Opposition Brief — Perini Corp. v. City of New York

3 “PILED -2

No. 99-615

NOV 10 1909

IN THE OFFICE OF THE CI “RK

SUPREME COURT OF THE UNITHDUSTA EHS COURT. os.

OCTOBER TERM, 1999

PERINI CORPORATION,

Petitioner,

- against -

THE CITY OF NEW YORK,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF IN OPPOSITION

MICHAEL D. HESS,

Corporation Counsel for the

City of New York,

Attorney for Respondent,

100 Church Street,

New York, N.Y. 10007

(212) 788-1233

LEONARD J. KOERNER,*

FRANCIS F. CAPUTO

DONA B. MORRIS

LEWIS S. FINKELMAN

JOHN de P. DOUW

of Counsel.

* Attorney of Record

November 9, 1999.

iis ee rene!

Oe

QUESTION PRESENTED

Whether the notice provision of the Changes Clause, a

federal regulation incorporated into the construction contract

between a contractor and the City of New York for the

performance of work on a municipal water treatment

| facility, a project partially funded by federal grant monies,

Should be strictly construed in accordance with New York

law, where the parties agreed to be bound by New York

law and resolution of the choice of law issue does not

implicate any uniquely federal interest nor does it entail any

significant conflict between an identifiable federal policy

and the operation of state law.

TABLE OF CONTENTS _ aes

ees : Page

QUESTION PRESENTED ee ea

_TABLE OF AUTHORITIES................. i

OPINIONS BELOW, ke cee cn,

STATEMENT OF FACTS.................. 2

ARGUMENT

THE DETERMINATION THAT THE NOTICE

PROVISION OF THE CHANGES CLAUSE MUST BE

STRICTLY ENFORCED AS PROVIDED BY THE

CONTRACT AND IN ACCORDANCE WITH NEW

YORK LAW FULLY COMPORTS WITH DECISIONS

ve on 5 i an ene 9

RI ee ge abet oii 25

TABLE OF AUTHORITIES

Cases Page

A.H.A. General Construction, Inc. v.

New York City Housing Auth.,

a Te. ee EOD. dg ee ae bw es 18, 21, 22

Aircraft Gear Corp. v. Kaman Aerospace Corp..,

875 F. Supp. 485 (N.D.TH. 1995) ........... 19

Atherton v. F.D.1.C.,

Sie Sa BUS EEO OED. 6 kas eh 8G eee 1]

Barnett Bank of Marion County v. Nelson,

25 F Che ee Meee) GS PA SS Pie 24

Boyle v. United Technologies Inc,,

S67 UB: SOAS) wie eel. 11, 12, and passim.

Brinderson Corp. v. Hampton Roads

Sanitation District,

Geo Fis 4s CO Ce, TGRT) 2. ck ee es 8. 14

City of New York v. Job-Lot Pushcart.

ee Wes Cee PD nck oe a ee ew 24

Clearfield Trust Co. v. U.S.,

po De ee Sr 15

Copco Steel Co. v. U.S.,

Dee Pe ee es Gs PE es sn ee 19

-11i-

Cases Page

Virgin Islands Housing Authority v. Coastal General

Construction Services Co be

27 F.3d 911 (3d Cir. RE errr cae 14,17

W.W.W. Giancontieri,

tT? N.Y.2¢ 187 So Ee er oe ere 23

Westinghouse Electric Corp. v. New York City

Transit Authority,

735 F. Supp. 1205 (S.D.N.Y. SOO te yied St 18

Woodling v. Garrett Corp.,

813 F.2d 543 (2d Cir TPT tid. 10

Woodward Governor Co. v. Curtiss-Wright

Flight Systems,

164 F.3d 123 (2d Cir. See as ee a es 12

Statutes and Regulatons

Clean Water Act, 33 U.S.C. sii gies, ..... a

ee. § Nae. 2 Oy Ph) ees Te ae

15

me WB ee ee ie ei eS 15

40 C.F.R. 33.001(g)(rev. ge re 3

40 C.F.R. § 33.210(a)(rev. met, Pee eer ces 3

-jV-

Cases Page

Marine Midland Bank v. United Missouri Bank,

223 A.D.2d 119 (Ist Dep’t 1996) .......... 10n.

Mastrobuono v. Shearson Lehman Hutton,

gtk ae, rane wreareneyere me 23

Miree v. DeKalb County,

ee Oa ee a as as 96d he wee Rais 11

Panama Refining Co. v. Ryan,

Dee Ge ee ss on es ee CO oe ee 16

Reliance Insurance Co. v. U.S.,

20 Cl. Ct. 715 (Cl. Ct. 1990),

aff'd, 931 F.2d 863 (Fed. Cir. 1991) ......... 21 |

Sanders v. Winship,

is Se B.D ey. +4 Rees few pce 16

Sante Fe Engineers v. U.S., |

BOt F268 379 Gee. Cor: 1968). in be ke wees 21

Sunrise Mall Association v. Import Ally, |

rit w Se Bek ee 3 3 ere 23

Turtur v. Rothschild Registry International, Inc.,

26 F.3d 304 (2d Cir. 1994) ............04. 10

]

United Contractors v. U.S..,

rr oe B 3 Fa | | rn er 20

Cases Page

Virgin Islands Housing Authority v. Coastal General

Construction Services Corp..

af Fige 9a) Ge Ge. 19) gw ie oe ee. s 14,17

W.W.W. Giancontieri.

