In re Electric Machinery Enterprises, Inc.

416 B.R. 801

In re ELECTRIC MACHINERY ENTERPRISES, INC., Debtor Electric Machinery Enterprises, Inc., Plaintiff, v. Hunt Construction Group, Inc., The Clark Construction Group, Inc., and Construct Two Construction Managers, Inc., individually and as joint venturers trading as Hunt/Clark/Construct Two, a Joint Venture, Defendants.

Bankruptcy No. 8:03-bk-11047-MGW.

Adversary No. 8:03-ap-00811-MGW.

United States Bankruptcy Court, M.D. Florida, Tampa Division.

August 28, 2009.

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Christopher T. McRae, David J. Metcalf, James S. Myers, McRae & Metcalf, Tallahassee and Tampa, FL, C. Timothy Corcoran, III, Tampa, FL, for Plaintiff.

Jeffrey R. Gans, Michael S. McNamara, Howrey LLP, Washington, DC, Hywel Leonard, John J. Lamoureux, Carlton Fields, P.A., Tampa, FL, for Defendants.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

MICHAEL G. WILLIAMSON, Bankruptcy Judge.

The Orange County Convention Center in Orlando, Florida, is a beautiful convention space located north of Disney World, in between Universal Studios and Sea World.¹ Throughout the eight-week trial in this adversary proceeding, none of the parties questioned the fact that the Orange County Convention Center was built well and has shown no major construction or design flaws. This adversary proceeding is not about the failure of construction managers and subcontractors to construct a well-built convention space—it is not about a failed project. The dispute between the Defendants in this case, acting as the construction manager in charge of the Orange County Convention Center, Phase V project ("Project"), and the Plaintiff, Electric Machinery Enterprises, Inc. ("EME"), one of the three major electrical subcontractors employed on the Project, is, generally, about coordination and efficiency, and who should pay for the costs incurred when neither is achieved.

On March 24, 2000, Orange County, Florida, entered into a contract with a joint venture composed of Hunt Construction Group, Inc. ("Hunt"), The Clark Construction Group, Inc. ("Clark"), and Construct Two Construction Managers, Inc. ("Construct Two"), doing business as Hunt/Clark/Construct Two, A Joint Venture (together, "HCC") to be the construction manager for the Project ("CM Agreement"). Construct Two is a Florida-based construction company. Hunt and Clark are two of the largest national construction management firms. The HCC joint venture was created specifically for the purpose of constructing the Project.

This Project was a substantial undertaking. The Project consisted of the design and construction of a 2.8 million square-foot building with four-story north and south concourses and a 58 foot high, single-story exhibit hall in the center of the building. At the peak of construction, there were 2,500 workers a day employed at the Project site. The CM Agreement executed by Orange County and HCC established a guaranteed maximum price for the Project of $490 million and a "Construction Reserve" of $30 million. HCC committed to a substantial completion date of May 1, 2003.

As set forth in the CM Agreement, HCC's relevant major responsibilities included, specifically, garnering subcontractor bids on all parts of construction, conducting a review of the project designs, creating a project schedule that adequately coordinated the construction of the entire project, and, most importantly, efficiently managing the construction of the project, including the coordination of the work of subcontractors, such as EME.

As a general matter, one of the tasks of a construction manager on a major project such as the Orange County Convention Center is the coordination of all of the subcontractor work. Subcontractor work must generally be done in sequence—each subcontractor's work must be completed in order. If a subcontractor works out of order, it is likely that, if they are able to complete their work at all, they will have either ruined another subcontractor's work, or their work will be ruined by a subcontractor whose work should have been completed first. This is especially true for an electrical subcontractor—which generally completes its work at the end of the line.

The scheduling method that is the industry standard in construction is the critical path method ("CPM"), which is a system for creating an efficient flow of subcontractor work from area to area. To start working in an area, subcontractors must bring machinery, tools, materials, and workers into that area. If a project is coordinated efficiently, a subcontractor will complete work in one space and move on to the next adjoining space, and then the next adjoining space, and so on. Moving materials, machinery, and tools takes time, and the farther the distance those items must be moved, the more time and money is wasted.

