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E.C. ERNST CO. v. KOPPERS CO.

August 13, 1979

E.C. ERNST COMPANY, INC., Plaintiff
v.
KOPPERS COMPANY, INC., Defendant



The opinion of the court was delivered by: SNYDER

This contract action between E. C. Ernst, Inc. (hereinafter "Ernst"), an electrical subcontractor, and Koppers Company, Inc. (hereinafter "Koppers"), the general contractor, arises out of a sophisticated multi-million dollar construction project (hereinafter "the Project") at the Aliquippa Works of the Jones & Laughlin Steel Corporation (hereinafter "J&L"). The matter was heard non-jury and requires interpretation and application of the Purchase Order (hereinafter "P.O.") awarded by Koppers to Ernst for the electrical work at the J&L coke oven battery A-5 being constructed to provide a unique method for preheating and delivering coal to furnaces for the production of steel. Many difficulties were encountered, ranging from the necessity of not interfering with J&L's plant operations, to the removal of price controls which delayed procurement of supplies, and involving numerous change orders during the entire construction period. At the same time, consideration had to be given by Koppers to the successes and failures being experienced at a "model" project being built almost simultaneously at Inland Steel, and being incorporated at Aliquippa.

As might be expected, each party blames the other for delays, for engineering failures, for lack of participation in necessary scheduling and coordination, and for inadequate personnel and supervision, particularly in light of the importance of prompt completion of the work. Ernst, having been paid the major portion of its contract, now claims $ 2,325,705 in Count I of its Complaint for additional expenses by reason of the voluminous changes in the scope of the work; $ 1,484,000 in Count II for extra labor resulting from the many drawing revisions; $ 9,581.64 in Count III for certain additional work performed at Koppers' direction; plus $ 60,430 admittedly retained by Koppers. Koppers counterclaims for $ 1,730,886 for support personnel it provided to complete the job on time, premium time paid to Ernst to prevent delays in the completion date (which it claims were due to Ernst's inefficiency), premium time paid for early check-out which had been delayed by Ernst, and an inefficiency charge for its employees who worked premium time.

 I. FINDINGS OF FACT

 COUNT I

 1. Ernst is a District of Columbia corporation with its principal place of business located in Washington, D.C., and is qualified to do business in Pennsylvania. Ernst is engaged in industrial and commercial electrical construction work throughout the United States, with branch offices here involved in Pittsburgh and Ambridge, Pennsylvania.

 2. Koppers is a Delaware corporation with its principal place of business in Pittsburgh, Pennsylvania, and is engaged, Inter alia, in the business of concept and design engineering, and in general contracting services for heavy industrial organizations, such as the basic steel industry.

 3. The amount in controversy here exceeds sums in excess of $ 10,000, exclusive of interest and costs.

 4. In June of 1973, Koppers entered into an agreement with J&L to design, engineer, and construct on a "turn-key" basis an A-5 coke oven battery and related facilities at Aliquippa, Pennsylvania, to produce coke for use in the steel making process at a cost of $ 46,587,650, to be functional by June 17, 1975.

 5. At the time of the J&L-Koppers Agreement, Koppers was constructing a coke oven battery of similar concept for Inland Steel in Indiana, and Koppers' specifications for the Project developed in April and May of 1973 were based on Koppers' own expertise, J&L input, the know-how developed from handling problems as they arose at the Inland site, and from experience gained from an experimental plant operating at Ironton, Ohio. The Inland design, and thus the J&L design, was unique in its method of preheating coal and charging the furnaces. It was Koppers' intention to utilize the Inland engineering as much as possible, and, indeed, much of the process engineering at the Project was taken from Inland. The J&L-Koppers Agreement, dated June 12, 1973, stated that Koppers would duplicate the work done by it at the Inland site. However, all parties contemplated changes for adaptation to the Project.

 6. The coke battery at the Project differed from the conventional facilities by incorporating novel techniques. The ovens are similar to conventional facilities. The principal differences are the method of charging the ovens with coal and the preheating of the coal prior to charging. The process involved a structure known as a preheat facility. Crushed coal is taken from barges, on a conveyor and fed into coal storage bins located in the preheat structure. From there it is processed through a pulverizer which reduces the coal to dust size particles. The pulverized coal is then heated by blowing heated air through it to raise the temperature to approximately 500o F. The preheated coal is then fed into charging bins. In conjunction with the heating process, recovery techniques and equipment are used to remove coal dust from the heated air which is then recycled. This coal dust is added to the charging bins. The bins are then pressurized using steam, and the preheated coal is blown by steam through a pipe known as the charging pipe into the ovens. No leveling is required because of the fluid nature of the preheated coal. The remainder of the coking process is similar to the conventional method, with the exception that an advantage is realized from the preheated coal in that coking time is reduced.

