Latex Constr. Co. v. Nexus Gas Transmission, LLC

LATEX CONSTRUCTION COMPANY, Plaintiff, v. NEXUS GAS TRANSMISSION, LLC, Defendant.

CIVIL ACTION NO. 4:20-1788

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

December 16, 2020

MEMORANDUM AND ORDER

Before the Court is Defendant Nexus Gas Transmission, LLC's ("Defendant's") Motion for Partial Summary Judgment on Plaintiff's Claim for Extra Compensation for Hard Trench Plugs and Foreign Line Crossings [Doc. # 27] ("Motion"). Plaintiff Latex Construction Company ("Plaintiff") has timely responded,¹ Defendant has replied,² and Plaintiff has filed a sur-reply.³ The Motion is ripe for decision. Based on the parties' briefing, pertinent matters of record, and relevant legal authorities, the Court denies Defendant's Motion.

I. BACKGROUND

This case arises out of a contract for construction of a gas transmission pipeline in Ohio. Defendant, the owner of the Nexus Gas Transmission Pipeline, hired Plaintiff to construct the second of four segments of the pipeline (the "Pipeline").⁴ Plaintiff and Defendant entered into a contract for construction of the Pipeline on February 17, 2016 (the "Contract").⁵ The Contract provided that Plaintiff would receive a "Contract Price," defined as "the total amount paid by Company to Contractor for the Work" in exchange for Plaintiff performing "all of [Plaintiff's] obligations, duties and responsibilities under this Agreement."⁶ Exhibit C to the Contract listed all the payments Defendant would make to Plaintiff under the Contract, and the parties agreed that the payments listed in Exhibit C would be all the compensation Plaintiff was entitled to receive, unless the scope of Plaintiff's work was modified through a Change Directive or a Change Order.⁷

Exhibit C provided for different types of compensation: Primary Compensation, a lump sum base payment which "reimburse[d] [Plaintiff] fully to complete the Work," and "Unit Price Extra Work" compensation, which compensated Plaintiff on a per-unit basis for any work not included in the Primary Compensation.⁸ Exhibit C listed the unit prices at which Plaintiff would be paid for 35 different items or tasks that might be necessary for construction but were not included in the Primary Compensation.⁹ The unit prices included all labor, materials, and equipment needed to perform the additional work.¹⁰

The Contract anticipated that construction of the Pipeline would require a number of hard trench plugs and foreign line crossings. Hard trench plugs are filled portions of the pipeline ditch that allow landowners and livestock to cross the ditch during construction.¹¹ Foreign line crossings are preexisting pipes encountered while digging the pipeline ditch.¹² Hard trench plugs and foreign line crossings are common parts of pipeline construction and require line breaks in the constructionprocess and additional welding work.¹³ The Primary Compensation due to Plaintiff included payment for 96 hard trench plugs and 73 foreign line crossings.¹⁴ Plaintiff claims it is customary for pipeline owners to allow contractors to put hard trench plugs at "natural breaking points" so that the majority of the pipeline can be constructed using automatic welding.¹⁵ To the extent construction of the Pipeline required more than 96 hard trench plugs or 73 foreign line crossings, Plaintiff would be paid Unit Price Extra Work compensation of $22,500 for each additional hard trench plug and $29,500 for each additional foreign line crossing.¹⁶

The Contract provided that the per-unit compensation applied to each additional "unknown buried utility within a 50 ft. corridor" of the pipeline and charged Plaintiff with responsibility for "surface and subsurface ground and soil conditions on the Site, including all natural and manmade obstructions such as utilities."¹⁷ The Contract also required Plaintiff to investigate the site and identify"obstacles to construction or other general local conditions that may affect performance of the Work or cost of the Project."¹⁸

The Contract required that Plaintiff complete construction by a scheduled date and allowed Defendant to hold Plaintiff to this schedule if Plaintiff was delayed for reasons within Plaintiff's control.¹⁹ The Contract provided that Plaintiff could receive compensation for Defendant's acceleration so long as the cause of the delays were outside Plaintiff's reasonable control.²⁰

After the Contract was executed, construction was delayed indefinitely because Defendant had not obtained the required permits.²¹ On February 22, 2017, the parties met to discuss pricing changes due to events that had occurred during the delay.²² Defendant memorialized in its notes from that meeting that "[Plaintiff] needs indicator on temporary plugs so not missed during construction in the field" and that Defendant would "provide count on temporary plugs by ROW track toContractor for purposes of pricing."²³ Later that day, Defendant provided Plaintiff with a list showing that 61 hard trench plugs would be required.²⁴