FE We WOE CIO ok és ce vc ccd nvan. 23

Westinghouse Electric Corp. v. New York City

Transit Authority,

735 F. Supp. 1205 (S.D.N.Y. i. SEP oe 18

Woodling v. Garrett Corp..,

813 F.2d 543 (2d Cir SE ai ak ie a otek 10

Woodward Governor Co. v. C urtiss- Wright

Flight Systems,

164 F.3d 123 (2d Cir. sige Ha eae eerie ier 12

Statutes and Regulatons 9

Clean Water Act, 33 U.S.C. § 125] I on alk 2,3

PES EIS oi 6s ke ee ae 15,

OM ER OSE OTe 15

40 C.F.R. 33.001(g)(rev. July 1, 1993) ........... 3

40 C.F.R. § 33.210(a)(rev. July 1, 1993) .......... 3

-Vi-

wicca send

Statutes

40 C.F.R. Part 35 Appendix C-2 to

Seleeet © CIPSS) uaa bas exe eee a ee 5

Ee rer ere ee ee eee ee ee 17

-Vii-

No. 99-615

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1999

PERINI CORPORATION,

Petitioner,

- against -

THE CITY OF NEW YORK,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF IN OPPOSITION

OPINIONS BELOW

The opinion of the Court of Appeals for the Second

Circuit (Pet. Appendix A) is not reported in an official

reporter. The Court of Appeals’ summary order affirming

the decision of the District Court for the Southern District

Be nae aS re

of New York is reported at 182 F.3d 901 (2d Cir. 1999).

The opinion of the District Court (Pet. Appendix B) is

reported at 18 F.Supp.2d 287 (S.D.N.Y. 1998).

STATEMENT OF FACTS

Congress declared that the objective of the Clean

Water Act, 33 U.S.C. § 1251 et seqg., was to “restore and i

maintain the chemical, physical and biological integrity of

the Nation’s waters.” 33 U.S.C. § 1251(a). At the same

time, Congress made manifestly clear its intention not to

have federal law pre-empt the field of construction project

management of water pollution control projects. Thus, in |

33 U.S.C. § 1251 (b), Congress declared as a goal and

policy:

Congressional recognition, preservation, and

protection of primary responsibilities and rights of

States. . . . It is the policy of the Congress to

recognize, preserve, and _ protect the primary

responsibilities and rights of States to prevent,

reduce, and eliminate pollution, .... It is the

policy of Congress that the States manage the

construction grant program under this Act. . .

In parallel fashion the federal regulations applicable to such

construction projects provided

Ae A pl cit

In the construction of treatment works program[sic]

under the Clean Water Act (33 U.S.C. 1251 ef

seq.), it is E.P.A.’s' policy to delegate

' The federal Environmental Protection Agency.

x.

determinations on individual projects to State

agencies to the maximum extent possible. . . .

40 C.F.R. 33.001(g)(rev. July 1, 1993).

In the section of the E.P.A. regulations entitled

“Recipient Responsibility," responsibility is delegated to the

grant recipient for management of the project as follows:

(a) the recipient is responsible for the settlement and

satisfactory completion in accordance with sound

business judgment and good administrative practice

of all contractual and administrative issues arising

out of subagreements entered into under the

assistance program. This includes issuance of

invitations for bids or requests for proposals,

selection of contractors, award of subagreements,

settlement of protests, claims, disputes and other

related procurement matters.

40 CFR § 33.210(a)(rev. July 1, 1993).

Within the context of this statutory and regulatory

framework, in December of 1993, Perini and the City of

New York (the “City”) entered into a construction contract

(the “contract”) for the replacement and improvement of

certain facilities at the Coney Island Water Pollution Plant

(the “project”). Under the Clean Water Act, the E.P.A.

funded 55% of the contract, the price of which was some

$40,000,000. The City provided the remaining funding.

Both the original grant agreement between the City

and EPA and a subsequent amendment thereto increasing

funding for the project mandated inclusion in the contract of

2.

certain provisions set forth in the Code of Federal

Regulations. Of particular concern here are the

“Supersession Clause” and the “Changes Clause” to which

it refers:

The Supersession Clause

1. General

(a) the owner and the contractor agree that the

following supplemental general provisions apply to

the work to be performed under this contract and

that these provisions supersede any conflicting

provisions of this contract.

The Changes Clause

2. Changes

(a) The owner may, at any time . . . by written

order designated or indicated to be a change order,

make any change in the work within the general

scope of the contract... .

