Claims for unlawful or tortious interference with contracts arise when a third party intentionally interferes with a contractual relationship and causes a party to lose the economic benefit of the contract. For example, unlawful interference may occur when a contractor intentionally induces an owner or developer to terminate its contract with a competing contractor.

In the recent case of Chenango Contracting, Inc. v Hughes Associates, a subcontractor sued a consultant to a State University project for tortious interference with the contractual relationship between the subcontractor and its prime contractor, and for wrongful interference with prospective business on other projects on the ground that the consultant intentionally manipulated the bid process.

Background

Chenango Contracting is an installer of artificial athletic turf. Chenango was retained by Adhan Piping Company, SUNY Cortland’s prime contractor, to install artificial turf at the Cortland campus. Chenango generally uses a product called FieldTurf for such projects. Chenango also sought to submit bids to install artificial turf at two other projects, one at SUNY Brockport and the other at the Niagara Falls City School District.

A competitor of FieldTurf in the artificial turf installation business is A-Turf. Hughes was retained as a consultant by SUNY to, among other things, prepare and review bid specifications for the installation of an artificial turf field at the Cortland campus. The bid specifications prepared by Hughes required A-Turf “or approved equal”. Hughes was subsequently retained as the design consultant for the Brockport and Niagara Falls projects, and Hughes again presented bid specifications which required A-Turf “or approved equal” and were tailored to favor the A-Turf product.

Chenango submitted several samples of FieldTurf to Hughes for use as an “approved equal” on the Cortland project. Hughes, however, rejected all non A-Turf samples and, as a result, Adhan terminated Chenango’s subcontract for the Cortland project (and used the A-Turf at the Cortland campus). Subsequently, A-Turf was also utilized for the Brockport and Niagara Falls projects.

Chenango sued Hughes for tortious interference with contract as to the SUNY Cortland project, and for tortious interference with prospective business as to the Brockport and Niagara Falls projects. Chenango claimed, among many others, that FieldTurf is used at numerous professional and collegiate sports facilities, and that Chenango has installed the product at a long list of major colleges and universities, as well as high schools. Chenango also claimed that Hughes was in contact with A-Turf and plotted ways to favor A-Turf while excluding Chenango and other competitors.

In furtherance of Hughes’ plan to favor A-Turf, Chenango claimed that Hughes misrepresented and/or withheld information from SUNY Cortland and other public entities in an effort to undermine Chenango and ensure that A-Turf was used on the Cortland project. As to the Brockport and Niagara Falls projects, Chenango claimed that, in collusion with A-Turf, Hughes crafted specifications to mirror A-Turf's proprietary product so as to eliminate all competitors.

Hughes moved to dismiss Chenango’s lawsuit, arguing that Chenango’s remedy was to sue SUNY in an Article 78 proceeding, rather than sue the consultant.

Decision

The court denied Hughes’ motion to dismiss Chenango’s claim, finding that the laws requiring competitive bidding were designed to benefit taxpayers rather than corporate bidders and, therefore, should be construed and administered with sole reference to the public interest. While noting that an Article 78 proceeding against a public entity is generally the remedy for a violation of the competitive bidding statutes, it acknowledged that a narrow exception may exist where a plaintiff does not seek relief from the public entity, but brings an action directly against someone working on behalf of the public entity engaged in egregious conduct unknown to the public entity aimed at intentionally subverting a bid process. Accordingly, the Court held that Chenango’s claim against the consultant for restricting competition to artificial turf manufactured by A-Turf could be part of a claim recognized under the narrow exception.

Comment

New York’s competitive bidding statutes are violated when the bid specifications preclude true competitive bidding. Specifications may not be manipulated so as to shut out competitive bidding or permit unfair advantage or favoritism. In this case, if proven at trial, the SUNY consultant acted in bad faith by refusing to allow Chenango’s “or equal” artificial turf product to be used at the SUNY Cortland project without justification. Normally, the public entity is sued in an Article 78 proceeding when it is claimed that the specifications were drawn to favor a particular manufacturer. However, SUNY had no knowledge of the consultant’s manipulation of the bid process to favor a particular manufacturer. Specifications for public projects are illegal when they are drawn not for any reason in the public interest but, rather, to insure the award of the contract to a particular manufacturer.

