At A Glance: Recently Awarded Projects

City of Oklahoma City Municipal Courts Building

The City of Oklahoma City Municipal Courts Building will be a new, 3-story, 67,000 square foot facility to replace the existing municipal court. The new $22 Million facility will include courtrooms, administrative offices, judges chambers, and public spaces/waiting areas.

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Pi Kappa Alpha’s New “Pike” House

The new “Pike” house will be located on the Oklahoma State University campus in Stillwater, and will replace Pi Kappa Alpha’s existing fraternity house. The build will include dormitory-style housing, club room and meeting spaces, dining facilities, and other commons areas. The project will be between $7 and $8 Million with construction beginning in Summer 2015.

Construction Claims Archive: Owner’s payment clause creates ambiguity for Pay-If-Paid

Owner’s payment clause creates
ambiguity for Pay-If-Paid

Int’l Eng’g Svs., Inc. v. Scherer Constr. & Eng’g of Cen. Fla., LLC,
2011 Fla. App. Lexis 16730 (Oct. 21, 2011)

A subcontractor prevailed on its claim that a pay-if- paid contract clause was ambiguous and therefore unenforceable.

International Engineering Services, Inc. (IES) was the structural steel sub on a project in Maitland, Florida. Although it completed all its obligations under the subcon- tract, it did not receive payment from the general contractor, Scherer Construction & Engineering (Scherer). Citing the subcontract’s pay-if-paid clauses, Scherer claimed that because it had not received payment from the project owner, its own obligation to pay IES had not yet occurred.

IES argued the subcontract’s two pay-if-paid clauses were ambiguous and that ambiguities with regard to final payment in subcontracts should be interpreted in the sub’s favor. It cited Peacock Construction Co. v. Modern Air Conditioning, Inc., 353 So. 2d 840 (Fla. 1977), where the Florida Supreme Court stated that because small subs could- n’t stay in business otherwise, in most cases, parties do not intend to make the owner’s payment to the contractor a con- dition precedent to the contractor’s duty to pay a sub. To shift the risk of the owner’s payment failure to the sub, the subcontract must unambiguously express that intention.

In fact, the first pay-if-paid clause in the Scherer-IES subcontract, which addressed progress payments, clearly did shift the risk: The provision made all pay- ments to the sub contingent upon the contractor’s receipt of payment from the owner and explicitly stat- ed that the sub “agrees to accept the risk of non-pay- ment if Contractor is not paid progress payments and/or final payment from Owner, for any reason.” When read together with the second clause—which stated that final payment to the sub would be due when final payment had been made by the owner to the contractor—the court found that the parties expressly and unambiguously intended to shift the risk of nonpayment to IES for both progress payments and final payment.

Luckily for IES, the story didn’t end there. The sub- contract incorporated by reference the prime contract, and its terms provided that the owner was not obligated to pay Scherer until Scherer had paid all its subs. The incorpora- tion of these terms made the subcontract’s pay-if-paid clauses ambiguous.

The court looked to an analogous situation examined in OBS Co. v. Pace Construction Corp., 558 So. 2d 404 (Fla. 1990) where the court explained that “in construing risk-shifting provisions, the burden of clear and unequivo- cal expression is on the general contractor” and held the contractor liable for the final payment it owed to the sub. The court in the instant case acted similarly, ruling that the ambiguity must be resolved against Scherer.

Editor’s Note: The court of appeals’ reasoning presents a close issue of contract interpretation. In shorthand, the owner was not obligated to pay the general contractor until the contractor had paid its subs. This language, incorporat- ed into the subcontract, was held to create an ambiguity when compared to the pay-if-paid clause. If this ruling stands, then general contractors may have to rethink their general incorporation by reference clauses in Florida.

Another way to look at the owner’s terms is to concen- trate on the exact language used. The general needed to show to the owner, prior to final payment, that its “indebt- edness” to its subs had been satisfied. A pay-if-paid clause arguably prevents “indebtedness” from arising.

