The New York Department of Transportation utilizes its administrative document, the Standard Specifications, to provide a compilation of standard requirements for construction contracts. These specifications are written to the contractor. They define the contractor’s responsibility in meeting each specification, enumerate the Department’s expectations and how it is going to measure and pay, and explain what the contractor is expected to provide¹.

Recently, the Department of Transportation released an Engineering Instruction, entitled Revisions to Standard Specifications: Section 100-Phase 7, which provides revisions and changes to Section 100 of the Standard Specifications, and consolidates all existing changes. These revisions apply to contracts submitted for bidding after January 9^th, 2014.

The adoption of the revisions to section 100 warrant the review of the Standard Specifications, as many of these revisions have altered the general terms for bidding construction contracts and contracting with the Department of Transportation. Section 104-01, Scope of Work, for example, has had language added to it which requires a contractor to commence its work within 14 days of being awarded a contract by the Office of the State Comptroller, unless written consent of the Department of Transportation is given to begin at a later date.

The addition of vendor responsibility, section 105-05, is another example of a new addition to the document. This section establishes that a contractor shall at all times during the contract term remain responsible, and that if requested by the Commissioner of Transportation, or his or her designee, the contractor agrees to present evidence of its continuing legal authority to do business in New York State, integrity, experience, ability, prior performance, and organizational and financial capacity. The section also reserves the right for the Commissioner to suspend any and all activities of a contractor at any time when he or she discovers information that calls into question the responsibility of the contractor, and establishes the proper course of action if this were to occur (including written notice, termination, etc.).

More examples of additions to the Standard Specifications include the addition of Marine Protection & Indemnity and Pollution Liability Insurance to the insurance requirements of section 107-6, the establishment of what costs are recoverable for a contractor under acceleration compensation, and when a contractor will be reimbursed for additional costs associated with acceleration directed by the Department of Transportation in writing.

Failure to account for changes to the Standard Specifications in new bids will subject a contractor to potential liability and/or contract termination. The changes highlighted above, along with others, have altered various aspects of how contracts with the Department of Transportation are handled, including deadlines, timeframes, and necessary insurance provisions/required clauses, among other things. The changes cannot be ignored, as they have a large impact on contractors bidding for, and working under contracts with the Department.²

¹ New York Department of Transportation, Standard Specifications (U.S. Customary Units) 3 (Jan. 9 2014).

² Anthony Ruggeri, a third year law student and law clerk with the firm, assisted with the preparation of this article.

Too often, due to timing constraints, “this is how we do business attitudes” or just bad practice contractors fail to obtain signed contracts, submit written invoices and deliver contractual or statutory notices. Unfortunately, this opens a contractor to unexpected liability. Two recent cases provide an excellent example of how crucial it is to follow proper procedure and document construction projects every step of the way. This is especially important in the context of limiting liability for personal injury claims and obtaining contractual indemnification.

In DiNovo v. Bat Con, Inc. (2014 NY.Slip.Op. 02989 [3rd Dept. 2014]) defendant, Bat Con, contracted with the County of Onondaga to perform emergency repairs to a municipal sewer in the Spring of 2008. Bat Con, subsequently, solicited subcontractors to perform a portion of the emergency repair work and accepted a proposal from PGC. PGC immediately began work at the project and in May, 2008 PGC’s employee was injured when a drill rig tipped over into an excavation trench. Barred from suing his employer PGC’s employee sued Bat Con alleging violations of the New York State Labor Law. Bat Con, in short order, answered and commenced a third-party action seeking contractual indemnification from PGC. Thereafter, PGC moved for summary judgment on the contractual indemnification claims. The trial Court denied summary judgment as to PGC.

