Words matter. Yesterday, the Supreme Court of Tennessee released its decision in a construction dispute between Ray Bell Construction Company and the Tennessee Department of Transportation. Where the contractor won the first two rounds at the trial court and intermediate appellate court levels, TDOT prevailed in the final appeal.
The Dispute. The primary issue in dispute was whether the completion date in the parties’ contract could be amended or moved to account for the impact of increased quantities and other delays. TDOT argued that the completion date could be modified for purposes of the disincentive payment and liquidated damages, but under no circumstance could the date be modified for purposes of the incentive payment. The contractor argued that the date could be modified for all purposes, including the incentive payment. Ultimately, the claims commissioner awarded the contractor the $2.5 million early completion bonus, finding that the incentive date provision could be amended consistent with prior instances.
The Court of Appeals affirmed the claims commissioner’s finding that “a definite latent ambiguity exist[ed] for which parol evidence not only is admissible, but frankly, absolutely necessary in both understanding and deciding the issues in this case."
In a short opinion [pdf], the Supreme Court reversed that finding and concluded that the contract language was plain and ambiguous. When the contract language is unambiguous it is the duty of the courts to interpret the contract according to its plain terms. According to the Court,"TDOT’s refusal to extend the incentive date beyond December 15, 2006, was therefore consistent with the contract."
Lessons Learned. The RBCC case is worthy for a number of reasons:
- The appellate court decisions provide a good overview of the public contracting claims process. Like many other jurisdictions, the Claims Commission in Tennessee resolves claims involving tax recovery, state employee workers’ compensation, negligence by state officials or agencies, and contract claims involving the State. The RBCC dispute went to trial before a claims commissioner and was appealed to the Court of Appeals and Supreme Court.
- The case summarizes the two sides to a contract interpretation question. Like almost every construction dispute, the contract will determine the rights and obligations of the parties. In this case, a $2.5 million early incentive payment was at stake and the decision turned on whether there was an ambiguity in the parties’ contact and what evidence could be used to resolve that ambiguity. The Court of Appeals described in detail the ambiguity in the contract, where the Supreme Court found the contract unambiguous.
- The case involved a truly "interesting" factual story. The dispute involved a multi-million dollar claim … design delays … easement delays … unexecuted change orders … quantity overruns … contract ambiguities … a compelling letter by the state agency … a compelling letter by the federal agency … and much more.
It appears to be the end of the road for this claim. Noticeably absent from the Supreme Court’s decision is any discussion of the circumstances leading up to this particular contract, which arguably formed the basis of the trial court’s initial decision and the intermediate appellate court’s decision. The evidence included prior projects where the incentive date was allowed to be modified, as well as letters between TDOT and the Federal Highway allowing for a change to the incentive payment date. The Supreme Court’s opinion was silent on these issues most likely because it found the contract to be without ambiguity.
[Note: I was involved in this case along with lead counsel Greg Cashion at the trial court and court of appeals, but I moved law firms to Stites & Harbison before the appeal had been taken to the Supreme Court.]
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