Tag Archives: no damage for delay

TAKEAWAYS FROM SCHEDULE-BASED DISPUTE BETWEEN GENERAL CONTRACTOR AND SUBCONTRACTOR

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A recent opinion out of the Southern District of Florida, Berkley Insurance Co. v. Suffolk Construction Co., Case 1:19-cv-23059-KMW (S.D.Fla. July 22, 2024), provides valuable takeaways on schedule-based disputes between a general contractor and subcontractor on a high-rise project.

In a nutshell, the general contractor’s original project schedule was abandoned due to project delays and the project wasn’t being built by any updated project schedule. The subcontractor claimed the general contractor was mismanaging the schedule putting unreasonable manpower and supervision constraints on it, i.e., it was working inefficiently. A bench trial was conducted and the Court found in favor of the subcontractor’s arguments. The Court found the general contractor had unrelated delays and that work activities were no longer methodical but, simply, piecemeal demands. The Court also rejected any inadequate manpower arguments finding the subcontract did not place any manpower requirements on the subcontractor.

Below are the high level takeaways from these facts which are takeaways relative to any schedule-based dispute between a general contractor and subcontractor.

  1. The Word “Reasonably” in the Subcontract Means Something

The subcontract provided that that the subcontractor was required to comply with the project schedule as it was “reasonably” amended from time to time.  This makes sense because no construction schedule is written in stone. Any project schedule will be updated and amended based on the progress of the project. Nothing unusual about this concept.

However, the Court found that the word “reasonably” means the general contractor did NOT have unfettered discretion or control over the schedule because it had to act reasonably.  The general contractor’s ability to amend the schedule was limited to reasonable changes. Hence, any manpower obligation of the subcontractor was tied to reasonable amendments to the schedule and the subcontractor was not required to bear the brunt of endless workers beyond its planned workforce unless the general contractor’s schedule amendments were reasonable.  Moreover, given the general contractor’s failure to adhere to the subcontract’s requirement of confirming changes in writing with the signatures of both parties, the Court held the general contractor’s unilateral changes to the schedule were violations to the express terms of the subcontract regarding changes.

  1. No Damage for Delay Provisions are Not Absolute

The subcontract included a no damage for delay provision. While these provisions are enforceable in Florida, they do “not preclude recovery for delays resulting from a party’s fraud, concealment, or active interference with performance under the contract.” Berkley Insurance Co., supra (citation omitted). “This restriction comports with a contracting party’s implied promise not to hinder the other party’s ability to perform its contractual obligation.” See id.

Here, the Court held that the general contractor actively interfered with the subcontractor’s ability to complete its work by failing to prepare floors for the subcontractor to work sequentially; mismanaging other trades causing active damage to work already completed by the subcontractor; and misallocating building resources and personnel creating a chaotic and unstable situation.

  1. Notice Provisions

The general contractor argued that the subcontractor did not provide formal contractual notice of claims within ten days of them arising. The Court found this argument unpersuasive as the subcontractor preserved its claims through numerous emails to the general contractor regarding delay, damage, or other impacts to the subcontractor. Indeed, the subcontractor submitted potential change orders for loss of production and informed the general contractor that labor and supervision expenses were becoming untenable due to the out of sequence work.

  1. Recovering delay and Lost Productivity (Inefficiency Damages)

While the court allowed lost productivity damages from the subcontractor, it disallowed delay damages believing it would create a windfall to the subcontractor since courts view delay damages as a subset of lost productivity damages. See Berkley Insurance Co., supra, citing JH Kelly, LLC v. AECOM Tech. Servs., Inc., 605 F. Supp. 3d 1295, 1308 (N.D. Cal. 2022) (holding “damages for the delay and disruption” were among the “five categories of lost productivity damages” at issue).

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.

APPLICATION OF TWO CONSTRUCTION CONTRACT PROVISIONS: NO-DAMAGES-FOR-DELAY AND LIQUIDATED DAMAGES

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A recent Florida opinion between a prime contractor and a Florida public body touches upon two important issues:  (1) the application of a no-damage-for-delay provision; and (2) the application of a liquidated damages provision.   Both provisions find there way into many construction contracts.  Unfortunately, the opinion is sparse on facts.  Nevertheless, the application of these provisions is worthy of consideration.