 7. Inland became operational in August of 1974, but changes continued to be made through August of 1975 in order to overcome experienced difficulties, all of which, to some extent, were reflected in changes at the Project.

 9. After entering into the Agreement with J&L, Koppers immediately undertook the initial steps for demolition of existing facilities and relocation of utility lines. Concurrently, Koppers' engineers commenced the design and engineering for the Project, while its Procurement Department began ordering equipment and materials as they were identified by the Engineering Department. This technique is known in the construction industry as the "fast track" method, its purpose being to reduce the time between conception and operation. Both Ernst and Koppers were familiar with, and had previously used, the fast track method.

 10. Koppers' Engineering Department developed plans and specifications for the work to be subcontracted, including the installation of the electrical materials. On January 11, 1974, an electrical bid package containing specifications, drawings, equipment lists, arrangement and single line drawings, flow diagrams, instructions to bidders, and other materials was issued to prospective bidders.

 11. Koppers separated the electrical work into various work areas, such as wet coal handling, preheat, and the like. When the initial package was issued, drawings and other information were not yet available for all work areas, and the bidders were asked to submit quotes on each of the areas as completed.

 A. The Purchase Order

 12. On April 25, 1974, Ernst made a bid on the electrical work of $ 3,356,800. The resultant subcontract was based on a Purchase Order issued by Koppers to Ernst on June 4, 1974, Purchase Order No. 2463-2-002.

 13. A variety of reasons, which will be described later in greater detail, contributed to an increase in the cost of the Project and an extension of Ernst's performance date beyond the targeted charge date of June 17, 1975. Essentially, it was changes dictated by the experience at the Inland site, requests from J&L, and coordination and engineering failures on Koppers' part that eventually increased the estimated man hours by more than 100%.

 14. The price of materials and fabrication rose dramatically during the construction period, when nationally fixed price controls were lifted, increasing the final costs.

 15. As a result of the lifting of price controls, delays were encountered in obtaining materials, primarily structural steel, and many suppliers and fabricators were unable or unwilling to meet delivery dates and prices which had been agreed upon earlier. We find, however, that the lifting of Federal price controls did not create an unforeseeable major difficulty which would excuse Koppers' late performance in the procurement of machinery and equipment.

 B. Trade Interferences

 16. In order to qualify for an investment tax credit, J&L demanded that the facility be operative by January 1, 1976. To meet this deadline, Koppers and its subcontractors were required to complete a project which had been expanded 70% In scope, in a time framework expanded only 27%; a "crash program" was created to complete the job.

 17. The Engineering Department of Koppers was 15.7 weeks late in developing final drawings, causing further time constraints.

 18. As a result of the crash program, 654,000 hours of direct labor were added by the Koppers' forces, originally projected at 928,000 (including 110,000 man hours anticipated for electrical work); this work was performed by over 450 men of various trades. More than two-thirds of this was committed in the last six months of the Project; half of Ernst's work was performed in the last six months.

 19. This crash program resulted in delays to Ernst caused by trade interferences, both from other trades, the so-called "stacking of trades", and from being forced to work in a "stop and go" fashion on work beyond the scope of the P.O.

 C. The Critical Path Method

 20. The initial bid package included a current computer printout of the electrical activities, so that the electrical contract bidders could plan their volume, distribution, and peaks. This is known as the Critical Path Method (hereinafter "CPM"); it divides a project into separate work activities which, when shown in diagram form ("networks"), direct the sequence of job progression and reflect the interrelationship and dependency among the activities. This arrangement is referred to as the "network logic". Each activity is assigned a duration, from which expected and required starting and completion dates are calculated for each activity in relationship to all activity durations and network logics, in order to meet the charge date. As the work progresses, the CPM is updated and revised through computer adjustment, normally on a monthly basis.

 21. Koppers developed the CPM schedule for the Project to coordinate the engineering, procurement, construction and final checkout phases. There were more than 100 CPM network logic diagrams on the Project, containing approximately 10,000 activities, some 340 of which were electrical.

 22. As has been noted, the target date for charging the Project's battery ovens was initially June 17, 1975, and the CPM was adjusted forward and backward from that date, "the forward and backward pass".

 23. As part of the electrical bid package, as noted above, Ernst received the then current CPM drawings and computer printouts listing the electrical activities; on May 30, 1974, the CPM showed the Project to be approximately six weeks behind schedule.

