NOTICE AND CLAIMS PROVISIONS IN CONTRACTS MATTER…A LOT

Posted on February 12, 2023May 14, 2023 by David Adelstein

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.

DRAFTING OR NEGOTIATING A SUBCONTRACT–QUESTIONS TO CONSIDER

Posted on May 22, 2021May 23, 2021 by Edward Garber

When it comes to drafting and negotiating a subcontract, there are provisions that should be important to you from a risk assessment standpoint. From the subcontractor’s standpoint, below are questions you should ask, or issues you should consider, as you go through the subcontract. These are the same questions and issues that are also important to a contractor as the contractor will want to ensure these issues are included in the subcontract. By asking yourself these questions, you can check to see how the subcontract addresses these issues, and how the risk should be negotiated. Hopefully, you are working with counsel to make sure you understand what risk you are assuming and those provisions you want to try to push back on. Asking yourself these questions, or considering these questions, will help you go through the subcontract with a purpose based on the risk profile of the project and certain risk you don’t want to assume.

Prime Contract –> Does the subcontract incorporate the prime contract? Make sure to request the prime contract since the subcontract will identify the prime contract as part of the Subcontract Documents and will require you to assume towards the contractor the same obligations the contractor is required to assume towards the owner.

Scope of Work –> What is the scope of work? Is it clear. Make sure the scope is clear and you understand the scope.

Drawings –> What are the drawings incorporated into the subcontract? Are these the most up-to-date drawings? These are the drawings the subcontract amount will be predicated on so revisions to the drawings may result in change orders.

Schedule –> Is the contractor’s schedule attached? Regardless, what does the subcontract say regarding revisions and updates to the schedule? Does it require you to provide scheduling input? Does it include a no-damage-for-delay provision that gives the contractor an argument to preclude paying any delay, acceleration, or lost productivity claim?

Claims Procedure –> What is the required claims procedure? How many days do you have to submit a claim after the occurrence of the event giving rise to the claim?

Change Order Procedure –> What is the change order procedure? What steps should be taken if a change order request is denied?

Construction Change Directives –> Can the contractor issue construction change directives if there is a dispute as to time or money with the construction change directive?

Insurance –> What are the insurance requirements? Do you maintain this insurance or can you obtain the required coverages?

Design-Assist –> Are there any delegated-design or design-assist requirements? If so, do you have insurance to cover this risk (which goes with the insurance requirements)?

Indemnity –> What are the indemnity requirements? Do you have insurance to cover the indemnity obligation(s)? Does it comply with the law if you are required to indemnify the contractor for the negligence of the contractor?

Substitutions –> What is the procedure for getting substitutions or deviations with the Subcontract Documents approved?

Dispute Resolution –> What is the dispute resolution procedure? Does it require arbitration or litigation? Is mediation a condition precedent? Are there other conditions precedent?

Conditions Precedent to Payment –> What are the conditions precedent to payment? Is there a release form attached to the subcontract? Does it allow you to carve-out items for pending change orders or claims, i.e., items you are not prepared to release?

Delay Damages –> Does it include a liquidated damages provision or allow the contractor to flow-down liquidated damages? What about the contractor’s own delay damages? How are delay damages handled?

Hazardous Substances –> Is there a provision dealing with hazardous substances?

Site/Unforeseeable Conditions –> Is there a provision discussing unforeseeable site conditions? Or, if it is an existing structure, is there a provision dealing with hidden conditions?

Attorney’s Fees –> Is there an attorney’s fees provision?

Consequential Damages –> Does it include a waiver of consequential damages and, if so, does it specify the type of waived damages?

Force Majeure –> Is there a force majeure clause and how is it worded? Does it address items like pandemics, hurricanes, etc., or is there another provision that addresses these items?

Escalations and Supply Chain Impacts –> How are material escalations and supply chain impacts addressed?

Fabricated or Modular Items –> How are prefabricated items addressed from a risk allocation standpoint including delivery, shipment, storage, and integration issues?

Building Information Modeling or Digital Drawings –> Is there a protocol regarding digital drawings or building information modeling?

Bonding Requirements –> What are the bonding requirements? What does the bond form look like? Make sure it is not an unfavorable form, particularly when it comes to the performance bond.