Another typical responsibility of a construction manager on a large project is to conduct an extensive constructability review of all of the design documents to determine whether there are any problems that will require revision. Such review should take place before construction begins, so that no major revisions to the design will be required in the middle of construction. During construction, when questions arise as to the designs, requests for information ("RFI's") are sent to the project's architect or design team. RFI's are intended to be a process to clarify design specifics, not a process for making revisions to project designs.

Finally, for many subcontractors, including electrical, much of their work cannot take place before the building is "dried-in" without risking ruination in the face of bad weather. A space is "dried-in" when the roof and exterior walls are complete such that the interior space will be protected from the elements. It is a fact commonly known in central Florida that the summer months bring summer storms, which may not last long but generally involve large amounts of rainfall.

HCC sought bids for the electrical work on the Project, which it divided into three parts for purposes of bidding. EME was the winning bidder on parts 16.2 and 16.3 of the electrical work. Another electrical subcontractor, Encompass Electrical Technologies-Florida, LLC, also known as Tri-City Electrical Contractors ("Encompass"), was the winning bidder on part 16.1 of the electrical work. Florida Industrial Electric ("FIE") was the electrical subcontractor employed early in construction on the Project, generally responsible for bringing power into the building. EME, Encompass, and FIE were the primary electrical subcontractors on the Project. EME signed an electrical subcontractor agreement on August 6, 2001 ("Trade Contract") (J. Ex. 239) in the amount of $13,386,827, and began working on the Project.

EME's Trade Contract, like the contracts of all subcontractors employed on the Project, attached and included in the supplemental "Contract Documents" a document entitled "General Conditions." The Trade Contract and General Conditions include provisions that create a contractual obligation on the part of HCC to adequately coordinate and schedule EME's work on the Project.

When EME signed the Trade Contract in August 2001, the overall project schedule in operation was called the "HOLE" schedule, which was produced in November 2000. On August 9, 2001, three days after EME signed the Trade Contract, and one day before HCC affixed its signatures, HCC issued a new overall project schedule, or "GMUP" schedule, identified as the OC 25 schedule ("OC 25"). While the HOLE schedule may have created the appearance of an orderly, properly scheduled project in which work patterns followed an efficient flow from space to space, the OC 25 schedule did not. The OC 25 schedule's coordination of work resulted in something more akin to a game of hopscotch than a sensible work flow and clearly departed from the critical path method. Moreover, the OC 25 schedule was compressed. Although the estimated date of completion of the Project had not changed, work had not progressed as quickly as anticipated in the HOLE schedule. Therefore, the OC 25 schedule, in order to keep the final date steady, compressed all aspects of the work on the Project. Many of the individual tasks listed in the OC 25 schedule were allotted less time for completion.

The OC 25 schedule was not followed for long. Throughout the course of the work on the Project, scheduling became a bigger and bigger problem for subcontractors. While additional versions and updates to the GMUP schedule were issued, the overall plan for the Project was not reconfigured again as Project conditions changes. Instead, HCC began to coordinate work through short-term look-ahead schedules rather than through an overall project schedule. As the Project was nearing completion, even these look-ahead schedules had been abandoned. The result was an inefficient mess in which trade contractors stumbled over each other, work had to be re-done in many places, and EME's work teams were required to move haphazardly throughout the Project as directed by HCC on an almost daily basis.

Prior to construction, HCC never conducted a constructability review of the electrical drawings, and as a result, EME was required to use RFI's to fix design defects throughout the course of construction. Because spaces where EME was working had not been "dried-in" when scheduled, when a storm occurred on May 30, 2002, several areas of work were ruined. The trouble was complicated by the failure of HCC to use adequate equipment to remove the storm water from the building. Somehow, in what appears to this Court to be a state of chaos, a convention center was built.

Discussions arose as early as October 31, 2001, regarding a demand for additional payment to EME for additional costs arising from HCC's failure to competently...