United States District Court, N.D. California, San Jose Division
UNITED STATES OF AMERICA FOR THE USE OF SAN BENITO SUPPLY, Plaintiff,
KISAQ-RQ 8A 2 JV; et al., Defendants.
MEMORANDUM OF DECISION, FINDINGS OF FACT AND CONCLUSIONS OF LAW
HOWARD R. LLOYD, Magistrate Judge.
MEMORANDUM OF DECISION
This case was tried to the court for nine days between November 17 and December 2, 2014. Many witnesses were called and hundreds of exhibits admitted. At the conclusion of their presentations, counsel argued, and the matter was taken under submission. The court now issues its Memorandum of Decision (Memorandum), Findings of Fact (Findings), and Conclusions of Law (Conclusions).
B. STATEMENT OF THE CASE
This is a Miller Act case. San Benito Supply ("SBS"),  a concrete ready-mix supplier, was a sub-subcontractor on a government construction project at Fort Hunter Liggett in southern Monterey County. It sues to recover about $300, 000 it claims it is owed for concrete supplied for the project. Defendants are the project's general contractor/designer KISAQ-RZ 8A 2 JV ("KISAQ"), its concrete subcontractor Frazier Masonry Company ("Frazier"), and two surety companies: Federal Insurance Company ("Federal") and Western Surety Company ("Western"). The dispute is between SBS and Frazier. The other defendants are named in case a judgment in favor of SBS needs to be paid.
Frazier does not dispute that there are unpaid SBS invoices, but argues that SBS supplied nonconforming ready-mix concrete that ultimately had to be torn out by Frazier and replaced at substantial expense. It counterclaims against SBS for about $300, 000, and argues that any monies it lawfully owes to SBS (excluding, of course, the price for the nonconforming concrete) should be set off against Frazier's damage recovery.
In late 2009 the U.S. Army Corps of Engineers ("ACOE") entered into a contract with KISAQ for it to design and build a Tactical Equipment Maintenance Facility ("TMEF") at Fort Hunter Liggett. This was to be a rectangular, one story structure with tilt up concrete walls, a concrete slab floor, and several large doors so that military vehicles could be brought inside for maintenance and repairs. Because some of the vehicles were extremely heavy, a section of the floor slab was specified to be heavy duty 6000 psi concrete (meaning the concrete had to have a compressive strength of 6000 pounds per square inch so that it would not fail under extra heavy loads). Exh. 50.7, 50.8. This case is about 6000 psi concrete.
KISAQ awarded the subcontract for the masonry work on the TEMF project to Frazier. Thereupon, Frazier invited proposals from prospective suppliers of ready-mix concrete. This would be a big job, and SBS was very interested in obtaining it. Preliminary discussions between Charles Benford ("Benford"), Frazier's Project Manager, and Teddy Schipper Jr. ("Teddy"),  SBS's Mine Manager and one of its managing officers, began in the late fall of 2011. Teddy was SBS's mix designer.
Ready-mix concrete is a blend of aggregates, sand, cement, additives (sometimes), and water. The TEMF project called for 3000, 4000, and 6000 psi concrete. Each would require a different mix design. A mix design is the recipe for creating concrete of a particular strength with certain specified properties.
The ACOE's specifications for the TEMF project did not spell out any mix designs. Rather, they called out the ultimate strength required, noted some limitations (e.g. no more than a certain percentage of fly ash), some specific requirements (e.g. add steel fibers), and several permissible ranges of variations in the concrete's properties (e.g. design air volume, water/cementitious ratio, etc.).
There are so many variables in mix design that no one can look at an unproven design, for 6000 psi concrete for example, and say for sure that-when put to the test-it will actually result in concrete with a compressive strength of 6000 psi. The "Standard Specifications for Structural Concrete" promulgated by Committee 301 of the American Concrete Institute ("ACI 301") is viewed by the concrete industry as the "bible" for qualifying concrete mix designs. That is, in a situation such as the present, will the mix design achieve the strength result you need? Under ACI 301 there are two ways to qualify a mix design. One: someone comes up with his best judgment for a design for the desired concrete strength, and mixes up trial batches (each with slight differences in air/water volume). Then, using the detailed ACI 301 protocol, cure the samples the required number of days and test each for compressive strength. Finally, evaluate the resulting data by a complex mathematical formula to see if the mix qualifies. Alternatively: if one has actually used the mix (or, one virtually like it) in the field for a number of jobs over a certain period of time and has historic field test data on compressive strength from those jobs, then tally and analyze that data per the step by step procedure in ACI 301 to see if the mix qualifies.
On December 21, 2011, Teddy sent Benford preliminary mix designs, including one for the 6000 psi concrete. Exh. 6.7. They went to KISAQ and then to the project structural engineer, who gave them preliminary approval. Exh. 56.3. At this point, SBS had not submitted any back up data on compressive strength.
Then, on December 28, 2011, Teddy e-mailed Benford compression data on the 3000, 4000, and 6000 mixes. Exh. 55.1. The data pdfs were labeled "mix... history." The history for the 6000 psi mix showed 21 individual test results after 28 days of curing that were well in excess of 6000 psi. Exh. 55.6-7. The word "history" meant that this was historical data from past jobs and not data from batch testing.