Default and Termination –> What is the default procedure? Is there a reasonable cure period? What forms the basis of a default and then a termination for default? Is there a termination for convenience provision and, if so, is there a termination for convenience fee?

Warranty Period –> When does the warranty period begin? Is there a specific warranty procedure?

Retainage –> What is the percentage of withheld retainage and does the percentage reduce after 50% completion? When is retainage released?

Lien/Payment Bond Rights –> Do you have construction lien rights or rights against the contractor’s payment bond? Do you need information, such as the notice of commencement, to make sure you timely preserve your rights?

Pay-When-Paid –> Does the subcontract include a pay-when-paid provision? It probably does which reinforces why you need to know on the frontend whether you have construction lien or payment bond rights.

SUBCONTRACT SHOULD FLOW DOWN DELAY CAUSED BY SUBCONTRACTORS

Posted on November 21, 2020November 21, 2020 by Edward Garber

A general contractor’s subcontract with its subcontractor should include a provision that entitles it to flow down liquidated damages assessed by the owner stemming from delays caused by the subcontractor. Such a provision does not mean the general contractor does not have to prove delays caused by the subcontractor or can arbitrarily allocate the amount or days it claims the subcontractor is liable. The general contractor still will need to reasonably establish the delays the subcontractor caused the critical path of the schedule, i.e., delayed the job. In addition to the right to flow down liquidated damages, the subcontract should also entitle the general contractor to recover its actual extended general conditions caused by the subcontractor’s delays (regardless of whether the owner assesses liquidated damages). The objective is that if the subcontractor delays the job, the subcontractor is liable for liquidated damages the general contractor is liable to the owner for in addition to the general contractor’s own delay damages. This is an important subcontractual provision so that the risk of delay caused by subcontractors is clearly flowed down to them in the subcontract.

In a 1987 case, Hall Construction Co., Inc. v. Beynon, 507 So.2d 1225 (Fla. 5^th DCA 1987), the subcontract at-issue contained language that stated, “The parties hereto agree that a supplier who delays performance beyond the time agreed upon in this Purchase Order shall have caused [general contractor] liquidated damages in the amount required of [general contractor] by their contract per day for each day such delay continues which sum the supplier hereby agrees to pay.”

The general contractor was liable to the owner for liquidated damages in the amount of $1,000/day and settled the liquidated damages assessment with the owner for the amount of $20,000 (which was a reduction from a $60,000+ exposure for 60+ days of delay). The general contractor looked to apportion the liquidated damages to subcontractors it claimed was liable for the delay. The subcontractor at-issue disputed its apportionment; therefore, the general contractor sought ALL of its delay damages caused by the subcontractor for the full amount of the 60+ day delay period. The appellate court held that while the subcontract could be clearer, it was still unambiguous that the general contractor could ONLY recover liquidated damages because that is all that contract afforded:

Liquidated damages is a fictitious contractual amount which the parties agree will be paid for breach if damages are not readily ascertainable at the time the contract is drawn. Although the [general contractor] maintains that it is entitled to liquidated damages as well as actual damages suffered as a result of the delay, we find that the parol evidence rule precludes such a finding.

***

Had the general contractor been aware of the parol evidence rule, a different contract may have been provided. For example, a contract with one paragraph for indemnification of all liquidated, or other, damages paid by the general to the owner and another paragraph for payment of other actual, consequential damages suffered by the general as a result of the delay caused by the sub.

Hall Construction Co., 507 So.2d at 1226-27.

ATTORNEY’S FEES ENTITLEMENT AND APPLICATION UNDER SUBCONTRACT DEAULT PROVISION

Posted on April 10, 2019April 24, 2020 by Edward Garber

Many subcontracts contain a provision in the default section that reads something to the effect:

“Upon any default, Subcontractor shall pay to Contractor its attorney’s fees and court costs incurred in enforcing this Subcontract or seeking any remedies hereunder.”

Oftentimes, a party may wonder as to the enforceability of the provision and how it is applied in the context of a dispute between a contractor and its subcontractor where both parties have asserted claims against the other.