Where an unpaid subcontractor is unable to recover from its contractor, the subcontractor sometimes seeks to recover from the owner based on the legal theory of unjust enrichment. This equitable remedy is typically invoked to prevent an owner from being unjustly enriched at the subcontractor’s expense.

In the construction litigation context, however, the owner’s liability to a subcontractor under an unjust enrichment theory is dependent on the owner’s agreement to pay the subcontractor or other circumstances giving rise to such an obligation, as recently shown in the case of Sears Ready Mix v Lighthouse Marina, Inc.

Background

Sears Ready Mix was retained by VMA Concrete Construction to pour concrete for VMA at a premises owned by defendant Pierro-Gallasso. VMA had been retained to perform its concrete work by Pierro-Gallasso’s tenants, defendants Lighthouse Marina and Larry’s Lighthouse. VMA apparently become insolvent prior to making full payment to Sears Ready Mix.

Sears Ready Mix commenced a lawsuit against VMA, the owner and the Lighthouse tenants to recover under the theory of unjust enrichment. VMA failed to respond to the lawsuit and a default was taken against it. Sears Ready Mix’s claim against Pierro-Gallasso and the Lighthouse tenants claimed that they benefitted from Sears Ready Mix’s work and were unjustly enriched as a result of VMA’s failure to remit full payment. The owner and the tenants moved to dismiss the unjust enrichment claim, arguing that they could not be held liable when Sears Ready Mix’s contract was with VMA. Sears Ready Mix acknowledged the general law prohibiting a subcontractor from recovering from the owner, but claimed that it should receive payment notwithstanding because the Lighthouse tenants knew about, and acquiesced to Sears Ready Mix’s work. Sears Ready Mix also claimed that the Lighthouse tenants were interested in settling VMA’s debt to Sears Ready Mix, thus assuming VMA’s obligation.

Decision

The trial court dismissed Sears Ready Mix’s unjust enrichment claim, and the appellate court affirmed that decision. In doing so, the appellate court noted the settled law that a property owner who contracts with a general contractor does not become liable to a subcontractor on an unjust enrichment theory unless it can be demonstrated that the owner consented to pay for the subcontractor’s work. The mere fact that the owner and tenants received some benefit from Sears Ready Mix’s work was insufficient to recover on the unjust enrichment theory because Sears Ready Mix also failed to show that it was working for the owner and tenants when it performed its work.

Comment

This case shows how difficult it is for a subcontractor to recover from the owner under a theory of unjust enrichment. It is not enough to simply state that the owner received a benefit from the subcontractor’s work. The subcontractor must also prove that the owner in some way expressed a willingness to pay for the subcontractor’s work or otherwise assumed an obligation to pay for that work.

New York’s Labor Law requires an employer to pay legally required wages to its employees. Whether a person or entity is an “employer” within the meaning of the Labor Law is a fact-specific inquiry. In the recent case of Matter of Exceed Construction Corp. v Industrial Board of Appeals, an appellate court addressed the issue of whether a subcontractor can be considered an “employer” of the employees of its sub-subcontractor and, thus, liable for unpaid wages due to these workers.

Background

Exceed Construction, a drywall subcontractor on a Manhattan construction site, signed a sub-subcontract with an individual named Rodriguez under which Exceed sub-subcontracted to Rodriguez its entire scope of work under its own subcontract with the project’s general contractor. Despite the sub-subcontract, Exceed’s vice-president, an individual named Correa, set the hours of Rodriguez’s workers and directed them to modify their hours by appearing for work earlier than they had been doing. Rodriguez followed Correa’s orders by reassigning his workers to sites located in Brooklyn and Long Island on certain days of the week while continuing to work at the Manhattan site on other days. Correa also supervised Rodruguez’s workers at the Brooklyn and Long Island sites closely—but not the Manhattan site. Correa also transported one of these workers to the Long Island site.

