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Fluor Corp. v. Illinois Power Co.

January 9, 1964

THE FLUOR CORPORATION, LTD., A CALIFORNIA CORPORATION, PLAINTIFF-APPELLEE,
v.
ILLINOIS POWER COMPANY, AN ILLINOIS CORPORATION, DEFENDANT-APPELLANT



Author: Hastings

Before HASTINGS, Chief Judge, and CASTLE and KILEY, Circuit Judges.

HASTINGS, Chief Judge.

This action was brought by The Fluor Corporation, Ltd., against Illinois Power Company (IPC) to recover $500,786.93, which represents the balance claimed to be due under a cost-plus contract to build an addition to a power plant.

IPC denied liability and counterclaimed for $2,500,000, claiming that Fluor breached the contract by not supervising its labor force with reasonable care and skill, thus increasing IPC's costs.

The district court had jurisdiction under 28 U.S.C.A. ยง 1332. The case was referred to a special master as provided in Rule 53, Federal Rules of Civil Procedure, 28 U.S.C.A. The special master was ordered to take and hear evidence and to report findings of fact and conclusions of law. Ferre C. Watkins, Esquire, a reputable member of the Chicago, Illinois Bar, qualified and served as the special master throughout this proceeding.

Hearing was had before the special master who entered findings of fact, stated conclusions of law and recommended judgment in favor of Fluor and dismissal of IPC's counterclaim.

The district court, after receiving briefs and hearing oral argument for about two days, entered judgment in accordance with the special master's recommendations. IPC appealed.

Between 1947 and 1950, IPC, an Illinois electric and gas public utility company, built an electric power generating station, consisting of three generating units, at Wood River, Illinois, a few miles north of East St. Louis, Illinois. Early in 1951, IPC decided to construct a fourth unit at the same site, as an addition to the existing installation.

Fluor, a construction contractor operating nationally, with headquarters in Los Angeles, learned of IPC's intention to build the fourth unit at Wood River. In April, 1951, Donald Darnell, then Fluor's president, wrote Allen Van Wyck, president of IPC, requesting an appointment with Van Wyck at IPC's offices to discuss the possibility of a construction contract.

A meeting took place between Van Wyck and Darnell in Chicago in May, 1951. Van Wyck told Darnell that the contractor whom IPC employed to construct the first three units had encountered and tolerated hunting and cooking by employees during working hours, had hired unnecessary labor and had paid stewards who did not work. Van Wyck said he wanted the contractor for the new work to keep the labor crafts in line and not tolerate abuses by labor. He stated that IPC wanted the unit completed on time, but if labor difficulties became great, Fluor would be authorized to cease construction. Wood River was one of the worst labor areas in the country.

Darnell replied that Fluor had considerable experience in handling construction work in the Wood River area and that he was familiar with labor practices there. He said that Fluor had not tolerated such practices on its other jobs in the area and would not tolerate them in the proposed work for IPC.

Also discussed at this meeting were the qualifications of the superintendent Fluor would appoint to supervise the project, if awarded the contract. Van Wyck said this would have an important effect on who would get the contract.

Darnell told Van Wyck that Fluor's chief of construction, William Downey, and one of Fluor's "top men," William Hudson, had held supervisory positions in the Wood River area and had knowledge of the working conditions.

Subsequently, a letter from Darnell to Van Wyck stated that Hudson had been selected as general superintendent in the event Fluor was awarded the contract.

On November 15, 1951, a contract was signed by Fluor and IPC. It contained a merger clause which said, "The Agreement * * * supersedes any and all prior agreements, proposals, negotiations and representations * * *."

A force majeure clause provided:

"CONTRACTOR shall not be held liable for loss or damage if and to the extent any delay, failure, loss or damage is caused by occurrences beyond the control of the party affected, including but not limited to * * * riots, strikes, labor or employment difficulties * * * or any causes * * * not within the control of the party affected and which, by the exercise of reasonable diligence, said party is unable to prevent."

Fluor was given "complete control over the details of the work and the manner in which the work * * * [was] to be accomplished.* * * [Fluor was to] follow the desires of * * * [IPC] only as to the results to be achieved."

The contract provided that IPC would pay Fluor its construction costs, plus a fee based upon varying percentages of Fluor's expenditures for labor, materials and subcontractors. The fee was not to be less than $350,000 nor more than $425,000.

The following procedures were agreed upon for reimbursement of costs. Fluor was to invoice IPC semi-monthly for all reimbursable costs. Before each semimonthly invoice was finally submitted, IPC's accountants and Fluor's accountants on the job were to check the supporting papers and agree upon the amounts and the matters going into the invoice. The invoice would then be approved by IPC's accountants on the job and by the resident Sargent & Lundy engineer, who was IPC's representative under the terms of the contract. Next, the invoice was to be forwarded to Sargent & Lundy's Chicago office for examination and certification as payments for which Fluor was entitled to reimbursement under the contract. The invoice would then be sent to IPC's main office at Decatur, Illinois, for further examination and approval. It would be marked "passed for payment" by an official of IPC, and a check issued by IPC to Fluor for the amount of the invoice.

The work was to be conducted under the general supervision of the consulting engineers, Sargent & Lundy, the field representative of IPC. Fluor was to refer all questions to them which arose on the work and affected IPC.

Fluor agreed to keep and maintain complete and detailed records of all costs it incurred under the contract, for three years after completion of the contract, as required by Illinois law.

IPC was given the right to inspect and audit all of Fluor's "books, accounts and records and costs of all equipment, machinery, apparatus, materials, supplies, labor and other items of cost as invoiced."

Fluor completed the cost-plus contract and on March 19, 1954, IPC took possession of the construction. No complaint was ever made by IPC as to the quality of construction. From July, 1951, to March, 1954, Fluor paid out and was reimbursed approximately $7,000,000. About half this amount was for labor.

At the date of completion, IPC had not reimbursed Fluor for invoices numbered seventy-one through seventy-nine. These invoices represented sums which Fluor had expended for labor, materials and subcontracts, and the balance of the agreed maximum fee of $425,000. This fee balance of $75,000, together with costs of $425,786.93, made a total of $500,786.93. These invoices were signed and approved for payment by IPC, in accordance with the procedures previously described.

Van Wyck in a letter to Darnell, dated March 8, 1954, said it was his opinion that a fee of $425,000 had not been earned. No claim was made that the costs were unreasonable. A conference date was set to attempt settlement.

On July 2, 1954, IPC's comptroller wrote to a director of IPC, enclosing a schedule showing amounts invoiced, unpaid and claimed to be due to Fluor, which totaled $500,786.93. The letter stated, "There are minor items which we have questioned or will take exception to which are included in these invoices. Such items are not significant to require specific discussion at this time but shall be raised before any payments are made upon the settlement of the entire account." This balance was never paid.

On August 11, 1954, Fluor filed a complaint in the district court, alleging its compliance with the contract and IPC's failure to pay the balance due thereunder. Fluor prayed judgment for the sum of ...


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