(b) Any other written order or an oral order. . .

from the owner, which causes any such change,

shall be treated as a change order under this clause,

if the contractor gives the owner written notice

Stating the date, circumstances, and source of the

order and if the contractor regards the order as a

change order.

* * *

(d) If any change under this clause causes an

increase or decrease in the contractor’s cost of, or

the time required for, the performance of any part

ee

Oo

ee

of the work under this contract, whether or not

changed by any order, an equitable adjustment shall

be made and the contract modified in writing

accordingly. However, except for claims based on

defective specifications, no claim for any change

under paragraph (b) of this section 2., shall be

allowed for any costs incurred more than 20 days

before the contractor gives written notice as there

required. Also, in the case of defective

specifications for which the owner is responsible,

the equitable adjustment shall include any increased

cost reasonably incurred by the contractor in

attempting to comply with such defective

specifications.

(e) If the contractor intends to assert a claim for an

equitable adjustment under this clause, he must,

within 30 days after receipt of a written change

order under (a) above or the furnishing of a written

notice under paragraph (b) of this section 2., submit

to the owner a written statement setting forth the

general nature and monetary extent of such claim,

unless the owner extends this period. The statement

of claim hereunder may be included in the notice

under paragraph (b) of this section 2.

40 C.F.R. Part 35 Appendix C-2 to Subpart E (1993).

In addition to the federally mandated clauses, the

contract includes standard provisions providing for the

making of changes to the contract and the issuance of

change orders, Article 25; prescribing the methods of

payment for contract changes: either by applicable contract

unit prices, reasonable costs plus an allowance for overhead

.*

and profit, or a negotiated payment, Article 26; and

defining notice and documentation requirements respecting

claims, Article 27

Also, Article 54 of the contract in pertinent part

provides:

No claims against the City for damages for breach

of Contract or compensation for extra work shall be

made or asserted in any action or proceeding at law

or in equity, unless the Contractor shall have strictly

complied with all requirements relating to the giving

of notice and of information with respect to such

claims as have been herein provided.

Finally, the contract contained a choice-of-law

provision, Article 62, in which the parties agreed that the

contract was to be governed by and construed in accordance

with the laws of the State of New York.

During the course of work on the project, Perini and

the City negotiated lump sum payments which, as the

contractor certified, covered the “accurate, complete, and

current” costs of the change orders involved in this

litigation. Perini, however, claimed entitlement to

compensation under the Changes Clause for alleged indirect

costs beyond those agreed to by both parties and, upon the

City’s refusal to pay, brought this lawsuit.’

> The kind of damages for which Perini is suing, increased

costs attributable to changed contract conditions but not part

of the changed work, are variously referred to as delay

damages, impact costs or ripple costs.

-6-

eee

AF NSPS ih awn i a —<

ai ma

Perini sought summary judgment establishing the

City’s liability on Perini’s third cause of action, which

sought an “equitable adjustment” of $16 million for the

claimed indirect costs. The City cross-moved for summary

judgment, arguing, inter alia, that the contractor’s failure

to comply with the notice provisions of the Changes Clause

barred its claims. In opposing the City’s cross-motion,

Perini argued that its claims were viable because federal law

governed interpretation of the Changes and Supersession

Clauses and that federal courts and agencies would construe

the notice requirements of the Changes Clause liberally.

The District Court found that 1) New York law

governed interpretation of the notice provision of the

Changes Clause; 2) New York courts construe such notice

requirements strictly; and 3) Perini’s evidence of notice did

not demonstrate compliance with the notice requirements of

the Changes Clause.?

The Court of Appeals affirmed. In its unreported

summary order,* the Second Circuit agreed that New York

* The District Court noted that Perini’s failure to comply

with the more lenient notice and documentation

requirements of the Changes Clause obviated any need to

consider the existence of a conflict between the Changes

Clause and the more demanding notice and documentation

provisions of Article 27 of the contract. 18 F.Supp.2d at

295 n. 8.

* Since the Second Circuit’s summary order specifically

provides that it “will not be published in the federal

reporter and may not be cited as precedential authority to

(continued...)

nA

law governed interpretation of the notice provision of the

Changes Clause. In so holding, the Court of Appeals cited

to Linan-Faye Constr. Co. v. Housing Auth. of Camden, 49

F.3d 915, 919-21 (3d Cir. 1995 (holding that state law

governed construction of the federally mandated termination

clause despite use of federal funds for the project and

adoption of forms authorized by the federal agency) and

Brinderson Corp. v. Hampton Roads Sanitation Dist., 825

F.2d 41, 44-45 (4th Cir. 1987) (stating that the court was

“not persuaded” by the contention that federal law

controlled construction of a federally mandated clause in

contract, but following federal law because state courts

would follow do so in the absence of controlling state

authority).

Furthermore, the Court of Appeals did not perceive

any conflict between, on the one hand, the notice provision

of the Changes Clause and, on the other hand, the contract

Clauses requiring strict construction of notice provisions and

the application of New York law. The Court of Appeals,

therefore, rejected Perini’s argument that the Supersession

Clause required nullification of the contractor’s agreement

that 1) it would comply strictly with the notice requirements

of the Changes Clause; and 2) New York law would govern

interpretation of the contract.

