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Tilcon New York, Inc. v. New Jersey Department of Transportation

Superior Court of New Jersey, Appellate Division

December 31, 2013

TILCON NEW YORK, INC., Plaintiff-Appellant,


Argued October 21, 2013

On appeal from Superior Court of New Jersey, Law Division, Morris County, Docket No. L-551-09.

Michael F. McKenna argued the cause for appellant (Lewis & McKenna, attorneys; Mr. McKenna, of counsel; Mr. McKenna, Paul Z. Lewis, James M. McMahon and Anne E. Penix, on the briefs).

Sudha V. Raja, Deputy Attorney General, argued the cause for respondent (John J. Hoffman, Acting Attorney General, attorney; Beth Leigh Mitchell, Assistant Attorney General, of counsel; Ms. Raja, on the briefs).

Florio Perrucci Steinhardt & Fader, L.L.C., attorneys for amicus curiae Construction Industry Advancement Program of New Jersey (John F. Neary, of counsel; Mr. Neary and Jennifer Shaw, on the brief).

Before Judges Yannotti, Ashrafi and Leone.


Plaintiff Tilcon New York, Inc. (Tilcon) appeals from the final judgment entered by the trial court on January 19, 2012, dismissing its complaint against defendant, the New Jersey Department of Transportation (NJDOT). We affirm.


Tilcon was the lowest responsible bidder for two of the NJDOT's paving projects: MRRC 162, a project on Route 46 in Morris County (Morris Project), and MRRC N301, a project on Routes 7, 9W, and 1 & 9 in Bergen, Essex and Hudson Counties (Bergen Project). On September 11, 2007, the NJDOT awarded Tilcon the contract for the Morris Project, at a contract price of $3, 267, 000. On December 6, 2007, the NJDOT awarded Tilcon the contract for the Bergen Project, at a contract price of $5, 887, 000.

Both the Morris Project and the Bergen Project are commonly referred to as "mill and fill" projects, in that they required the contractor to "mill, " or remove, two inches of the existing roadway pavement, and "fill, " or replace, the removed material with two inches of new asphalt. The Morris Project contract stated that the subject roadways shall

include milling and resurfacing 2" thick at intersecting streets and all signalized intersecting streets . . . (from gutterline of roadway) or as directed by the engineer. Existing cross slopes and pavement thickness shall be maintained on structures located within project limits. Bridge decks located within project limits that have no existing overlay shall not be overlaid as part of this contract . . . .

Language in the Bergen Project contract was substantially similar.

Among other provisions, the contracts included the NJDOT's 2001 Standard Specifications, and Special Provisions. Sections 102.03 of the Special Provisions in both contracts, entitled "Examination of Contract and Site of Project, " stated:

The Bidder shall carefully examine the site of the proposed Project, the Contract, and all other information before submitting a bid. If site conditions are inconsistent with the Contract or there are discrepancies, errors, omissions or patent ambiguities within the Contract, the bidder shall immediately notify [the NJDOT] as specified in [the specifications]. The Bidder shall evaluate subsurface conditions as necessary to determine how these conditions may affect the methods and cost of construction. . . . Submission of a bid is confirmation that the Bidder has made such independent evaluation and examination . . . and is fully aware of the requirements of the Contract, including all restrictions. Further, the Bidder warrants that the proposed contract prices in the bid include all costs to complete the Work.

Section 406.13, entitled "Acceptance of Surface Course Rideability, " provided that the new pavement's "smoothness" or "roughness" will "be evaluated in terms of the International Roughness Index (IRI), " and that "[t]he measured IRI will be used to compute the appropriate pay adjustment (PA), which may be positive for superior quality work, or negative for defective work." As explained by the trial judge,

The IRI method involved the use of a laser linked to a computer incorporated in a specially equipped vehicle known as a "road profiler." The IRI concept involved an assessment of smoothness through the medium of laser/computer analysis. Utilizing a laser, installed in a specially equipped van, a vehicle would be driven up and down the lanes of the recently paved highway (in several passes). The data would be then evaluated and processed by a computer which compresses and analyzes the data and generates a report. The report is then utilized to determine a relative degree of smoothness of the roadway.

The IRI report determines a numerical IRI value that measures smoothness. The higher the number, the rougher the road.

The contracts also set forth the manner in which the pay adjustments would be computed. The pay equations contained therein "express the pay adjustment in dollars per lane per 0.01 mile [or 52.8 linear feet] for the road sections described." Both contracts set target IRI values of 100. Thus, there would be no pay adjustment for an IRI of 100.

