Murdock & Sons v. State of Indiana

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 05-3036
MURDOCK & SONS CONSTRUCTION, INC.,
Plaintiff-Appellant,
v.
GOHEEN GENERAL CONSTRUCTION, INC., et al.,
Defendants-Appellees.
____________
Appeal from the United States District Court
for the Southern District of Indiana, Indianapolis Division.
No. 99 C 1723—John Daniel Tinder, Judge.
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ARGUED APRIL 6, 2006—DECIDED AUGUST 17, 2006
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Before RIPPLE, MANION, and KANNE, Circuit Judges.
KANNE, Circuit Judge. Murdock & Sons Construction,
Inc. (“Murdock”) was the subcontractor in a construction
contract. Murdock was to perform all of the masonry
work for a maximum security prison for the State of
Indiana (the “State”). Unfortunately for Murdock, its
union masons did not work nearly as fast as was projected
in the original bid, for reasons that were never determined.
This resulted in serious delays and cost overruns; however,
the State was unwilling to provide Murdock with an
extension of time in which to complete the project. Murdock
eventually walked off the job and filed the rarely seen
2 No. 05-3036
constructive acceleration claim against the general contrac-
tor and the State, as well as two other claims we need not
address. Following a bench trial, the district court ruled
against Murdock on all claims (including a counterclaim by
the general contractor not at issue here). Murdock appeals,
and we affirm.
I. HISTORY
The State, acting through its Department of Administra-
tion, decided to build a prison near Terre Haute. Goheen
General Construction, Inc. (“Goheen”) contracted with the
State to be the general contractor for the construction of
Level VI housing for the prison, to be named the Wabash
Valley Correctional Institution. The prison was to cost the
State $6,970,000. Goheen and the State entered into a
“Standard Agreement for Construction Projects” which also
contained an index entitled “State of Indiana—General
Conditions” (collectively, the “Contract”).
At the State’s suggestion, Murdock submitted a bid to
Goheen on the masonry subcontract. Goheen only received
three bids, even though it usually would receive between
four and eight. Murdock was awarded the subcontract1 with
a fixed-price bid of $1,629,825. The other two bids were
around $2,747,000 and $2,475,000, and they did not include
rebar. Calvin Murdock (“Mr. Murdock”) was Murdock’s
Chairman and CEO. He gave final approval for the bid. The
bid was originally calculated by well-qualified and experi-
enced experts in both engineering and construction.
The prison was to be a maximum security facility. Not
surprisingly, Level VI housing is very dense with masonry.
The plan called for 288 cells, 7 feet by 12 feet, and involved
1
As a result, the Contract applied to Murdock as subcontractor
to Goheen.
No. 05-3036 3
small, short walls. Each wall, arranged in a large honey-
comb fashion, consisted of individual cement blocks. The
blocks were reinforced with both horizontal and vertical
rebar every eight inches. The specifications called for
continuous grouting with cement, as opposed to the usual
mortar. The specifications also required the extensive
placement of embeds, which required a significant number
of cuts be made in the blocks. Murdock, although experi-
enced, had no previous experience with masonry projects
that were reinforced as much as this prison.
Murdock was required to use union masons. It entered
into a working agreement with the local union in Terre
Haute. The masons would be employees of Murdock, and
Murdock could not set any minimum level of productivity.
Murdock had worked on four construction projects in Terre
Haute in the past, although it never dealt directly with the
local union. These projects were not as extensive as the
prison.
Murdock began work in January 1992 and almost imme-
diately encountered a serious problem. Typically, a mason
can lay 200 blocks a day. Because of the difficulty of this
particular project, Murdock had estimated that each mason
could lay 150 blocks a day. From the beginning, however,
Murdock’s masons were only laying 50 blocks a day.
Murdock tried to increase productivity. Without going into
detail, Murdock reviewed its plans, fired slow workers,
provided additional equipment, and modified the construc-
tion process. Murdock also hired more masons, increasing
its crew to 83, up from the planned 35; when more were
hired, productivity increased, but not for very long. Ulti-
mately, Murdock refused to add more manpower because
the increased productivity was only temporary. Both
Goheen and the State were well aware that construction
was progressing slower than planned; they requested, and
then demanded, that Murdock pick up the pace to meet the
construction deadline.