Ultimately, six of Rodriguez’s employees filed claims with the Department of Labor for unpaid wages for work performed on the project. The Department of Labor sought to recover the unpaid wages from Exceed, as the employer. A hearing was held on the issue of whether Exceed was, in fact, the “employer” of these workers, as defined under New York’s Labor Law.

Decision

The Industrial Board of Appeals determined after the hearing that Exceed, and not Rodriguez, was the “employer” within the meaning of Labor Law §190(3). In doing so, the IBA held that the facts established that Rodriguez was effectively a foreman or agent of Exceed, and not an independent sub-subcontractor. In affirming the decision of the IBA, the appellate court noted that it was not determinative that Exceed’s vice-president did not supervise the manner of the employees’ work at the jobsite or that the workers had been paid by Rodriguez, and not Exceed. There was substantial evidence in the record, however, which showed that Exceed exercised its power to control the workers in question. This evidence was sufficient to support the IBA’s determination that Exceed was the true employer of the workers.

Comment

Here, the Exceed court affirmed the IBA’s holding that, under these facts, the employer/employee relationship was between the subcontractor and the workers, and not the purported sub-subcontractor. The testimony of the workers during the IBA hearing demonstrated that Exceed had the power to—and did—control significant parts of the workers’ employment. Exceed set the workers’ hours and work schedules, reassigned the workers to other jobsites, and closely supervised their work at those sites.

While every contractor needs to maintain supervision of its subcontractors—after all, the contractor will be held liable to the owner if there is any issue with the work performed on behalf of that contractor—contractors would be well advised to respect the boundaries of their subcontracts and not directly control the workplace conditions of the subcontractors’ workers. As the Exceed court demonstrated, it is possible to turn your subcontractor’s workers into your own for wage liability purposes where you exercise a large degree of power to control the workers’ conditions of employment. Allowing your subcontractor to direct and control its own workers is crucial in avoiding wage liability as a putative “employer” under the Labor Law.

One of the most effective ways to protect an owner from mechanic’s liens is to require the general contractor and its subcontractors to sign waivers of lien as a condition to receiving payment. There are normally two types of lien waivers. One is a partial lien waiver submitted for a progress payment, which waives a contractor’s right to file a lien for work performed up to the date specified in the lien waiver. The other is a final lien waiver submitted for final payment after the project is completed. The final lien waiver means that the contractor is being paid in full and waives its right to file a lien against the project.

In the recent case of Beys Specialty, Inc. v Euro Construction Services, Inc., the appellate court addressed the enforceability of lien waivers signed by a subcontractor.

Background

In early 2010, the New York City Housing Authority (NYCHA) retained STV Construction, Inc. to perform construction management services in connection with a certain project. In March of 2010, STV entered into a written agreement with Beys under which Beys was to perform certain construction work at the Project. Beys, in turn, entered into a subcontract with Euro pursuant to which Euro agreed to perform Beys’ concrete and masonry scope of the work. The subcontract provided that Euro was to receive partial payments during the course of its work, but Euro was required to submit a signed lien waiver acknowledging that it had been paid all amounts claimed up to the specified date in the lien waiver. During the project, Euro executed a total of nine such lien waivers.

Euro’s subcontract also provided that Euro’s scheduled quantities may be adjusted based on actual conditions, and that the partial payments made under the contract were subject to adjustment. Beys ultimately adjusted Euro’s scheduled quantities based on adjustments STV made to its own contract. As a result of the adjustments, Beys alleged that Euro had been overpaid by $1,162,941. Beys commenced a lawsuit against Euro to recover this overpayment. Euro filed a mechanic’s lien for the amounts not paid by Beys and asserted a counterclaim in Beys’ lawsuit seeking to foreclose its lien. Beys moved to dismiss Euro’s lien foreclosure claim, arguing that the claim was barred as a result of the lien waivers Euro had signed during the project.