In this opinion, Sarasota County v. Southern Underground Industries, Inc., 2022 WL 162977 (Fla. 2d DCA 2022), a county hired a contractor to install sanitary and water piping underneath a waterway.  During construction, a nearby homeowner complained that vibration from the drilling caused damage to his home.  As a result, the county stopped the contractor’s work to address a potential safety issue, as it was contractually entitled to do.  The contractor hired a structural engineer to inspect the house and the engineer issued a report determining that any alleged damage was cosmetic and that there was sufficient monitoring of the vibrations to prevent future damage.  The contractor also had an insurance policy to cover any homeowner claim for damage.  However, upon receipt of the engineer’s report, the county did not lift its stop work order.  Rather, the stop work order remained in place for an additional 71 days.

NO-DAMAGES-FOR-DELAY

The contractor sued the county to recover its costs during the additional 71 days the project was stopped.  The county relied on its no-damages-for-delay provision in its contract.  The trial court, as affirmed by the appellate court, found that the county’s work stoppage for an additional 71 days amounted to active interference and bad faith.

“Although ‘no damages for delay’ clauses are recognized in law, they will not be enforced in the face of governmental ‘fraud, bad faith, or active interference’ with the performance under the contract.”  Sarasota County, 2022 WL at *2 (citation omitted).   There was no reason to keep the stop work order in place after it was found it was safe to resume the construction activities.

LIQUIDATED DAMAGES

However, the trial court did assess liquidated damages against the contractor because the matter with the complaining homeowner had not been resolved by the contractual date for final acceptance.

For a liquidated damages clause to be enforceable, “the damages consequent upon a breach must not be readily ascertainable,” and “the sum stipulated to be forfeited must not be so grossly disproportionate to any damages that might reasonably be expected to follow from a breach.” “[L]iquidated damages clauses can exist only when they provide for ’damages’ (something to be given by one party who breaches the contract to the other party to compensate the other party for his loss which is a consequence of that breach).”

Sarasota County, 2022 WL at *2 (citations omitted).

The appellate court reversed the trial court’s assessment of liquidated damages because the county did not sustain any loss due to any delay to final acceptance.  The contractor had completed all of its work by the contractual date except for resolving the complaining homeowner’s claim.  “Thus, because the County had the full use for the completed construction project for over two years before final acceptance, ‘the sum stipulated to be forfeited,” was “grossly disproportionate to any damages that might [have been] expected to follow from a breach.’”  Sarasota County, 2022 WL at *3 (citation omitted).

COMMENTS

The limited facts do not do this opinion any justice.  However, it’s important to appreciate that a no-damages-for-delay provision is not the be-all-and-end-all of a delay claim.  It just isn’t!  As this court found, the work stoppage beyond the point it should have been stopped was active interference and bad faith.

As for the liquidated damages argument, that’s a head scratcher unless the court’s point is that once the government got beneficial use of the project, any delay in its final acceptance of the contract constituted a penalty even though sophisticated parties agreed to this provision.  (Not how the court worded it though!). Also, this opinion could have the affect of opening up Pandora’s box by allowing a party to take discovery on financial information or otherwise relative to actual damages when, frankly, this defeats the purpose of the liquidated damages provision.

Liquidated damages provisions on private jobs are negotiated by sophisticated parties.  On public jobs, you know what the liquidated damages are and how the provision is generally worded and can factor that into your pricing, no different than any other risk included in the contract.

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.

 

 

DIFFICULT TASK FOR COURT TO ANALYZE DELAY AND DISORDER ON CONSTRUCTION PROJECT

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One of my favorites quotes from a case, and I am sure others in the construction industry feel the same way or can relate, is from the District of Columbia Court of Appeals in Blake Construction Co., Inc. v. C.J. Coakley Co., Inc., 431 A.2d 569, 575 (D.C. 1981):

We note parenthetically and at the outset that, except in the middle of a battlefield, nowhere must men coordinate the movement of other men and all materials in the midst of such chaos and with such limited certainty of present facts and future occurrences as in a huge construction project such as the building of this 100 million dollar hospital. Even the most painstaking planning frequently turns out to be mere conjecture and accommodation to changes must necessarily be of the rough, quick and ad hoc sort, analogous to ever-changing commands on the battlefield. Further, it is a difficult task for a court to be able to examine testimony and evidence in the quiet of a courtroom several years later concerning such confusion and then extract from them a determination of precisely when the disorder and constant readjustment, which is to be expected by any subcontractor on a job site, become so extreme, so debilitating and so unreasonable as to constitute a breach of contract between a contractor and a subcontractor. 

Do you agree with this sentiment?  The reality is that retrospectively analyzing delay on a complicated construction project with numerous moving parts on a day-by-day, hour-by-hour, basis is no easy feat.  It is not easy for the parties and certainly not easy for courts to unravel. With every party claiming delay based on a retrospective analysis there will be another party with either a different delay analysis or providing credible cross examination as to flaws with the delay analysis.  The same bodes true with loss of productivity / inefficiency claims and the particular case-specific facts are important, preferably with evidence such as photos, videos, notifications, daily reports, manpower reports, etc., supporting the facts. But the facts are complicated, and the delay analysis is complicated, and it is a difficult task for a trier of fact to unravel these facts.

