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.
- 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.
- 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.
- 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.
- 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).
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