Decision

The appellate court found that, based on the unambiguous language of the lien waivers, Euro had waived and released any claims it had against Beys up through December 29, 2011, the date of the final lien waiver. In addition, because there was no evidence that Euro performed any work after that date, the court held that it had no claim which would support the filing of a mechanic’s lien. Accordingly, the court dismissed Euro’s lien foreclosure counterclaim.

Comment

Here, the Beys court applied well settled case law to hold that the clear language of a lien waiver and release will bar a contractor from later making a claim to recover for work performed prior to the date specified in the lien waiver.

Because owners require lien waivers to be submitted prior to releasing payment, contractors would be well advised to make sure that the amount to be paid is correct and the date specified in the lien waiver matches the period of work for which the contractor is seeking payment.

The majority of cases concerning abandonment of work on a project is because of a dispute over nonpayment. A contractor or a subcontractor has the right to stop work for nonpayment if there is a significant delay in making progress payments. Recovery may be denied, however, where the contractor fails to comply with the provision in a contract requiring that the contractor give written notice of its intention to cease performing work on the jobsite

In the recent case of U.W. Marx, Inc. v Koko Contracting, Inc., the court addressed the question of whether a subcontractor is precluded from recovery because it stopped work on the project without complying with the contractual provision regarding notice of its suspension of work for nonpayment.

Background

U.W. Marx, Inc. was the general contractor on a school construction project. Marx entered into a subcontract with Koko Contracting, Inc. for the roofing work. The contract contained the following provision:

"If the Contractor does not pay the Subcontractor through no fault of the Subcontractor, within seven days from the time payment should be made as provided in this Agreement, the Subcontractor may, without prejudice to any other available remedies, upon seven additional days' written notice to the Contractor, stop the [w]ork of this Subcontract until payment of the amount owing has been received. The Subcontract Sum shall, by appropriate adjustment, be increased by the amount of the Subcontractor's reasonable costs of demobilization, delay and remobilization."

During the project, Koko remained unpaid for three months despite repeated demands for payment. On October 31, 2007, Koko ceased work on the jobsite. On November 3, 2007, Marx sent a letter to Koko giving it three days’ notice to cure its default in, among other things, failing to staff the job. Three days later, Koko belatedly provided Marx with the contractually required seven days’ written notice of its suspension of work based on nonpayment. Marx ultimately declared Koko in default, terminated the contract based on Koko’s removal of its workers and commenced a lawsuit to hold Koko liable for the claimed default. Koko countersued for the amounts which Marx failed to pay under the contract. After a trial, the court found that Marx’s justifications for withholding payment were unsupported, and that Koko was entitled to payment. Marx appealed.

Decision

On appeal, Marx did not argue that it was justified in withholding payment. Rather, Marx argued that the subcontractor was precluded from recovering on its counterclaim because it failed to give the required seven days’ written notice before removing its workers from the project. The court found that Koko indeed failed to comply with the written notice provision. However, in affirming the trial court’s judgment in favor of Koko, the appellate court held that Marx’s own breach of the contract by failing to make three successive progress payments without justification excused Koko’s strict compliance with the notice provision. As stated by the court, “Marx cannot preclude Koko from recovering for Marx’s material breach of the contract by relying on Koko's subsequent failure to comply with a clause that inures to Koko’s benefit.”

As for Marx’s argument that excusing Koko’s compliance with the notice provision based on its own failure to pay would render the notice provision meaningless, the court noted that the language of the notice provision is designed to protect the subcontractor and to compensate it if it has to stop work for nonpayment and then remobilize. In light of the language of the notice provision, however, the court held that Koko’s failure to comply would preclude it from recovering remobilization costs if it resumed work. Nevertheless, because of Marx’s own breach of contract for nonpayment, Marx could not use Koko’s failure to give written notice as a shield to insulate itself from the effects of Marx’s breach of contract.

Comment

The court in this case applied well settled case law to find that Marx’s prior breach of the contract excused Koko from compliance with the notice of suspension of work provisions of the contract.