Construction Claims Archive: Sorting out multiple causes of delay

When performance of a construction project is delayed, it is common for the delay to result not from a single, discrete event, but from multiple causes. This makes it difficult to assess or allocate responsibility for the financial consequences of delay.

Delay events are generally categorized as excusable, nonexcusable or compensable. Excusable delay is caused by factors beyond the control and without the fault of either the project owner or the contractor. The contractor is entitled to an extension of time, but not an increase in the contract price. Nonexcusable delay is caused by the fault or performance deficiency of the contractor. The contractor is entitled to neither an extension of time nor an increase in the contract price. Compensable delay is caused by the error or omission of the project owner. The contractor is entitled to both an extension of time and an increase in the contract price.

Critical Path

It is important to note that when one speaks of “delay,” it is delay in the completion of the overall project. In order for project completion to be delayed, a delay event must have an impact on the “critical path” of the schedule. The critical path is that sequence of interdependent tasks that creates the shortest timeline between notice-to-proceed and substantial completion. Other tasks can be delayed or resequenced without affecting overall project completion. Tasks on the schedule’s critical path cannot.

When a contractor claimed that a series of owner acts and omissions delayed project completion by 272 days, the contractor’s bar chart schedule failed to show that any of the affected work was on the schedule’s critical path. The contractor was not entitled to any compensation for the delay. Mega Construction Co., Inc. v. United States, 29 Fed.Cl. 396 (1993); CCM February 1994, p. 8.

Similarly, a contractor sought to reverse a termination for default by showing that it fell behind schedule due to excusable delay. The contractor was unsuccessful, however, because it was unable to establish that the delay was on the critical path of the schedule. Morrison Knudsen Corp. v. Fireman’s Fund Insurance Co., 175 F.3d 1221 (10th Cir. 1999); CCM September 1999, p. 3.

It should be noted that when a project owner grants an extension of time, it creates a presumption that the delay in question was on the critical path of the schedule. Otherwise, why would the project completion deadline be extended? Appeal of Gottfried Corp., ASBCA No. 51041 (September 14, 1998); CCM November 1998, p. 4.

Concurrent Delay

Concurrent delay occurs when the results of two separate delay events overlap. If an excusable or compensable delay occurs concurrently with a nonexcusable delay, the delay is treated as nonexcusable. The contractor would not have been able to work in any event, as a result of its own fault, so it should not receive an extension of time or a price increase. If an excusable delay occurs concurrently with a compensable delay, the delay will be treated as excusable. The contractor would have been unable to work notwithstanding the owner’s fault and should therefore receive only an extension of time, not a price increase.

Project owners frequently assert concurrent delay as an affirmative defense to a contractor claim for more time and/or money. When a contractor submits a claim for a price increase due to owner-caused delay, the owner responds that the delay was concurrent with a contractor caused delay. A compensable delay concurrent with a nonexcusable delay results in a nonexcusable delay, so the contractor is not entitled to a price increase or an extension of time.

In one case, the government changed the requirements for a materially handling control system, causing a delay in obtaining equipment. But when the contractor submitted a claim for delay damages, the government showed that the contractor was behind schedule in constructing the space to house the equipment and would not have been able to install the equipment notwithstanding the government-caused delay. Appeal of Beckman Construction Co., ASBCA No. 24725 (February 8, 1983); CCM May 1983, p. 5.

On another project, inaccurate government drawings delayed one aspect of the work for six weeks. The government was able to prove, however, that late delivery by one of the contractor’s key suppliers would have prevented the contractor from performing that work anyway. Appeal of Cline Construction Co., ASBCA No. 28600 (August 23, 1984); CCM November 1984, p. 6. Similarly, a government delay in issuing a necessary change order brought work to a standstill. But the government was able to show that the contractor would have been unable to perform due to a problem with a supplier. Appeal of Rivera Contracting, ASBCA No. 25888 (April 30, 1985); CCM August 1985, p. 6.

