- Legal Issue
This case involved environmental remedial construction work done at an oil refinery under the direction of the refinery’s technical staff under a design-build contract involving a ground water extraction system (GWES) without free-product recovery.
The refinery’s technical staff oversaw all remedial investigation work and performed all negotiations without the involvement of the contractor. Furthermore, the refinery staff did not notify the contractor of different criteria negotiated with the State of New Jersey Department of Environmental Protection (NJDEP) post award nor of the presence of free product in the groundwater. These new conditions and requirements constructively became part of the contract. When the installed system failed to meet the performance criteria negotiated between the refinery staff and the NJDEP, the refinery ceased making progress payments and ultimately designed and constructed a new system which they asked the contractor to pay for alleging breach of contract.
- Facts of Case
Located in New Jersey, the refinery underwent numerous construction projects and process revisions over its 100-years of existence which affected soil and groundwater. As a result of a 1992 investigation identifying possible contaminated areas, the refinery’s technical staff developed a non-permanent containment option approved by the lead state agency. The containment option selected included an impermeable barrier (slurry cutoff wall), strengthening of the soil/sludge (solidification), impermeable cap, groundwater extraction system and a conveyance of the groundwater to the refinery’s water treatment plant. There was no allowance for the collection or treatment of free product. The refinery’s technical staff was cognizant the groundwater model showed the free product was present and its presence would adversely affect operation of the GWES.
The previous owners of the refinery indicated to the NJDEP that the GWES would draw the water down below the level of the solidified sludge. This however, was not relayed to the contractor and the system was not designed to accomplish this. Furthermore, the impermeable cap could not limit water percolation to the degree necessary, despite being specified by the owner.
The presence of free product meant that the refinery’s treatment plant could not accept the effluent from the GWES. The contractor was informed by the refinery staff that it was their responsibility to find the discharge location and, if necessary design and build a treatment system.
After years of operation, another engineering company — hired by the previous owner to investigate the adequacy of the GWES– found the GWES could not achieve the requirements established by the NJDEP and recommended system improvements to conform to the state’s requirements. Many improvements were beyond the original design and/or were contract change orders recommended by the contractor. Payments to the contractor ceased; retention was not paid.
When, in 2011, construction of the upgrades began, the value of upgrades outpaced the original cost of the GWES and, the system failed, after operation, to meet key NJDEP parameters.
The contractor was subsequently sued by the prior owners for all costs including investigation and upgrade costs.
The GWES was designed by the contractor in accordance with appropriate engineering standards and met the contract specified performance standards. The configuration and components of the contractor-designed GWES could not meet the different performance criteria negotiated between the owner and the NJDEP given the various changed conditions. While the owner had represented to the NJDEP the system was capable of achieving higher standards and required the contractor to meet them, they refused to modify the contract.
The owner refused to acknowledge that free product was present despite having superior knowledge to the contrary nor would they identify a discharge location.
The project requirement that the GWES to draw the water to below the treated sludge on a continual basis was impossible and the owner hid the fact that the model could not be shown to achieve this standard either. The type of cap specified by the owner allowed for additional infiltration than could be achieved by the configuration of the system.
Ultimately a settlement was worked out, the contractor’s retention released, and the remaining contract payments were made.