At issue, was whether there was an express written agreement between Bat-Con and PGC with an indemnification provision. In support of PGC’s motion for summary judgment it was established that the parties had never worked together. Moreover, it was undisputed that PGC’s proposal which was submitted and accepted prior to the start of work briefly defined the work to be performed, the price, and other details of the project. The proposal included an attachment containing what PGC's president described as “standard” terms and conditions, including an indemnification provision expressly limiting PGC's responsibility to its own negligence. . It was also undisputed, that after both PGC began work and the alleged accident occurred, Bat Con forwarded a contract to PGC that contained an indemnification provision. PGC acknowledged receipt but maintained that it never accepted or signed the subcontract. Bat Con countered that PGC expressly accepted that contract by both performing the work and obtaining insurance certificates. The Appellate Division, was ultimately unpersuaded, and issued a ruling in favor of PGC dismissing all claims by Bat Con and awarding PGC the costs of the appeal.

Bat-Con failed to provide any evidence that PGC knew of the subcontract or acted in conformity with it… Bat Con is stuck paying the costs of PGC’s appeal and the continuing costs and attorneys’ fees associated with defending the injured employee’s lawsuit.

Properly drafting and executing construction contracts can prevent situations like Bat Con. It is important to ensure that contracts are executed and insurance and indemnification are in place prior to permitting the commencement of any work…

By: Rick Ward, Law Clerk, 3rd year law student at Pace Law School

Edited by: Thomas S. Tripodianos, Partner

The specific language of a performance bond can cause the limitations period for claims against the bond to run before the full contract amount is paid. In City of Yonkers v 58A JVD Indus., Ltd., the second department found that the performance bond claim accrued when final payment on a contract had been made, even though 1% of the contract price was still unpaid to the contractor. The City’s claim was dismissed.

In April of 2007, Yonkers contracted with JVD to perform the concrete and related work for its project, the McLean Avenue Streetscape Improvement Program. The contract required JVD to secure a performance bond in favor of the City, which it executed along with the Colonial Surety Company. The specific language of the bond included a limitation that claims on the bond must be made within two years after the date of Final Payment under the contract. JVD agreed to hold Colonial harmless for any claim arising out of the performance bond.

In October of 2007, the City notified JVD that several loads of concrete supplied for the project fell short of the contractual specifications. Notwithstanding this notification, in October of 2008 the city issued a certification that JVD was entitled to 80% of the retainage on the contract, and paid JVD accordingly.  By the terms of the construction agreement this was defined as final payment. The unpaid 20% of the retainage was withheld as security for faithful performance of JVD’s obligation pursuant to the terms of the contract. In March of 2009, the City informed JVD that portions of the project had rapidly and prematurely deteriorated and that the contract required JVD to repair, replace, restore or rebuild the affected areas. JVD failed to do so and the City filed a claim with Colonial, which Colonial rejected. In January of 2013, the city commenced an action against JVD and Colonial for breach of contract. JVD, as indemnitor of Colonial, moved to dismiss the action against Colonial on the ground that it was time-barred by the language of the bond.

The Supreme Court of New York initially denied the motion agreeing with the City that the limitations period did not begin to run until payment of the remaining 1% of the contract. However, on appeal, the Second Department reversed that determination. It found that two sections of Article 28 of the contract, when read together, establish that Final Payment under the contract occurred upon the City’s certification of the work as complete and tender of payment thereon. It also found that the October 2008 certification and payment indisputably met the contract definition of final payment, even though 1% of the contract price was still retained by the city pursuant to the security provision of the contract. Since the City brought its claim against the Surety more than four years later in January of 2013, the court dismissed the City’s claim.

Practice Tip: Contracting parties utilizing performance bonds must pay close attention to the detailed language of the bond and the contract, especially when dealing with time limiting language on a bond that incorporates a term defined by the underlying contract.

On January 15, 2014, the Supreme Court issued a decision holding that a lien is not timely filed if a lienor performs supervision within eight months prior to the filing of a lien, but there is no construction for the improvement of the property during that time.[1]

In 8th Ave. Recoveries Corp. v 111 Stellar 8 Owner, LLC,[2] the plaintiff sought to foreclose on a mechanic’s lien that had been assigned to it by a general contractor after it was filed on filed on February 2, 2011.  The contract between the owner and the general contractor required the general contractor to ensure that the site was safe.  The owner established that the general contractor did not perfom any construction work for the improvement of the property after April of 2010.  However, the general contractor’s employee testified that in his role as “construction supervisor,” he had continued to go to the project site everyday between April and November of 2010 and spent the full day there.  His duties consisted of “walking around and looking at the Property.”  The general contractor had not billed for these services in its final requisition for payment, including retainage, which was dated September 2, 2010 for the period through March 26, 2010.  However, the general contractor maintained that the supervisory services were the basis for the timely filing of the lien.