While no subcontractor can tolerate continuing to work in the absence of payment, the subcontractor would be well advised to nevertheless follow the contractual notice provisions—and be certain that there is no justification for withholding payment before removing its workers from the jobsite. Only then will the court find, as in this case, that the subcontractor was justified in removing its workers from the jobsite for nonpayment.  

Construction delay claims are one of the most common causes of construction litigation. Delays can have devastating economic effects on both owners and contractors. Owners seek to protect themselves from paying damages for delays on a project by including a “no-damages-for-delay” cause in the construction contract. This provision is enforceable by the courts.

New York courts have recognized certain exceptions to the enforcement of a no-damages-for-delay clause. The exceptions are: (1) delays caused by bad faith or willful, malicious or grossly negligent conduct; (2) uncontemplated delays; (3) delays so unreasonable that they constitute an intentional abandonment of the contract; and (4) delays resulting from the breach of a fundamental obligation of the contract.

The recent case of Advanced Automatic Sprinkler Co., Inc. v Seaboard Surety Co., a court ruled on the enforceability of a no-damages-for-delay clause where there was a 22 month delay.

Background

In June of 2001, Dart Mechanical Corporation, a prime HVAC contractor, entered into a contract with the New York City Department of Sanitation to refurbish two separate garages in Brooklyn. Thereafter, in June of 2002, Advanced Automatic Sprinkler Co., Inc. entered into a subcontract with Dart to install automatic sprinkler systems in the two garages. The subcontract contained a no-damages-for-delay clause which provided that Dart would not be liable to Advanced for any damages “resulting from delays, accelerations, inefficiencies, variations in the scope, schedule or sequence of the WORK”. The contract also provided that “DART shall have the right, at any time …. to modify progress schedules to accelerate, delay or vary any sequence of the WORK, in whole or in part”. It was not disputed that the entire project, including Advanced’s scope of work, was delayed by 22 months because: the owner failed to eject the previous owner, who held over in possession of the property; contaminated soil was encountered; the electrical contractor failed to perform its own scope of work; and the owner’s engineers made design errors in the sprinkler system Advanced was to have installed.

Advanced commenced a lawsuit against Dart’s payment bond surety, Seaboard Surety Company, to recover damages for the delay. Seaboard moved for summary judgment arguing, in part, that the no-damages-for-delay clause barred the delay claim because the delays were contemplated by the parties at the time the subcontract was entered into and they were referenced in the subcontract.

Decision

The court agreed with Seaboard and dismissed Advanced’s delay claim. In doing so, the court found that “the categories of delay alleged in the complaint—denial of access to the Project site, flawed design, failure to adhere to or properly coordinate the progress schedule, delays due to the work of another (the electrical) prime contractor—are all delays within the scope of the contractual provisions.” The court further distinguished cases in which other courts denied enforceability of the no-damages-for-delay clause by noting that the contracts in the distinguishable cases did not have language which was as broad and comprehensive as the language contained in the Dart-Advanced subcontract.

Comment

Here, the court once again reminds us that the exceptions to the enforceability of a no-damages-for-delay clause are extremely limited—particularly where the clause is comprehensive and sets forth a list of situations where a delay is contemplated. Given that each case is necessarily limited to its own facts, it is important to consult with an attorney early in the process so that the claim can be properly analyzed and documented. In doing so, it may be possible to avoid the result suffered by Advanced.

Contractors are well-advised to familiarize themselves with the various time limitations periods in their construction contracts, including those setting forth the time within which to bring a claim for delay damages. At times the limitations period can be short. Questions also arise as to when the limitations period begins to run and whether the owner has waived its right to enforce the contractual limitations period.

In the recent case of Dart Mechanical Corp. v City of New York, an appellate court upheld the enforcement of a six-month time limitations period and resolved the questions of when the delay claim accrued and whether the public owner’s conduct showed an intent to waive the contractual limitations period.

