A contractor bid a price of one penny per cubic yard to excavate rock from a town site as part of a larger contract with the town of Avon. That price, however, was based on the town’s estimate of rock to be removed which turned out to be unreasonably low. The actual amount of rock to be removed was 250% higher than the town’s bid documents. The one-penny price was a loss leader based on a line item in the invitation for bid (IFB) and made the bidder’s overall price more attractive. The case is Celco Construction Corp. v. Town of Avon (Superior Court, appealed to Mass. Appeals Court, 2015).
When it became apparent that there was much more rock than represented, the contractor sought assurances, and received them from the town’s water superintendent, that the situation would be “dealt with” once the additional rock had been removed and the total extra quantity was known. Based on this assurance, the contractor continued to work and completed the contract. When the contractor later sought $190 per cubic yard for removing the additional rock, the town refused to pay and ultimately litigation ensued.
The contractor sought payment based on: (1) changed site conditions (the actual amount of work was two and one half times the amount in the town’s IFB); (2) the principle that the contractor should be paid the reasonable value of the extra work performed; and (3) the superintendent’s promises to fairly address the issue later. The Superior Court judge and the Appeals Court found in favor of the town:
- Massachusetts G.L.c. 30, section 39N is designed to protect contractors from unknown and unforeseen conditions. The Appeals Court held that this does not protect contractors from an increased amount of a known condition which causes financial hardship because of a low unit price. Had the contractor been able to provide evidence that the additional rock was different in a significant way or that the cost to extract the additional rock was greater by reason of the increased amount or any other concealed condition, the contractor likely would have been entitled to additional compensation. However, in this case, the actual subsurface or latent physical conditions encountered at the site did not differ substantially or materially from those shown in the bid documents. The court stated that the purpose of the statutory protection is to remove unknown risks from the competitive bidding process. Based on the facts of this case, even dramatically increased volume, where pricing is based on unit pricing, is not considered an unknown risk covered by the statute according to the court’s ruling.