Finally, the Court of Appeals examined each of the

documents that the contractor claimed constituted the notice

required by the Changes Clause, finding that most were

* (...continued)

this or any other court,” it is difficult to comprehend

petitioner’s description of this decision as “the lead case of

decision on this issue in the United States.” Pet. 7.

-8-

untimely and that those that arguably were timely failed

adequately to inform the City of the monetary extent of the

damages claimed as the result of a particular change order,

as the Changes Clause required.

ARGUMENT

THE DETERMINATION THAT THE NOTICE

PROVISION OF THE CHANGES CLAUSE

MUST BE STRICTLY ENFORCED AS

PROVIDED BY THE CONTRACT AND IN

ACCORDANCE WITH NEW YORK LAW

FULLY COMPORTS WITH DECISIONS OF

THIS COURT.

(1)

The decision of the Court of Appeals, affirming the

decision of the District Court and holding that New York

law governs the interpretation of the notice provision of the

Changes Clause, is correct and does not conflict with any

decision of this Court or any other court of appeals. Also

correct is the finding of the Court of Appeals that there is

no conflict between the Changes Clause’s notice

requirements and those clauses of the parties’ contract

requiring strict compliance with such requirements and

construction of the contract under New York law.

Accordingly, contrary to the contractor’s arguments, the

Supersession Clause of the contract does not require

nullification of Perini’s contractual agreements that it would

strictly comply with the notice requirements of the Changes

Clause as a precondition to assertion of a claim for payment

under that provision and that New York law would govern

interpretation of the contract.

-9-

(2)

Perini, in executing the contract, agreed to be bound

by its choice of law provision, which required that it be

construed in accordance with New York state law. Both

federal and New York state courts recognize that where

parties to a contract include a choice-of-law clause

providing for construction of the agreement in accordance

with New York state law, that clause generally must be

honored, where, as here, New York has a reasonable

relationship to the agreement. See for example Turtur v.

Rothschild Registry Int’l, Inc., 26 F.3d 304, 310 (2d Cir.

1994); Woodling v. Garrett Corp., 813 F.2d 543 (2d Cir.

1986); Freedman _v. Chemical Construction Corp., 43

N.Y.2d 260, 264 (1977).

Nonetheless, Perini, realizing that its claim for an

equitable adjustment is barred when the notice provision of

the Changes Clause is strictly construed as the contract and

New York law require, seeks to nullify its agreement to be

bound by the interpretation of the contract under New York

law. Under New York law, as under federal law, however,

the presumption remains that the contract will be interpreted

according to New York law. ° See Erie Railroad Co. v.

* In Marine Midland Bank v. United Missouri Bank, 223

A.D.2d 119, 123 (1st Dep’t 1996), for example, the New

York Supreme Court, Appellate Division, First Department

recently noted that a contract’s choice of law provision

might be held invalid only where the issue is of such

overriding concern to the public policy of the other

jurisdiction as to override the intent of the parties and the

interest of the State of New York in enforcing its own

(continued. ..)

-10-

Set AS A RARE IGRI IC NN SS ik Ns. ad wlasid Aart it Shanta aes eid itis

Tompkins, 304 U.S. 64, 78 (1938) (“Except in matters

governed by the Federal Constitution or by Acts of

Congress, the law to be applied in any case is the law of the

State”).

While, in the years since Erie, this Court has at

times found federal law displaces state law, the exceptions

have been few and the tests rigorous. As this Court

explained in Boyle v. United Technologies, Inc., 487 U.S.

500 (1988), in most fields of activity, this Court “has

refused to find federal pre-emption of state law in the

absence of either a clear statutory prescription . . . or a

direct conflict between federal and state law.” 487 U.S. at

504 (citations omitted). Having cautioned against the broad

use of federal common law in, for example, Miree v.

DeKalb County, 433 U.S. 25, 31-32 ( 1977) (federal

common law found not to govern air crash survivors’ suit

against the county as third-party beneficiaries of a contract

between the county and the federal government), this Court,

in Boyle, stated the test applicable to the choice of law

question raised in this case. The Boyle Court found that

federal common law only applies where there is 1) a

“uniquely federal interest” and 2) a “significant conflict”

between an identifiable federal policy or interest and the

operation of state law. Boyle, 487 U.S. at 507. Compare

Atherton v. F.D.LC., 519 U.S. 213, 218 (1997) (normally

when courts decide to fashion rules of federal common law,

the guiding principle is that a significant conflict between

some federal policy or interest and the use of state law must

first be specifically shown).

> (...continued)

policies.

wae

As summarized recently by the Second Circuit,

under the rule stated in Boyle, federal common law applies

only in those limited situations where a uniform national

rule is necessary to further the interests of the federal

government. Marcus v. A.T.&T., 138 F.3d 46 (2d Cir.