This case dealt with a dispute between a prime contractor and a fireproofing subcontractor. The subcontractor claimed its work was hindered for a variety of reasons.  In other words, the subcontractor was impeded from working efficiently and it was incurring unanticipated costs – the hallmark of a lost productivity or inefficiency claim.  The subcontractor sent notice to the prime contractor that it would be suspending its operations and did exactly that resulting in the prime contractor completing the subcontractor’s scope of fireproofing work.  A lawsuit arose and the trial court found the prime contractor liable to the subcontractor.   The trial court found the prime contractor breached implicit obligations in the subcontract as it (i) did not provide the subcontractor a clear and convenient work area that impeded the subcontractor’s work causing the subcontractor to incur additional sums, (ii) failed to reasonably sequence the work, and (iii) provided bad supervision as other trades damaged in-place fireproofing due to poor scheduling and certain space heaters belonging to the subcontractor were stolen.  See Blake Construction, supra, at 576-77 (“We are persuaded therefore that the trial judge properly concluded upon this record that these acts collectively and individually constituted a breach of implicit conditions for performance by [the prime contractor] under the subcontract.”).

The appellate court also agreed with the trial court as to the inapplicability of the no-damage-for-delay provision in the subcontract finding delays resulted from active interference “largely due to [the prime contractor’s] improper work sequencing.”  Blake Construction, supra, at 579.

The appellate court also found that the measure of damages to be awarded to the subcontractor from the prime contractor “is properly calculated by taking the cost of partial performance incurred [by the subcontractor], which was $598,666.75, and subcontracting therefrom the payment received to date by [the subcontractor] from [the prime contractor], which totaled $242,100. The difference between these two figures is $356,566.75, and constitutes the damages for which [the prime contractor is] liable to [the subcontractor].”  Blake Construction, supra, at 579.

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.

 

ACTIVELY INTERFERING WITH ANOTHER’S PERFORMANCE GIVES RISE TO A BREACH OF CONTRACT

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A bedrock principle under contract law is that one party cannot actively hinder, interfere, obstruct, or delay another’s party’s performance.  Doing so can give rise to a breach of contract.

It is one of the most basic premises of contract law that where a party contracts for another to do a certain thing, he thereby impliedly promises that he will himself do nothing which will hinder or obstruct that other in doing the agreed thing. Indeed, if the situation is such that the co-operation of one party is a prerequisite to performance by the other, there is not only a condition implied in fact qualifying the promise of the latter, but also an implied promise by the former to give the necessary co-operation.

Harry Pepper & Associates, Inc. v. Hardrives Co., Inc., 528 So.2d 72, 74 (Fla. 4th DCA 1988) (citation omitted).

The ruling in Harry Pepper & Associates demonstrates what can happen if a contracting party actively hinders, interferes, obstructs, or delays the other party’s performance.  Here, a paving subcontractor walked off the project prior to performance.   At the time it walked off the job its work could not commence due to prior delays with predecessor activities, revised drawings had not been approved by the governing building department, change orders had not been issued to deal with different site conditions, and the subcontractor was not offered an increase in its original contract price.  For these reasons, it called it quits.  The general contractor claimed the subcontractor did not have the contractual right to walk off the project.  There was a no-damage-for-delay provision in the subcontract and the subcontractor’s only remedy for delays was extensions of time for delayed performance. The general contractor, therefore, sued the subcontractor for the additional costs incurred in hiring a replacement paving subcontractor.  Conversely, the subcontractor was not seeking additional costs due to the delays but simply the right to cancel the contract.

The appellate court, affirming the trial court, held that regardless of the no-damage-for-delay provision, it was rendered unenforceable by the active interference of the general contractor: “There is competent and substantial evidence in the record that the general contractor did not cooperate with the subcontractor and engaged in conduct which hindered or obstructed the performance of the contract.”  Harry Pepper & Associates, 528 So.2d at 74.

Remember, regardless of whether your contract addresses delays or production, a party that actively interferes, hinders, obstructs, or delays another’s performance can give rise to a breach of contract.

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.

 

NOW IS THE TIME TO REVISIT CONTRACT LANGUAGE IN LIGHT OF COVID-19 TO ADDRESS FUTURE CONTRACTS

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Now is the time!  Today!  If you are currently in the process of negotiating or executing contracts, now is the time to ensure the contract protects your interest in light of this new world we enter into.   The impacts associated with COVID-19 may have been realized by some parties, but not others.  Regardless, the full extent of the COVID-19 impacts has likely been realized by no one — we are dealing with an unknown, prospective impact.

