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June 1, 1999


The opinion of the court was delivered by: Hurd, United States Magistrate Judge.



Plaintiff, Franklin Pavkov Construction Company ("Pavkov" or "plaintiff") alleges that defendant Ultra Roof, Inc. ("Ultra Roof") breached a subcontract entered into between the two companies. Pavkov claims that Ultra Roof, which subcontracted with Pavkov to retrofit a roof at an Army facility in Rotterdam, New York ("Rotterdam project"),*fn1 did not timely commence work on the project, unreasonably delayed performance, and abandoned the project without justification. Ultra Roof contends that its duty to perform was discharged due to Pavkov's failure to make payments according to the terms of the subcontract and counterclaimed for breach of the subcontract. Defendant International Fidelity Insurance Company ("IFIC") is Pavkov's bonding company,*fn2 and was made an additional defendant on Ultra Roof's counterclaim.*fn3


A five day bench trial was conducted from February 3, 1999 through February 9, 1999 in Utica, New York. Testifying on behalf of the plaintiff was its Vice President, Mark Pavkov. Also testifying in support of plaintiff were Vince Pavkov, project manager for the Rotterdam project, and John Miller, the Federal government inspector for the project. Finally, plaintiff called Martin Keller, owner of Kelco Roofing & Sheet Metal, Inc., Peter Corsi, and Ed Kolbako, president of Ed's Electrical Service, Inc., to testify concerning the issues of costs of completion and work remaining on the project after Ultra Roof left the site. Testifying on behalf of the defendant were Alan Beck ("Beck"), owner of Ultra Roof, and Jackie Lane, project superintendent. Post trial proposed Findings of Fact and Conclusions of Law were filed by all parties on April 15, 1999.

Based upon all of the evidence, including voluminous exhibits, and the credibility of the witnesses, the following constitutes the Findings of Fact and Conclusions of Law pursuant to Fed.R.Civ.P. 52.


A. The Subcontract

Pavkov is a corporation organized and existing under the laws of the State of Ohio, which engages in roof contracting. In September of 1993, Pavkov entered into a contract with the United States Government, Department of the Army, for the construction of a retrofit roof at the Army Facility in Rotterdam, New York. The contract was for the sum of $723,549.00. The contract, designated as contract number DAKF36-93-C-0094, called for performance to begin within ten (10) days and completion within three hundred sixty (360) days after receiving the notice to proceed. The contract provided that failure to complete the work within the time specified in the contract, or any extension, would result in the contractor having to pay liquidated damages in the sum of $177.91 per day for each day past the completion date. The contract also provided that, in the event that the contractor withheld any monies from a subcontractor, the contractor must provide written notice to the subcontractor, identifying the amount being withheld, the reason for the withholding, and the mandatory remedial action. In addition, a copy of such written notice must be given to the contracting officer. Specifications for the Rotterdam project and the applicable rates of wage were attached to the contract. Pavkov was to bill the Government monthly and be reimbursed monthly based upon the percentage of work completed, which Pavkov and the government inspector were to agree upon. Pursuant to the contract and the terms of the Miller Act, Pavkov obtained a performance bond and payment bond from IFIC. The payment bond was in the penal sum of $361,774.50.

Although Pavkov originally intended to perform the contract itself, it later decided to subcontract the work. In or about December of 1993, Mark Pavkov directed his brother, Vince Pavkov, to solicit bids. Vince Pavkov contacted Alan Beck, owner of Ultra Roof, who had previously quoted a price to complete the project. On December 14, 1993, Beck faxed a one-page letter to Vince Pavkov's attention proposing to complete the Rotterdam project for the sum of $575,543.00. The letter, which was received the same day by Pavkov, contained four Roman numeral headings outlining the terms of the proposal. The fourth section, labeled "Terms and Conditions", contained five subsections, which read as follows:

  A) Ultra Roof Inc. will be paid 3% for Mobilization
  of the total amount of our Contract, due upon receipt
  of invoice.
  B) Ultra Roof Inc. will furnish Certified Payroll
  Reports Weekely (sic) & will be paid weekely (sic) on
  the following Friday.
  C) All material supplied by Ultra Roof Inc. to be
  paid Net 30 days, Ultra Roof Inc. takes exception to
  our payment being contingent upon the General
  Contractor receipt of Payment from owner.
  D) Ultra Roof Inc. will not agree to liquidated
  damages until (sic) a mutually agreed upon schedule
  [is] reached.
  E) Ultra Roof Inc. will perform roofing in a neat &
  workmanship type manor (sic), we are not responsible
  for subsequent cleaning.

(Ex. D-2.) Subdivision "E" was not followed by any further language other than Beck's closing and signature line.

Vince Pavkov reviewed the proposal and discussed it with Mark Pavkov, at which time certain changes were made. Vince Pavkov handwrote "Addendum A" at the top of the proposal. In addition, since Mark Pavkov found the payment term in subdivision "B" unacceptable, an additional payment term was added at the bottom of the proposal, which read as follows:

  F) First Payroll Payment will be made two weeks after
  commencing work and subsequent payments in line with

  completion and # B under terms and conditions.

(Ex. P-41.) There is no evidence that this change was ever faxed to Beck. Additionally, Vince Pavkov's testimony at his deposition and at trial are contradictory regarding whether he had ever discussed the changes made to the proposal with Beck. (Tr. at 130, Vince Pavkov Dep. at 34, 41.)

Vince Pavkov faxed a one-page letter to Beck on December 14, 1993 requesting a meeting with Beck on December 16, 1993 at Ultra Roof's office in Jasper, Indiana to discuss the Rotterdam project, sign the subcontract, discuss the start date, submittals, and payment schedule, and some other matters. No mention was made in this letter of any changes made to Beck's December 14, 1993 proposal.

Prior to traveling to meet with Beck, Vince Pavkov prepared several documents which would comprise the subcontract. The first page was a preprinted subcontract agreement indicating that the subcontract applied to the Rotterdam project, the price, and a start date of April 15, 1994 and completion date of August 31, 1994. In addition, the first page referenced terms contained in "Addendum A". The second page was a version of Beck's proposal typed up at Pavkov's offices titled "Addendum A" and containing the changes made by Pavkov except subdivision "F". The third page contained subdivision "F" and signature lines for Beck and Vince Pavkov. The fourth page consisted of a statement and acknowledgment. This page acknowledges that certain clauses contained in the government contract with Pavkov, which include the Contract Work Hours and Safety Standards Act ("CWHSSA"), 40 U.S.C. § 327-333 (1986), and the Davis-Bacon Act, 40 U.S.C. § 276a-276a-5 (1986), also apply to the subcontractor. None of the pages were numbered.

Vince Pavkov and Beck met on December 16, 1993 at which time, Vince Pavkov presented two copies of the subcontract documents. The copy which Vince Pavkov brought back with him to Ohio contained Beck's signature on the first page (the preprinted form) and the last page (the statement and acknowledgment). Neither Beck's signature nor his initials appear on either page of "Addendum A". Vince Pavkov's signature does not appear on any page of the subcontract which he retained. The copy of the subcontract which Beck retained contained the signatures of both Vince Pavkov and Beck on the preprinted page and the statement and acknowledgment. Beck's copy only contains page one of "Addendum A". It does not contain the second page of the addendum, which bore subdivision "F".