Background

In June of 2001, Dart was awarded a contract for the installation of HVAC systems for the New York City Department of Sanitation. Under the original project schedule, Dart was to have commenced its work on February 21, 2002 and be substantially complete by December 29, 2004. The contract allowed Dart to apply for an extension of time to complete performance; otherwise, failure to meet the project deadlines would leave Dart subject to liquidated damages.

The contract further required Dart to submit to the Commissioner of Sanitation a detailed verified statement of a delay claim within 45 days of the damages resulting from the delay, and to continue to supply such statements every 30 days thereafter “for as long as such damages are incurred”. Any claim for breach of contract not otherwise subject to one of the dispute resolution procedures had to be commenced within six months of the issuance of the certificate of substantial completion, unless it arose out of events occurring after that date.

Although Dart was supposed to commence its work on February 21, 2002, for various reasons it was not given full access to the site until March of 2003. Further delay was occasioned by problems with the electrical work and the fire alarm system. As a result, Dart was not substantially complete until December 6, 2007, 952 days after the originally scheduled completion date. Dart claimed delay damages of $2,598,843.

In March of 2010, Dart submitted its substantial completion payment requisition, together with a time extension request and a particularized statement of its delay damages claim. The City denied the delay claim, claiming that it had not been preserved under the Contract’s notice provisions. The City ultimately approved Dart's payment requisition for substantial completion in early February 2011. Dart commenced this action more than a year later, on March 30, 2012, and sought compensation for the damages it incurred as a result of the project’s delay. The trial court dismissed Dart’s lawsuit for Dart’s failure to file the delay claim within the six month time limit required under the contract. Dart appealed.

Decision

Dart argued that the claim was timely because the City did not finish processing its substantial completion payment requisition until early 2011 and no suit could have been brought prior to that time because it would not have been ripe. Dart also claimed that the City’s request for additional information relating to the substantial completion payment application without requesting more information relating to the delay claim operated as a waiver of its objection to the timeliness of the delay claim.

The appellate court rejected both arguments, first noting that the six month limitations period was not unreasonably short. On the question of the time limits within which to bring the claim, the appellate court held that the period to submit the delay claim began to run upon the engineer’s issuance of the certificate of substantial completion. Further, as the claim for payment and the claim for delay damages were separate, the limitations period for the delay claim did not conflict with the limitations period for a payment claim and Dart could have submitted its delay claim to the City prior to its substantial completion payment application.

As to the waiver argument, the appellate court relied on well-established law that a waiver must be supported by evidence of a clear manifestation of an intent to relinquish rights under the contract. There was no such clear manifestation by the City under the circumstances of this case.  

Comment

The courts continue to enforce agreed-upon contractual time limitations. Contractors should provide notices as soon as they have information relating to potential claims, rather than wait for all of the information to fall in line. An early claim submission can always be supplemented with additional information as it becomes available. A late claim, however, is dead on arrival and cannot be resurrected.

Many large construction contracts contain a liquidated or stipulated damages provision which provides a specific dollar amount to be assessed for each day of delay in the completion of the project. A liquidated damages clause may be included in prime contracts, subcontracts and material supply contracts.

Courts, however, will not enforce a liquidated damages provision where the agreed upon amount is grossly disproportionate to the actual damages resulting from the delay. Whether the provision is a valid liquidated damages provision or an unenforceable penalty is sometimes difficult to determine.

In the recent case of Phoenix Construction, Inc. v 70^th Street Apartments Corp., the court addressed the enforceability of a clause providing for $250 to be assessed for each calendar day of delay.

Background

Phoenix was retained by 70^th Street Apartments to perform certain specified roofing and façade work. The contract provided that if the work was not fully completed within 120 days, “then a penalty equaling Two Hundred Fifty Dollars ($250.00) per calendar day will be imposed upon the contractor”. The contractor completed the work in 302 calendar days—182 days late.

The contractor was not paid the full amount of its work and filed a mechanic’s lien against the premises for $46,285.35 to secure its payment. The contractor thereafter started a lien foreclosure action. In response, the owner attempted to offset the amount owed by asserting a counterclaim seeking $45,500, which is the stipulated $250 daily amount assessed for each of the 182 days of delay.

