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Arco Ingenieros S.A. de C.v. v. CDM International Inc.

United States District Court, D. Massachusetts

March 22, 2019

ARCO INGENIEROS, S.A. de C.V., Plaintiff,
v.
CDM INTERNATIONAL INC., Defendant.

          MEMORANDUM AND ORDER

          Patti B. Saris Chief United States District Judge

         INTRODUCTION

         Plaintiff Arco Ingenieros, S.A. de C.V. (“ARCO”) brings this action against Defendant CDM International Inc. (“CDM International”) in connection with construction projects sponsored by the United States Agency for International Development (“USAID”) to rebuild schools and a health clinic in El Salvador after Tropical Storm Ida. Pursuant to separate contracts with USAID, CDM International assessed the sites and created preliminary designs for the projects, while ARCO used those preliminary designs to prepare final designs and then reconstruct the buildings. ARCO alleges that the site assessments and preliminary designs CDM International produced were defective and did not fulfill the company's obligations under its contract with USAID, causing ARCO to incur significant costs to complete its own contractual obligations to USAID. One of the seven claims ARCO brings against CDM International is for breach of contract (Count I). ARCO alleges it is a third-party beneficiary of CDM International's promise to USAID to conduct adequate site assessments and prepare preliminary designs for the school and clinic projects. CDM International has moved to dismiss Count I under Federal Rule of Civil Procedure 12(b)(6). After hearing, the Court ALLOWS CDM International's motion to dismiss (Docket No. 14).

         FACTUAL BACKGROUND

         The following factual background comes from the complaint and must be taken as true at this stage. See Foley v. Wells Fargo Bank, N.A., 772 F.3d 63, 71 (1st Cir. 2014).

         I. Parties

         ARCO is a Salvadoran corporation that operates out of San Salvador, El Salvador. Founded in 1950, it is the oldest and one of the largest construction companies currently operating in El Salvador. It has completed major design and construction projections for the U.S. military and public and private entities in El Salvador.

         CDM International is a Massachusetts corporation operating out of Boston, Massachusetts. On September 29, 2008, CDM International entered into a master contract with USAID to serve as the architect and engineering firm (“A/E”) for USAID projects worldwide.

         II. Ida Reconstruction Project

         In November 2009, Tropical Storm Ida hit El Salvador, causing flooding, landslides, and the destruction of homes, roads, bridges, schools, health clinics, and other infrastructure. USAID provided $25 million in funding to rebuild damaged infrastructure.

         On December 8, 2011, CDM International entered into Task Order No. AID-519-TO-12-00001 with USAID (“CDM Task Order”), which specified its duties as the A/E for these reconstruction projects. It required CDM International to conduct studies and assessments of each project site and create preliminary designs and technical specifications. These preliminary designs had to constitute at least thirty percent of the final designs for each facility. The CDM Task Order also required CDM International to participate in the procurement process for design-build contractors, who would use the preliminary designs to create final designs and then actually reconstruct the facilities. Finally, CDM International had to supervise the work of the design-build contractors. Between 2011 and 2014, CDM International made numerous statements in public documents that it was completing preliminary designs of at least thirty percent of the final designs to assist the design-build contractors in making bids.

         In late 2013 and early 2014, USAID issued requests for proposals from design-build contractors for eight schools and one health clinic. In its solicitation documents, USAID explained that the final designs had to be based on CDM International's preliminary designs. ARCO only bid for these projects after USAID encouraged it to do so. In submitting its bids, ARCO relied on the preliminary designs and on representations by USAID and CDM International that these designs constituted at least thirty percent of the final designs for each project. USAID accepted both of ARCO's bids, and USAID and ARCO entered into contracts in late 2014 for the projects. Both contracts included CDM International's preliminary designs and repeated the promise that they constituted at least thirty percent of the final designs.

         III. Construction Problems and Delays

         After starting work on the projects, ARCO realized that CDM International's preliminary designs contained numerous defects and constituted substantially less than thirty percent of the final designs. For example, the designs for the schools failed to follow building-code requirements and did not account for soil-condition and subsurface issues. The designs for the health clinic failed to address flooding requirements, lacked a plan for bio-infectious waste disposal, and did not identify that the annex to the clinic was structurally unsound. Because of these errors, ARCO spent significant time and resources ...


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