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B-130284, DEC. 30, 1957

B-130284 Dec 30, 1957
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TO THE SECRETARY OF THE INTERIOR: REFERENCE IS MADE TO YOUR LETTER OF NOVEMBER 6. PAYMENTS UNDER THE CONTRACT WERE TO BE MADE ON THE BASIS OF QUOTED UNIT PRICES FOR ESTIMATED QUANTITIES OF WORK AND MATERIALS. THE FINAL ADJUSTED PRICE AT THE TIME OF COMPLETION OF THE CONTRACT WAS $275. THE CITY IS ENTITLED TO A PROJECT IN FULL ACCORD WITH THE CONTRACT SPECIFICATIONS. WHICH WERE WRITTEN BY ITS OWN ENGINEERING DEPARTMENT. SO THAT THE MANHOLE IS FILLED TO A SUITABLE MEASURING MARK IN THE MANHOLE FOUR FEET ABOVE THE INVERT. THE ADDITION OF WATER SO THAT THE LEVEL OF WATER IN THE MANHOLE WILL REMAIN CONSTANT FOR A 20- MINUTE PERIOD. THIS REQUIREMENT IS SLIGHTLY MORE RESTRICTIVE THAN THAT ESTABLISHED BY THE ALASKA DEPARTMENT OF HEALTH.

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B-130284, DEC. 30, 1957

TO THE SECRETARY OF THE INTERIOR:

REFERENCE IS MADE TO YOUR LETTER OF NOVEMBER 6, 1957, REQUESTING OUR ADVICE IN REGARD TO THE MATTER OF COMPUTING THE DAMAGES CHARGEABLE TO R. O. NIERSTHEIMER AND K. C. STINGEL, JOINT VENTURERS UNDER CONTRACT NO. 14- 04-001-259, DATED AUGUST 4, 1955, ENTERED INTO ON BEHALF OF THE UNITED STATES BY THE DEPARTMENT OF THE INTERIOR, ALASKA PUBLIC WORKS, OFFICE OF TERRITORIES, PURSUANT TO THE ALASKA PUBLIC WORKS ACT (63 STAT. 627, 48 U.S.C. 486) FOR THE CONSTRUCTION OF SEWER EXTENSIONS IN THE MOUNTAIN VIEW AREA OF THE CITY OF ANCHORAGE, ALASKA (UNIT 2 OF PROJECT NO. ASS. 50-A- 179.)

PAYMENTS UNDER THE CONTRACT WERE TO BE MADE ON THE BASIS OF QUOTED UNIT PRICES FOR ESTIMATED QUANTITIES OF WORK AND MATERIALS, INCLUDING A PRICE OF $3 PER LINEAL FOOT FOR 32,184 LINEAL FEET OF 8-INCH BELL AND SPIGOT CONCRETE PIPE WITH TYLOX RUBBER GASKETS. THE CONTRACT PRICE, BASED UPON THE ESTIMATED QUANTITIES OF WORK, AMOUNTED TO $292,696.26, BUT THE FINAL ADJUSTED PRICE AT THE TIME OF COMPLETION OF THE CONTRACT WAS $275,672.13.

THE UNITED STATES HAS AN ANCILLARY CONTRACT WITH THE CITY OF ANCHORAGE BY WHICH IT AGREES TO SELL AND THE CITY AGREES TO BUY THE SEWER EXTENSIONS CONSTRUCTED UNDER THE CONSTRUCTION CONTRACT FOR 50 PERCENT OF THEIR COST TO THE UNITED STATES. THE CITY IS ENTITLED TO A PROJECT IN FULL ACCORD WITH THE CONTRACT SPECIFICATIONS, WHICH WERE WRITTEN BY ITS OWN ENGINEERING DEPARTMENT.