Beck testified that he was never shown page two of "Addendum A", he never discussed it with anyone from Pavkov, and he would not have agreed to subdivision "F". (Tr. at 882.) Mark Pavkov testified that he intended to have Beck sign "Addendum A". (Id. at 625-26.) Mark Pavkov also claimed that he would never enter into a subcontract where payment was made on any basis other than percentage completion. However, on January 20, 1994, only one month after the subcontract for the Rotterdam project was signed, Pavkov entered into a subcontract agreement with Ultra Roof for a roofing project at Fort Gordon, Georgia. The agreement contains an "Addendum A" with the same payroll term as Ultra Roof's proposal for the Rotterdam project contained. The Fort Gordon subcontract did not contain any terms similar to subdivision "F" and both Beck and Vince Pavkov signed the addendum page on that subcontract.

There is simply no evidence that Beck ever saw, discussed, or agreed to be bound by subdivision "F". Therefore, subdivision "F" is not a part of the subcontract agreement between Pavkov and Ultra Roof for the Rotterdam project.

B. Problems in Performance

The government sent Pavkov a Notice to Cure on June 10, 1994 as a result of its rejection of the second set of drawings. The drawings were finally approved in late June 1994. In the meantime, Ultra Roof received a proposal from Schenectady Steel Company, Inc. ("SSCI") on June 17, 1994 to furnish and erect structural steel material for the sum of $81,950.00. Subsequently, this amount was increased by $625.95, bringing the total of the estimate up to $82,575.95. Ultra Roof billed Pavkov $51,520.00 on June 24, 1994, for material stored offsite at SSCI. However, Ultra Roof had not yet been billed by SSCI.*fn4

SSCI mobilized to the job site on June 30, 1994. SSCI requested a joint check agreement between it, Ultra Roof, and Pavkov as a condition of performance. On July 7, 1994, Vince Pavkov sent a letter to SSCI agreeing to issue joint checks payable to Ultra Roof and SSCI and promising that payment would be made no later than forty (40) days from the date of delivery.

On July 1, 1994, differing site conditions were found. Ultra Roof notified Pavkov that day, recommended a resolution, and suggested that Pavkov notify the government requesting advice as to how to proceed. Pavkov repeatedly sent letters to the government with no response. During the months of July and August, only six percent (6%) of the work was completed on the Rotterdam project. Ultra Roof had not mobilized to the site yet, but it billed Pavkov a three percent (3%) mobilization fee, which totaled $17,266.29. The contracting officer finally responded to Pavkov's request for advice on August 2, 1994. With Ultra Roof's completion deadline approaching fast, Pavkov requested an extension, citing the government's delays in responding to Pavkov's request for advice with respect to the differing site conditions. The government acknowledged that the differing site conditions required a contract modification, however, it was unwilling to extend the completion date. In September of 1994, Pavkov again requested a contract extension as well as a winter shutdown. Only six percent (6%) of the work remained complete at this time. On December 12, 1994, the government granted Pavkov a winter shutdown and extended the contract completion date to July 31, 1995. Pavkov claims that the delays incurred during 1994 were Ultra Roof's fault. However, Vince Pavkov attributed the delays in 1994 to the government's lack of response concerning the differing site conditions. (Ex. P-67.) Additionally, ascertaining the responsible party is of no consequence because the government granted Pavkov the extension it requested.

By November 1994, Pavkov had made five payment applications to the government. Attached to the payment applications, Pavkov included a contract progress report and a contractor's affidavit. The affidavit states that subcontractors had been paid from previous payments received and that timely payment would be made from the current application's proceeds. Pavkov also indicated that no amounts were being withheld from subcontractors. Pavkov had so far received a total of $441,364.89 from the government and had paid Ultra Roof $296,373.74. In addition, many of Pavkov's payments were well over two weeks late. Furthermore, Pavkov did not pay in accordance with either subdivision "B" or subdivision "F" (assuming, arguendo, that subdivision "F" was part of the subcontract).

During an inspection in December 1994, government inspector John Miller had determined that, miraculously, sixty-one percent (61%) of the project was complete even though no workers had been on the site since November, when the estimate was that six percent (6%) was complete.*fn5 Roof leaks were noted due to improper sealing, however, these leaks are ...

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