1998). In Boyle this Court found uniquely federal interests

to arise only in a few areas, such as: the obligations to, and

rights of, the United States under its contracts; the liability

of federal officers for official acts; and civil liabilities

arising out of federal procurement contracts. 487 U.S. at

504-506. See also Woodward Governor Co. v. Curtiss-

Wright Flight Systems, 164 F.3d 123, 127 (2d Cir. 1999).

Thus, in Boyle, federal law was applied to determine the

tort liability of an independent contractor which, under the

federal procurement program, had provided helicopters to

the U.S. Marines.° The narrow reach of the requirement

° Perini makes the breathtaking leap from this Court’s

finding in Boyle that “state law which holds Government

contractors liable for design defects in military equipment

does in some circumstances present a ‘significant conflict’

with federal policy and must be displaced,” 487 U.S. at

512, to the totally unsupported observation that the Boyle

Court “concluded that state laws that hold the contractor

liable for Unforeseen Conditions, by exculpatory or other

Clauses present a ‘significant conflict’ with federal policy

and must be displaced.” Pet. 21. According to Perini,

therefore, the Second Circuit’s decision is in conflict with

Boyle.

This is just one of the most salient misstatements

contained in Perini’s petition, many of which grow out of

Perini’s attempt to odscure the fundamental point that the

contract at issue here is not a federal procurement contract.

(continued...)

42

reuters oe ee ee ae

for a uniform federal rule may be seen, for example, by the

result in Marcus, supra, 138 F.3d at 54, where the Second

Circuit applied the Boyle test to find no uniquely federal

interest in preventing a carrier from misrepresenting the

nature of its rates to customers, although the Federal

Communications Act evidenced a federal interest in

uniformity of charges in telecommunications.

(3)

The notice requirements of the Changes Clause

found in the contract simply does not invoke a “uniquely

© (...continued)

Thus, in its discussion of Boyle, Perini attempts to

disregard the fact that, unlike the defendant in Boyle, who

was a Government contractor which, under its contract,

provided equipment to the federal government as part of the

federal procurement program, Perini contracted with the

City under the City’s procurement program which, in part,

benefitted from federal funding. Similarly, Perini

repeatedly conflates federal and municipal procurement

programs, for example, referring to United States.

Government’s “uniquely federal interest in its national

procurement program.” Pet. "i" and passim.

Perini’s discussion of the split in authority as to whether

the government contractor defense is available only to

manufacturers of military products or extends also to

Government contractors providing nonmilitary products to

the federal government under the federal procurement

program, Pet. 22-23, obviously, is totally irrelevant to this

case, which does not involve either an assertion of the

_ government contractor defense or federal procurement.

2%.

federal interest,” and thus, under Boyle, federal common

law does not apply to its interpretation.

“[T]he fact that a contract is subject to federal

regulation does not, in itself, demonstrate that Congress

meant that all aspects of its performance or nonperformance

are to be governed by federal law rather than state law

applicable to similar contracts in businesses not under

federal regulation.’” Linan-Faye Construction Co., Inc., v.

Housing Authority of City of Camden, 49 F.3d 915, 919

(3d Cir. 1995), quoting Virgin Islands Housing Authority

v. Coastal General Construction Services Corp., 27 F.3d

911, 916 (3rd Cir. 1994). In Linan-Faye, supra, the parties

entered into a contract which was funded in substantial part

by a grant from the United States Department of Housing

and Urban Development. 49 F.2d at 917. As here, the

applicable federal regulations mandated the inclusion of

certain provisions in the contract, including a termination

for convenience clause. Id. at 921, 936. The Housing

Authority terminated the contract, and the contractor

commenced a federal action seeking specific performance

and damages. The District Court, exercising diversity

jurisdiction over the matter, applied federal, not New

Jersey, common law in interpreting the federally-required

termination for convenience clause. Id. at 919. However,

the Court of Appeals for the Third Circuit applied the test

articulated in Boyle and reversed with the direction that the

District Court resolve all remaining issues in accordance

with New Jersey law, holding that “it is the law of New

Jersey that governs the interpretation of this contract.” Id.

at 921.

Brinderson Corporation v. Hampton _ Roads

Sanitation District, 825 F.2d 41 (4th Cir. 1987), is a case

-14-

(a ee Oa a ee ee ee ee

decided before the Supreme Court had articulated the clear

test of Boyle. In Brinderson, the Fourth Circuit rejected the

argument that federal law should control the construction of

provisions drawn from federal regulations in a contract,

partially funded by an E.P.A. grant, between a contractor

and a regional subdivision of the Commonwealth of

Virginia for the construction of a waste water treatment

facility because such a result was required under Clearfield

Trust Co. v. U.S., 318 U.S. 363 (1943). Thus, the

Brinderson Court did not find that the facts of the case

mandated the use of federal common law in order to assure

the application of a uniform rule. 825 F.2d at 44. The

Fourth Circuit, however, did hold that federal common law

was relevant, but not because federally mandated provisions

in state or municipal contracts carry with them federal

common law. Rather, the Brinderson Court looked first to

State law and found that federal common law was, in the

absence of applicable Virginia case law on the subject, what

Virginia courts would have adopted. The absence of

Virginia precedents on the disputed issue contrasts sharply

with this case, where there is extensive New York case law

addressing the interpretation of the contractual notice

provisions and requiring the strict compliance with such

requirements.