4 No. 05-3036
In August 1992, Murdock formally notified Goheen that
it wanted more money and more time. The notice was made
pursuant to terms contained in the Contract. Goheen
forwarded Murdock’s request to the State. In December, the
State denied the request, stating any such request must
come directly from Goheen. Almost immediately thereafter,
Murdock stopped work and left. The masonry work was not
done, and the project was ultimately completed 180 days
late.
Murdock filed suit, claiming it was entitled to the exten-
sion pursuant to the terms of the Contract. Murdock argued
the delay was due to either a labor dispute or a cause
beyond its control. The district court conducted a bench trial
and thereafter ruled in favor of Goheen and the State.
II. ANALYSIS
“It is well established that following a bench trial, we
review the district court’s conclusions of law de novo, but
will reverse its findings of fact only if they are clearly
erroneous.” Petrilli v. Drechsel, 94 F.3d 325, 329 (7th Cir.
1996); see Lurie v. Comm’r, 425 F.3d 1021, 1025 (7th Cir.
2005) (citation omitted); Levenstein v. Salafsky, 414 F.3d
767, 773 (7th Cir. 2005) (citations omitted). We do not
reweigh the evidence or determine the credibility of wit-
nesses. Sullivan v. Gilchrist, 87 F.3d 867, 872 (7th Cir.
1996) (citation omitted). The district court’s application
of legal principles to factual determinations is reviewed
only for clear error. Lurie, 425 F.3d at 1025 (citing Pittman
v. Comm’r, 100 F.3d 1308, 1312-13 (7th Cir. 1996)).
“[C]onstruction of the terms of a contract ordinarily pres-
ents an issue of law for the court,” subject to de novo
review. Yockey v. Horn, 880 F.2d 945, 949 (7th Cir. 1989)
(quotations and citation omitted).
Murdock’s claim in diversity is based on constructive
acceleration. The parties represent that there is no Indiana
No. 05-3036 5
case law recognizing or applying a constructive acceleration
claim. However, constructive acceleration is recognized in
many jurisdictions, and we are of the opinion that such a
claim is viable under Indiana law. See, e.g., Stephan v.
Rocky Mountain Chocolate Factory, Inc., 129 F.3d 414, 417
(7th Cir. 1997) (citations omitted). “A claim of constructive
acceleration ordinarily arises when the [owner] requires the
contractor to adhere to the original performance deadline
set forth in the contract even though the contract provides
the contractor with periods of excusable delay that entitle
the contractor to a longer performance period.” Fraser
Constr. Co. v. United States, 384 F.3d 1354, 1361 (Fed. Cir.
2004). A constructive acceleration claim has five elements:
(1) [ ] the contractor experienced an excusable delay
entitling it to a time extension, (2) [ ] the contractor
properly requested the extension, (3) [ ] the project
owner failed or refused to grant the requested
extension, (4) [ ] the project owner demanded that
the project be completed by the original completion
date despite the excusable delay, and (5) [ ] the
contractor actually accelerated the work in order to
complete the project by the original completion date
and incurred added costs as a result.
Sherman R. Smoot Co. v. Ohio Dep’t of Admin. Servs., 736
N.E.2d 69, 78 (Ohio Ct. App. 2000) (citation omitted); see
Dep’t of Transp. v. Anjo Constr. Co., 666 A.2d 753, 757 (Pa.
Commw. Ct. 1995) (“A constructive acceleration order
may exist, when the government unit merely asks the
contractor to accelerate or when the government expresses
concern about lagging process.”).
The parties initially dispute whether Murdock properly
requested an extension. Section 8.3.2 of the Contract
provided that any “extension of time shall be made in
writing to the Designer not more than twenty days after
commencement of the delay.” The district court found
Murdock did not provide a written notice in a timely
6 No. 05-3036
manner; therefore, Murdock’s claim was waived, according
to the district court. For purposes of our analysis, we
will simply assume Goheen waived the formal notice
requirement, as it was well aware of the problems Murdock
was having in getting the masons to work as fast as
originally projected. A dispositive shortcoming in Murdock’s
case, as correctly found by the district court, was the fact
that Murdock was not experiencing “an excusable delay.”
Such a showing is required, as it comprises the first
element in a constructive acceleration claim.
Section 8.3.1 of the Contract provided: “If the Contractor
is delayed at any time in the progress of the Work . . . by
labor disputes . . . or any causes beyond the Contractor’s
control . . . , the Contract Time shall be extended by Change
Order of such reasonable time as the Designer may deter-
mine.” Murdock did not establish that the slower-than-
anticipated pace of the masons was due to either a labor
dispute or a cause beyond its control.