SUBSECTION 18 OF SECTION II OF THE CONTRACT SPECIFICATIONS PROVIDES, IN PERTINENT PART, FOR AN EXFILTRATION TEST BY INTRODUCTION OF WATER INTO THE UPPER MANHOLE, SO THAT THE MANHOLE IS FILLED TO A SUITABLE MEASURING MARK IN THE MANHOLE FOUR FEET ABOVE THE INVERT, AND THE ADDITION OF WATER SO THAT THE LEVEL OF WATER IN THE MANHOLE WILL REMAIN CONSTANT FOR A 20- MINUTE PERIOD, THE OUTLET AT THE NEXT MANHOLE BEING BLOCKED. SUBSECTION 18 ALSO PROVIDES THAT EXFILTRATION PER 100 FEET OF 8-INCH PIPE SHALL NOT BE MORE THAN EIGHT GALLONS PER HOUR. THIS REQUIREMENT IS SLIGHTLY MORE RESTRICTIVE THAN THAT ESTABLISHED BY THE ALASKA DEPARTMENT OF HEALTH, WHICH IS NINE GALLONS PER HOUR PER 100 FEET FOR ALL SEWERS UP TO AND INCLUDING THOSE OF 18 INCHES IN DIAMETER.

TESTING OF SECTIONS OF THE SEWERS COMPRISING UNIT 2 OF PROJECT NO. AAA. 50-A-179 AS THEY WERE LAID DISCLOSED EXCESSIVE EXFILTRATION AND IT IS NOW ASSUMED THAT 24,069 LINEAL FEET OF 8-INCH SEWER LINE HAS AN AVERAGE EXFILTRATION OF 1,377 GALLONS OF LIQUID PER HOUR PER 100 FEET, WHICH IS SEVERAL TIMES THE ALLOWABLE TOLERANCE OF THE CONTRACT SPECIFICATIONS. HAS BEEN POINTED OUT THAT THESE LINES WERE LAID IN AN AREA OF DRY AND RATHER OPEN GRAVEL WITH THE WATER TABLE BELOW THE PIPE INVERT AT ALL TIMES AND, HENCE, THERE IS NO COMPENSATING INFILTRATION OF GROUND WATER INTO THE SEWER LINES.

FOR THE VARIOUS REASONS SET FORTH IN YOUR LETTER, IT WAS NOT FOUND FEASIBLE TO REQUIRE A REBUILDING OF THE DEFECTIVE SEWER LINES, WHICH ARE NOW BEING USED BY THE CITY OF ANCHORAGE SUBJECT TO THE CONDITION THAT SUCH USE WILL NOT PREJUDICE THE CLAIM OF THE UNITED STATES AGAINST THE CONTRACTORS FOR A REDUCTION IN THE CONTRACT PRICE. YOU STATE, HOWEVER, THAT THE EXFILTRATION IS SO GREAT THAT THERE IS A POSSIBILITY THAT THE ALASKA DEPARTMENT OF HEALTH MAY CONDEMN THE SEWERS AND THUS REQUIRE REBUILDING OF THE LINES. THE DANGER OF POLLUTION HAS BEEN CONSIDERED TO BE MATERIALLY LESS THAN THAT INDICATED BY THE TEST CONDITIONS AND ATTENTION HAS BEEN INVITED TO THE POSSIBILITY THAT THE PRESENCE OF SEWAGE IN THE LINES WILL PRODUCE A SLIMY COATING WHICH WILL ACT AS A SEALING AGENT. NEVERTHELESS, IN VIEW OF THE EXCESSIVE EXFILTRATION, IT HAS BEEN DETERMINED THAT, IN ADDITION TO ONE NORMAL FLUSHING OF THE LINES WITH A FIRE HOSE, THE CITY WILL BE OBLIGED TO EFFECT TWO OTHER FLUSHINGS ANNUALLY TO PREVENT CLOGGING AND ABRASION OF THE SEWER PIPE.

IT IS REPORTED THAT ON FEBRUARY 7, 1957, THE CONTRACTORS THROUGH THEIR ATTORNEYS INSTITUTED A COUNTERCLAIM FOR $61,003.69 BECAUSE OF DELAYS IN CONTRACT PERFORMANCE OCCASIONED BY TESTING PROCEDURES, THAT THE CONTRACTING OFFICER DENIED THIS CLAIM ON MAY 24, 1957, AND THAT THE CLAIM IS NOW PENDING ON APPEAL BEFORE THE INTERIOR BOARD OF CONTRACT APPEALS.

OUR COMMENTS HAVE BEEN REQUESTED ON SEVERAL INDICATED POSSIBLE METHODS OF COMPUTING THE DAMAGES CHARGEABLE TO THE CONTRACTORS BECAUSE OF THE FAILURE OF A PORTION OF THE SEWER LINES TO MEET THE REQUIREMENTS OF THE CONTRACT SPECIFICATIONS.