For IRI values lower than 100, the work would be awarded a "positive pay adjustment" in excess of the contract price: the contracts included a pay-adjustment formula for IRI values between eighty and 100, with a maximum $50 per lane per 0.01 mile for IRI value less than 80. For IRI values that are higher than 100, the contracts included a pay-adjustment formula for IRI values between 101 and 170.

For IRI values higher than 170, the Morris Project contract provided the NJDOT with "the option to require removal and replacement at the Contractor's expense, or may allow the Contractor to submit a plan for corrective action, " while the Bergen Project contract required the contractor to "remove and replace at no additional compensation."

Both contracts also set forth the procedures to collect and process the IRI data necessary to determine any pay adjustments. The contracts specifically identified the profiling system to be used to measure the ride quality (smoothness or roughness). The Morris Project contract explained:

The full extent of the paved lane will be tested in the direction of travel. The transverse location of the test will be in the wheel paths of vehicular travel. The single IRI value reported for each 0.01-mile lot of pavement will be the average of three repeat runs for both the left and right wheel paths.

Language in the Bergen Project contract was substantially similar.

In March 2008, before work began on the Morris project, Tilcon informed the NJDOT's engineers that the IRI standards could not be met on certain portions of the roadway due to the presence of certain impediments, such as manholes, water inlets, curb cuts, and the crowning of the roadways. Tilcon asked the NJDOT to waive or remove the IRI requirements from those areas. Tilcon claimed that the NJDOT did not respond.

In April 2008, Tilcon started work on the Route 1 & 9 section of the Bergen Project, and informed the NJDOT that a review of the pavement surface indicated that achievement of the IRI specifications would be unattainable. Tilcon said it would endeavor to achieve the best results possible, but it would not achieve the specified IRI standards. Tilcon alleged that the NJDOT did not respond.

Tilcon began work on the Morris Project in early May 2008. Thereafter, Tilcon again asked that the IRI specifications be removed or waived for certain areas. Tilcon alleged that the NJDOT did not respond. In September 2008, Tilcon wrote to a resident engineer on the Bergen Project regarding the difficulties it was having. Tilcon said that in pre-construction and pre-paving meetings, it had expressed its view that achievement of the IRI standards would be "nearly impossible." According to Tilcon, the NJDOT did not respond to this letter.

After Tilcon completed work on the projects, the NJDOT calculated all the appropriate negative and positive pay adjustments under the two agreements. The net result was a negative pay adjustment of approximately $467, 000[1] on the two projects.

In February 2009, Tilcon filed a complaint against the NJDOT in the Law Division, Morris County, challenging the adjustments for the Morris Project, and in March 2009, Tilcon filed a complaint against the NJDOT in the Law Division, Bergen County, in which it challenged the adjustments for the Bergen Project. In both complaints, Tilcon asserted claims for breach of contract, monies due on an account, unjust enrichment, quantum meruit and breach of the covenant of good faith and fair dealing. In April 2010, the two suits were consolidated in Morris County.

The trial court granted partial summary judgment in favor of the NJDOT and dismissed Tilcon's claims for unjust enrichment and quantum meruit. The court thereafter conducted a bench trial on the remaining claims. The judge rendered an oral decision on January 6, 2012, reserving the right to supplement the decision.

The judge concluded that the NJDOT's negative pay adjustments were authorized by the contract, and that Tilcon failed to establish its claims for breach of contract or failure to comply with the covenant of good faith and fair dealing. On January 19, 2012, final judgment was entered dismissing Tilcon's complaint with prejudice. Tilcon filed its notice of appeal on February 24, 2012. The judge filed a supplemental opinion on May 31, 2012.


In this appeal, Tilcon raises the following issues for our consideration: (1) the trial judge disregarded the context and circumstances surrounding the contracts and erred in his interpretation of the meaning and intent of the contract specifications; (2) the judge erred by construing the specifications to authorize the adjustments, despite the absence of defective work; (3) the NJDOT's interpretation of the relevant provisions of the contract rendered the IRI terms defective; and (4) the NJDOT breached the covenant of good faith and fair dealing.

We have carefully considered Tilcon's arguments and conclude that they are without merit. We affirm the court's final judgment substantially for the reasons stated by the trial judge in his bench decision of January 19, 2012, and his supplemental opinion dated May 31, 2012. R. 2:11-3(e)(1)(A). We add the following.


