HomeMy Public PortalAbout1997.01.07 Trout Agreement to Employee CounselAGREEMENT TO EMPLOY COUNSEL
THIS AGREEMENT is made by and between City of McCall, Idaho, , hereinafter referred to as CLIENT', and
Kim J Trout , Attorney at Law, hereinafter referred to as ATTORNEY", as follows:
(1) The Client has retained and hereby does retain and employ the attorney to act for and on behalf of the Client in the following
matter City of McCall vs. Montgomery Watson
(2) In consideration of the necessary legal services of said Attorney rendered and to be rendered, it is agreed that
representation will be paid for as follows: City to advance all costs, transcript fees, etc: compensation to be 33 1/3% of gross
recovery through trial, if any, 40% of gross recovery if appealed.
(2.1) Client agrees to pay to Attorney the sum of $ 0.00 as committment fee and furthermore, until said
committment fee is paid in full, the Attorney is not obligated to commence any work on behalf of Client. Attorney, at his/her
option, may submit periodic billing for service which shall be due and payable upon receipt unless different terms for payment
are set by any billing. Attorney rate is $ n/aan hour. Paralegal rate is $ n/aan hour.
(2.2) The Client acknowledges his/her responsibility as follows: a. to stay in contact with Attorney and not to let more than 20
calendar days pass without initiating contact with Attorneys office to obtain a status report on his/her case; b. at least 10
calendar days before any deposition, hearing, final hearing, trial or jury trial the Client shall contact the Attorney in person (not
by phone or through any third party), on a one to one basis, to rnake any final preparation for the deposition, hearing, final
hearing, trial or jury trial.
ORIGINAL
(3) It is expressly agreed and understood that Attorney is not required to advance any costs. If the Attorney should agree to
advance costs, Client hereby assumes, agrees, and shall, upon request of the Attorney, pay all expenses and costs (including
any long distance telephone charges) incurred relative to this matter and hereby authorizes the Attorney to deduct and pay
such expenses an costs from whatever sum of money as may be received by way of inheritance, settlement, arbitration and/or
trial of this claim, but in all events the Client shall be solely responsible for the payment of all expenses and costs incurred
herein regardless of the ultimate outcome of this matter, and in no event shall the Attorney be liable for said expenses and
costs. Attorney agrees not to advance costs in excess of $100.00 without prior consent of Client.
(4) A lien is granted and it is agreed that this contract creates a lien, to the extent of the amount set out above, against said
claim, case and cause of action, and the proceeds thereof, and against any judgment secured, and against all moneys or other
compensation which may be due and the undersigned hereby expressly assigns to said Attorney of any such moneys which
may become due and payable in settlement of said claim, or other compensation, or through judgment or otherwise. In addition,
the parties acknowledge that the parties may enter into a separate agreement which, in addition to any other provision of this
agreement, secures the fees and costs of ATTORNEY.
(5) The Attorney is authorized to receive and collect any inheritance, settlement, arbitration, and/or final judgment that may be
rendered on said claim, demand or chose in action, and to satisfy the same on the record of the court. In addition, if this case
involves claims by third parties against the client (such as medical service providers who have provided medical care for the
client) the attorney has full authority from client tojesolve, settle, or otherwise satisfy these claims from any inheritance,
settlement, arbitration, and/or final judgment that may be rendered on said claim, demand or chose in action.
(6) It is agreed that Attorney may refer this case to other Attorneys for consultation or may bring in co -counsel at any time, and
said fees are then subject to re-neaotiation. Attorney is under no obligation to appeal from any judgment or order obtained in the
case. If another party appeals, the fees set forth above are subject to re -negotiation. If Attorney should decide to take an
appeal from any judgment or order, said fees are subject to re -negotiation. Attorney agrees by this contract to represent Client
in the matter of the foregoing described claim. Work on other matters will be charged separately as agreed by the parties.
(7) Except in case of misconduct, Client agrees not to settle, compromise or litigate said claim, or to retain any other attorney to
handle said claim, without first giving thirty (30) days written notice to Attorney and paying Attorney the costs and fees above
specified. Attorney may withdraw at any time upon giving reasonable notice to Client. This agreement is expressly made as
binding upon the client(s), heirs, successors, assigns and/or administrator.
(8) It is hereby acknowledged that the fee provided for in this agreement is not set by law and is subject to negotiation and has
accordingly been agreed upon and further that Client has received a copy of this agreement and his/her signature is evidence of
said receipt. The Client further acknowledges that he/she has read this agreement and fully understands it.
Dated this '77w- ��5, a� S ,i,.2
Client /
Client
Attorney
SENT BY:
5- 7-B8 ; 9;46AM ;
EBERLE,BERLiN-, City of tcCal1;# 21 3
MARK S, 15ESTCN
EBERLE, BERLIN, KADING, TURNBOW & MGKLVEEN,
CHARTERED
ATTORNEYS AND COUNSELORS Al LAw
CAPITOL PARK PLAZA
4,4.>4.4 NORTH 5I)CTH *TREET
Pusl OP rout BOA I3ee
Bolas. IDAHO 63701
May 7, 1998
BY FACSIMILE
Kim Trout
MANWEILER, WILCOX, TROUT & MANW;ILER
290 Bobwhite Ct., Ste. 30C
F. C;_ Any q17
Boise, ID 83701
Tt1.41•01-1ON .
hACSINILC
(202 344-8542
T. H. EBERLE (1922.19771
Re: The City of McCa11 vs., Montgomery Watoon Americas, Inc.