ON THE BASIS OF CONSIDERING THAT NORMAL USAGE WOULD SHOW THE SAME AMOUNT OF EXFILTRATION OF LIQUID FROM THE SEWER PIPE AS THAT DISCLOSED UNDER TEST CONDITIONS, IT IS ESTIMATED THAT THE ENTIRE LIQUID COMPONENT OF THE SEWAGE WOULD BE LOST IN THE PASSAGE OF 495 FEET, WHICH IS LESS THAN TWO CITY BLOCKS. ON THAT BASIS IT IS SUGGESTED THAT THE LEAKING SEWERS HAVE NO VALUE AT ALL AND THE GOVERNMENT WOULD BE ENTITLED TO AN ADJUSTMENT IN THE CONTRACT PRICE IN THE AMOUNT OF $120,258.31, BASED UPON THE CONTRACT PRICES FOR PIPE, EXCAVATION AND BACKFILL.

IT IS STATED THAT THERE SEEMS TO BE NO STANDARD FOR COMPUTING THE DAMAGES ON THE BASIS OF A PERCENTAGE OF ACTUAL CARRYING CAPACITY, AND THAT IT IS NOT APPARENT THAT THE POSSIBILITY OF CONDEMNATION OF THE SEWERS BY THE ALASKA DEPARTMENT OF HEALTH MAY BE ASSESSED AT 50 PERCENT, 25 PERCENT, 10 PERCENT, 5 PERCENT OR SOME OTHER FIGURE.

ONE METHOD OF COMPUTING THE DAMAGES, WHICH SEEMS TO BE PREFERRED BY YOUR DEPARTMENT, WOULD RESULT IN A CHARGE TO THE CONTRACTORS OF A SUFFICIENT AMOUNT TO COVER THE COST OF THE EXTRA FLUSHINGS DURING THE USEFUL LIFE OF THE SEWERS, WHICH IS ASSUMED TO BE 40 YEARS. IT IS STATED THAT THE CITY OF ANCHORAGE HAS FLUSHED THESE SEWERS AT A COST OF $600 AND THAT IT APPEARS THAT THE ANNUAL COST FOR TWO EXTRA FLUSHINGS WOULD AMOUNT TO $1,200. OVER A 40-YEAR PERIOD THE TOTAL COST OF THE EXTRA FLUSHINGS WOULD, AT THIS RATE, AMOUNT TO $48,000, AND YOU STATE THAT AN ANNUITY WHICH WILL PROVIDE $48,000 OVER A 40-YEAR PERIOD AT 3 PERCENT IS $46,010. (APPARENTLY THAT FIGURE IS NOT CORRECT SINCE APPROXIMATELY $28,000 WOULD APPEAR TO BE SUFFICIENT ON THE BASIS OF ADDING INTEREST AT 3 PERCENT TO THE YEARLY BALANCE IN THE ANNUITY ACCOUNT AFTER DEDUCTION OF THE ANNUAL COST OF $1,200 FOR THE TWO ADDITIONAL FLUSHINGS OF THE SEWERS).

IN AMERICAN JURISPRUDENCE, BUILDING AND CONSTRUCTION CONTRACTS, VOLUME 9, AT PAGES 89 AND 90, IT IS STATED:

"THE FUNDAMENTAL PRINCIPLE WHICH UNDERLIES THE DECISIONS REGARDING THE MEASURE OF DAMAGES FOR DEFECTS OR OMISSIONS IN THE PERFORMANCE OF A BUILDING OR CONSTRUCTION CONTRACT IS THAT A PARTY IS ENTITLED TO HAVE WHAT HE CONTRACTS FOR OR ITS EQUIVALENT. WHAT THE EQUIVALENT IS DEPENDS UPON THE CIRCUMSTANCES OF THE CASE. IN A MAJORITY OF JURISDICTIONS, WHERE THE DEFECTS ARE SUCH THAT THEY MAY BE REMEDIED WITHOUT THE DESTRUCTION OF ANY SUBSTANTIAL PART OF THE BENEFIT WHICH THE OWNER'S PROPERTY HAS RECEIVED BY REASON OF THE CONTRACTOR'S WORK, THE EQUIVALENT TO WHICH THE OWNER IS ENTITLED IS THE COST OF MAKING THE WORK CONFORM TO THE CONTRACT. BUT WHERE, IN ORDER TO CONFORM THE WORK TO THE CONTRACT REQUIREMENTS, A SUBSTANTIAL PART OF WHAT HAS BEEN DONE MUST BE UNDONE, AND THE CONTRACTOR HAS ACTED IN GOOD FAITH, OR THE OWNER HAS TAKEN POSSESSION, THE LATTER IS NOT PERMITTED TO RECOVER THE COST OF MAKING THE CHANGE, BUT MAY RECOVER THE DIFFERENCE IN VALUE. IN SOME JURISDICTIONS, HOWEVER, IT SEEMS TO BE THE RULE THAT THE MEASURE OF DAMAGES FOR DEFECTIVE WORK UNDER A BUILDING CONTRACT IS SUCH A SUM AS IS REQUIRED TO MAKE THE BUILDING CONFORM TO THE PLANS AND SPECIFICATIONS, REGARDLESS OF WHETHER IT IS NECESSARY TO TEAR DOWN AND RECONSTRUCT PART OF THE WORK ALREADY DONE.'

IT IS OUR OPINION THAT UNDER ORDINARY CIRCUMSTANCES THE CLAIM OF THE GOVERNMENT COULD BE SATISFACTORILY ADJUSTED ADMINISTRATIVELY ON THE BASIS OF THE DIFFERENCE IN VALUE RULE. APPARENTLY, FROM THE INFORMATION GIVEN IN YOUR LETTER, THE LEAST SPECULATIVE APPRAISAL OF VALUE OF THE DEFECTIVE SEWER LINES IS THAT OBTAINED BY THE APPLICATION OF A REASONABLE ESTIMATE OF THE ADDITIONAL COST TO THE CITY OF ANCHORAGE FOR FLUSHING OF THE SEWERS MORE OFTEN THAN WOULD HAVE BEEN NECESSARY IF THE EXFILTRATION TESTS HAD BEEN MET. ALTHOUGH THE COST OF THE TWO ADDITIONAL FLUSHINGS PER YEAR PROBABLY WILL NOT REMAIN CONSTANT OVER A 40-YEAR PERIOD, THE USE OF ANY COST FIGURE OTHER THAN THAT REPRESENTING THE PRESENT COST OF FLUSHING THE SEWERS WOULD APPEAR TO BE TOO SPECULATIVE. IT HAS BEEN INDICATED THAT THE AMOUNT RETAINED FROM PAYMENTS DUE UNDER THE CONTRACT EXCEEDS THE AMOUNT WHICH WOULD BE NECESSARY TO PROVIDE AN ANNUITY TO COVER THE ANNUAL COST OF THE ADDITIONAL FLUSHINGS OF THE SEWERS OVER A 40-YEAR PERIOD.

IN VIEW OF THE PENDENCY OF THE CLAIM OF THE CONTRACTORS ON ACCOUNT OF AN ALLEGED BREACH OF THE CONTRACT BY THE GOVERNMENT, WE DO NOT BELIEVE THAT IT WOULD BE PROPER AT THIS TIME TO MAKE ANY SEPARATE AGREEMENT WITH THE CONTRACTORS CONCERNING THE SUM TO WHICH THE GOVERNMENT MAY BE ENTITLED AS AN ADJUSTMENT IN THE CONTRACT PRICE. IF THE PENDING APPEAL SHOULD BE DISMISSED AND SUIT WERE FILED AGAINST THE GOVERNMENT FOR DAMAGES FOR THE ALLEGED BREACH OF CONTRACT, AND FOR THE BALANCE OF THE CONTRACT PRICE, THE GOVERNMENT SHOULD BE IN A POSITION TO ASSERT ITS COUNTERCLAIM IN THE FULL AMOUNT OF $120,258.31.

ACCORDINGLY, IT IS SUGGESTED THAT NO FURTHER ACTION BE TAKEN IN THE MATTER UNLESS THE CONTRACTORS AGREE TO A REDUCTION OF THE CONTRACT PRICE ON THE FOREGOING BASIS.

THE DOCUMENTS FORWARDED WITH YOUR LETTER ARE RETURNED HEREWITH, AS REQUESTED.

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