In another case, the government failed to obtain necessary construction easements in a timely manner. The contractor’s claim for delay damages was denied, however, because during the entire period of impaired site access, the contractor had not submitted an acceptable proposal for an excavation support system. And the contractor was not entitled to work without an approved system. Appeal of Volpe-Head, Joint Venture, ENG BCA No. 4726 (July 14, 1989); CCM August 1985, p. 6.

Project owners also use concurrent contractor-caused delay as an affirmative defense to contractor claims for an extension of time. In one case, the government assessed liquidated damages for late completion. The contractor claimed it had been entitled to an extension of the performance period due to government delay in finalizing the terms of a contract modification. The government rebutted this claim, however, by showing that the contractor’s problems with a supplier were concurrent with the government-caused delay. The contractor was not entitled to an extension of time. Appeal of Hood Plumbing, AGBCA No. 84-181-1 (October 28, 1987); CCM January 1988, p. 6.

It should be emphasized that when analyzing concurrent delay situations, one must pay attention to the critical path of the schedule. If contractor-caused delay that is off the critical path occurs concurrently with owner-caused delay that is on the critical path, the contractor can still recover for the owner-caused delay. The performance of the critical sequence of tasks would have been extended by the owner’s delay regardless of the contractor-caused delay. Wilner v. United States, 23 Cl.Ct. 241 (1991); CCM October 1991, p. 3.

Discrete Delay

Sometimes it is possible to identify a period of delay that resulted from a single, discrete event and segregate that delay from other periods of concurrent delay. In one case, design flaws forced the government to stop work on one portion of the project. Problems developed later with the performance of the contractor’s masonry subcontractor. The initial period of suspended work was compensable, owner-caused delay. But once the masonry problem became concurrent, the delay became nonexcusable. Toombs & Company v. United States, 4 Cl.Ct. 535 (1984); CCM July 1984, p. 2.

In another case, the government issued ten change orders that extended the necessary performance period by 153 days. During the performance of this work, however, the contractor suffered two delays on the schedule’s critical path: a 37-day strike delay and a 70-day delay caused by the contractor itself. The contractor recovered extended field overhead for only 46 days of the extended performance period. The concurrent delays of 37 and 70 days were subtracted. Appeal of B. D. Collins Construction Co., ASBCA No. 42662 (December 17, 1991); CCM March 1992, p. 4.

The government’s failure on one project to provide horizontal control points resulted in compensable delay. But when high river water made work impossible, an excusable delay became concurrent with the compensable delay. The contractor recovered additional compensation and an extension of time for the initial period of delay, but only an extension of time for the period after the water came up. Appeal of Harvey Honore Construction Co., Inc., ASBCA No. 47087 (September 27, 1994); CCM December 1994, p. 4.

In another case, the government failed to establish control points for the location of bridge footings, resulting in compensable delay. But the period of compensable delay ceased when it became concurrent with contractor-caused delay. The contractor did not have rebar cages assembled and would not been able to pour the footings in any event. Appeal of Tri-West Contractors, Inc., AGBCA No. 95-200-1 (December 3, 1996); CCM February 1997, p. 4.

Similarly, the government provided necessary drawings 43 days behind schedule. But the contractor was not allowed to commence work until its safety plan had been approved. The contractor’s late submittal of the plan resulted in approval 20 days after the government’s drawings had been due. The first 20 days of concurrent delay were nonexcusable. The subsequent 23 days of delay, when the contractor was ready and able to perform, were compensable. Appeal of Cape Romain Contractors, Inc., ASBCA No. 50557 (December 15, 1999); CCM February 2000, p. 5.

Intertwined Delay

Sometimes multiple delay events are so intertwined that it is impossible for a court or administrative board to segregate periods of excusable, nonexcusable, compensable, and even concurrent delay. Each party has contributed to the delay and it is impossible to determine individual causation or to allocate responsibility. In these cases, neither party may hold the other responsible for the delay.

