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March 23, 2006

Scoccolo case could hurt contractors, taxpayers

  • Recent ruling means it may be harder to get municipalities to quickly move utilities that are in the way of construction work.
    • By BOB MARCONI
    Stanislaw Ashbaugh

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    Marconi

    A Washington court recently ruled that a contractor, who through no fault of its own suffered significant monetary damages on a construction project, could not recover those damages from the public owner. The case is Scoccolo v. City of Renton, and its harsh result could negatively impact both contractors and taxpayers in Washington.

    The facts

    The city of Renton contracted with Scoccolo Construction to perform a road-widening project on a main city street. The project required that utility poles, lines and other equipment be relocated by the utility companies that owned them. Relocation of the utilities was necessary for Scoccolo to perform its work on the project. The utility owners, however, failed to relocate the utilities in a timely manner. This caused significant delays and interferences to Scoccolo's work, which drastically increased Scoccolo's costs.

    Scoccolo had no ability to force the utility companies to timely perform their relocation work. The city, however, did. The city's ability to control the utility companies, and force them to perform the relocation work on time, was based on written contracts between the city and the utility companies.

    These contracts, called franchise agreements, allowed the utility companies to place their utility poles, lines and other equipment in the public right of way. In exchange for use of the public right of way, the utility companies contractually agreed to move their utilities when asked to do so by the city.

    The city, however, chose not to assign any of that authority to Scoccolo. So the contractor could do little other than ask the utilities to move their facilities on a schedule that would allow the contractor to timely and efficiently perform its work. Unfortunately, the utilities ignored Scoccolo's requests, and the contractor was severely impacted by the delays in the utility relocation efforts.

    The lawsuit

    When Scoccolo sued the city for its extra costs, the city claimed it could not be held liable to Scoccolo because the utility companies, and not the city, were responsible for Scoccolo's damages. Presumably for strategic reasons, the city chose not to add the utility companies to the Scoccolo lawsuit. Instead, the city argued Scoccolo was entitled to nothing.

    To make matters worse, Scoccolo was powerless to add the utilities to the lawsuit after the city refused to do so. Under Washington's "economic loss rule," a contractor cannot recover for economic loss from another party in the absence of a contract between them. Since Scoccolo did not have written contracts with any of the utility companies, it could not add them to the lawsuit.

    The city also relied on a contract clause stating no additional compensation would be paid to the contractor for delays caused by the utility companies. Scoccolo countered by arguing Washington's "no damage for delay" statute trumped the contract clause relied on by the city. That statute voids any clause in a construction contract that prohibits delay damages caused by the owner or a person "acting for" the owner. Scoccolo argued since the utility companies were "acting for" the city, Renton was liable to Scoccolo for its damages.

    This argument was successful for Scoccolo at trial. Scoccolo persuaded the trial court to rule that the utilities were "acting for" the city in connection with their utility franchises, and that the city was therefore directly liable to Scoccolo for the utilities' untimely relocation efforts. Based on that "acting for" theory, Scoccolo obtained a jury verdict in its favor, which the city appealed.

    The court of appeals decision

    In its 2005 ruling, though, the court of appeals rejected the notion that the utilities were "acting for" the owner, and the court's ruling appears to block a similar theory in future cases. As a result, the jury verdict Scoccolo obtained at trial was overturned. Scoccolo's request for review by the Washington Supreme Court is currently under consideration.

    Why the decision is wrong

    The court of appeals' decision is wrong for several reasons. First, the decision let the city off the hook for its failure to force the utility companies to relocate their equipment in a timely manner. Again, Scoccolo was powerless to force the utility companies to do anything. As a result of the court's decision, public owners have little incentive to properly exercise their control and authority over utility companies.

    Second, the court's decision construes Washington's "no damage for delay" clause much too narrowly. The city of Renton alone had the power to force the utilities to do their work on time. The city failed to exercise that power, causing serious delays to the project. Since the city bears responsibility for the delays, it should be required to pay Scoccolo the damages resulting from those delays. The main purpose of the "no damage for delay" statute has been frustrated by the court's decision.

    Third, the taxpaying public will lose. Some bidders will refuse to bid jobs with similar contract clauses, resulting in less competition and higher costs for public construction projects. Other bidders will increase their bids to cover potential delays caused by utility companies. Either way, taxpayers will end up paying more than is necessary for public contract work.

    Bob Marconi is a partner and the chair of the Construction Law Group at Stanislaw Ashbaugh.


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