The owner moved for summary judgment to discharge the contractor’s mechanic’s lien, dismiss its lien foreclosure action, and also to enforce the penalty provision based on the contractor’s delayed performance. In support of its motion, and in order to demonstrate that the contractor did not complete the job until well after the time frame set forth in the contract, the owner submitted a final waiver of lien and release of claims executed by the contractor after the 302^nd day of the project. The contractor opposed the owner’s motion, arguing that the delays were the owner’s fault, and that the provision—which was clearly labeled as a “penalty”—was unenforceable because the stipulated damages claimed did not rationally relate to the actual damages resulting from the delay. The contractor claimed that there were no extra costs incurred by the owner as a result of the delay because the architect, who oversaw and supervised the job, was paid on a flat-rate basis and, therefore, the owner would not have been liable for additional compensation to the architect for its extended supervision time. The contractor also noted that the owner submitted no evidence of other delay costs to justify the imposition of the stipulated amount of delay damages, but was simply relying on the fact that the project was completed late.

Decision

The court recognized that liquidated damages clauses are enforceable where the amount stipulated is a reasonable measure of the actual delay damages anticipated. The court ruled, however, that the provision here was an unenforceable penalty clause and not a valid liquidated damages provision. The owner even referred to the provision as one of a “penalty”. The court also pointed out that the contractual clause itself provides the term “penalty”.

The court also noted that the owner failed to offer any evidence of actual damages which would approximate or reasonably relate to the amount stipulated in the contract. Accordingly, the court dismissed the owner’s counterclaim, holding that such penalties are not enforceable and contrary to public policy. However, the contractor did not fare well either. The contractor’s claims were dismissed in light of the final waiver of lien and release of claims it signed and submitted to the owner.

Comment

Contractors who seek to include liquidated damages provisions in their downstream contracts would be well advised to attempt to reasonably forecast the measure of damages they would sustain in the event of an actual delay. The computation does not need scientific precision; it will be upheld so long it is “a reasonable measure of the anticipated probable harm”. If, however, the provision is inserted as a scare tactic to ensure timely performance or to impose punishment for late completion regardless of actual damage, it will be unenforceable.

New York courts generally enforce the no-damages-for-delay clauses found in many public work contracts and some private construction contracts. This provision prevents a contractor or subcontractor from recovering monetary damages for delays that occur on a construction project. However, there are certain exceptions to the enforceability of a no-damages-for-delay clause. One of the exceptions is where the delay was not contemplated by the parties at the time they entered into the contract.

In the recent case of N.J.D. Wiring & Electric, Inc. v M.A. Angeliades, Inc., the court denied the general contractor’s motion to dismiss the subcontractor’s delay claim, ruling that there was a triable issue as to whether the delay claim falls within the exception to the enforceability of a no-damages-for-delay clause.

Background

M.A. Angeliades, a prime contractor, entered into a contract with the New York City School Construction Authority to perform general construction work at a school in Brooklyn. On January 12, 2007, Angeliades entered into a subcontract with NJD Wiring and Electric whereby the subcontractor would perform the electrical scope of Angeliades’ work.  The subcontract required that NJD was to commence work on or about January 2007 and complete the work within 24 months.  The subcontract incorporated Angeliades’ prime contract and contained a standard no-damages-for-delay clause which prohibited monetary claims for delay and provided that the contractor would be fully compensated by an appropriate extension of time to complete the work.

NJD was prevented by no fault of its own from commencing work on the Project until eleven months after the expected start date.  According to NJD, the delays were caused by several factors which had absolutely nothing to do with NJD’s scope of work. NJD submitted the appropriate requests for an extension of time pursuant to its contract, but these requests were denied. Instead, Angeliades required NJD to complete its work in the remaining 13 months, which it did.  NJD thereafter incurred substantial additional expenses totaling $1,984,039 necessitated by its expedited completion of its work within the 13 month period.  The additional expenses included additional costs for labor wages, overtime and site supervision, extended general conditions and additional costs.