In one case, the government was unreasonably slow in responding to the contractor’s shop drawing submittals. But the contractor’s submittals had been vague and incomplete. It was impossible to apportion responsibility for the delay, so neither party could recover. “When delays result from a combination of causes and both parties are at fault to such extent that it is not possible to determine the degree of guilt of each, the government loses its right to assess liquidated damages and the contractor loses the right to collect delay damages.” Appeal of J.B.L. Construction Co., Inc., VABCA No. 1799 (November 7, 1985); CCM January 1986, p. 5

Similarly, a project bogged down when a contractor encountered differing site conditions and was also forced to perform remedial work in order to bring the work into compliance with the specifications. It was impossible to distinguish or allocate the delay impact of the two events, so the government was denied recovery of liquidated damages and the contractor was denied recovery of delay damages. Appeal of Coffey Construction Co., Inc., VABCA No. 3361 (February 11, 1993); CCM April 1993, p. 4.

A delay caused by a government design flaw was intertwined with delay caused by the contractor’s steel fabricator. Allocation of responsibility was impossible. Again, the government could not assess liquidated damages and the contractor could not recover for the cost of the delay. Appeal of C. G. Norton Co., Inc., ENG BCA No. 5182 (January 19, 1988); CCM May 1988, p. 6.

The government delivered faulty, government-furnished equipment to a project. The resulting delay was compounded by, and intertwined with, delay caused by the contractor’s slow electrical work. The government could not withhold liquidated damages and the contractor could not recover delay costs. “The Board leaves the parties where it found them.” Appeal of Gulf Construction Group, Inc., ENG BCA No. 5961 (October 13, 1993); CCM January 1994, p. 5.

And finally, an asbestos abatement contractor encountered asbestos fireproofing overspray on ductwork and piping. Neither the contractor nor the project owner, the U.S. Postal Service, had been aware of the condition. Much of the abatement work had been subcontracted. The subcontractor understaffed the job and failed to adhere to the established schedule. The contractor completed the project late and the Postal Service withheld liquidated damages. The Board ruled, however, that it was impossible to separate the delay caused by the overspray problem from the delay caused by the subcontractor problem. The compensable delay could not be segregated from the nonexcusable delay, so neither party could recover. The Postal Service could not assess liquidated damages and the contractor could not recover delay costs. Appeal of Karchner Environmental, Inc., PSBCA No. 4085 (March 13, 2000); CCM May 2000, p. 4.

Construction Claims Archives: Managers can be liable for Contractor responsibilities

MANAGERS CAN BE LIABLE FOR
CONTRACTOR RESPONSIBILITIES

All Metals Fabricating, Inc. v. Foster General Contracting, Inc.,
2011 Tex. App. Lexis 1283
(Feb. 23, 2011)

A contractor couldn’t duck responsibility for poor workmanship by claiming it was only performing the less accountable job of a construction manager.

All Metals Fabricating, Inc. (All Metals) sued Foster General Contracting, Inc. (Foster) for contract breach and breach of implied warranty after foundation movement rendered unstable a building Foster constructed for All Metals’ metal fabrication facility in Allen, Texas. All Metals claimed that the property’s settlement and heaving was the result of Foster’s failure to complete the pre-construction dirt and fill work in a workmanlike manner (i.e. by one who has the necessary knowledge, training and experience). Foster challenged the suit, claiming All Metals was neither a party nor a third-party beneficiary to the contract and that, as con- struction manager, Foster didn’t have such a high standard of workmanlike behavior to live up to.

The project contract identified the “construction manager” as Foster, the “project” as All Metals, and the “owner” as BEBDT Realty, Ltd. (BEBDT). Thus, Foster alleged that BEBDT (though it didn’t sign the contract) was a party to the contract, not All Metals.