On February 8, 2012, SBS sent Frazier a form "Proposal" quoting its prices for the concrete and other material Frazier needed for the TEMF project. Then, SBS and Frazier met on March 30, 2012 at Frazier's office to hash out pricing. Benford wanted lower prices, and he and Ted Schipper ("Ted") haggled back and forth using the Proposal as a worksheet. They ultimately agreed on prices that were then circled and initialed on the worksheet and both signed. Exh. 152. That same day Frazier sent SBS a letter stating that it intended to enter into a purchase order with SBS for the concrete on the TEMF project. Exh. 525. On April 6, SBS prepared a "clean" copy of the Proposal with the agreed upon pricing. Exh. 512.4. Several months later, on July 30, Frazier did issue the Purchase Order. Exh. 516.1.
In the intervening time between April 6 and July 30, the mix designs went up the line through an approval process, which ultimately put them on the desk of Karl Mai, the ACOE materials engineer. And, during this process Mai directed some slight changes in the specifications. Originally, they called for steel fibers to be added to the mix. Then, synthetic fibers were substituted. Finally, back to steel fibers. The fly ash content, originally at zero percent, went to 10%. The second submission of mix designs went from KISAQ to Mai on May 25, 2012. Mai's only comments upon reviewing them was to increase fly ash above the current 10%. Exh. 25.1-2, .38-39. SBS changed each mix to 15% fly ash, and all revised mix designs that KISAQ had were resubmitted on July 6 and approved. Exh. 524. The revised 6000 psi mix design, which had been approved by the structural engineer along with the others, came to KISAQ after the others had been submitted to Mai and was never forwarded to Mai, who never noticed it was missing. Exhs. 11.2, 710.1, 30.1-2. The word came down from the ACOE to pour the concrete for the slab.
Beginning about 3:00 a.m. on August 24, 2012 and continuing until about noon that day, SBS trucks delivered 280 cubic yards (28 truckloads) of the 6000 psi concrete mix. Frazier personnel placed the concrete and began the multi-step process of "finishing" it. During this same time period SBS also delivered 254 cubic yards of the 6000 psi mix but without steel fibers. These 254 yards were placed by Frazier on the area of the slab that was specified for 4000 psi concrete. (There was no need there for the extra strength provided by steel fibers.) Frazier figured it was more convenient to buy the 6000 psi concrete (without fibers) than at some other time to place 4000 psi concrete adjoining the 6000 and have to fuss with the "joint" between the two.
While the pouring was going on, SBS took samples of the wet cement coming from some of the trucks. (This is typical practice. The samples are called "companion cylinders.") Also, Frazier's quality assurance and inspection lab, CTE, took samples.
As the concrete finishing was being concluded, softball-sized delaminations were observed. That is, in a few areas a thin top layer of the concrete peeled or flaked away. This often meant some aspect of the finishing was not done properly.
The specification "6000 psi" means that the concrete will have that compressive strength 28 days after it is poured and finished. Compressive strength is determined by subjecting a sample to controlled, measured compression until it breaks. CTE "broke" some of its cast samples (with steel fiber) after 28 days, and their average compressive strength was only 4570 ± 370 psi. It broke other samples after 56 days, but the average compressive strength had only risen to 5150 ± 160 psi. Exh. 820. SBS's testing of some of its companion cylinders produced equally disappointing results. Exh. 534.1.
Since the compressive strength of concrete increases-up to a point-as time goes by, it was hoped that eventually it would achieve the specified 6000 psi strength. But, it did not. SBS's expert, Geoffrey Hichborn, drilled out core samples from seven locations on the slab and tested them at 101 days of age. Exh. 822. The adjusted average strength was only 5050 psi. The heavy duty slab on grade was never going to get to 6000 psi.
On September 30, 2012, Frazier sent to SBS a "formal notice and documentation of non-compliance, " which warned that, if slab strength did not get up to 6000 psi, any cost to rework or replace it would be passed on to SBS. Exh.534.1. Between then and early December 2012, while waiting to see if the passage of time would solve the low compression problem, the parties met several times and exchanged frequent e-mails about how to fix the problem if time did not. Hichborn proposed grinding off the top 1" or so of the slab (it was 7" thick) and topping it with a super-strong epoxy. He never prepared plans or specs or did supporting calculations, and the proposal did not generate widespread interest (at least in part because it would have cost about the same as the sure fix of removing and replacing the slab). Exhs. 558, 586.
Discussions about alternate remedies ended when the ACOE, as was its right, directed that the area of the slab requiring 6000 psi concrete be removed and replaced with concrete that complied with the specifications. Exhs. 559.1, 717, 781, 783, 795. SBS declined to participate in any of that work, and Frazier did the job using concrete from another supplier. Frazier's costs were $312, 430.90, and its Counterclaim sought that sum minus what it owed SBS for conforming concrete and material. Exh. 817.
SBS wants judgment for its unpaid invoices and denies any responsibility for the failure of the "6000 psi" concrete to achieve 6000 psi. Frazier acknowledges that it owes for some unpaid invoices, but claims that what it owes is less than what SBS owes for the costs to remove and replace the nonconforming concrete. The court begins by considering whether SBS was contractually ...