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decided: March 11, 1974.


Appeal from the Order of a board of arbitrators in the case of Sanders & Thomas, Inc. v. Pennsylvania Turnpike Commission.


Kenneth M. Cushman, with him Howard D. Venzie, Jr., and, of counsel, Edward H. Cushman, John R. Rezzolla, Jay R. Braderman and Pepper, Hamilton & Sheetz, for petitioner.

Marvin Comisky, with him Gilbert Stein, Alan C. Gershenson, William E. Taylor, III, and, of counsel, Blank, Rome, Klaus & Comisky, for respondent.

Judges Crumlish, Jr., Kramer, Wilkinson, Jr., Mencer, Rogers and Blatt. President Judge Bowman did not participate. Opinion by Judge Rogers. Dissenting Opinion by Judge Mencer.

Author: Rogers

[ 12 Pa. Commw. Page 146]

The parties to this appeal are the Pennsylvania Turnpike Commission (hereinafter referred to as

[ 12 Pa. Commw. Page 147]

PTC), appellant, and Sanders & Thomas, Inc. (hereinafter referred to as S&T), appellee. The thing appealed from is an award to S&T by arbitrators appointed and acting pursuant to the Act of April 25, 1927, P.L. 381, 5 P.S. ยง 161 et seq.

The parties entered into a written agreement, prepared by PTC and dated June 30, 1969, for the performance by S&T of engineering and design services for new and revised toll collection facilities at nine interchanges at the eastern portion of the Pennsylvania turnpike. The agreement provided that S&T should be paid for its work a fee of 4 1/2% of the construction costs as determined from accepted bid prices on construction contracts, or, in the event that construction contracts were not awarded, the same rate of 4 1/2% of construction costs as estimated by the Chief Engineer of PTC. The contract further required, with regard to S&T's compensation, that PTC should make partial payments monthly based upon an estimated construction cost of $8,000,000. The contract contained the following provision crucial to this appeal: "VII. All questions or disputes respecting any matter pertaining to or arising out of this agreement or any part thereof or any breach thereof, shall be referred to a Board of Arbitration acting under the provisions of the Act of April 25, 1927, P.L. 381, as amended, consisting of a representative selected by each of the parties hereto and a third Arbitrator selected by them. In the event that the two Arbitrators selected by the parties are unable to agree as to the third Arbitrator, such third Arbitrator shall be designated by the American Arbitration Association."

PTC appointed another engineering firm, Michael Baker, Jr., Inc., as its consultant with regard to the work under S&T's contract and directed S&T to communicate with PTC through Baker.

[ 12 Pa. Commw. Page 148]

Several months after undertaking the work, S&T became aware that the $8,000,000 estimate of cost for what it was being asked to design was unrealistic. It provided PTC with a new cost estimate in the amount of $14,600,000 and offered to reduce its fee to 4.25%. By resolution made January 6, 1970, PTC accepted the revised estimated cost figure and approved the reduction of S&T's design fee to 4.25%.

In June and August of 1970 bids were taken for two of the facilities designed by S&T in consultation with Baker and the bids came in higher than expected. By November 1970, it became apparent to S&T that the construction cost for the work it was designing would approximate $27,000,000. It so informed Baker and it also offered to reduce its fee to 4.165% of this estimate. In January 1971, when its work was 96.7% completed, S&T billed PTC, through Baker, for services based upon a fee percentage of 4.165% of $27,153,047. Baker would not approve this payment until PTC approved.

In early April, 1971, S&T asked PTC to amend their agreement to provide a fee of 4.25% of $27,153,047. On April 27, 1971, PTC adopted a resolution approving an increase in the construction costs estimate to $21,000,000 and approved a fee of 3.5% for partial payment purposes.

Negotiations concerning the fee continued. On July 7, 1971 a conference for the purpose of resolving the differences was held, attended by the Chairman and one other Commissioner of PTC, PTC's General Counsel and his assistant, PTC's Chief Engineer, and representatives of both Baker and S&T. A memorandum of that meeting was prepared by one of Baker's representatives. Its accuracy as a report of what happened is not disputed and it was admitted into evidence by the arbitrators without objection by PTC's able assistant general counsel who had attended the conference.

[ 12 Pa. Commw. Page 149]

It includes the following sentence: "It was recognized by all present that due to additional cost escalation and as a result of more recent cost estimates, the latest construction cost estimate presented by Sanders & Thomas and in turn by the Commission's Chief Engineer, is 29.3 million." At this conference, S&T offered to settle for a fee of 4.1% of 29.3 million, or $1,201,300, and the PTC countered by suggesting a lump sum payment of $1,170,000. S&T accepted PTC's counter-offer and it was agreed that other Commissioners of PTC would be consulted by telephone and that if they concurred the settlement would be formally approved by the Commission at a meeting to be held on July 20, 1971. For reasons undisclosed in the record, PTC did not finally approve this settlement.

S&T, nevertheless, completed its work and on January 5, 1972 submitted a final bill computed as 4.25% of a construction cost estimate of $29,301,468, producing a total fee of $1,245,312.39. PTC having made progress payments in ...

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