First, Murdock concedes it introduced no evidence at trial
indicating why the masons were not working as fast as
projected. In its opening brief, Murdock stated, “[T]he
reason for the slow down was never determined.” Further-
more, “[Murdock] was never able to ascertain the reason for
the horrendous labor slow down [it] encountered.” By not
introducing any evidence of the underlying reason, other
than pure conjecture, Murdock certainly faces an uphill
battle in establishing that the masons’ pace was due to
either a labor dispute or a cause beyond Murdock’s control.
Murdock cannot meet its burden without pointing to a
specific cause. Such a showing is required under the
contract so that the State (or a court) could determine
whether that cause was within Murdock’s control.
Second, Murdock argued before the district court, based
solely on speculation, that the delay of its work was caused
by a labor dispute with the masons. Murdock references
No. 05-3036 7
this argument in passing in its briefs before us, but pro-
vides no argument in support. As a result, the argument is
deemed waived. Estate of Moreland v. Dieter, 395 F.3d 747,
759 (7th Cir. 2005) (“Perfunctory or undeveloped arguments
are waived.”) (citations omitted). In any event, we have
considered the argument made before the district court and
at oral argument, and conclude Murdock did not introduce
any evidence of a labor dispute.
As the district court pointed out, Mr. Murdock believed
there was a labor dispute because he did not receive a fair
day’s work from the union masons in return for a fair day’s
pay. There was also witness testimony indicating there was
an organized work slowdown by the masons. The alleged
slowdown was an effort to force more masons to be hired for
the job, as well as to extend the length of the project to
collect more wages. Mr. Murdock testified the masons were
“extending their employment at [his] expense.” That having
been said, this testimony was nothing more than pure
speculation.
The testimony was offered by Mr. Murdock himself,
Melvin Reed (an officer and employee of Murdock), and
Maxie Bolden (a job supervisor). Mr. Murdock testified in a
deposition that he had “no clue, really” of the cause of the
problem with productivity. Later in that same deposition,
when asked about the underlying cause, he stated, “I can
speculate, but it would be purely speculation.” At trial, Mr.
Murdock unequivocally agreed with this previous testi-
mony, and further stated, “We’re still speculating [today].”
Reed’s testimony was no more enlightening. He stated,
“[W]e never came up with a reason of why their production
was one-third normal. Except I can speculate if you want
me to.” Finally, Bolden testified, “Yes, I was speculating. I
also think it was a good speculation.” Given that the wit-
nesses’ opinions were nothing more than guesswork, we will
not find as clearly erroneous the district court’s finding that
Murdock did not prove the existence of a labor dispute.
8 No. 05-3036
Even assuming the masons consciously slowed their
pace in an effort to make more money, we will not sub-
stitute Mr. Murdock’s definition of “labor dispute” with its
legal one. The Norris-LaGuardia Act, 29 U.S.C. § 113(c),
defines “labor dispute” as “any controversy concerning
terms or conditions of employment, or concerning the
association or representation of persons in negotiating,
fixing, maintaining, changing, or seeking to arrange
terms or conditions of employment, regardless of whether
or not the disputants stand in the proximate relation of
employer and employee.” Indiana’s Anti-Injunction Act, Ind.
Code § 22-6-1-12(c) (2006), uses an identical definition. In
this case, there was no evidence of a controversy between
Murdock and the masons concerning the terms or condi-
tions of employment, or concerning the association or
representation of the union. Also, no written grievances
or complaints were ever lodged against Murdock. Under
these circumstances, there was no evidence of a labor
dispute. See Lauf v. E.G. Shinner & Co., 303 U.S. 323, 336
(1938) (“ ‘The term ‘labor dispute’ includes any controversy
concerning terms or conditions of employment,’ etc. In this
case, there was no interchange or consideration of conflict-
ing views in respect of the settlement of a controversial
problem.”) (Butler, J., dissenting).
Third, Murdock argues the delay in the progress of its
work was due to a cause beyond its control. Here again, we
are unsure how Murdock can even make its case, as there
was no evidence establishing what the cause was, only
unsupported speculation. Therefore, we are in the same
situation that the district court found itself in: We are
unable to determine whether this unknown cause was
within Murdock’s control or not. This is a recurring (and
fatal) flaw in Murdock’s case.