Will projects get suspended?  Will they stop and start back up due to disinfecting?  Will they slow down due to health concerns and preventative measures?  Will there be unanticipated material lead times?  Will current material lead times or material orders  be delayed?  Will material prices increase?  Will there be a labor shortage and/or inefficiencies with the labor force?  Will labor costs increase in order to address the preventative measures and anticipated inefficiencies?

These are some questions you may be asking, plus more.   You are asking these questions because of the unknown factor associated with COVID-19 and any future health crisis.  This is the reason now is the time — the time to ensure your contract best captures the risk of the unknown.

Here are considerations:

1.  Force majeure wording. –   This needs to be beefed up and tweaked to address COVID-19 and, potentially, other pandemics / health crisis.   You need to have an understanding who is bearing the cost risk for a project being shut down (by the government or otherwise), suspended, or slowed-down due to this issue.    Leaving it alone is a mistake.  All contracts until this pandemic hit left it alone meaning no contract truly addressed the global pandemic we are all facing.

2.  Additional safety and preventative health measures. – This needs to be factored in as the additional measures will add a cost to the project.  The measures may also add a cost in that they will add certain inefficiencies into the project that need to be factored into the schedule and general conditions.

3.  Material price escalations.- Could the cost of materials increase due to supply chain issues?  It is certainly a possibility and should be considered.  Further, it is likely that to avoid this issue, a party wants to accelerate the ordering of materials at today’s price, and there may be additional storage costs associated with doing this.   Conversely, what if the price of materials skyrocket post-contract?  This issue could break a party’s performance, profitability, and financial wherewithal to perform.  A party may want to address protection from any uncertainty with material price escalations.

4.  Material lead times and material delays.- If there are delays tied to COVID-19, how this being allocated?  There could be a realistic delay in material deliveries that impacts the project’s schedule.  The delay is not the ordering party’s fault but the result of impacts associated with the pandemic.  Based on this concern, this may result in the discussion of material accelerations and the additional storage costs associated with doing this (also discussed above).

5.  No-damage-for-delay.-  A no-damage-for-delay provision is common.  However, a party may want to deliberately carve-out from this issue delays associated with or tied to COVID-19 or any pandemic / health crisis.  The carve-out language should be broad and include language “arising out of or relating to” COVID-19 or any pandemic / health crisis based on the uncertainty as to how impacts may be realized.

6.  Contingencies.- Certain contracts, such as GMP contracts, contain a contingency.  Parties may want to add a contingency in the contract for COVID-19 and pandemics / health crisis.  A certain sum is built into the contract sum to address the unknown costs that could be incurred.

7.  Dispute resolution.- Knowing that the onslaught of COVID-19 cases will start affecting the judicial system, parties may want to revisit their dispute resolution provisions to see how disputes can be more efficiently resolved.  Parties may consider turning towards more specific arbitration provisions that modify standard contractual language.  Since arbitration is a creature of contract, parties can essentially start negotiating the rules of arbitration within the parameters of the contract.  Parties may demand pre-suit mediation provisions, executive settlement meetings, or partnering agreements as vehicles to efficiently resolve disputes and avoid delays or inefficiencies with the judicial system.

These are some talking points.  There will be others based on the scope.  I remain available to assist any party that wants to revisit their standard form contracts or needs help in drafting or negotiating contracts.   A party should not rely on their same-ole contract forms.  Also, a party should not rely on the same-ole negotiation as COVID-19 brought new issues to the table and highlighted the significance of other issues and contractual provisions.

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.

 

ENFORCEMENT OF CONTRACTUAL TERMS (E.G., FLOW-DOWN, FIELD VERIFICATION, SHOP DRAWING APPROVAL, AND NO-DAMAGE-FOR-DELAY PROVISIONS)

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What you contractually agree to matters, particularly when you are deemed a sophisticated entity.  This means you can figuratively live or die by the terms and conditions agreed to.   Don’t take it from me, but it take it from the Fourth Circuit’s decision in U.S. f/u/b/o Modern Mosaic, Ltd. v. Turner Construction Co., 2019 WL 7174550 (4th Cir. 2019), where the Court started off by stressing, “One of our country’s bedrock principles is the freedom of individuals and entities to enter into contracts and rely that their terms will be enforced.”  Id. at *1.