In an opinion out of the Middle District of Georgia, U.S. f/u/b/o Cleveland Construction, Inc. v. Stellar Group, Inc., 2019 WL 338887 (M.D.Ga. 2019), a subcontractor and prime contractor on a federal construction project each asserted claims against the other in the approximate amount of $4 Million, meaning there was a potential $8 Million swing in the dispute.

The subcontract contained a provision entitling the contractor to recover attorney’s fees incurred in enforcing the subcontract or seeking remedies under the subcontract upon any default, identical to the provision above.

The case proceeded to a jury trial and a general verdict form was presented to the jury that did not differentiate between the claims each party sought. The jury found the contractor was liable to the subcontractor for approximately $2.5 Million and the subcontractor was liable to the contractor for approximately $1.3 Million, leaving a net verdict in favor of the subcontractor for approximately $1.2 Million.

The contractor, however, sought its attorney’s fees (and costs) pursuant to the default provision since the jury found the subcontractor was liable to it for approximately $1.3 Million. The subcontract provided that upon a default, the contractor is entitled to attorney’s fees incurred in (i) enforcing the subcontract or (ii) seeking remedies under the subcontract. But, to be entitled to fees, there had to be a subcontractor default.

The trial court found the subcontract was unclear as to the actual connection that needed to exist between the default and what is actually recoverable at trial. In other words, it was unclear whether there needed to be a relationship between the default and the recoverable attorney’s fees or whether the contractor could recover attorney’s fees upon any default regardless of whether the attorney’s fees incurred related to that specific default. The trial court did not interpret the default attorney’s fees provision that broadly and held the contractor must show a causal connection between the default, the enforcement of the subcontract or remedies sought under the subcontract, and the attorney’s fees incurred. “Under the [subcontract] enforcement prong, [Contractor] would be expected to show that the fees it incurred related to the successful pursuit of the claim for default. Similarly, under the remedies [sought under the subcontract] prong, [Contractor] would only be entitled to fees incurred in the actual obtaining of a remedy for [Subcontractor’s] default.” Stellar Group, 2019 WL at *2.

This is not an easy feat, and here lies the problem. Based on a general jury verdict form, the jury was not asked to make specific findings as to facts that could support the issues relating to the default or the claims prevailed on. Thus, allocating those attorneys’ fees incurred to the default and enforcement of the subcontract it prevailed on is taking a shot in the dark.

Notwithstanding, there are lessons learned from this case. First, the trial court did not find the attorney’s fees provision unenforceable even through the net judgment went in favor of the subcontractor. That is promising. Second, for purposes of a jury trial, had the contractor objected to a general verdict form and requested special interrogatories in the verdict form relating to this issue, the contractor may have been able to allocate certain attorney’s fees incurred to the claims or issues it prevailed on at trial. And, third — perhaps the most important — this subcontract language can be revisited to make the entitlement and application of attorney’s fees more clear in favor of the contractor. With that said, the trial court’s interpretation that the fees incurred should have a causal connection to the default and enforcement / remedies under the subcontract prevailed on is not an unreasonable application by any means.

GENERAL CONTRACTOR’S ABILITY TO SUPPLEMENT SUBCONTRACTOR PER SUBCONTRACT

Posted on June 23, 2018April 24, 2020 by Edward Garber

As a subcontractor, you need to appreciate that the subcontract you (more than likely) sign is going to have you bear risk associated with furnishing manpower to maintain the prime contractor’s schedule and progress. A subcontractor can factor some of this risk into the lump sum amount it agrees to in the subcontract. But, from the general/prime contractor’s perspective, it is very important that this risk is borne by the subcontractor because there is no such thing as a schedule written in stone. The baseline schedule, whether attached to the subcontract or not, will change. Activities will be re-sequenced. Activities will be added. Activities will overlap. Activity start dates and finish dates will change. It is the nature of construction. As a subcontractor, you know all of this because it is the same no matter the project. Schedules are never written in stone — they change on a regular basis.