J.A. Jones Constr. Co. v. City of New York, 753

F. Supp. 497, 505 (S.D.N.Y. 1990), is also instructive. In

J.A. Jones, the contractor argued that the incorporation of

federal regulations defining how to calculate payments for

change orders and delays in a contract with New York City

funded by an E.P.A. grant provided a basis for federal

question jurisdiction under 28 U.S.C. § 1331 as well as

jurisdiction pursuant to the federal declaratory judgment

statute, 28 U.S.C. § 2201. In J.A. Jones, the District

-15-

Court rejected the contractor’s arguments, finding that the

construction of federal regulations incorporated in a

federally funded construction contract does not present a

substantial issue of federal law. 753 F. Supp. at 504-505.

It is a well-settled principle of statutory construction

that a statute or a set of regulations must be construed as a

whole and that its various sections must be considered

together and with reference to each other. See Marine

Carriers Corp. v. Fowler, 429 F.2d 702, 706 (2d Cir.

1970), cert. denied, 400 U.S. 1020 (1971), quoting Panama

Refining Co. v. Ryan, 293 U.S. 388, 439 (1935)(“‘[T]he

meaning of a statute is to be looked for, not in any single

section, but in all parts together and in their relation to the

end in view.’”); Sanders v. Winship, 57 N.Y.2d 391, 395-

396 (1982) (“[A] statute is to be viewed as a whole. To

this end, all parts thereof, if possible, are to be harmonized

to achieve the legislative purpose.”).

Thus, both the Supersession Clause and the Changes

Clause must be understood in the context of the Clean

Water Act’s clear embodiment of a Congressional intent to

delegate responsibility for construction projects to the

recipients of federal grants as indicated in the provisions of

the applicable statute and regulations quoted above at pages

2-3.

Furthermore, Perini has not identified, because it

cannot, any statutory declaration that federal law must

govern in the interpretation of contracts for municipal

projects funded by the E.P.A. under the Clean Water Act.

Perhaps the strongest support the contractor can muster for

its argument that, in the interest of uniformity, federal

common law should be applied to interpret the notice

-16-

provision of the Changes Clause because a uniform policy

is required a directive issued by President Reagan in 1988.

Pet. 6-7, 19. As part of the Presidential “regulatory relief

program,” which aimed to reduce the burden of federal

regulation and paperwork, the directive called for the

publication of common regulations, thus aiming for

consistency and uniformity among all federal assistance

awarding agencies. 53 F.R. 8073. However, Perini cites

to no case law indicating that the Reagan house-cleaning

directive calls for, in the name of national uniformity, the

application of federal common law to all contracts entered

into by any recipient of federal funding. Indeed, the Court

of Appeals for the Third Circuit found that the interest in

uniformity in construction of federal contractual provisions

is not enough to pose federal question issues. Virgin

Islands Housing Authority v. Coastal General Construction

Services Corp. 27 F.3d 911, 916 (3d Cir. 1994).

Therefore, given the expressed Congressional intent

to delegate responsibility for management of construction

projects to the recipients of E.P.A. grants, the contract’s

Supersession Clause itself cannot and does not, as Perini

argues, operate to nullify or pre-empt other standard City

contract provisions included in the contract that touch

matters covered by the Changes Clause. Nor does it speak

to the choice of law issue, much less mandate the

application of federal common law to disputes over contract

administration between a recipient of an E.P.A. grant and

its chosen contractors. The Supersession Clause merely

provides that the Changes Clause, as a “supplemental

general provision” included in the contract, supersedes any

conflicting provisions.

ois

In sum, there is no uniquely federal interest entailed

by the interpretation of the notice provision of the Changes

Clause in a contract to which the federal government is not

a party under a statutory and regulatory scheme in which

responsibility for the construction of local facilities is

delegated to the grant recipient.

(4)

Under Boyle, the existence of a uniquely federal

interest is a necessary but not sufficient condition for the

displacement of state law. 487 U.S. at 507. While that

necessary condition plainly has not been met in this case,

assuming it to have been met for the sake of argument, the

existence of a conflict between the operation of New York

law and an identifiable federal policy is similarly absent.

The contract, in Article 54, specifically requires

strict enforcement of notice provisions. Furthermore, New

York law enforces provisions requiring strict compliance

with notice requirements in public contracts as conditions

precedent to claims for extra compensation. See for

example, A.H.A. Gen. Constr., Inc. v. New York City

Housing Auth., 92 N.Y.2d 20 (1998); Westinghouse

Electric Corp. v. New York City Transit Auth., 735 F.

Supp. 1205, 1224 (S.D.N.Y. 1990).