This case involved a dispute between a prime contractor and its precast concrete subcontractor on a federal project.  The subcontractor filed a Miller Act payment bond lawsuit.   The trial court ruled against the subcontractor based on…the subcontract’s terms!  So, yes, what you contractually agree to matters.

Example #1 – The subcontractor fabricated and installed precast concrete panels per engineering drawings. However, the parking garage was not built per dimensions meaning the panels it fabricated would not fit. The subcontractor had to perform remedial work on the panels to get them to fit.  The subcontractor pursued the prime contractor for these costs arguing the prime contractor should have field verified the dimensions. The problem for the subcontractor, however, was that the subcontract required the subcontractor, not the prime contractor, to field verify the dimensions.  Based on this language that required the subcontractor to field verify existing conditions and take field measurements, the subcontractor was not entitled to its remedial costs (and they were close to $1 Million).  Furthermore, and of importance, the Court noted that the subcontract contained a flow down provision requiring the subcontractor to be bound by all of the terms and conditions of the prime contract and assume those duties and obligations that the prime contractor was to assume towards the owner.  While this flow-down provision may often be overlooked, here it was not, as it meant the subcontractor was assuming the field verification duties that the prime contractor was responsible to perform for the owner.

Example #2 – The subcontractor also argued that the prime contractor should bear its remedial costs to the precast panels because it accepted its shop drawings for the panels.  However, the subcontract and prime contract (that was flowed down) required the subcontractor to obtain the approval of the prime contractor for the shop drawings before it started fabricating the panels.  The subcontractor did not have the contractual right to begin fabrication prior to approval.  The subcontractor, not uncommonly, started fabrication before the shop drawings were approved by the prime contractor.  But even if the subcontractor obtained the approval, the subcontract provided that such approval does not relieve the subcontractor of performing the work per the plans and specifications and the proper matching and fitting of its work.

Example #3 – The subcontractor claimed it incurred additional costs due to soil remediation from another subcontractor. This required the subcontractor to wait many months for the soil to be properly prepared before it could finish its work.  The subcontractor also incurred storage costs during this time.  The prime contractor argued that the subcontract contained a no-damage-for-delay provision that barred the subcontractor’s damages.  The trial court, affirmed by the appellate court, agreed that the subcontractor’s damages due to the delay were barred by the no-damage-for-delay provision it agreed to in the subcontract.

And, as the Court strongly concluded: “When parties, particularly sophisticated commercial entities like [prime contractor] and [subcontractor], negotiate and enter into written agreements, they have a right to expect the provisions of those agreements will not be cast aside when a dispute arises.”  Id at 6.    The Court started off and concluded its decision with the same principle

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.

 

IS THE ENFORCEABILITY OF A NO-DAMAGE-FOR-DELAY PROVISION INAPPROPRIATE FOR SUMMARY JUDGMENT

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Is the enforceability of a no-damage-for-delay provision inappropriate for resolution on a summary judgment?  The recent decision in U.S. f/u/b/o Kingston Environmental Services, Inc. v. David Boland, Inc., 2019 WL 6178676 (D. Hawaii 2019), dealing with Florida law, suggests that it is inappropriate for a summary judgment resolution, particularly when there is a right to a jury trial.

In this case, a prime contractor was hired on a federal construction project in Hawaii.  The prime contractor hired a subcontractor and the subcontractor sued the prime contractor and its surety under the Miller Act.  Of interest, the subcontractor was seeking to recover for the costs it incurred due to construction delays.  The prime contractor moved for summary judgment as to the no-damage-for-delay provision in the subcontract.  The no-damages-for-delay provision read as follows (and it is a well-written no-damage-for-delay provision):

The Subcontractor expressly agrees that the Contractor shall not be liable to the Subcontractor for any damages or additional costs, whether foreseeable or unforeseeable, resulting in whole or in part from a delay, hindrance, suspension, or acceleration of the commencement or execution of the Work, caused in whole or in part by the acts or omissions, whether negligent or not, of the Contractor including other subcontractors or material suppliers to the Project, its agents, employees, or third parties acting on behalf of the Contractor. The Subcontractor’s sole remedy for any such delay, hindrance, suspension, or acceleration shall be a noncompensable time extension.

It is well-settled in Florida that a no-damage-for-delay provision is enforceable.

But, there are three main exceptions to the enforceability of a no-damage-for-delay provision:  “if the delays were occasioned by [1] the [contractor]’s fraud, [2] concealment, or [3] active interference with [the subcontractor]’s performance under the contract.”  David Boland, Inc., 2019 WL at *3 (citation omitted).