 24. In August of 1974, Ernst submitted man power schedules which included the estimated man power requirements based on Ernst's analysis of the current CPM schedule.

 25. The P.O. provided as to the CPM: "Seller agrees to follow the plan as currently shown and to perform the work in the allotted time designated as activity duration. Seller agrees to suggest revisions to the network plan that in his judgment would be mutually beneficial; time being of the essence."

 26. The original CPM schedules provided for major construction activity to commence in the early fall of 1974, and Ernst, being a "follow on" contractor who must of necessity follow other contractors, was dependent upon the availability of work areas. On August 22, 1974, Koppers' CPM analysis showed that of 339 "total activities" for the electrical contractor, 332 were not available. As of October 17, 1974, 329 activities could not start, on November 14, 1974, 317 could not start, and by January 9, 1975, 282 activities could not be started, far less than the original CPM schedule contemplated.

 27. The P.O. required that a qualified person be assigned by Ernst to work with the CPM because special training and knowledge are required to properly maintain and utilize the CPM as a planning and scheduling tool.

 28. Ernst did not fully participate in the CPM, particularly toward the end when it became apparent that Koppers was no longer using the CPM as a control method. But, in any event, Koppers had resident engineers whose direct function was updating the CPM, and Ernst's failure to do so had no effect in causing delays in the performance of its contract. Koppers' engineers were at all times familiar with the exact progress of the electrical subcontract and were, in fact, updating that progress on the networks.

 29. After September 18, 1975, the CPM was replaced, as requested by J&L, with a more detailed construction and operating check-out schedule in bar chart form. Ernst was provided with copies of these bar charts, to which no input from Ernst was required.

 30. We find no evidence on the record that Ernst failed to perform adequate forward planning and scheduling with regard to work availability in sequence, material procurement, and man power requirements.

 D. The Seasonal and Premium Time Claim

 31. Ernst was required to work well into the winter of 1975 because of the massive changes in the scope of the work not contemplated by the P.O.; this second winter was not anticipated.

 32. As a result of changes in the scope of the work beyond the P.O., and because of the overriding desire of Koppers and J&L to complete the Project, Ernst was required to put in premium time work.

 E. The Supervision Problem

 33. Ernst's top field supervisor on the Project was Howard Miller, who was also in charge of Ernst's work for other contractors in other areas at the Aliquippa Works.

 34. While Howard Miller was absent from the Project job site during the summer of 1975, due to the terminal illness of his wife, there is no proof that Miller's absence caused inefficiency or failure to perform by Ernst.

 35. As soon as Koppers complained about the situation (Miller's absence), Ernst's Ambridge Branch Manager, Wallace McCracken, was sent to supervise the Project, and he immediately brought about substantial gains in the use of personnel. No provable delay to the Project resulted from lack of supervision by Ernst.

 F. Supporting Personnel

 36. Under the supplemental instructions to bidders, Koppers indicated they would not supply any supporting personnel (electrical engineers, materials supervisors, construction or electrical superintendents, etc.) "to the field installation". It was the bidder's responsibility to provide whatever type of personnel Required to complete the contract. Koppers did furnish supporting personnel who primarily interpreted Koppers' engineering drawings and the many change orders issued in light of the Inland experiences. It is the wages paid to these persons which forms the basis of Koppers' counterclaim against Ernst, and is part of their defense as to Ernst's performance.

 37. Throughout, Ernst manned the Project with sufficient personnel, although the Project was greatly accelerated in order to meet the January 1, 1976 final deadline.

 38. The wages paid to these men have nothing to do with the construction of the electrical facilities, but, to the contrary, were required through no fault of Ernst's failure to perform.

 G. Ernst Delays and Failure to Complain

 39. The CPM analysis letters showed electrical activities prominently on the top critical path, and the general comments to those letters indicated that Ernst had undermanned the job; we find, however, that this matter was taken up at job conferences and Ernst, in fact, procured additional manpower without delay to remedy the situation.

 40. Koppers' CPM expert, David Lee, contended that Ernst failed to perform activities as they became available. We find, however, that Lee failed to review a history of the constraints on a particular activity, and that this was a necessary part of a CPM review. We find that Ernst performed the work as expected by the CPM schedules. We further find that the causes of delay were late engineering, extended durations, additions in design, and procurement problems.

