also allows for another set of eyes to inspect the work and identify problems.
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