Here, the prime contractor wanted the Court to enforce the no-damage-for-delay provision.  The subcontractor, no different than any other subcontractor, claimed that the exceptions to the enforceability of the no-damage-for-delay provision applied.   In addressing this issue, the Court noted: “At the outset, it bears emphasis that whether a party has actively interfered with another party’s contractual obligation is a question usually inappropriate for resolution at the summary judgment stage because the issue is highly case-specific and fact intensive.  David Boland, Inc., 2019 WL at *4 (internal quotation and citation omitted).

The Court found that the prime contractor and subcontractor disputed facts relevant to the enforceability of the no-damage-for-delay provision (shocker!) and a jury could find that the prime contractor knowingly delayed or actively interfered with the subcontractor’s performance.  Such facts included:

  • Correspondence between the prime contractor and government that the prime contractor was unresponsive;
  • Correspondence that the government noted that the prime contractors’ schedules were fatally flawed and unreliable because they contained erroneous logic ties, unrealistic activity durations, and inaccurate scopes of work;
  • Correspondence that the government noted that the prime contractor’s poor schedule management was a detriment to the job;
  • Correspondence that the government accused the prime contractor of deceitfully and unethically manipulating schedule logic and durations to eliminate its own delays; and
  • Testimony from the subcontractor that the prime contractor prevented the subcontractor from accessing planned construction areas, resolving issues to allow the subcontractor to proceed, and failing to complete other activities which disrupted and impacted the subcontractor’s performance.

Think about it.  Such facts can ultimately be found on any delayed project, particularly a project where the owner is claiming the contractor is liable for the delays while not recognizing its own delays.  Also, it is expected that the subcontractor would claim that but for the delays and impacts it was ready, willing, and able to productively proceed with its work.  Hence, all of the facts that the Court took into consideration as stating there to be a question of fact for the jury are facts that would seem to universally make the enforceability of the no-damage-for-delay provision a finder of fact (jury) question.

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.

 

 

GENERAL CONTRACTOR’S PROFESSIONAL MALPRACTICE / NEGLIGENCE CLAIM AGAINST DESIGN PROFESSIONAL

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Untitled designA recent case supports a professional malpractice (negligence) claim by a general contractor against a design professional by reversing a trial court’s entry of summary judgment in favor of the design professional and finding a question of fact remained as to an architect’s role in the renovation of a public construction project.  By the appellate court finding that a question of fact remained, the appellate court was finding that it was a triable issue, which is exactly what the general contractor wanted in this case.  Getting this issue and the facts to the jury is the leverage the general contractor presumably wanted.

 

In Perez-Gurri Corp. v. Mcleod, 42 Fla. L. Weekly D2487c (Fla. 3d DCA 2017), a general contractor was hired by Miami to renovate a public project.  Miami’s prime consultant subcontracted with an architectural firm to prepare the design documents for the renovation.  The construction of the project was delayed and the general contractor filed suit against the architectural firm and other design professionals for professional negligence.  The general contractor’s theory was that the design professional’s professional negligence delayed construction thereby causing the general contractor to incur increased costs (such as extended general conditions). 

 

Architectural Role or Services

 

The architect claimed it played no role in the project.  It is uncertain from the opinion whether the architect was claiming it literally played no role in the project or whether its position was that its role was so limited that a duty was not owed to the general contractor.  Either way, the court was focused on the role the architect played in the renovation of the project and held a question of fact remained as to the services or role the architect played in the construction of the project.   This is a pretty loose standard because it presumably allows the jury to determine (i) whether the architect rendered services or performed a role on the project and, if so, (ii) whether the role or services caused a delay in the construction of the project.  The reason this standard appears loose is because there isn’t any discussion as to the type of professional services or role that the architect must play for a duty to be extended to the general contractor.  (For there to be a professional negligence claim against the architect, the architect must be deemed to owe a duty to the general contractor with respect to the services or role it is performing.)

 

No-Damage-For-Delay Provision

 

This case also had a discussion regarding the no-damage-for-delay provision in the general contractor’s contract with the City.  The trial court held that the architect was protected by this provision.  (A no-damage-for-delay provision provides that a contractor’s exclusive remedy for delay is an extension of time, and it is not entitled to damages.) The appellate court reversed maintaining nothing in the no-damage-for-delay provision extended to the architect.  And, the contract further provided there are no third party beneficiaries to the contract.

 

Considerations

 

This recent opinion leads to a few important points. 

 

First, as a general contractor, you ideally do not want to extend a no-damage-for-delay provision to anyone but the owner that hires you. From an owner’s perspective, if you want the no-damage-for-delay provision to benefit your consultants, you want to ensure that protection is clearly articulated in the no-damage-for-delay provision with a carve-out in the provision that references there are no third party beneficiaries.