Tilcon argues that the NJDOT improperly incorporated readings for its IRI measurements from sections of pavements laid on the Morris and Bergen Projects in and around water valves, manholes, catch basins and intersections. Tilcon contends that the NJDOT's actions were improper because the parties purportedly recognized that measurements of the paved areas around or over these impediments skewed the averages of readings taken in the tested segments.

Tilcon maintains that the measurements effectively ensured a misleading score on the IRI system, a condition that the NJDOT had previously corrected by omitting readings from these areas on a project-specific basis. This, Tilcon says, constituted a "unanimously achieved" course of dealings between the parties, which prevailed at the time the NJDOT sought bids on the subject contracts.

Tilcon asserts that it relied upon this understanding when it submitted its bids on the contracts for the Morris and Bergen Projects and the trial judge materially deviated from the general rules of contract interpretation by ignoring these conditions and mutual understandings. Tilcon maintains it was not required to challenge the provisions of the specifications, or ask for a waiver of the IRI standards for the sections of roadway with impediments.

On appeal from a judgment entered in a non-jury case, the trial court's findings will not be disturbed unless "they are so wholly insupportable as to result in a denial of justice." Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 483-84 (1974) (quoting Greenfield v. Dusseault, 60 N.J.Super. 436, 444 (App. Div.), aff'd o.b., 33 N.J. 78 (1960)). An appellate court will not disturb "'the factual findings and legal conclusions of the trial judge unless . . . they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice.'" Id. at 484 (quoting Fagliarone v. Twp. of N. Bergen, 78 N.J.Super. 154, 155 (App. Div. 1963)).

Here, the trial judge found that the contracts for the Morris and Bergen Projects expressly permitted the negative pay adjustments at issue. The judge noted that the contract documents explicitly provided that the bidders were to carefully examine all areas or sites of the proposed work. Bidders were required to take note of conditions that might be inconsistent or problematic.

Bidders also were required to inform the NJDOT, prior to bidding, of any such problems that might affect performance of the contract. As the judge pointed out, Tilcon assumed that the IRI standard would not be applied to what it viewed as obvious and existing impediments that would impair the contractor's ability "to secure the degree of smoothness required by the IRI standard."

The judge determined that, by failing to take any exceptions to the bid specifications, Tilcon "erroneously assumed that the State would deal with the IRI by simply waiving or relating its application to both contracts." Tilcon believed it could negotiate with the NJDOT to secure relief from the IRI standards, thereby avoiding any negative pay adjustments under the contracts. The judge found that Tilcon's expectations were not justified.

We are convinced that the judge's findings are supported by sufficient credible evidence in the record. Indeed, the bid specifications for the contracts stated that the NJDOT would make negative pay adjustments if the contractor failed to meet the required IRI standard. The specifications made no provision for waiving the IRI standard in portions of the paved roadways with impediments or conditions that would make achievement of the prescribed standard difficult.

The record also supports the judge's finding that Tilcon's reliance upon its experience with another NJDOT contract did not alter the plain language of the contracts for the Morris and Bergen Projects which expressly authorize the disputed negative pay adjustments. The record shows that Tilcon worked on a pilot project on Route 287 using the IRI specification prior to bidding on the Morris and Bergen Projects.

However, as the trial judge pointed out in his opinion, the pilot project used first-generation IRI specifications, whereas the Morris and Bergen Projects used second-generation IRI specifications. The judge noted that the roads involved in the Morris and Bergen Projects had a number of impediments or conditions that would affect the contractor's ability to achieve the specified IRI standard. The judge found that Tilcon was "well aware" of the characteristics of these roadways.

Furthermore, as the judge noted, the evidence present at trial established that instead of using an IRI standard appropriate for limited access interstate highways (which employed a lower specified IRI), "the State decided to specify a more relaxed standard, which reflected the actual conditions of the roads, " as well as "the nature of the work in these areas which [by] necessity would interface with impediments . . . typical of these particular roads."


Tilcon maintains that the NJDOT changed its policy regarding waivers of the IRI standard for portions of roadways where achievement of the standard may be problematic. In support of this argument, Tilcon cites a memorandum, dated January 23, 2008, from Kiran Patel, the Director of the NJDOT's Construction Services and Materials, to the NJDOT's Regional Construction Engineers, including the resident engineers with direct responsibility for enforcing the "rideability" sections of the contract documents.

