Conflicting Contract Provisions Erase Asbestos-Removal Contractor's Jury Award

by James R. Keller

This article appeared in St. Louis Construction News & Review, p. 13, May-June, 2004.

Conflicting contract provisions extinguish a contractor's jury verdict of $360,898.52 for lost profits when Missouri's Division of Design and Construction brought in another contractor to do part of the asbestos removal, even though the contract's specifications required the original contractor to remove all asbestos. Given the conflicting contract provisions, Missouri's appellate court held that the case must be retried, a decision that will allow Spirtas Company, the contractor, another bite at the apple.

The case is Spirtas Company v. Division of Design and Construction, No. WD 61494, decided April 13, 2004, by the Western District Court of Appeals. The project was demolition of and asbestos abatement at the Eastern Region Mental Health Facility.

Spirtas had the primary contract for both the demolition and asbestos-abatement work.

The central dispute was whether Spirtas should receive a change order for asbestos removal of ductwork and if so, could it apply the contract's previously agreed upon unit price of $4.75 per square foot. Or, could Missouri's Division of Design and Construction bid the work to another contractor at a different price, on the basis that the work was not part of Spirtas' contract.

The trial court granted partial summary judgment in favor of Spirtas by finding that the contract clearly allowed Spirtas to do all asbestos removal work. Therefore, Missouri could not properly bid the work to another contractor.

Two of the contract's specifications supported Spirtas' position by requiring that Spirtas was to be responsible for removal of all asbestos from the building. The contract identified areas in the building from where the asbestos was to be removed, but did not identify ductwork.

The contract further provided that asbestos removal would be at the contractually agreed upon unit price of $4.75 per square foot and that the extent of work in the identified areas was merely an estimate that could increase or decrease based on actual conditions.

During construction, Spirtas discovered that ductwork above the ceilings contained asbestos. The parties estimated an additional 100,000 square feet of removal would be necessary for this work.

The Division took the position that the ductwork in the ceilings differed from the coverings in the mechanical room, an area previously specified in the contract, and such work would require a different means of removal. Therefore, the Division believed it could request bids for this work because it was not part of Spirtas' contract.

The Division asked Spirtas to bid this work, apart from its existing contract, which Spirtas did. The Division then rejected Spirtas' bid and allowed other contractors to bid the work.

The Division accepted the bid of Environmental Abatement Services (EAS) and awarded EAS a contract for the work. Thereafter, EAS removed 168,000 square feet of asbestos-containing ductwork.

Spirtas submitted a claim for lost profits of $360,898.52 for the ductwork that EAS performed. The Division denied the request, contending that the ductwork was not part of Spirtas' contract and thus the Division could properly request bids from others.

The appellate court noted that both Spirtas and the Division "clearly understood from the outset" that there were certain unknowns on this large project and a lump-sum contract was not appropriate. They provided for such risks by allowing for separate agreements relating to work necessitated by materially differing site conditions.

The Division argued that since the ductwork was a materially differing site condition, it could seek a contract for the ductwork's removal from others besides Spirtas.

The trial court disagreed with the Division's position. It concluded that the contract was not ambiguous, all asbestos removal work, including the ductwork, was within Spirtas' contract and thus Spirtas clearly was entitled to recover. The only question for the jury to decide, according to the trial court, was how much.

The appellate court decided that the additional asbestos removal for the ductwork may or may not be subject to Spirtas' original contract. There were conflicting contract provisions on this point. Therefore, the answer will have to be decided by a jury and not by a judge on a partial summary judgment.

James R. Keller is a partner at Herzog Crebs, LLP, where he concentrates on complex business litigation, construction law and alternative dispute resolution. He also is an arbitrator with the American Arbitration Association and a mediator.