Dear Rim:
I've tried unsuccessfully Lo . esc:I;, yuu by telephone during the
pdbt. wurk ddyb .
As you know, I had expected Constract.ioneering' s report by May
4. It has not been received.
F.R.C.P. 26(a) (2) (C) requires all experts to be identified and
their required reports submitted at least 90 days before trial if
the Court sets no other time. Local Rule 26.2(B) requires that
this be done no later. than 12D days before trial unless a different
time is set.
The Court's original Scheduling Order required Plaintiff to
identify its experts and submi..t their rppnrtla by C rtoher 24, 1997.
Only the names of P1 air,ti ff' a r.wn anticipated experts were received
by that t1atA_ On necomber 12, Mr. Orton's report was submitted.
On December 22, you told men he would be Plaintiff's only expert.
I stated I could not retain an expert of our own until I had
had a chance to depose Orton and thin w-:Lo done on February 2 and 3.
The report of our expert, Mr. Stepp, was delivered to you on March
25.
The existence of Construetioneering was iiot revealed until Mr.
Henderson' s deposition on Md.iub 19 -- dud then only after I had
been exp.liccitly. Loid LhaL Mr. Henderson would be Plaintiff's only
deaiynaLed wires on the issue of damages. Your letter or March
25 ddvisec:l that Cccnstructioneering would need about 41) days to
finish ;ts work, and i responded that 1 would therefore expect its
report would be received by May 4. That time has now passed.
SENT BY: 5- 7-93 ; 9:47AM ;
EBERLE.BERLlN.4 City of McCall # 3f 3
Kim Trout
May 7, 1”O
Paae 2
I was willing to be flexible on the point of expert testimony,
but this has gone on far too long. Therefore, I will file a motion
with the Court to foreclose any further expert testimony by
Plaintiff, limiting Plaintiff to the subjects covered in Orton's
report and his deposition,
Because of the importance of this matter, I thought it best to
advise you of my position immediately.
MSC:coy
cc: Edward E. Burton
Edwin T. Cryer
Francisca Araiza
Daniel McConville
Sincerely.
MARK S. GESTON
(by fax)
(by fax)
(by fax)
(ley lax)
Statuses/0m s:a 1995
PSG REPORT
PAGE 4
COVER STORY
City
Slashes
User
Rates
CONTINUER FRGM RAGE 1
receiving waters, the
Naugatuck River, -which
flows into environmentally -
sensitive Long Island Sound.
According to Seymour
First Selectman John A,
O'Toole, shifting plant re-
sponsibilities to PSG has
turned out to be a good move,
"We needed our treatment
plant to be operated in an effi-
cient, environmentally -sound
manner, with safety in mind.
We decided to bring in a na-
tionally recognized contract
operations firm in order to
Freeport
CONTINUED FROM PAGE 3
have access to a broad base of
knowledge and experience -
and to secure performance
guarantees."
bnprorreinents and Benefits
From the town officials'
point of view, there is no
downside to the arrangement.
"Essentially, the operator as-
sumes all the risks associated
with operating the plant,"
says O'Toole. "They guaran-
tee performance, regulatory
compliance and safety. Thar
relieves a big burden from an
administrative and rick man.
ageinexit per-
spective. And,
because we
know almost
precisely what
our costs will
be, we can do a
stanch better job
of planning
ahead."
The plant is now operated
for a fixed fer,..whir.h is at least
s2oo,con a year
below what it
coo for the
town to oper-
ate tb.e..planr
This has al-
lowed town of-
ficials to lower
sewer row by
12percent dur-
ing the first
year of the con -
trace% and An
additional 12
we derided to h
notionally recog
fruit operations
der to have access
bast of knowtedg
perhmee- and to
formance guaran
ring In o
nixed con-
firm in ar-
ta a broad
e Cad ex-
sstam per.
tees."
O'Toole,
John OToole: 'We have $13 million in new
facilities, and improvers *rattan and maintenance
I+arrPnt rrdrtic- paletiCEs heippirtect that investment"
tion the second year. A,dmin- benefits.
istrative fees, have dropped
from $9 to a pro-
jected S 1 perbill-
ing in 1996.
"The lower-
ing of sewer rates
is perhaps the
most visible and
immediate ben-
efit of contract
operations, "says
"but there are
equally important long term
wastewater systems in
April. This includes a 2.25
map wastewater facility, a
smaller 0.03 MGD wa5tc-
water plant, seven water
wells, 29 pump statues, three
water towers, meter reading,
and collection and distau-
tion systems. PSG hired the
city's water and wastewater
ptisu1 nel, providing in-
creased compensation and
uuuapatable benefits.
QYOs4ton Of Coehot
Stone says that the city
council was initially con-
cerned about losing control of
the facilities. But he says that:
"In reality, we didn't lost any
control; we only lost head-
aelln4t." Because the city still
OWn8 the facilities, and still
oversees the provision of the
public services, he has found
that municipal control has
remained fully intact under
We have $13 mil-
lion i.zt new facilities, and im-
proved operations and main.-
tenancepractices help protect
that investment."
