OVER DEFECTIVE RUNWAY REHABILITATION PROJECT

CPA also sues Maryland insurance firm

The Commonwealth Ports Authority is also suing a Maryland insurance company that provided performance bond for GPPC Inc., a contractor that is suing CPA for allegedly causing the company to incur $39 million in damages over an airport runway project.

In a third-party complaint, CPA, through counsel Robert T. Torres, is suing Fidelity and Deposit Company of Maryland for breach of contract, violation of the Consumer Protection Act, and for declaratory judgment.

Torres asked the Superior Court to hold Fidelity liable to pay CPA damages, interest, attorney’s fees, and court costs.

Torres also requested the court to issue a judicial determination resolving the parties’ dispute relating to the legal rights and duties of CPA and Fidelity with regard to the liability of Fidelity under the payment and performance bonds for GPPA’s default in the project.

CPA embarked on a runway rehabilitation program dating back to 2002-2003 as part of an effort to address the aging runway at the Francisco C. Ada/Saipan International Airport.

The rehabilitation program culminated with the award of a construction contract to GPPC Inc. in 2009.

The original consideration for the contract prior to the change of orders and supplemental agreements was $12,488,800.

Torres said that, on Sept. 18, 2009, GPPC contracted with Fidelity for the company to act as the surety for the required payment and performance bonds required by the runway project contract.

Under the terms of the payment and performance bonds, Torres said, Fidelity bound itself to CPA in the sum of $12.5 million.

Under the terms of the performance bond, Fidelity’s obligation would be discharged if GPPC substantially and satisfactorily performed and fulfilled the contract and any amendments.

Torres said after execution of the original contract, the agreement was amended by a series of change orders and supplemental agreements.

Torres said GPPC failed to substantially and satisfactorily perform the contract.

The performance bond, he pointed out, does not place any obligation upon CPA to notify Fidelity of minor modifications and change orders.

Torres said Hofschneider Engineering LLC, through Takagi & Associates, notified Fidelity in an email communication dated May 23, 2014, to inform Fidelity of CPA’s concerns with the pavement conditions of the runway under the project.

Fidelity, through its claims counsel, acknowledged receipt of the two emails from Hofschneider Engineering.

On Sept. 12, 2016, CPA issued a notice of termination and default to GPPC and copied Fidelity on the correspondence, terminating the contract with GPPC for default.

Fidelity responded through its claim counsel to CPA’s claim for coverage under the performance bond, asserting that CPA modified the contract and dramatically increased the scope and value of the work to be completed without Fidelity’s consent.

Fidelity’s response asserted that the modification occurred after a large portion of the original bonded work was completed.

That response, Torres said, claimed that the modifications constituted a cardinal change to the bonded contract and fully released Fidelity.

Torres said Fidelity’s response asserted a material alteration defense, which Fidelity claimed eliminated any and all exposure loss with regard to Fidelity.

Torres said Fidelity claimed that as part of its investigation, it had engaged Leo Daly & Associates to undertake its own investigation.

On Jan. 2, 2017, CPA, through legal counsel, responded to Fidelity’s Nov. 29, 2016 letter, requesting clarification and confirmation on whether Fidelity was disavowing and rejecting the surety bond coverage and demand, including the original $12.4-million bond amount.

CPA additionally requested information regarding supplemental coverage for the change orders as to whether GPPC provided requests and if not, for Fidelity to confirm that GPPC never provided supplemental bond coverage for those change orders.

Torres said CPA further advised Fidelity that GPPC and CPA had already gone through the contract dispute resolution process, that GPPC continued to refuse to do the corrective work, and that CPA had terminated the contract for default.

Torres said CPA’s communication to Fidelity made demand upon Fidelity for the corrective work through the bond coverage.

On Jan. 6, 2017, Fidelity, through its claims counsel, responded to CPA’s communication, reasserting its cardinal change/material alteration defense, arguing that Fidelity had issued the bond securing the scope of work identified in the original contract.

Fidelity claimed that after GPPC had performed a substantial portion of the work under the original contract, CPA stopped GPPC’s performance, changed the scope of the work, and thereafter entered into a series of change orders, which almost tripled the size of the original contract.

Torres said Fidelity argued that its investigation showed that the alleged runway defects related to the work added by CPA under the change orders without Fidelity’s consent, and therefore Fidelity was not liable for any coverage on the bond.

Torres said Fidelity additionally confirmed that GPPC had never secured additional coverage from the surety for the subsequent change orders, and ultimately denied CPA’s demand for Fidelity to complete the remedial work under the bond coverage.

He said Fidelity has rejected CPA’s claim for coverage based on GPPC’s default and is breach of its payment and performance bonds.

The lawyer said engaging in any act or practice which is unfair and deceptive to the consumer is unlawful under the CNMI Consumer Protection Act.

CPA has also filed a counterclaim against GPPC for breach of contract, breach of the implied duty of good faith and fair dealing, negligent construction, violation of the Consumer Protection Act, and fraud.

Ferdie De La Torre | Reporter
Ferdie Ponce de la Torre is a veteran journalist who has covered all news beats in the CNMI. Born in Lilo-an, Cebu City in the Philippines, De la Torre graduated from the University of Santo Tomas with a bachelor’s degree in journalism. He is a recipient of many commendations and awards, including the CNMI Judiciary’s prestigious Justice Award for his over 10 years of reporting on the judiciary’s proceedings and decisions. Contact him at ferdie_delatorre@saipantribune.com

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