CASE STUDY THREE $$ A ROCKY SITUATION $($Report required$)$

Party $1$: General Contractor $$ Peart Construction, Inc. $($Peart$)$

Party $2$: Subcontractor $$ Bonham Construction, LLC $($Bonham$)$

Party $3$: Second Tier Subcontractor $$ Hawkins Dirtworks, LLC $($Hawkins$)$

Project: Wind Farm Substation $$ Private Commercial

On June $3,2012,$ Gadd Wind Energy, LLC $($Gadd$),$ and Peart entered into a

written contract under the terms of which Peart was to construct for Gadd a substation to

be used in connection with an existing wind farm located in Southwest Oklahoma. Peart,

in turn, proposed a written, lump$-$sum subcontract to Bonham for the sitework, which

included, in part, mass excavation and fill operations. The subcontract contained the

following provision:

$12.[$Bonham$]$ shall be responsible to execute the work as

required regardless of the subgrade conditions. $[$Bonham$]$

understands that water tables and rock elevations vary

throughout the site and has satisfied themselves that they

understand and have accounted for these conditions within

their price. For the avoidance of doubt, there will be no

adjustment to price or schedule resulting from the existing

conditions.

A geotechnical report provided by Gadd which detailed the subsurface conditions,

also was furnished to Bonham for bidding purposes, along with project plans,

specifications and other information $$ all of which was incorporated by reference into the

proposed subcontract. After visiting the jobsite and considering the contract documents,

Bohnam submitted a bid to Peart, and the parties executed the subcontract. Simultaneously,

Bonham entered into a written $$labor$-$only$$ agreement with Hawkins, under which

Hawkins agreed to supply the equipment operators and laborers, while Bohnam supplied

the supervision, equipment, materials and all other items.

During performance of mass excavation, Hawkins and Bonham encountered a

substantial amount of rock which was not reflected in the geotechnical report and stopped

all excavation. Bonham$$s project manager reported the rock to Peart$$s project manager, as

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well as the fact that for all rock removed, a corresponding amount of select fill would be

necessary in light of the design. According to Bonham, Peart$$s project manager orally

instructed it to proceed with removal of the rock and import of structural fill but said

nothing extra would be paid on account of Section $12$ of the subcontract, noted above. On

the other hand, Peart contended that it was not advised of the additional rock until after a

substantial amount of excavation had already occurred, which is the primary reason it

denied the claim, in addition to Section $12$ of the subcontract. Neither party confirmed

these discussions in writing, and it is unknown if Peart advised Gadd of the situation.

Bonham proceeded with the rock removal and import of select fill, as required

under the contract documents. Afterward it proposed a change order for the actual costs of

$$973,420,$ of which $$322,530$ was for Hawkins$$ labor costs. Peart refused to sign the

change order, contending that Bonham took the risk first by signing the subcontract and

then by proceeding with the work in the absence of a written change order. After the work

was completed, Hawkins filed a lien against the project in the amount of $$322,530.$ The

lien was discharged by Peart, who obtained a lien discharge bond from its surety and

provided the same to the county clerk in accordance with Oklahoma statutes. Hawkins then

sued Bonham under their labor$-$only agreement, but also sued Peart and Gadd for unjust

enrichment, as well as the lien discharge surety. Bonham asserted cross$-$claims against

Peart for breach of contract and against Gadd for unjust enrichment. Other than filing their

claims and defenses with the court, the parties otherwise did nothing in the lawsuit decided

instead to focus on mediating and settling the case, if possible.

Peart$$s contract with Gadd contained an indemnity provision under which Peart

was obligated to defend and indemnify Gadd from any losses suffered on account of the

Hawkins$/$Bonham claims. Presumably because of this, Gadd did not participate in the

mediation. Nevertheless, Peart, Hawkins and Bonham were able to reach a compromise

without Gadd$$s involvement.

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Case Studies