PSG is also giving more
attention to collection of de-
linquent fees, compared to
when the town operated the
system. This activity is al-
ready further enhancing mu-
nicipal coffers. ■
the city's public -private part-
nerchip-
"Good things are not sup-
pose to happen to ua," he says.
"The city council is still
amazed at what hat taken
place here." ■
r RoFEssioNAL SEHViCES GROLP --YOUR WA I EH AND WASTEWATER PARTNER
14954 Heathrow Forest Parkway
Suite 2011
Houston, Taus 77032-3842
Sulk Rate
U.S. Postage Raid
international Mailing
Systems
SENT BY
5- '-88 ; 9:45AM ; EBERLE.BERL1Ny
City of iicCall;# 1/ B
EBERLE, BERLIN, KADINO, TURNBOW
& McKLVEEN, CHARTERED
300 North Sixth Street
Post Office Sox 1368
Boise, Idaho 83701-1368
Telephone No.: (208) 344-8535
Facsimile No.: (208) 344-8542
TO:
FROM:
NUMBER CALLED:
MATTER
FAX COVER SHEET
DATE: May 7, 1998
PAGES INCLUDING THIS SHEET:
Edward G. Burton
Mark, S. Gestou
(MO 634-3038
City of McCall v Montgomery Watson Americas, Inc.
Plcasc scc attached.
If transmission is not properly received please call Charlotte at (208) 344-8533.
The information mansion& in this tranamiscian is aaomuy..clierit privileged, confidential and ;Metaled only far the nee of the individual ix entity tanned above•
if dos nosier nt mu message is not the headed recipient, you are hereby notified that any dimenninatitu4 diaLLitpiiiiv t w %Awing of this comnien;cation is strictly
prohibited, If you have received this c mrmunicatWn in COMM, pleme notify nii imtaedi tely by oiler:, redrlJwret anrd rel,,rn Ilia nriginal measnge to nor att the ahem
erhlresa via S LS. Mail We will reimburse you rot roam. Thank voa.
AGREEMENT TO EMPLOY COUNSEL
FILE COPY
Client
THIS AGREEMENT is made by and between City of McCall, Idaho, , hereinafter referred to as CLIENT", and
Kim J Trout , Attorney at Law, hereinafter referred to as ATTORNEY", as follows:
(1) The Client has retained and hereby does retain and employ the attorney to act for and on behalf of the Client in the following
matter City of McCall vs. Montgomery Watson
(2) In consideration of the necessary legal services of said Attorney rendered and to be rendered, it is agreed that
representation will be paid for as follows: City to advance all costs, transcript fees, etc: compensation to be 33 1/3% of gross
recovery through trial, if any, 40% of gross recovery if appealed.
(2.1) Client agrees to pay to Attorney the sum of $ 0.00 as committment fee and furthermore, until said
committment fee is paid in full, the Attorney is not obligated to commence any work on behalf of Client. Attorney, at his/her
option, may submit periodic billing for service which shall be due and payable upon receipt unless different terms for payment
are set by any billing. Attorney rate is $ n/aan hour. Paralegal rate is $ n/aan hour.
(2.2) The Client acknowledges his/her responsibility as follows: a. to stay in contact with Attorney and not to let more than 20
calendar days pass without initiating contact with Attorneys office to obtain a status report on his/her case; b. at least 10
calendar days before any deposition, hearing, final hearing, trial or jury trial the Client shall contact the Attorney in person (not
by phone or through any third party), on a one to one basis, to make any final preparation for the deposition, hearing, final
hearing, trial or jury trial.
(3) It is expressly agreed and understood that Attorney is not required to advance any costs. If the Attorney should agree to
advance costs, Client hereby assumes, agrees, and shall, upon request of the Attorney, pay all expenses and costs (including
any long distance telephone charges) incurred relative to this matter and hereby authorizes the Attorney to deduct and pay
such expenses an costs from whatever sum of money as may be received by way of inheritance, settlement, arbitration and/or
trial of this claim, but in all events the Client shall be solely responsible for the payment of all expenses and costs incurred
herein regardless of the ultimate outcome of this matter, and in no event shall the Attorney be liable for said expenses and
costs. Attorney agrees not to advance costs in excess of $100.00 without prior consent of Client.
(4) A lien is granted and it is agreed that this contract creates a lien, to the extent of the amount set out above, against said
claim, case and cause of action, and the proceeds thereof, and against any judgment secured, and against all moneys or other
compensation which may be due and the undersigned hereby expressly assigns to said Attorney of any such moneys which
may become due and payable in settlement of said claim, or other compensation, or through judgment or otherwise. In addition,
the parties acknowledge that the parties may enter into a separate agreement which, in addition to any other provision of this
agreement, secures the fees and costs of ATTORNEY.
(5) The Attorney is authorized to receive and collect any inheritance, settlement, arbitration, and/or final judgment that may be
rendered on said claim, demand or chose in action, and to satisfy the same on the record of the court. In addition, if this case
involves claims by third parties against the client (such as medical service providers who have provided medical care for the
client) the attorney has full authority from client to resolve, settle, or otherwise satisfy these claims from any inheritance,
settlement, arbitration, and/or final judgment that may be rendered on said claim, demand or chose in action.