On the other hand, under federal common law, in

cases where contracts have not specified strict construction

of notice provisions, courts at times liberally construe

contractual notice provisions, excusing strict, formal

compliance with certain kinds of notice provisions when

actual or constructive notice of the underlying facts on the

part of the contractee is found. See for example, Hoel-

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ry ee

eet Bete s /.

Steffen Constr.Co. v. U.S., 456 F.2d 760, 768 (Ct. Cl.

1972); Copco Steel Co. v. U.S., 341 F.2d 590, 598 (Ct.

Cl. 1965). It is worth noting, however, that, even where

federal common law has been applied, a contractual

provision requiring strict compliance with notice

requirements may be enforced. See Aircraft Gear Corp. v.

Kaman Aerospace Corp., 875 F. Supp. 485, 492-495

(N.D.Ill. 1995).

In attempting to confect an argument that the strict

interpretation of the notice provision of the Changes Clause

required by New York law conflicts with some significant

federal policy, Perini discerns a federal policy that the

government, not the contractor, should absorb the increased

costs of delays, which policy mandates equitable

adjustments that make contractors whole. The rationale for

this supposed policy is that, in anticipation of such equitable

adjustments, public contractors will not provide in their bids

for contingency costs to cover indirect costs of delays.

Thus, according to Perini, the equitable adjustment language

of the Changes Clause embodies a federal policy designed

to induce contractors to submit lower bid prices for public

contracts. Pet. 8-12.’ Perini understands this policy to

entail an interpretation of the notice provision of the

Changes Clause so liberal that no notice would be required

? While Perini argues that its interpretation of the Changes

Clause is necessary to prevent the submission by contractors

of inflated bids, it should be noted that if the City finds bid

prices to be inflated it can and does reject all bids and rebid

the contract. Furthermore, if the E.P.A. finds bids inflated,

it can refuse to fund the project.

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as to “changes that the City itself had directed as the City

had actual knowledge of such changes.” Pet. 5.*

Perini relies primarily upon Foster Construction v.

U.S., 435 F.2d 873 (Ct. Cl. 1970) in support of its

argument that there is a federal policy that requires payment

of all of a contractor’s claimed indirect costs of delays

relating to change orders. However, this Court should note

that Foster deals only with the very narrow and specific

issue Of delays related to differing site conditions and

involves consideration of issues not relevant here, such as

the extent to which bidders should be able to rely upon the

Owner’s representations concerning subsurface conditions as

opposed to their own pre-bid investigations. 435 F.2d at

886-888. Kaiser Industries Corp. v. U.S., 340 F.2d 322

(Ct. Cl. 1965) and United Contractors v. U.S., 368 F.2d

585 (Ct. Cl. 1966), also cited by Perini, both similarly deal

with changed subsurface conditions, which have a particular

relation to bid prices. Pet. 8-10.

Indeed, contrary to Perini’s argument, the Federal

Circuit has held, on at least two occasions, that federal

agencies in fact are free to place cost limitations on change

orders issued pursuant to the Changes Clause. In Reliance

* Perini does not deal with the fact that the notice provision

requires notice of both the general nature and the monetary

extent of the claim being asserted. The owner’s knowledge

of the fact of a contract change does not automatically

supply it with knowledge of costs incurred by the contractor

indirectly resulting from such a change.

If, as Perini states, the district court observed that “if the

liberal federal law applied, Perini would prevail,” Pet. 4-5,

that statement does not occur in its reported decision.

-20-

Insurance Co. v. U.S., 20 Cl.Ct. 715 (Cl. Ct. 1990), aff'd

931 F.2d 863 (Fed. Cir. 1991), and Sante Fe Engineers v.

U.S., 801 F.2d 379 (Fed. Cir. 1986), the underlying

contracts included another federal regulation which limited

the amount recoverable by the contractor for both overhead

and profit with respect to changes to no more than 10% of

the contractor’s direct costs. Notwithstanding the

“equitable adjustment” language of the Changes Clause, the

Court in both cases upheld the costs limitations contained in

the other regulation. In fact, in Reliance, the Court

affirmed dismissal of the contractor’s claim seeking $1.3

million in delay damages and held that such limitations

apply “regardless of the size and scope of contract

changes.” 931 F.2d at 865.

Perini contrasts this supposed federal policy of

reimbursing contractors for all claimed costs of delays with

what it asserts is the City’s policy of exculpating itself from

liability for all increased costs due to delays. (Pet. 8-12).

Perini then leaps to the conclusion that these supposed

policy differences directly result in an inconsistency

between federal and New York law with respect to the

interpretation of the notice provision of the Changes Clause

such that, in order to effectuate the intent of the regulations,

federal common law must be applied.