In his memorandum, Patel stated that no revisions, exceptions or waivers would be granted from the rideability standards without his written approval and the written approval of the Manager of the NJDOT Pavement Office. The judge determined that this was not a change of policy. Rather, Patel's memorandum indicated that the central office of the NJDOT wanted to exercise direct control over the implementation of all IRI determinations.

The judge noted that the memorandum stated that, if a contractor thought there were unique road conditions that required special consideration in application of the rideability standards, the issue would have to be raised during the bidding process. The memorandum indicated that, after the contract was awarded, it would be implemented according to its terms.

The judge stated that Patel's memorandum could not "be reasonably characterized" as a change in policy, as Tilcon claimed. The judge noted that the memo did not reflect a policy, per se. Patel's memorandum was merely a written direction from the supervisor to persons in the field, indicating that they will in the first instance apply the rideability specifications as set forth in the contracts, rather than on an ad hoc basis, and they could not modify or excuse contract terms except as otherwise permitted by the central office. The record supports the judge's findings.


Tilcon additionally argues that the trial judge erroneously interpreted the contracts as permitting negative pay adjustments in the absence of "defective work." Sections 406.13(1) of the contracts provide that the new pavement "smoothness" or "roughness" will "be evaluated in terms of the [IRI], " and that "[t]he measured IRI will be used to compute the appropriate pay adjustment (PA), which may be positive for superior quality work, or negative for defective work." The contracts do not expressly define either "superior quality work, " or "defective work."

However, section 406.13(2) sets forth the manner in which both positive and negative pay adjustments are determined, thereby indicating that "superior quality work" is work that produces IRI values "lower than the acceptable IRI, " and "defective work" is work that produces IRI values "higher than the acceptable IRI." Furthermore, the NJDOT's expert, Francis Palise, testified that relative to the IRI standard, work that has IRI values which exceed 100 are considered to be "defective." Thus, Tilcon's argument is not supported by the language of the contracts.


Tilcon further argues that the negative pay adjustments are invalid because a contractor should not be responsible for the consequences of defects in the owner's plans and specifications. In support of this argument, Tilcon relies upon United States v. Spearin, 248 U.S. 132, 39 S.Ct. 59, 63 L.Ed. 166 (1918). We note that Tilcon did not raise this argument in the trial court.

In Spearin, the contractor agreed to build a dry dock "in accordance with plans and specifications which had been prepared by the government." Id. at 133, 39 S.Ct. at 60, 63 L.Ed. at 168. The specifications showed a 7–foot–diameter sewer line, but did not show that the line was obstructed by an interior 5–foot– high dam. Id. at 134, 39 S.Ct. at 60, 63 L.Ed. at 168. The hidden dam was discovered only after the sewer backed up and flooded the jobsite, and both parties claimed that the other was responsible to pay to correct the problem. Id. at 135, 39 S.Ct. at 60-61, 63 L.Ed. at 168-69.

The Supreme Court held that the government was responsible because its design specifications erroneously showed that the sewer line was adequate. Id. at 136-39, 39 S.Ct. at 60-62, 63 L.Ed. at 169-70. The Court explained:

Where one agrees to do, for a fixed sum, a thing possible to be performed, he will not be excused or become entitled to additional compensation, because unforeseen difficulties are encountered. . . . But if the contractor is bound to build according to plans and specifications prepared by the owner, the contractor will not be responsible for the consequences of defects in the plans and specifications. . . . [T]he contractor should be relieved if he was misled by erroneous statements in the specifications.
. . . [T]he insertion [in the plans] of the articles prescribing the character, dimensions, and location of the sewer imported a warranty that if the specifications were complied with, the sewer would be adequate.

[Id. at 136, 39 S.Ct. at 61, 63 L.Ed. at 169 (citations omitted).]

Tilcon's reliance on the Spearin doctrine is misplaced. In this case, the design specifications did not mislead Tilcon regarding some physical condition relevant to the job and the bid Indeed as the trial court pointed out Tilcon was a knowledgeable paving contractor and was well aware of the conditions of the roads upon which the work was to be performed

Furthermore the negative pay adjustments were not due to the design of the work but rather Tilcon's performance and its failure to meet the specified IRI standards which the NJDOT's expert testified were attainable Under these circumstances Tilcon is not exempt from the adjustments because it failed to meet the requirements of the contracts As the trial judge found the NJDOT's adjustments were appropriate and permitted by the contracts

We have considered Tilcon's other contentions and those raised by amicus curiae Construction Industry Program of New Jersey and conclude that they are without sufficient merit to warrant discussion R 2:11-3(e)(1)(E)


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