(6) It is agreed that Attorney may refer this case to other Attorneys for consultation or may bring in co -counsel at any time, and
said fees are then subject to re -negotiation. Attorney is under no obliaation to appeal from any judgment or order obtained in the
case. If another party appeals, the fees set forth above are subject to re -negotiation. If Attorney should decide to take an
appeal from any judgment or order, said fees are subject to re -negotiation. Attorney agrees by this contract to represent Client
in the matter of the foregoing described claim. Work on other matters will be charged separately as agreed by the parties.
(7) Except in case of misconduct, Client agrees not to settle, compromise or litigate said claim, or to retain any other attorney to
handle said claim, without first giving thirty (30) days written notice to Attorney and paying Attorney the costs and fees above
specified. Attorney may withdraw at any time upon giving reasonable notice to Client. This agreement is expressly made as
binding upon the client(s), heirs, successors, assigns and/or administrator.
(8) It is hereby acknowledged that the fee provided for in this agreement is not set by law and is subject to negotiation and has
accordingly been agreed upon and further that Client has received a copy of this agreement and his/her signature is evidence of
said receipt. The Client further acknowledges that he/she has read this agreement and fully understands it.
Dated this "7-T� is y a� at &AI/2 7 l q Q ?
�
P
Client
Attorney
CITY OF McCALL
ANALYSIS OF POTENTIAL CLAIM
AGAINST MONTGOMERY WATSON
I. FACTS
The City of McCall retained the engineering services of James M.
Montgomery (Montgomery, and its successor in interest, Montgomery
Watson are hereinafter referred to as "Montgomery") in its attempt to
upgrade the treatment and distribution systems for the City's water
system. From the inception of the relationship Montgomery was aware
that the City was not in compliance with State and Federal drinking water
standards and that time was of the essence. Further, Montgomery was
aware that the City had a limited ability to raise capital from its relatively
small constituency, and thus the project was extremely price sensitive.
Montgomery's performance was segregated into several different
phases, known as task orders. It was contemplated Montgomery would
advise the City on its needs, recommend a system to meet those needs,
design the system, supervise the bidding process, and supervise
construction. Based upon a review of the City's records, it appears as
though Montgomery was required to estimate the costs of the project on at
least 4 occasions:
Page 1
June 12, 1996
THIS DOCUMENT IS ATTORNEY WORK PRODUCT AND IS PROTECTED
BY ATTORNEY/CLIENT PRIVILEGE -- CONTENTS CONFIDENTIAL
" T a s k O r d e r N o . 1 , e n t e r e d i n t o o n o r a b o u t M a y 2 2 , 1 9 9 2
" P r o d u c e o p i n i o n o f c o n s t r u c t i o n c o s t f o r p l a n n e d
i m p r o v e m e n t s t o g e t h e r w i t h l i s t i n g o f a s s u m p t i o n s t h a t
s u p p o r t o p i n i o n . " ( T a s k 2 , S u b . 7 ) .
" T a s k O r d e r N o . 2 , e n t e r e d i n t o o n o r a b o u t N o v e m b e r 1 3 ,
1 9 9 2
" A n o p i n i o n o f p r o b a b l e c o s t f o r t h e v a r i o u s p r o j e c t
e l e m e n t s d i r e c t l y r e l a t e d t o c o n s t r u c t i o n a n d e n g i n e e r i n s
c o n s u l t a t i o n . " ( T a s k 7 , S u b . 6 ) .
" T a s k O r d e r N o . 4 , e n t e r e d i n t o o n o r a b o u t S e p t e m b e r 2 4 ,
1 9 9 3
" T a s k 6 - P r e d e s i g n C o s t E s t i m a t e s A n e s t i m a t e o f
p r o b a b l e c o n s t r u c t i o n c o s t f o r t h e w a t e r t r e a t m e n t p l a n t
f a c i l i t i e s w i l l b e m a d e u s i n g t h e p l a n t l a y o u t a n d p r o c e s s
c o n f i g u r a t i o n s d e v e l o p e d i n t h e p r e d e s i g n s t u d y . " ( T a s k 6 ) .
" T a s k O r d e r N o . 5 , e n t e r e d i n t o o n o r a b o u t J a n u a r y 1 2 , 1 9 9 4 .
" P r e p a r a t i o n o f t h e e n g i n e e r ' s c o n s t r u c t i o n c o s t e s t i m a t e f o r
t h e f a c i l i t i e s . " ( T a s k 2 , S u b . d ) .
T h u s o v e r t h e c o u r s e o f t h e t w o a n d a h a l f y e a r p r o c e s s f r o m a n a l y s i s , t o
d e s i g n , t o b i d d i n g , M o n t g o m e r y w a s r e q u i r e d t o m a k e f o u r s e p a r a t e
e s t i m a t e s o f t h e c o s t s o f t h e w a t e r t r e a t m e n t p l a n t . A s t i m e w e n t o n . a n d
' _ M o n t g o m e r y , g a i n e d m o r e i n f o r m a t i o n a b o u t t h e P r o j e c t , a n d a s t h e
P r o j e c t m o v e d t h r o u g h t h e f i n a l d e s i g n p h a s e , M o n t g o m e r y w a s
c o n t r a c t u a l l y r e q u i r e d t o r e - e v a l u a t e i t s p r i o r e s t i m a t e s b a s e d u p o n t h i s
i n f o r m a t i o n .