Over the course of the next year, Plaintiff and Defendant exchanged pricing and scheduling estimates while Defendant waited to receive the necessary permits.²⁵ In June and September 2017, Defendant provided Plaintiff with Construction Line Lists ("CLLs"), which identified special concerns for each landowner over which the Pipeline was to cross.²⁶ The June 2017 CLL indicated that a total of 176 hard trench plugs would be needed for the Pipeline.²⁷ The September 2017 CLL indicated that 207 hard trench plugs would be needed.²⁸

Work began on the project in February of 2018.²⁹ On February 13, 2018, Plaintiff and Defendant executed a "True-Up Amendment" to account for cost andschedule adjustments since the Contract was executed approximately two years earlier.³⁰ The True-Up Amendment "resolved between [Defendant] and [Plaintiff]" "[a]ll assumptions, clarifications, and items" through September 20, 2017.³¹ In executing the True-Up Amendment, Plaintiff "waive[d] any claim that it may have for any Adjustment in connection with such assumptions, clarifications, and items," but reserved "the right to seek claims of Adjustment as a result of any material document changes made after September 20, 2017."³² The True-Up Amendment expressly stated that construction would require 73 foreign line crossings, but was silent with respect to the number of hard trench plugs necessary for the project.³³

At the time Plaintiff agreed to the True-Up Amendment, Plaintiff based its pricing on the list of 61 hard trench plugs provided by Defendant in February 2017, and not on the increased numbers of hard trench plugs called for by the June 2017 CLL and September 2017 CLL.³⁴ Plaintiff stated that although it "ha[d] not revised the quantity of crossings based on information provided in the new construction line list[s]" it "still expect[ed] compensation per the applicable unit item rate . . . set forthin the contract for additional crossings encountered that are over the 61 [hard trench plugs] identified and provided in the email from 2-22-17."³⁵ The True-Up Amendment replaced the original Exhibit C to the Contract with an updated Exhibit C.³⁶ The updated Exhibit C did not modify the per-unit price for additional hard trench plugs or foreign line crossings.³⁷

After construction began, Defendant took the position that it would not grant any time extensions of the project's completion date for any reason.³⁸ Defendant also told Plaintiff that it could not submit any schedule showing completion dates later than planned and demanded that Plaintiff do whatever was necessary to meetthe planned completion dates.³⁹ Plaintiff also claims that after construction began Defendant took the position that Plaintiff could not adjust the locations of the hard trench plugs to put them in natural breaking points, as was customary practice on similar projects.⁴⁰

On April 25, 2018, the parties participated in a teleconference regarding construction of the Pipeline.⁴¹ During that conference, Defendant indicated that 129 hard trench plugs would be required to complete the project.⁴²

On May 7, 2018, Defendant provided Plaintiff with an updated CLL indicating that 210 hard trench plugs would be needed.⁴³ Plaintiff submitted Contractor Requested Change No. 36 ("CRC-36") on May 9, 2018 and a revised version of the Requested Change ("CRC-036R") on May 14, 2018 seeking extra compensation of $2,565,000, or $22,500 for each of the 114 hard trench plugs in excess of the 96 hard trench plugs included in the Primary Compensation.⁴⁴ Plaintiff stated in the Change Request that "[s]hould the total [number of hard trench plugs]exceed 210 then each additional Trench Plug will be at the applicable unit item rate."⁴⁵ Plaintiff claims that at that point it "did not know that the additional hard trench plugs would become a critical path item."⁴⁶ Defendant denied Plaintiff's change requests as unnecessary, explaining that a change order was not needed because Plaintiff was already contractually entitled to $22,500 for each hard trench plug in excess of 96.⁴⁷

Plaintiff claims that at that time, it had not yet suffered the costs and delays caused by the additional hard trench plugs and foreign line crossings and did not anticipate that the extra work would significantly interfere with construction.⁴⁸ The unit price for additional hard trench plugs had been based only on the cost of labor to install the plugs as incidental items of work, and not as a defining feature of the project.⁴⁹ Plaintiff constructed the majority of the additional hard trench plugsduring July and August 2018.⁵⁰ Plaintiff claims that the number and fixed locations of the additional hard trench plugs prevented it from using automatic welding, and by August 2018 the additional plugs had become a "critical path delay" to completion of the Pipeline.⁵¹

On August 28, 2018, Plaintiff submitted a schedule indicating that work would not be complete until October 4, 2018.⁵² After receiving Plaintiff's schedule, Defendant...