In April of 2008, Angeliades submitted a change order to the School Construction Authority seeking to recover its own acceleration costs as a result of the unforeseen delays, which was paid by the SCA.  In December of 2009, NJD submitted a request for equitable adjustment seeking payment for its acceleration costs.  NJD’s request was denied by the SCA on the grounds that all acceleration costs relating to the delay had already been paid to the prime contractor Angeliades under the April 2008 change order.

NJD commenced an action against Angeliades and its payment bond surety, for breach of the subcontract. Both Angeliades and the bond surety moved to dismiss NJD’s lawsuit, relying on the no-damages-for-delay clause in the subcontract.  NJD opposed the motion, arguing that the delays were uncontemplated as evidenced by the SCA’s payment to Angeliades for delay damages, notwithstanding the no-damages-for-delay clause in its own prime contract.

Decision

The court agreed with the subcontractor, finding that delays which were not foreseeable by the parties at the time of the contract are compensable even in the presence of a no-damages-for-delay clause, and that the issue of whether these delays were uncontemplated could not be determined without further pre-trial discovery.  The court noted, however,  that there was an identical no-damages-for-delay clause in Angeliades’ prime contract, for which Angeliades received compensation for its own delay costs, but Angeliades denies NJD damages for the same delay.  

Comment

In my Attorney’s Column of two months ago, I reported that New York City revised its standard contract to eliminate the no-damage-for-delay clause and allow claims against City agencies for delay and related costs under certain circumstances.  This case arose before the City eliminated the no-damage—for-delay provision.  Under the current revised City contract, it appears that the subcontractor would have satisfied the criteria for compensable delays.

A labor and material payment bond is a bond issued by a surety company to guarantee that the laborers, material suppliers and subcontractors on a project will be paid in full. In most cases, payment bonds are required by law on public construction projects. Private owners may also require contractors to furnish labor and material payment bonds.

In the recent case of Northeast Restoration Corp. v T. A. Ahern Contractors Corp., the court reaffirmed that claims for extra-contractual charges are not recoverable under a payment bond.

Background

In 2006, T. A. Ahern Contractors entered into a prime contract to perform certain construction work for the New York City School Construction Authority. The SCA required, and Ahern furnished, a labor and material payment bond in connection with Ahern’s work at the project. Ahern subcontracted out the window portion of its scope of work to Caliber Window, Inc., which, in turn, sub-subcontracted with Graham Architectural Products Corp. to fabricate the required windows. Ultimately, when Graham remained unpaid, it filed a mechanic’s lien against Ahern’s contract.

Plaintiff Northeast Restoration, another of Ahern’s subcontractors, commenced this action to, among other things, foreclose its own mechanic’s lien. Graham was named as a defendant because of its mechanic’s lien. In response to being included in Northeast’s lawsuit, Graham filed cross- and counter-claims seeking to foreclose its mechanic’s lien and to recover under Ahern’s labor and material payment bond. Included in Graham’s claim against Ahern’s bond were interest, storage fees and fuel surcharges arising from Ahern’s postponement of the delivery and installation of the windows it manufactured for the project. Graham moved for summary judgment on this claim.

Decision

The court originally granted summary judgment to Graham on the issue of liability. However, upon a motion to reargue, the court reversed itself and denied its motion. In doing so, the court held that the surety’s obligations under a labor and material payment bond are limited to those undertaken in the bond and the bonded prime contract. The prime contract here between the SCA and Ahern did not provide for the recovery of interest, fuel surcharges or storage fees. Accordingly, the court held that such items were not recoverable under the term of the payment bond.

Comment

Here, the court reinforced the settled case law that damages recoverable under labor and material payment bonds are limited to items expressly set forth in the bonded (prime) contract. This holding should serve to remind bond claimants to obtain copies of the payment bond and the prime contract so that they can become thoroughly familiar with the bond requirements and be aware of the type of claims that are recoverable under the terms of the bond.