P a g e 2
J u n e 1 2 , 1 9 9 6
T H I S D O C U M E N T 1 S A T T O R N E Y W O R K P R O D U C T A N D I S P R O T E C T E D
B Y A T T O R N E Y / C L I E N T P R I V I L E G E - - C O N T E N T S C O N F I D E N T I A L
Montgomery's first estimate of costs for the WTP was made in the
Water System Master Plan 1993 Revision, submitted Fall of 1993. At that
time, Montgomery estimated that the construction cost of the WTP would
be $3,703,000.1 On or about June 16, 1994, Montgomery submitted its
Predesign Letter Report and at that time Montgomery revised its
construction cost estimate up to $4,6034,000. Montgomery's final estimate
of construction costs was $4,586,000 and was included in its "Water
System Project Cost Estimates" submitted on or about September 19, 1994.
Each of the series of Task Orders contained the same boiler -plate
defining Montgomery's duties. Of particular interest are the following
provisions contained in each of the Task Orders:
• D(2)(b)
"Montgomery Watson asserts that it is skilled in the
professional calling necessary to the services and duties
proposed to be performed and that it shall perform such
services and duties in conformance to and consistent with
the standards generally recognized as being employed by
professionals of Montgomery Watson's caliber in the same
locality, and to that end Montgomery Watson agrees to
indemnify and hold Owner, its officers, agents and
employees harmless from and against any and all liability,
claims, suits, loss, damages, costs and expenses arising out of
or resulting from any negligent acts, errors or omissions of
Montgomery Watson, its officers, employees, agents, or
subcontractors in the performance of their services and
duties hereunder . . . ."
Page 3
June 12, 1996
THIS DOCUMENT IS ATTORNEY WORK PRODUCT AND IS PROTECTED
BY ATTORNEY/CLIENT PRIVILEGE -- CONTENTS CONFIDENTIAL
" D ( 9 ) C o n s t r u c t i o n E s t i m a t e s
E s t i m a t e s o f c o s t f o r t h e f a c i l i t i e s c o n s i d e r e d a n d d e s i g n e d
u n d e r t h i s A g r e e m e n t a r e p r e p a r e d b y M o n t g o m e r y W a t s o n
t h r o u g h e x e r c i s e o f i t s e x p e r i e n c e a n d j u d g m e n t i n a p p l y i n g
p r e s e n t l y a v a i l a b l e c o s t d a t a , b u t i t i s r e c o g n i z e d t h a t
M o n t g o m e r y W a t s o n h a s n o c o n t r o l o v e r c o s t o f l a b o r a n d
m a t e r i a l s , o v e r t h e c o n s t r u c t i o n c o n t r a c t o r ' s m e t h o d s o f
d e t e r m i n i n g p r i c e s , o r o v e r c o m p e t i t i v e b i d d i n g p r o c e d u r e s ,
m a r k e t c o n d i t i o n s , a n d u n k n o w n f i e l d c o n d i t i o n s s o t h a t i t
c a n n o t a n d d o e s n o t g u a r a n t e e t h a t p r o p o s a l s , b i d s o r
p r o j e c t c o s t s w i l l n o t v a r y f r o m i t s c o s t e s t i m a t e s .
T h e f o r e g o i n g p r o v i s i o n s m a k e i t c l e a r t h a t M o n t g o m e r y , w h i l e p e r h a p s
n o t g u a r a n t e e i n g t h a t i t s c o n s t r u c t i o n e s t i m a t e s w o u l d n o t v a r y f r o m t h e
b i d s , w a s w a r r a n t i n g t h a t i t w o u l d p e r f o r m i t s c o n s t r u c t i o n e s t i m a t i n g
s e r v i c e s i n a c c o r d a n c e w i t h s t a n d a r d s g e n e r a l l y a c c e p t e d a m o n g
r e a s o n a b l y p r u d e n t e n g i n e e r s / a r c h i t e c t s i n I d a h o .
B y M o n t g o m e r y ' s o w n a d m i s s i o n , c o s t e s t i m a t e s d o n e i n a c c o r d a n c e
w i t h t h e g e n e r a l l y a c c e p t e d s t a n d a r d s o f e n g i n e e r s / a r c h i t e c t s i n I d a h o
w o u l d b e i n t h e f o l l o w i n g r a n g e :
" D r a f t M a s t e r P l a n C o s t E s t i m a t e s - T h i s l e v e l o f c o s t
e s t i m a t i n g i s g e n e r a l l y g i v e n a 2 0 p e r c e n t + o r - a c c u r a c y . I t
i s b a s e d o n c o s t c u r v e s , o t h e r p r o j e c t s w i t h s i m i l a r s i z e a n d
c o m p l e x i t y a n d c u r s o r y l e v e l s o f e s t i m a t i n g f o r l a r g e p r o j e c t
c o m p o n e n t s . T h e p u r p o s e o f t h e M a s t e r P l a n l e v e l o f
e s t i m a t i n g i s t o s c r e e n p r o c e s s a l t e r n a t i v e s , a n d e s t a b l i s h
p r e l i m i n a r y b u d g e t p a r a m e t e r s .