 41. Koppers contends that Ernst caused its own delays for a variety of other reasons: that they were working on another unrelated job for J&L at the Project site; in some instances the electrical work was incorrect; that they obstructed the single access road at one point; that they delayed in procuring certain equipment which they were responsible for ordering. However, we find the Defendant has not proved with any certainty that the effect of these actually delayed the project; the Plaintiff has proved the contrary.

 42. Koppers emphasizes that the minutes of meetings do not show complaints by Ernst as to the problems of delay and interference to Ernst by other trades. We find that the problems were discussed and worked out.

 44. In the minutes of the meeting of January 16, 1975, the following appears: "The purpose of the meeting was to review any outstanding problem that was preventing E. C. Ernst from completing his work as scheduled." Ernst stated it was "concerned of material shortages (example insulators)", and needed Koppers' engineers "to assist Ernst in the exact location of instruments and controls which are not located on Koppers drawings, Ernst was unable to keep the work area warm." Problems were thus being raised by Ernst.

 45. The effectiveness of the job site meetings is shown by a letter of T. B. Myers of Koppers to James K. Shannon of Ernst, which stated: "We intend to continue to expedite this project . . . and the details of the common coordination problems should be worked out in the scheduled field meetings."

 46. In the minutes of the meeting of January 30, 1975, this appears: "Mr. Adams (of Koppers) stated that Koppers was not getting the Quench Track as originally promised and the delays in obtaining same daily was seriously interfering with progress." Also, "E. C. Ernst stated they were concerned about steam from the Quench Cars forming ice on the Shed Steel causing hazardous working conditions." Also, E. C. Ernst demanded the check-out list as soon as possible to make certain they were "installing equipment, etc. in the sequence required". E. C. Ernst "stated they were encountering many delays due to both structural and mechanical interferences."

 H. The 30 Day Clause

 47. The P.O. contains a provision that claims for extra work, where such work was not the result of "deviations" between J&L and Koppers, would be submitted to Koppers within 30 days of Ernst's receipt of the request for extra work.

 48. Shannon wrote Koppers' Beale on May 30, 1975 and asked Koppers to waive the clause. Beale did not respond to that letter. Beale's testimony was contradictory as to whether he spoke with Shannon about the May request. On July 2, 1975, Shannon again wrote to Beale stating that since there had been no response to his first letter, Ernst assumed that Koppers deemed the clause waived. Again, there was no written response, although Beale circulated the letter among several of Koppers' Departments.

 49. Koppers' Moran claims to have told Shannon, prior to the May 30th letter, that the clause would not be waived. No memorandum was made of this alleged conversation, despite the practice of both Moran and Beale to record even the most trivial of telephone conversations. Beale, who testified of being told of the alleged conversation, did nothing to remind Shannon of it upon receipt of Shannon's letters.

 50. When Beale received the drawing revision claim, he promptly advised Moran, who told him to circulate it and the supporting price sheets to the various Koppers' Departments. Neither man told Ernst that the clause precluded consideration of the claim. If Jones, Moran and Beale and Koppers considered the clause a bar to any part of the claim, such views were not communicated to Ernst.

 51. The Ernst claim was the subject of extensive negotiations between Ernst and Koppers. At no time after the presentation of the claim, during the negotiations or prior to this suit, did Koppers assert that the claim or any portion of it could not be advanced by reason of the so-called "30 day clause". Koppers did not even discuss the clause internally after July of 1975.

 52. We find that the conduct of Koppers in failing to insist on the 30 day notice provision in light of their "approved for construction" orders to proceed and their failure to reply to Shannon's letters, prevents Koppers from now using this clause as a bar to Ernst's actions.

 53. Koppers alleges that they inquired whether the $ 1,484,000 claim for drawing revisions constituted Ernst's entire claim on the Project, and Ernst did not indicate that it had any other claims. Koppers avers it was completely surprised by the additional claims which were made. We find that Koppers was not surprised by the claims because Koppers' personnel stated they realized the extent of the many claims Ernst could make. We find that Ernst is not estopped from asserting these additional claims.

 54. In its Count I damage calculations, Ernst has employed what is known as the "total cost" method. Aside from the fact that the $ 2,325,705 claimed seems to have nothing to do with Ernst's "total cost," we find the approach itself is invalid. Ernst fails to prove specific amounts of delay and damages allegedly attributable to specific acts or failures by Koppers.

 55. The figure of 82,980 hours, which Ernst uses as its original estimate of hours to complete the work, has no basis in fact. The figure is an average, calculated in 1977 by Ernst's claims expert, R. P. Anthony, of three different man power estimates prepared by Ernst in or about August of 1974.