The subcontract will include a number of provisions that address the schedule, the prime contractor’s discretion to adjust the schedule and supplement the work, and the subcontractor’s requirement to maintain progress. These are provisions that shift risk to the subcontractor including:

The subcontractor will furnish all manpower to complete its scope of work;
Time is of the essence with respect to the subcontractor’s performance of its work;
The prime contractor has the right to decide the time and order of various portions of the subcontractor’s work;
The subcontractor must prosecute its work in a prompt and diligent manner and at such times as the prime contractor directs;
The subcontractor must keep itself thoroughly informed as to the overall progress of the project;
The subcontractor must not delay, hinder, or interfere with the progress of the project;
The subcontractor must notify the prime contractor within “X” days after the occurrence of the circumstances giving rise to a change (or delay) or else waive such claim for additional time or compensation;
If the subcontractor fails to furnish sufficient manpower or prosecute the work with promptness and diligence, which is not corrected after “X” days after receiving notice, the prime contractor can declare the subcontractor in default, supplement the subcontractor, terminate the subcontract in whole or in part, and/or complete the subcontract work at the expense of the subcontractor;
The prime contractor can withhold payments if the subcontractor is unable to comply with subcontractual obligations, perform its work, or is delaying or is in reasonable danger of delaying the work; and
The subcontractor is required to indemnify the prime contractor for damages resulting from its breaches of the subcontract (which may be an indemnification provision separate from an indemnification for personal injury or property damage claims).

These types of provisions are crafted a number of different ways, are perhaps more onerously drafted, but the intent is the same relating to the subcontractor assuming risk and ensuring the prime contractor has recourse against the subcontractor associated with that risk. (An example of such risk-shifting provisions in a subcontract can be found here.) Again, these are important provisions for prime contractors to include in subcontracts. They are also important provisions for subcontractors to factor in the risk associated with the subcontract amount.

In a recent bench trial, MWH Constructors, Inc. v. Brown and Brown Electric, Inc., 2018 WL 2087687 (S.D.Fla. 2018), a prime contractor sued its electrical subcontractor for breach of subcontract and contractual indemnification associated with the subcontractor’s inability to maintain progress during the construction of a water treatment project. The subcontractor counter-sued for its contract balance. The subcontract at-issue contained all of the provisions discussed above.

During the subcontractor’s scope of work, its president and qualifier died. Thereafter, it began to fall behind schedule and was not furnishing sufficient manpower. There were numerous discussions between the prime contractor and subcontractor regarding the subcontractor’s inability to timely complete its work. It was discussed that the subcontractor needed additional manpower and needed to work on Saturdays to recover lost time. The subcontractor, however, was unable to abide by its commitments. Further meetings were held and notifications were sent to the subcontractor. The public owner notified the prime contractor the job was delayed, the electrical subcontractor was behind schedule, and was threatening to assess liquidated damages. Finally, after the subcontractor was unable to improve its progress, the prime contractor declared the subcontractor in default and supplemented its work with another electrical subcontractor and back-charged the subcontractor for such costs.

Due to the supplementation, the prime contractor paid the supplemental electrical subcontractor in excess of the defaulted subcontractor’s contract balance. The prime contractor also had to pay the defaulted subcontractor’s lower tiered subcontractors and suppliers because the defaulted subcontractor did not pay them (likely because it did not have the cash flow due to the prime contractor withholding contract balance).

The trial court entered judgment in favor of the prime contractor against the subcontractor finding that the prime contractor was justified supplementing the subcontractor in accordance with the numerous contractual provisions. The prime contractor put on evidence at trial supporting the justification in conjunction with its rights under the prime contract.

Of importance, the trial court was not going to rewrite the subcontract or the risks the subcontractor assumed in the subcontract:

Contracts are voluntary undertakings, and contracting parties are free to bargain for-and specify-the terms and conditions of their agreement. That freedom is a constitutionally protected right.

***

Thus, [i]t is not the function of the courts to rewrite a contract or interfere with the freedom of contract or substitute their judgment for that of the parties thereto in order to relieve one of the parties from the apparent hardship of an improvident bargain.

***

Rather, the court’s task is to apply the parties’ contract as-written, not rewrite it under the guise of judicial construction.

MWH Constructors, Inc., 2018 WL at *6 (internal citations and quotations omitted).

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

Posted on August 1, 2015November 8, 2024 by Edward Garber

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:

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.
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.
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.
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”]

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

Posted on May 31, 2015November 8, 2024 by Edward Garber

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.