( S e e " W a t e r S y s t e m P r o j e c t C o s t E s t i m a t e s , " d a t e d
S e p t e m b e r 1 9 , 1 9 9 4 . )
P a g e 4
J u n e 1 2 , 1 9 9 6
T H I S D O C U M E N T I S A T T O R N E Y W O R K P R O D U C T A N D I S P R O T E C T E D
B Y A T T O R N E Y / C L I E N T P R I V I L E G E - - C O N T E N T S C O N F I D E N T I A L
" R e v i s e d M a s t e r P l a n C o s t E s t i m a t e s - T h i s c o s t e s t i m a t e w a s
t h e r e s u l t o f a n i n d e p e n d e n t v a l u e e n g i n e e r i n g r e v i e w o f
t h e p r o j e c t c o n c e p t . T h e c o s t e s t i m a t e r e p r e s e n t s b e n e f i c i a l
c o s t t r a d e - o f f s , b u t i s s t i l l a t t h e l e v e l o f a c c u r a c y o f t h e
M a s t e r p l a n ( 2 0 p e r c e n t + o r - )
( S e e " W a t e r S y s t e m P r o j e c t C o s t E s t i m a t e s , " d a t e d
S e p t e m b e r 1 9 , 1 9 9 4 . )
" D e s i g n e d M a s t e r P l a n C o s t E s t i m a t e - T h i s c o s t e s t i m a t e
r e p r e s e n t s a m o r e d e t a i l e d e v a l u a t i o n o f p r o b a b l e c o s t s . T h e
b a s i s o f t h e c o s t s i s t h e a c t u a l d e s i g n i t s e l f f r o m w h i c h
q u a n t i t y t a k e - o f f s a r e m a d e f o r t h e m a j o r f a c i l i t y
c o m p o n e n t s . T h e u n i t c o s t s w e r e d e v e l o p e d f r o m
m a n u f a c t u r e r q u o t e s f o r l a r g e e q u i p m e n t , a n d e i t h e r a c t u a l
l o c a l e x p e r i e n c e o r c o s t e s t i m a t i n g g u i d e p r i c e s . T h e l e v e l o f
a c c u r a c y f o r o p i n i o n s o f p r o b a b l e c o s t s a t 1 0 0 p e r c e n t
c o m p l e t e d e s i g n s i s g e n e r a l l y t a k e n a b o u t 1 0 p e r c e n t + o r
t h e W a t e r S y s t e m d e s i g n i s e s t i m a t e d a t a b o u t 9 5 p e r c e n t
c o m p l e t e a n d t h e W a t e r T r e a t m e n t P l a n t i s a b o u t 7 5
p e r c e n t c o m p l e t e .
( S e e " W a t e r S y s t e m P r o j e c t C o s t E s t i m a t e s , " d a t e d
S e p t e m b e r 1 9 , 1 9 9 4 . )
" M o d i f i e d M a s t e r P l a n t C o s t E s t i m a t e - T h i s c o s t e s t i m a t e
r e p r e s e n t s a m o d i f i c a t i o n o f t h e D e s i g n M a s t e r P l a n t o
e l i m i n a t e p o r t i o n s o f t h e p r o j e c t t o m e e t t h e o r i g i n a l c o s t
g o a l o f $ 9 , 5 1 1 , 0 0 0 . T h e a c c u r a c y o f t h i s e s t i m a t e i s t h e s a m e
a s t h e D e s i g n M a s t e r P l a n .
( S e e " W a t e r S y s t e m P r o j e c t C o s t E s t i m a t e s , " d a t e d
S e p t e m b e r 1 9 , 1 9 9 4 . )
P a g e 5
J u n e 1 2 , 1 9 9 6
T H I S D O C U M E N T I S A T T O R N E Y W O R K P R O D U C T A N D I S P R O T E C T E D
B Y A T T O R N E Y / C L I E N T P R I V I L E G E - - C O N T E N T S C O N F I D E N T I A L
" T h e a c c u r a c y o f t h e p r e d e s i g n c o n s t r u c t i o n c o s t e s t i m a t e s
h a v e a r a n g e o f + 1 5 p e r c e n t t o - 1 5 p e r c e n t a n d a r e d e f i n e d
a s a b u d g e t e s t i m a t e .
( S e e P r e d e s i g n L e t t e r R e p o r t . J u n e 1 6 , 1 9 9 4 , p . 1 1 . )
I n r e l i a n c e u p o n t h e v a r i o u s c o s t e s t i m a t e s p r o v i d e d b y
M o n t g o m e r y , t h e C i t y h a d b o n d s i s s u e d f o r t h e P r o j e c t , i n a n a m o u n t
i n t e n d e d t o m e e t o n l y t h e c o s t s e s t i m a t e d b y M o n t g o m e r y . I t i s b e y o n d
d i s p u t e t h a t M o n t g o m e r y w a s a w a r e o f t h e C i t y - s b u d g e t a r y c o n s t r a i n t s
a n d t h e a m o u n t o f t h e b o n d s i s s u e d . I n f u r t h e r r e l i a n c e u p o n t h e
e s t i m a t e s , t h e C i t y c o n t i n u e d t o u t i l i z e M o n t g o m e r y ' s s e r v i c e s a n d s p e n t
a p p r o x i m a t e l y $ 7 0 0 , 0 0 0 o n d e s i g n f e e s .