After discovery was completed, the owner successfully moved for summary judgment to dismiss the complaint and vacate the lien on the basis that it was not timely filed.  The Court found that “[w]hile supervision of construction work may be the basis of a lien, where the property is not being improved, there is nothing to supervise and thus no basis for a lien.”  The decision was based upon prior case law where valid claims for supervision had been for construction work that improved the property.  The owner’s counterclaim for wilfull exaggeration of the lien was also dismissed because such a claim was precluded where the lien was found to be invalid for any other reason other than wilfull exaggeration.

Based on this decision, potential lienors should ensure that they file their liens within eight months after they have completed construction for the improvement of the property, even if they provide supervisory services at the site after they have completed construction pursuant to their contract.  Furthermore, assignees should investigate the validity of a lien before accepting its assignment. 

Construction project owners usually draft contracts that require their direct contractors and their subcontractors and their suppliers to name the owner and the owner’s lenders as additional insureds in their general liability policies. When that does not happen, or when sufficient attention is not paid to the details of what is provided by lower tier subcontractors and suppliers when they arrive at the project site, upstream contractors and owners could find themselves without insurance they thought they had bargained for.  Whether such coverage is in place depends upon what is stated in the lower tier subcontractor’s or supplier’s insurance policy. 

In a recently reported case an owner hired a general contractor, who in turn hired a subcontractor, who in turn purchased concrete from a supplier.  When one of the supplier’s workers was injured, the worker sued upstream from the supplier, including the owner.  The owner demanded that the supplier’s insurance company defend and indemnify him. The supplier’s insurance company refused, so the owner commenced a declaratory judgment action against the subcontractor and its concrete supplier’s insurance company, seeking to have the lower court declare that the supplier’s insurance company must provide liability coverage to the owner as an additional insured.  The insurance company moved to dismiss the action and lost, so it appealed to the Appellate Division, First Department.

The supplier’s insurance policy provided that an organization is added as an additional insured:  

“when you (supplier) and such … organization have agreed in writing in a contract or agreement that such … organization be added as an additional insured on your policy.”

The supplier’s insurance company argued to the appellate court that because there was no written agreement between the owner and the supplier requiring that the owner be added as an additional insured to the supplier’s insurance policy, the policy did not require the insurance company to provide liability coverage to the owner.

The owner pointed out that the supplier’s insurance policy contained a provision with the following title:  

Additional Insured – Owners, Lessees or Contractors – Automatic status when required in construction agreement with you.

This, the owner argued, automatically made the owner an additional insured because the supplier and the subcontractor had previously entered into a purchase order for the concrete, in which the supplier agreed to “assume all the obligations and risks which … (the subcontractor) assumed towards (the owner)”. 

The appellate court was not persuaded, however, saying that the owner’s reliance on a title of an insurance policy provision, “cannot alter … the effect of the unambiguous language in the body of the clause itself”, which required a written agreement between the supplier and the owner requiring the supplier to name the owner as an additional insured on the supplier’s insurance policy.

The appellate court also rejected the owner’s argument that the incorporation by reference language in the subcontractor/supplier purchase order established the written agreement between the owner and supplier to name the owner as an additional insured.  The court said such a reading required the court to read terms into the policy that does not exist.  The supplier’s insurance policy did not say that there only be some writing. Rather, it said that there must be a written contract between the supplier and the owner requiring the supplier to include the owner as an additional insured. 

Because, such a contract does not exist here, the supplier’s insurance company is not obligated to provide insurance coverage for the owner.

Situations such as the one the owner found itself in here can be avoided by proper drafting of insurance provisions, including flow-down requirements, and, equally important, by verifying that those provisions are followed before access to the project site is granted by the owner to contractors, subcontractors and suppliers.