 

Second, no-damage-for-delay provisions are not absolute, meaning there are exceptions to a no-damage-for-delay provision.  There was no discussion as to the applicability of those exceptions here.  Perhaps that is because the facts did not warrant the applicability of an exception or there was no need to go into such discussion since the no-damage-for-delay provision did not extend to the architect, or any design professional for that matter.  But, the applicability of an exception could also raise a question of fact.

 

Third, and mentioned above, there is no discussion as to the role or services the architect must perform for a duty to be extended to the general contractor.  Thus, even if the architect played a role or performed services, the case does not go into detail as to whether such role or services would even rise up to a level of the architect owing a duty to the general contractor.  This is important since the issue of duty is typically a question of law for the court to decide.

 

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.

 

EXAMPLES OF (RISK SHIFTING & ACCEPTING) PROVISIONS IN A SUBCONTRACT

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In reading articles posted in this blog, I hope it is impressed upon you to understand the risks you are accepting in your contract and what to do if you encounter a risk, as well as those risks you are flowing down or allocating to your subcontractors.   Construction is inherently risky so you want to know what to do when you encounter certain situations or occurrences, and in certain circumstances, you want to factor the costs associated with certain accepted risks in your contract amount. 

 

When it comes to subcontracts, there are provisions that contractors want to include in their subcontracts that subcontractors need to note:

  1. The schedule – the contractor will want to include provisions that any baseline schedule is not written in stone and that it has the discretion to resequence the progress of the work.  This is an understood event since the contractor is responsible for managing the work so subcontractors should account for this contingency.
  2. No damage for delay – the contractor will want to include a no-damage-for-delay provision that provides it is not responsible for any delay-related damages and that the subcontractor’s only recourse for a delay will be an extension of time.  The provision may also state that the contractor’s liability for any delay will be limited by the amount it receives by the owner associated with the delay.
  3. Change orders – There will be a change order issue at some point.  The subcontractor needs to understand the change order procedure so proper notice is given regarding the change order work before proceeding with that work.  And, if the subcontractor is directed to proceed with work (through a change order directive) or there is a dispute as to the amount or time associated with the change, the subcontractor needs to understand that it needs to track and itemize its costs associated with the change.
  4. Claims – If a subcontractor is delayed / impacted or there is an event triggering change order work, as mentioned above, the subcontractor needs to submit timely notice of the event or occurrence.  Otherwise, there may be an argument that this event or occurrence is waived.  The contractor will argue that the notice provision is important so that it can ensure it timely submits notice to the owner pursuant to the prime contract and a subcontractor’s failure to comply with the notice provision prejudiced the contractor.

Provided below is an example of contractual provisions that fit within the above four categories.  These provisions may be analogous to provisions in the subcontract you are working under or, if you are a general contractor, may be provisions you want to consider including in your subcontract.  Remember, the objective is to know those risks you are accepting, those risks to flow down or allocate to the subcontractor, and, importantly, what to do if you encounter a risk!!

Also, please share any examples of contractual provisions that you have come across that fit within these categories. The more examples the merrier when it comes to understanding the types of risks that are frequently dealt with and allocated between a contractor and subcontractor.

[gview file=”https://floridaconstru.wpengine.com/wp-content/uploads/2015/08/Copy-of-subk-contract-considerations.pdf”] 

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.

 

 

THE VALUE OF A WELL-WRITTEN SUBCONTRACT TO FORECLOSE SUBCONTRACTOR’S INEFFICIENCY / LOST PRODUCTIVITY DAMAGES

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I have previously discussed the challenges a subcontractor has in proving a lost productivity / inefficiency claim.  Besides being difficult to prove, subcontractors generally enter into subcontracts that include onerous provisions that foreclose a subcontractor’s right to pursue lost productivity / inefficiency claims.   General contractors try to account for these types of delay-related claims by including provisions in their subcontracts that require subcontractors to fully bear this risk.  An example of this ocurrence can be found in the opinion entered in Electrical Contractors, Inc. v.  Fidelity & Deposit Co. of Maryland, 2015 WL 1444481 (D. Con. 2015) where the trial court precluded a subcontractor from recovering lost productivity / inefficiency costs based on the language in the subcontract that precluded such claims. Additionally, and importantly, the trial court found that that the subcontractor failed to timely notify the general contractor of its claims under the strict notice provisions of the subcontract.