I n e a r l y 1 9 9 5 t h e C i t y i s s u e d i n v i t a t i o n s f o r b i d s , a n d c a l l e d f o r
s e p a r a t e b i d s o n t h e W a t e r T r e a t m e n t P l a n t a n d t h e W a t e r D i s t r i b u t i o n
S y s t e m . T h e t h r e e l o w e s t b i d s f o r t h e W a t e r T r e a t m e n t P l a n t r a n g e d f r o m
$ 6 , 7 5 2 , 5 0 0 t o $ 7 , 3 1 3 , 0 0 0 . T h e d i f f e r e n c e b e t w e e n t h e l o w b i d a n d t h e
i n i t i a l e s t i m a t e d c o s t o f t h e w a t e r t r e a t m e n t p l a n t c o n s t r u c t i o n c o s t s i s
a p p r o x i m a t e l y $ 3 . 0 5 m i l l i o n d o l l a r s a n d t h e d i f f e r e n c e b e t w e e n t h e f i n a l
e s t i m a t e s i s a p p r o x i m a t e l y $ 2 . 1 5 m i l l i o n d o l l a r s . T h i s a m o u n t s t o 8 2 % a n d
4 7 % i n c r e a s e s i n t h e e s t i m a t e d c o n s t r u c t i o n c o s t s o f t h e w a t e r t r e a t m e n t
p l a n t r e s p e c t i v e l y . I n r e l a t i o n t o t h e a m o u n t b u d g e t e d f o r t h e e n t i r e
p r o j e c t , t h e e s t i m a t e s w e r e o f f 2 0 - 3 0 p e r c e n t . I n s h o r t , M o n t g o m e r y ' s
e s t i m a t e s e x c e e d e d t h e i r o w n m a r g i n o f a c c u r a c y s e v e r a l t i m e s o v e r . ' -
O n A p r i l 1 2 , 1 9 9 5 , M o n t g o m e r y a p p e a r e d b e f o r e t h e C i t y i n a n
a t t e m p t t o e x p l a i n w h y c o n s t r u c t i o n c o s t s h a d g r o s s l y e x c e e d e d e s t i m a t e s .
A t t h e m e e t i n g i t b e c a m e a p p a r e n t t h a t M o n t g o m e r y h a d n o t e v e n m a d e a
P a g e 6
J u n e 1 2 , 1 9 9 6
T H I S D O C U M E N T I S A T T O R N E Y W O R K P R O D U C T A N D I S P R O T E C T E D
B Y A T T O R N E Y / C L I E N T P R I V I L E G E - - C O N T E N T S C O N F I D E N T I A L
cursory inquiry into the labor and material markets present in McCall.
Ultimately concrete prices and labor shortages in McCall, not accounted for
by Montgomery, proved to be the greatest oversight contributing to well
over $1 million dollars to the overruns. While Montgomery never
definitively admitted as much, it appears as though the cost estimates
were derived from a WTP designed by Montgomery near Ogden, Utah and
no inquiry was made into potential differences in material and labor
conditions that existed in McCall. There is also some suggestion that
Montgomery may have erroneously assumed that the McCall facility could
be constructed at the same per square foot cost as the Utah plant which
was three times larger. It is conceivable that Montgomery failed to make
corrections to the Utah price to reflect different economies of scale. Overall
however, Montgomery did not go into great detail in describing how its
estimates were made.
II. ANALYSIS
A. Potential Causes of Action
1. Failure of an Implied Condition Precedent -- Owner's
Duty to Pay Contingent on Design Professional's Ability to Design the
Project Within Budget.
One of the fundamental responsibilities of a design professional
is to design a project that can be constructed within the owner's budget.
An architect has an affirmative duty to give a definite idea of
the reasonable cost of a project, and to stay with an owner's
cost restrictions. Indeed remaining within such cost restrictions
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is a prerequisite to the architect receiving compensation, so
that if the cost of construction substantially exceeds the cost
limitation, the architect generally is not entitled to
compensation, unless the higher costs result from the actions of
the owner which increase the costs, or the owner accepts
higher cost estimates.
S Am. Jur. 2d Architects § 16.
In recognition of this fundamental responsibility, courts have
often held that an agreement by the design professional to bring a project
in within budget is a condition to payment for his or her services.
Obviously, the best way to take advantage of this condition theory is to be
able to point to an express provision of the written contract which sets
forth the design professional's agreement in this regard. Based upon a
review of the City's contracts, it does not appear as though such a
provision exists. However, in the event such an agreement was made
between the City and Montgomery, outside of the written contract, the City
may be able to use this as the basis of a claim that such an agreement
created the cost condition.3
Even absent an express agreement to the effect that
Montgomery's fee was conditioned upon bringing the project in within the
budget, some court's have been willing to find such a condition was
implied based upon the design professionals knowledge that the owner
had a clear budgetary limit. In re George Wagschal Associates. Inc. v. West,
107 N.W.2d 874 (Mich. 1961). Other factors which may suggest an implied
cost condition are custom of the profession in the locality, whether the
project was new construction or a remodel, the level of detail and control
over detail in the design professional's possession at the time of making its
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estimate, ambiguities in the contract, whether or not interim payments
were made, and the amount of the cost overrun. Legal Aspects of
Architectural Engineering, 2nd Ed., § 8 (1977).
