Chutzpah Fails To Persuade Massachusetts Appeals Court

It’s been about two months since I last posted. Just when I was beginning to think that the courts were never going to offer up anything of interest (at least of interest to me), along came the Massachusetts Appeals Court this week with its decision in Celco Construction Corp. v. Town of Avon, No. 13-P-1880, to remind us that parties who create their own messes usually don’t get relief from the courts.

In 2008, the Town of Avon solicited bids to perform work on a water main extension project. Celco Construction’s bid assigned a unit price of $0.01 as its charge to remove each cubic yard of rock from the site despite the fact that its actual cost to remove the rock was much higher. Celco based its bid on its belief that the amount of rock on site would be far less than the expressly unverified estimate contained in the bid documents and that its low unit price would give it a competitive advantage versus bidders assigning unit prices approximating their actual costs.

Initially, the gamble appeared to pay off – Celco was the successful bidder. Unfortunately, for Celco, the amount of rock on site ended up exceeding the estimate by over 1,500 cubic yards. When the Town rejected its request that the unit price for rock removal be increased from $0.01 to $220 per cubic yard, Celco sued.

Celco’s claim was for “equitable adjustment.” Under Mass. Gen. Laws ch. 30, § 39N, every public construction contract must include a provision allowing either party to request an adjustment in the contract price if, during the course of the work, it is discovered that “the actual subsurface or latent physical conditions encountered at the site differ substantially or materially from those shown on the plans or indicated in the contract documents.” Such a provision allows the contracting authority to obtain bids stripped of risk premiums used as hedges, while assuring bidders that they will be compensated in the event that subsurface or latent conditions impose greater costs than reflected in the bid documents.

Like the Superior Court, the Appeals Court had little difficulty sending Celco packing. The bid documents specifically stated that the amount of rock on site was “indeterminate,” and that the unverified estimate contained therein was solely for the purpose of allowing comparison of the submitted bids. Nor did Celco even suggest that the nature of the rock or the means and cost to remove it differed in any way from what as anticipated in the contract documents.

Most importantly, the court took Celco to task for the chutzpah of its argument, noting that it “defie[d] logic” for Celco to invoke equity as the basis for an adjustment to the contract price when its purported need for an adjustment was the product of its own conscious decision to bid a unit price having no basis in reality in its (ultimately successful) effort to be the low bidder. Celco’s argument was akin to the Melendez brothers seeking leniency for the murders of their parents because they were orphans. Thankfully, common sense prevailed and the court held Celco to the consequences of its own decisions.