Technical contractual provisions in contracts can carry the day. Whether you like it or not, and whether you appreciate the significance of the provisions, they matter. Notice provisions in a contract mean something. Following the claims procedure in a contract means something. The moment you think they don’t mean anything is the moment they will be thrown in your face and used as a basis to deny your position for additional money or time. You may think these provisions are being used as a “gotcha” tactic. They very well might be. But these are provisions included in the contract you agreed to so you know this risk before any basis for additional money or time even arises.
The recent bench trial opinion in Metalizing Technical Services, LLC v. Berkshire Hathaway Specialty Ins. Co., 2023 WL 385413 (S.D.Fla. 2023) illustrates the reality of not properly complying with such provisions. The keys when dealing with any notice or claims provision, or really any technical provision in your contract, is to (a) negotiate the risk before you sign the contract, (b) chart the provisions so your team know how to ensure compliance, and (c) make sure you comply with them. Period!
In Metalizing Technical Services, a potentially garden-variety general contractor and subcontractor payment dispute, a subcontractor was terminated from a Florida Department of Transportation project dealing with repairing a causeway in Miami. The remaining subcontract balance of about $682,000 was not in dispute. Rather, the dispute centered on the subcontractor’s work stoppage and hazardous materials claims and the general contractor’s setoffs (i.e., backcharges). The subcontractor bore the burden of proof with respect to its claims and the general contractor bore the burden of proof with respect to its setoffs. The focus of this posting is the subcontractor’s claims and the Court’s application of the subcontract.
Work Stoppage Claim
The subcontractor had a work stoppage claim associated with the owner’s representative ordering a work stoppage. The general contractor argued the subcontractor failed to satisfy the requirements in the subcontract with respect to the claim. The subcontract provided that when the “Subcontractor believes that additional compensation…is due as a result of such suspension or delay, Subcontractor shall immediately notify Contractor in writing.” Metalizing Technical Services, supra, at *15. The subcontractor did NOT provide immediate notification as the only evidence of written notification was almost a month after the work stoppage. Although the subcontractor testified it notified the general contractor via texts and e-mails, none of these writings were introduced into evidence. (Note that the Court did not find waiting a month to provide written notification to be immediate written notification. The Court may have viewed this differently if the texts and emails were introduced into evidence, assuming they existed.)
In addition to the subcontractor’s noncompliance with the notice provision, the subcontract also prevented the subcontractor from recovering for delays that do not impact the Project’s critical path: “Subcontractor shall not under [any] circumstances be entitled to any monetary compensation for delays or impacts whatsoever to any activities or items of Work that are not a Controlling Work Item [an activity or work item on the critical path], as defined in the Prime Contract.” Metalizing Technical Services, supra, at *15. Therefore, “[b]ecause the [work] stoppage did not impact the critical path, no Controlling Work Items were impacted; [subcontractor] is not entitled to recover compensation for items that are not on the critical path.” Id.
And if bases under the subcontract were not enough to bar this claim, the Court found that the subcontractor stilled failed to prove its damages for the work stoppage with a reasonable degree of certainty. The witness supporting the claim could not remember (i) how he generated prices for the claim, (ii) how he calculated costs for the idle equipment, or (iii) the equipment included in the claim.
Hazardous Materials Claim
The subcontractor submitted a claim associated with unexpected hazardous materials discovered at the Project. The presence of hazardous materials was not an issue in dispute. The subcontractor’s compliance with the claims process was an issue in dispute and the subcontract provided that the subcontractor’s failure to comply with the claims process was an absolute waiver of its claim.
The claims process provided that upon the subcontractor’s written request, the general contractor could submit to the owner the claim for additional compensation and institute an action or proceeding to recover any claim or appeal any decision by the owner. Subcontractor was required to post whatever security the general contractor required to cover the general contractor’s costs and expenses. Subcontractor’s written request to appeal the owner’s decision “must be delivered to Contractor within the earlier of five (5) calendar days from Contractor’s notice to Subcontractor [of owner’s] ruling or decision, or as otherwise provided under the Prime Contract [between owner and general contractor], or Subcontractor shall be deemed to have irrevocably waived its claim.” Metalizing Technical Services, LLC, supra, at *6.
The owner initially denied the hazardous material claim and the subcontractor failed to notify the general contractor to appeal the decision within the subcontractual time period. This resulted in a waiver of the claim. Moreover, the general contractor requested the subcontractor to provide $75,000 in security to cover the appeal costs which the subcontractor did not pay. “[General contractor] has no obligation to proceed on [subcontrator’s] behalf because [subcontractor] never posted security.” Metalizing Technical Services, LLC, supra, at *17.
And if these reasons were not enough, the subcontract further provided that subcontractor would not be able to recover any payment from the owner that the owner had not paid subcontractor. The general contractor was able to settle the claim with the owner for about half of the subcontractor’s claim. The subcontractor did not agree with the settled amount. This settled amount was tendered to the subcontractor and the subcontractor was pursuing the delta. However, since the general contractor was never paid the delta from the owner, the subcontractor was not able to recover from the general contractor the additional amounts even if it had not waived the claim.
Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.