The main point that must be made in response to

Perini’s policy argument is that this case only concerns the

interpretation of notice requirements and, as the New York

Court of Appeals has recently stated, in A.H.A General

Construction, Inc. v. New York City Housing Auth., 92

N.Y.2d 20 (1998), notice provisions in public contracts are

not exculpatory clauses, nor do they embody any

substantive rule of liability for construction costs. Rather,

-21-

notice provisions are conditions precedent to recovery which

serve salutary purposes with respect to protection of the

public treasury. 92 N.Y.2d at 30-34. Indeed, as the Court

of Appeals observed in A.H.A., notice provisions are

intended to prevent precisely the situation raised in this

litigation, the accumulation by a _ contractor of

undocumented damages amounting to a_ substantial

percentage of the actual price of the contract. See Id. at

34.” Since protection of the public fisc is the essential

policy that may be seen also to underlay the federal

regulations incorporated into contracts funded in part by

EPA grants, there is no fundamental inconsistency to be

found respecting the interpretation of contractual notice

provisions.

Given the nature and function of the notice

provisions at issue here, Perini’s depiction of the City’s

procurement policy, and its supposed conflicts with federal

procurement policy is simply not relevant. Furthermore,

given that the contract at issue here, like all standard City

contracts, provides for the issuance of change orders to

compensaie the contractor for the extra costs entailed by the

performance of extra work, Perini’s statements that it is the

City’s policy “to exculpate itself from all increased costs,”

Pet. 10, is patently absurd.

Perini’s argument that the notice requirements of the

Changes Clause as interpreted under the generally more

liberal approach to such provisions of federal common law

should displace the contract’s requirement of strict

compliance with notice provisions is supported by neither

* In this case, Perini is claiming $16,000,000 in delay

damages, approximately 40% over the contract price.

2.

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the holding of Boyle, the language of the Supersession

Clause, nor by well-established principles of contract

construction. There is, in sum, no significant conflict

involved here.

Under both federal and New York common law it is

a fundamental principle of contract construction that the

contract should be read so as to give meaning to all of its

provisions and to render them consistent with each other.

Thus, a contract should be interpreted to give meaning to

all of its parts. An interpretation that renders portions of

the contract ineffective or meaningless should be avoided.

See for example Mastrobuono v. Shearson Lehman Hutton,

514 U.S. 52 at 63 (1995); Fulton Cogeneration Associates

v. Niagara Mohawk Power Corp., 84 F.3d 91, 99 (2d Cir

1996); W.W.W. Giancontieri, 77 N.Y.2d 157 (1990);

Sunrise Mall Association v. Import Ally, 211 A.D.2d 711

(2d Dep’t 1995). |

Contract Article 54 and the notice requirements of

the Changes Clause, therefore, under fundamental principles

of contract interpretation, should not be read to conflict. In

fact, they can easily occupy the Contract together, without

the Supersession Clause nullifying any part of them. The

federal notice requirements provide that the contractor must

“within 30 days after receipt of a written change order. . .

submit to the owner a written statement setting forth the

general nature and monetary extent of such claim, unless

the owner extends this period.” This certainly does not

conflict with Article 54, which merely requires strict

compliance with the very notice obligations set forth in the

Changes Clause.

While Perini argues that the Changes Clause’s notice

provision, liberally construed, should completely replace

any other contractual notice provision, the language of the

Supersession Clause does not mandate such a result. The

Supersession Clause simply provides that the provisions of

the Changes Clause supersede any “conflicting” provisions

of the agreement. Were it intended that the provisions in

the federal Changes Clause exclusively governed the

contractor’s obligation for notice, thus overriding the

Standard contract article requiring strict compliance with

notice and reporting provisions, Article 54, the Supersession

Clause would have said so.

This Court, in Barnett Bank of Marion County v.

Nelson, 517 U.S. 25 (1996), in reviewing the tests for pre-

emption, observed that a federal law may be in

“irreconcilable conflict” with state law when compliance

with both statutes may be a “physical impossibility,” or the

State law may “stand as an obstacle to accomplishment and

execution of the full purposes and objectives of Congress.”

517 U.S. at 31. Accord City of New York v. Job-Lot

Pushcart, 88 N.Y.2d 163, 167 (1996).

Here, Perini does not contend, nor could it, that it

‘was impossible to comply with both the notice requirement

of the Changes Clause and Article 54’s requirement of strict

compliance with contractual notice provisions.

Accordingly, the notice provision of the federal Changes

Clause, does not, as Perini contends, supersede the

contract's requirement, in Article 54, of strict compliance

with contractual notice provisions as a precondition for the

assertion of any claims.

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In sum, there is no inconsistency between federal

policy respecting the notice provision of the Changes Clause

and the operation of New York law in interpreting that

provision. Thus, Perini cannot escape strict compliance

with the contract’s notice provisions as required by the

contract and its construction under New York law.

Furthermore, the Court below followed precedent

established by this Court and consistent with that of other

circuits in so finding.

CONCLUSION

THE PETITION FOR A WRIT OF

CERTIORARI SHOULD BE DENIED.

Dated: New York, New York

November 9, 1999

Respectfully submitted,

MICHAEL D. HESS

Corporation Counsel of the

City of New York

Attorney for Respondent

100 Church Street, Room 6-183

New York, New York 10007

(212) 788-1233

By: ema jp Mitty

DONA B. MORRIS

Assistant Corporation Counsel