 

In this case, the general contractor was hired by a state agency to construct a laboratory building and furnished the state a public payment bond.  The prime contract contained a construction schedule (which is not an uncommon exhibit in a prime contract).  The general contractor then entered into subcontracts with trade subcontractors including the electrical subcontractor.  An exhibit to the electrical subcontract was a schedule that simply reproduced dates applicable to the electrical subcontractor’s scope of work that were included in the construction schedule attached to the prime contract.

 

No different than any baseline construction schedule on any construction project, it was not written in stone. This meant there were updates to the schedule that were furnished to the state agency and the state agency unsurprisingly challenged or opposed numerous schedule updates. The general contractor did not keep its electrical subcontractor apprised of the back-and-forth between it and the state agency involving schedule updates (nor was the general contractor under any real obligation to do so).

And, as we all know, the schedule of the project is really driven in the field.  So, as the construction progressed, the general contractor’s superintendents directed the electrical subcontractor to perform work in a piecemeal and unsystematic manner. This was due to work areas not being ready for the electrical scope due to delays on the project.  The electrical subcontractor notified the general contractor that it was being impacted and forced to work unproductively. Thereafter, the electrical subcontractor sued the general contractor and the general contractor’s payment bond sureties for damages that included lost productivity / inefficiency damages. 

However, the subcontract that the electrical subcontractor signed posed problems with its claims, particularly the following contractual provisions:

 

“Subcontractor agrees to … complete the work in such sequence and order and according to such schedules as Contractor shall establish from time to time … time being of the essence…. If Contractor determines that the Subcontractor is behind schedule or will not be able to maintain the schedule, Subcontractor … shall work overtime, shift work, or work in an altered sequence, if deemed necessary, in the judgment of the Contractor to maintain the progress of the work. Any such … altered sequence work required to maintain progress or to complete the work on a timely basis shall be at Subcontractor’s expense and shall not entitle Subcontractor to … additional compensation.”

***

“To the fullest extent permitted by applicable law, Contractor shall have the right at any time to delay or suspend the work or any part thereof without incurring liability therefore. An extension of time shall be the sole and exclusive remedy of Subcontractor for any delays or suspensions suffered by Subcontractor … and Subcontractor shall have no right to seek or recover from Contractor any damages or losses, whether direct or indirect, arising from or related to any delay or acceleration to overcome delay, and/or any impact or effect of such delays on the Work.”

***

“In the interest of the overall project, W–T [Contractor] reserves the right to alter the sequencing of activities in order to accommodate project conditions and/or Owner requirements. It is understood that the Subcontractor shall be obligated to complete its activities [timely] … regardless of the actual start date.”

***

“There is no guarantee of continuous work. Subcontractor shall work in all areas as they become available and as directed by Whiting–Turner [Contractor]. Subcontractor shall include the inefficiencies, supervision and manpower necessary to run separate and independent crews as necessary.”

Electrical Contractors, Inc., supra, at *6 and *7.

 

Additionally, the electrical subcontractor needed to timely notify the general contractor of its claims:

“Article 6(d) requires timely written notice as a precondition for making such claims: [N]otice in writing shall be given to the Contractor no later than seven (7) days following the occurrence on which such claim is based…. Any claim not presented within such time period shall be deemed waived by Subcontractor. The notice must describe the dispute, controversy or claim in detail so as to allow Contractor to review its merits … [and] provide detailed information to substantiate such claim including supporting documentation and calculations.”

Electrical Contractors, Inc., supra, at *8 (internal citations omitted).

 

While the 7-day claim notice requirement may seem unfair, the court explained that the electrical contractor was a sophisticated entity that knowingly assumed this notice obligation.

Of Significance: 

These subcontract provisions recited above are not uncommon provisions.  They are rather commonplace with sophisticated contractors–there is no real shock value when looking at these provisions, right?

 

If you are a general contractor that includes such provisions in your subcontracts, this case gives you reassurance as to those contractual provisions that are aimed to insulate you from a subcontractor’s delay-related damage and require the subcontractor to give you timely notification of a claim (so that you are not prejudiced by the late submission of a subcontractor claim).  These are important provisions for a general contractor to include in a subcontract and the provisions referenced above are certainly well-written provisions to model.  It is understood that a schedule is never going to be written in stone and there will be logic and sequence changes in the schedule, so protect yourself by including such provisions (including the no-damage-for-delay provision). As you can see, there is value in doing so.

 

On the other hand, if you are a subcontractor, if you accept these provisions, you need to either account for these risks in your subcontract price and/or bear the risk that these provisions may be appropriately enforced against you as shown in this case.  Alternatively, and as the court alluded to, as a sophisticated party, you have the option of not signing the subcontract or trying to negotiate the best subcontract for you with an understanding as to those onerous provisions and risks that you choose to accept.

 

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.