Bertha: Contractor prevails on differing site-conditions issue – now what?

width=478By John Ahlers

Early this month the three-member Board appointed by WSDOT and Seattle Tunnel Partners (STP) to assist in resolving contractual disputes on the Alaskan Way Viaduct Replacement Project issued its latest recommendation. The question before the Board was narrow in scope: was an eight-inch steel well-casing within the work zone adequately identified in the contract? The Board determined that the well-casing was clearly identified in the contract but the contract documents did not clearly identify that the casing was made of steel. The DRB’s recommendation was that the contractor encountered a differing site condition.

The DRB’s recommendation states “This recommendation is not to be considered as providing any information or merit related to the question of any impacts or costs that might have resulted from this obstruction. This recommendation only addresses the specific question of whether or not the eight-inch steel well-casing is a differing site condition under the contract.” Generally recommendations made by a DRB are not legally binding. These recommendations are simply one step in a prescriptive (contract mandated) process designed to aid the owner and contractor in resolving contractual disputes. In addition to saying nothing about what damaged the tunnel boring machine (TBM) the DRB recommendation does not assign any costs related to this issue.

Not unexpectedly WSDOT and STP have different views of the DRB’s recommendation.

WSDOT’s Position: “It is important to emphasize that the specific question before the Dispute Review Board was narrow in scope and only addressed one issue: whether an existing eight-inch steel well-casing is a ‘differing site condition’ under the terms of the SR99 Tunnel Contract. The hearing on such recommendation did not deal with how the tunneling machine was damaged or the costs associated with repairs. The process of resolving disputes can be complicated and must follow the contract. WSDOT disagrees with the recommendation and does not consider this issue to be resolved. We are concerned with the reasoning used by the Dispute Review Board in reaching the recommendation. We are reviewing it and will continue to pursue the best interest of tax payers as we determine the appropriate next steps.”

STP’s Stance: “Seattle Tunnel Partners’ position was that the presence of the eight-inch diameter steel casing constituted a differing site condition under our contract with WSDOT. The Dispute Review Board’s recommendation supports and upholds Seattle Tunnel Partners’ position and represents one step in the prescribed process for resolving disputes under the contract. Seattle Tunnel Partners agrees with the recommendation. Seattle Tunnel Partners has advised WSDOT that Seattle Tunnel Partners has accepted the recommendation and considers this issue to be resolved.”

What This Means: As indicated DRB recommendations are not binding on either WSDOT or STP. Not unexpectedly STP embraced and accepted the DRB’s recommendation. It is now up to WSDOT whether or not to either ask for reconsideration or simply disregard the DRB’s recommendation and move to the next step in the dispute resolution process which is either some form of litigation or arbitration. Historically WSDOT has accepted DRB recommendations and it is likely that WSDOT will follow its longstanding practice of abiding by a panel of experts that it had a significant hand in choosing. Therefore it is unlikely that WSDOT will choose to “appeal” the DRB’s recommendation. If WSDOT did appeal the rule of contract provides that the DRB’s recommendation is admissible in any subsequent proceeding and it is very unlikely that a judge or even a panel of arbitrators would ignore the recommendation of the DRB which is composed of three highly respected engineering construction and tunneling experts.

The contractor establishing that the eight-inch steel well-casing was a differing site condition is a significant victory. However it is simply one battle and does not pre-stage the ultimate victory. The contractor still has the burden to demonstrate that the differing site condition (the eight-inch steel well-casing) caused the damage to the TBM and then establish what the nature and extent of the damage was to the TBM.  In other words to recover the contractor has to link the differing site condition to the damage to the TBM that ultimately led to the shutdown in December of 2013 and the delay of the project to likely October of 2015. There are a host of other reasons why the TBM may have suffered the damage it did including defects in the design of the Hitachi TBM misuse or mishandling of the operation of the TBM and other underground causes that may have contributed to or caused the damage.

Last week the Seattle Times reported that Bertha after having been dismantled has revealed more damage than expected. Apparently grit made its way into the rubber bearing seals steel casings around the seals broke apart and pinion gears and the teeth that spin the drill were cracked. The project that was supposed to restart tunneling in August of 2015 will likely now be postponed until (rumors have it) October of 2015.

Battle lines will form around the issue of causation. WSDOT will likely argue that the differing site condition and the damage to the TBM are independent and unrelated causes. STP’s position will likely be that the sole reason for all of the damage to the TBM was the eight-inch well-casing.

The effect as to who prevails in this dispute will be drastic on Washington taxpayers. The cost of the one-year delay to the project likely exceeds $100 million a significant bill for Washington taxpayers to swallow. Politicians and WSDOT representatives have assured taxpayers that they will not be left holding the bag with these tremendous expenses. STP is likely to bring its significant resources to bear in this battle in an effort to defray the costs not only STP’s costs but those of its many subcontractors and suppliers who have suffered over twelve months of delay to the project and all of the consequential costs to those many subcontractors and suppliers.

COMMENT: At this point it is unclear what the nature and extent of the damage is to the Hitachi TBM. Once that damage is assessed and a determination is made whether Bertha can continue on its route then if the TBM is considered fit to continue its path underneath Seattle’s waterfront there is one more “safe harbor” point in the tunneling process where STP will assess the prudence of proceeding forward. This “safe harbor” is approximately a thousand feet from the rescue hole. Once the TBM reaches beyond that “safe harbor” a rescue of the nature that has taken place in the last twelve months will no longer be feasible. Given the problems to date when the TBM reaches that last “safe harbor” the contractor WSDOT and Hitachi will likely have some deep soul searching to do as to whether Bertha continues on its underground mission or not.

John Ahlers is a founding member of Ahlers & Cressman and is a member of AGC’s Legal Affairs Committee.