The real crux of Murdock’s argument before us is that
every “management technique or effort” that it tried failed
to speed up the masons’ pace; therefore, the slow progress
No. 05-3036 9
was outside of Murdock’s control. There are two problems
with this argument. First, it is undisputed that when
Murdock added more masons to the job, productivity
increased, albeit only for a short time. Murdock even admits
that “[t]he only way to increase block count was to add more
and more manpower.” But Murdock did not continue with
the method due to its cost. The fact that productivity could
be increased by adding manpower obviously undermines
Murdock’s argument that nothing that it tried worked.
Second, Murdock did not try everything. For example,
Murdock never offered cash bonuses to the masons for
completing their work faster or on time. If the masons were
indeed slowing things down in an effort to make more
money, then perhaps a cash incentive would have done
the trick. The point is that we are not sympathetic to
Murdock’s argument, as Murdock did not try an obvious
“management technique or effort” that dealt directly
with its perceived root of the problem.
Murdock’s legal argument is “that the labor problem
was beyond Murdock’s control [and] is akin to the concept of
foresee [sic] majeure.” Murdock argues its bid process was
thorough and conducted by experienced professionals.
Murdock reasonably relied on historical data and industry
standards in compiling its bid. The bid even allowed for
normal construction risks and “had substantial amounts
built in to allow for reasonably related anticipated produc-
tivity challenges.” Therefore, Murdock argues it could not
have anticipated the construction delays caused by “the
horrendous degree of departure from foreseeable levels of
mason productivity,” as Murdock exercised “the most
cautious of due care.”
“A force majeure clause is not intended to buffer a party
against the normal risks of a contract.” N. Ind. Pub. Serv.
Co. v. Carbon County Coal Co., 799 F.2d 265, 275 (7th Cir.
1986). In preparing its bid, Murdock was aware that the
10 No. 05-3036
masons’ pace could be lower than anticipated. Murdock
understood and accepted this risk. In fact, Murdock’s
estimators understood that the most difficult estimate to
make is for labor productivity and that it is a “calculated
guess.” Murdock also knew it would have to use masons
from the local union, and that as a result, it could not
set minimum production levels for the masonry work.
Furthermore, Murdock was contractually responsible for
the conduct of its own employees, which included the
masons. And, Murdock arrived at a productivity estimate
which was three times the actual.
In the end, while clerical or arithmetic errors are legiti-
mate reasons to obtain relief from an inaccurate bid,
mistakes of judgment are not. Edward E. Gillen Co. v. City
of Lake Forest, 3 F.3d 192, 198 (7th Cir. 1993); Mid-States
Gen. & Mechanical Contracting Corp. v. Town of Goodland,
811 N.E.2d 425, 435 (Ind. Ct. App. 2004). Unexpected
difficulties in the performance of a construction contract do
not relieve a contractor from its obligations or serve as
justification for more time or money to perform. Allied
Structural Steel v. State, 265 N.E.2d 49, 55 (Ind. Ct. App.
1970) (explaining “as a matter of custom and practice, the
contractor incurs the risk of the unexpected” and
“[p]erformance is not excused by a mere inability to per-
form, by the fact that the contract causes hardship[,] is
burdensome, or unprofitable”) (citation omitted). Therefore,
the district court was correct when it determined that the
force majeure clause “[did] not provide Murdock an opportu-
nity for more time and more money because of a risk of
labor productivity which Murdock assumed during the
formation of the [Contract].”
The reason the masons were not able to perform as
anticipated may never be known. Our own review of the
record shows the job required more know-how and man-
power than projected. The prison was more difficult to build
than the usual building with four straight walls. Each wall
No. 05-3036 11
required special reinforcements (it was a maximum security
facility, after all), and there were many separate walls
being built in a large honeycomb. Due to the nature of the
facility, the masons were working in small spaces, sepa-
rated from each other while they were working. In the end,
even assuming Murdock’s speculation was correct, the
burden was on it to develop this factual matter, and we
cannot say that the district court’s determination that
Murdock failed to do so was clearly erroneous. Murdock’s
estimate grossly understated the amount of time and effort
required to perform the masonry work for a unique project,
a risk that falls squarely on the shoulders of the subcontrac-
tor.
III. CONCLUSION
For the reasons set forth above, the judgment of the
district court is AFFIRMED.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—8-17-06