Near the old railroad tracks in Phoenix Arizona is an abandoned warehouse that in the late 1900’s had been used as an icehouse to make ice used on railcars transporting fresh produce from California to the east coast. The Owner is renovating the warehouse for an exciting new multi-use commercial development that will include a coffee shop, a restaurant, a bookstore and shops.
The Owner hires the Architect using a B101 Design Contract and receives Construction Drawings which it puts out to bid. The Owner then enters an A101 Fixed Price Contract with the Contractor to build the project. No modifications are made to the A201 General Conditions. The Contract provides for $1,000 a day in Liquidated Damages.
During construction the Contractor moves a stack of old pallets that had been left there for years and discovers a small door leading into an underground vault. Inside the vault is discovered old heating oil that was used to fuel boilers used to make the ice. The heating oil has a preservative that is considered hazardous. The vault had not been discovered by the Architect during her site inspections while preparing the plans and was not found by the Contractor during his inspections prior to signing the Construction Contract.
The Contractor promptly notifies the Architect of the discovery, who notifies the local Building Official who issues a red tag, shutting the project down until the oil can be remediated.
Remediation of the oil requires a specialty contractor that cannot begin work for two weeks and then will require another two weeks to remediate the oil. It will cost $25,000 to remediate the oil and the Contractor is incurring standby costs of $1,200 a day until the work is completed.
10-days into the 14-days until the remediation contractor can arrive, one of the Subcontractors leaves the construction fence open and 3 teenage boys sneak onto the Project site. They find the vault and one jumps in and tragically becomes stuck in the oil and drowns.
An investigation into the death occurs which takes 7 days—3 of which are after the specialty contractor was able to start and so the remediation work was delayed those 3 days. The remediation contractor charges $2,000 a day in stand-by charges.
As a result, the project is delayed 28 days due to the newly discovered oil and 7 days due to the accident, some of which overlaps.
The teenager’s son sues the Owner for $10 million dollars in damages for wrongful death.
Discuss 1) Who is responsible for the costs and delays associated with the discovered oil; and 2) Who is responsible for the lawsuit. You should cite to relevant portions of the contracts and explain their implications.