 56. Ernst's hypothetical allocation of unpaid journeyman hours, on the basis of the number of drawing revisions received per year, is invalid. Not all drawing revisions required work by Ernst, and not all revisions caused an equal amount of work. This artificial method of allocation is not a proper substitute for specific proof.

 57. Ernst's calculation of its Count I damage is based, as noted above, on the total cost approach. This calculation includes approximately 10,000 hours expended by Ernst on the temporary light and power contract, which was not part of the P.O., not in suit here, and paid in full under the temporary contract.

 58. This finding makes the Ernst calculation of the Count I claim invalid as there is no method of calculating any figure for the remaining Count I claim.

 59. While premium time inefficiency is recoverable, Ernst has failed to prove any amount of damages attributable to such inefficiency.

 60. While labor escalation is recoverable, Ernst has failed to prove any amount of damages attributable to escalation of cost.

 COUNT II

 A. Drawing Revisions

 61. In 1973, when the Koppers bid was accepted by J&L, both parties contemplated duplicating, with very little re-engineering, the coke battery of unique design being constructed by Koppers for Inland Steel Company. Even the CPM method of scheduling for the J&L Project was based upon scheduling done for the Inland job. The 231/2 month estimate was agreed to because Koppers thought much of the Inland engineering could be followed, and the Agreement between J&L and Koppers stated that Koppers' work would duplicate that being done at Inland; when bids were received from electrical subcontractors, they were reviewed by Koppers in light of its Inland experience.

 62. When the Inland plant attempted to "push coke" in August 1974 (several months after the effective date of the subcontract between Ernst and Koppers for the J&L coke oven), serious and extensive problems were experienced: motors burned out, dust conditions caused explosions and fires, and mechanical difficulties plagued the plant's operations. In addition, there was a time overrun of nearly one year on the Inland job. Because of the Inland problems, Koppers formed a committee to analyze the difficulties, and the work of this committee resulted in engineering revisions at the J&L Project, which continued throughout the performance of Ernst's work, almost until the completion of the Project in January 1976.

 64. The drawing revisions affected Ernst's ability to perform its work in a normal and efficient manner, and some of the revisions were issued by Koppers after Ernst had completed the work shown, requiring Ernst to rip out and replace work already done. This had a detrimental effect on other work in progress on the Project.

 65. While the drawings as issued were not and were never intended to be complete, it is clear that the additions and revisions contemplated by the parties did not include the massive changes brought about in the scope of the work by Koppers.

 66. The instructions to bidders stated that the drawings would be issued for construction as engineering progressed and could be revised. But the revisions made here are found not to have been within the original scope of the work, and thus not covered by the instructions to bidders.

 67. No request for quotation was made to Ernst for the revisions, nor was any written authorization given to proceed with specific work; rather, plans were marked "approved for construction".

 68. Because of the frequency of drawing revisions, the time involved in comparing bid drawings with revisions and in pricing extra materials that such revisions might require, and the paramount desire of Koppers and J&L, communicated daily to Ernst, to complete the Project, Ernst generally proceeded with the work required rather than making drawing price proposals to Koppers. We find Koppers acquiesced in this procedure knowing that revision claims would be made.

 69. James Johns, Claims Manager for Ernst, examined the drawings as they came in; after construction began most revised drawings were stamped "approved for construction". These were distinguishable from bid drawings, which were stamped "for bidding purposes". Late in May, 1975, Johns and four other Ernst estimators began comparing the latest drawing revisions with the original bid drawings, and lists were made showing the materials which had been added to or deleted from the bid drawings. Where there was no comparable bid drawing with which to make comparison, lists were compiled showing the new materials required.

 70. These lists or pricing sheets were turned over to a single Ernst estimator, Shadler, who reviewed the sheets to eliminate duplications, and then priced the materials using either recent invoices Ernst had paid for such materials or the catalogues of trade suppliers. Credit was given to Koppers by Ernst for materials deleted at the same price as similar materials were added, except in the case of wire and cable where nominal or no credit was given for deletions, since such material could not be returned by Ernst to the supplier. A similar credit policy was used for other equipment which had been purchased by Ernst and which could neither be returned nor readily used elsewhere. We find this accounting procedure to have been proper under all the circumstances. If material was supplied by Koppers, no price was noted by Ernst on its pricing sheets either as a charge or credit, and the prices charged by Ernst for materials it provided were the fair market prices then in effect for such material.

 71. Shadler then computed the hours of journeyman electrician labor necessary to install such material based on Ernst's experience and the estimator's judgment of the Project conditions and difficulties ...


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