Ultimately, it is a question of fact whether or not such a cost
condition was present. Obviously, it needs to be determined whether or
not any oral agreements may have created an express cost condition. If
not, the City may argue that given all the facts and circumstances gave rise
to an implied condition. It must be noted that, Montgomery tried to limit
its exposure for such a claim by disclaiming any guarantees of accuracy in
its contracts. The City's odds of prevailing upon an implied condition are
not substantial. However by bringing a cause of action which puts
Montgomery at risk of losing all of its fees, combined with other more
viable but less lucrative causes of action, would likely improve the City's
settlement posture significantly.
2. Breach of Warranty of Compliance With Budget.
Owners often negotiate and obtain warranties from design
professionals that the project as designed will come in within budget.
While the provision in the contracts dealing with construction estimates
attempts to disclaim any guarantee, as noted above, Montgomery did
represent that its estimates would be accurate within 10 - 20 %. Further to
the extent Montgomery made any oral representations regarding its
estimates, such representations could constitute warranties. The principal
advantage of a warranty action over a negligence action is that breach of
warranty actions are based upon strict liability whereas negligence
requires an inquiry into fault.
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3. Negligent Preparation of Cost Estimates.
Both by contract and common law tort duty, Montgomery is
obligated to render its services in a manner consistent with reasonably
prudent design professionals in the same or similar locality. Thus for each
of the negligence theories, the City will have an identical breach of contract
action. While only discovery will make Montgomery's estimation process
fully available for review, based upon Montgomery's comments in front of
the City, it appears as though Montgomery never took into account of the
fact the WTP was to be built in a city with a relatively small population
and which is relatively geographically isolated. It appears as though
Montgomery's estimates were faulty simply for the reason that they made
no allowances for the costs of materials and labor in McCall, and made no
attempts to confirm that the conditions in McCall were similar to the
conditions in Ogden, Utah where the proxy plant was located.
Preliminary discussions with our proposed expert witness on
engineering costs, lead us to believe that Montgomery's method of
estimating fell below the standard of care required for design
professionals. However, it must be remembered that Montgomery has
never disclosed in detail its method of estimation. It is possible,
Montgomery took steps in addition to those disclosed to the City.
Damages for negligent estimation depend upon when the
negligence is found to have occurred. It is conceivable that Montgomery's
initial estimates met the standard of care, but as more information became
available and the design became more detailed, at some point the
estimates failed to meet the standard of care. Because damages are limited
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to those expenses incurred after the act of negligence, the earlier it is
found that Montgomery was negligent the greater the damages. At this
point there is simply no information on how Montgomery arrived at their
first three estimates.
4. Negligent Design.
Negligent design is the flip side of negligent estimation of costs.
Even if the design professional met the standard of care in arriving at its
cost estimate, if the bids substantially exceed the estimate, it is likely the
design was negligently prepared. In other words, if the estimate was valid
it means the project could have been built within budget. Absent
intervening market changes, the design professional probably failed to
meet the standard of care and "over designed" the project. Ultimately,
negligent design is a fact driven issue, and a lengthy review of
Montgomery's design will have to be made by our proposed expert
engineer.
B. Damages.
Damages will depend on when Montgomery is found to have
committed malpractice or a breach. Obviously the earlier in the process
Montgomery is found to have violated a duty to the City, the higher the
damages award will be if the City prevails. By way of illustration, if
Montgomery is culpable for actions made pre -design, the costs of design,
perhaps redesign costs, and delay costs are likely to be included in an
award for damages. if on the other hand, Montgomery's failure occurred
post design, damages would likely be limited to re -design costs and delay
only. At this point with essentially no information on how Montgomery
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arrived at is predesign estimate, it is impossible to determine whether it is
likely Montgomery had any culpability prior to its post -design estimate.
C. Statutes of Limitations.
Montgomery's estimates which are most likely to result in liability
were made June 16, 1994 and September 19, 1994. Ordinarily, actions for
breach of a written contract must be filed within S years of a breach and
actions for breach of an oral contract must be filed within 4 years of a
breach. Idaho Code §§ 5-216 & 5-217. On the other hand professional
malpractice actions must be filed within two years from the date of the act
of alleged malpractice. §5-219. To insure that the City preserves all
presently available causes of action, the City should assume June 16, 1996
is the appropriate deadline to preserve its claims.
I Note that Montgomery typically broke down the entire cost of the WTP into broad categories_ To arrive at
construction costs. all land costs, design costs, administration costs, and construction experience were subtracted
from the estimate of the entire cost.
2Montgomery's failure in this regard is even more egregious when it is recognized that the estimates already had a
10% contingency built in to the price.
30bviously the merger clause in Montgomery's contracts and the requirement that all modifications be made in
writing are potential obstacles to such a claim based on an oral agreement outside of the written contract.
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