All Metals’ president testified that he had hired Foster for the project and identified the contract as “the agreement upon which Foster undertook to construct the Building.” He claimed All Metals performed under the contract by paying for the construction. The president claimed he had signed the contract, but he could not locate a copy with his signature. The president also testified about contract performance and the construction defects discovered. Because both BEBDT and All Metals suffered damages due to the defects, the two parties agreed to assign all of BEBDT’s claims arising out of the construction to All Metals, he stated.

The appellate court found the above evidence sufficient to question whether there was a contract and whether All Metals was a party to it.

Definition of an architect/contractor

Foster also argued that it didn’t breach any duty of a “construction manager.” It claimed its duties under the contract were not the full duties of a “general contractor”, and it pointed to “an irreconcilable conflict” in the contract language regarding the standard of care required. The contract incorporated a standard agreement between owner and construction manager where that manager is also the constructor (SFA). Foster claimed the SFA set Foster’s standard of care at “reasonable skill and judgment” and “best efforts.” The contract also included AIA A201, “General Conditions of the Contract for Construction,” but Foster argued that any higher standard of care outlined there was inconsistent with the SFA and that the SFA governed.

All Metals countered that Foster acted as both the archi- tect and the contractor; a plain reading of the contract supported this point. The SFA noted that “references to word architect refers to construction manager” and “the term ‘Contractor’ as used in AIA Document A201 shall mean the Construction Manager.” AIA A201 bestowed responsibility on the “Contractor” for: controlling construction methods, sequences and procedures; acts and omission of its employ- ees and subcontractors; and “inspection of portions of work already performed to determine that such portions are in proper condition to receive subsequent Work.” Finally, AIA A201 set forth a warranty under which the “Contractor” warranted that the work would be free from defects.

Reading the contract as a whole, the appellate court found that Foster not only had duties of a construction manager but also those of a contractor and architect, including responsibility for the work. The court disagreed about the “irreconcilable conflict” since Foster could perform both its construction manager duties (using reasonable skill/judgment and best efforts) as well as its contractor/architect duties, consistent with the express contract terms.

Thus, the court ruled that All Metals had raised a genuine issue of material fact whether Foster breached its contractual duties and whether the breach caused All Metals’ damages.

Editor’s Note: The parties’ agreement made Foster both construction manager and general contractor. This arrangement is not unusual. However, the construction management agreement was modified with the ambiguous language that “references to word architect refers to construction manager.” It appears that Foster argued ambiguity only, instead of offering a reasonable interpretation for this added clause. The court, however, could not ignore the language, which led to an unpleasant result for the contractor.

Standard AIA contracts (as used in this case) give the project architect responsibilities for work suspensions, change order review, disputes resolution between owner and contractor, and even termination (see the following story, for example). Giving the construction manager this kind of authority over its own work seems unreasonable (aside from the fact that, in this case, the construction manager was not a licensed architect).

Construction Claims Archive: Design did not provide adequate space

DESIGN DID NOT PROVIDE ADEQUATE SPACE PLANS AND SPECIFICATIONS; COORDINATION

Appeal of M. A. Mortenson Company

ASBCA No. 53146 (January 7, 2005)

The Armed Services Board of Contract Appeals has ruled that when a government design did not provide adequate space to accommodate the specified work, the government had to compensate the contractor for devising a solution. The effort was not included in the contractor’s “coordination” responsibilities.

The Army Corps of Engineers awarded a contract to the M. A. Mortenson Company for construction of a medical facility at Elmendorf Air Force Base in Alaska. The drawings depicted ductwork for the heating and air conditioning system running above a ceiling.

During construction, Mortenson discovered that there was not enough clearance between the ceiling and the bottom of steel beams above the ceiling to accommodate ductwork of the specified size. Mortenson proposed, and the government approved, a rerouting of the ductwork by a less direct route. The government refused to pay for the additional effort, however, contending it was part of the contractor’s responsibility for coordinating shop drawings and the work of the trade contractors. The Board rejected this argument.

“A government design that does not provide adequate space to accommodate work required to be accomplished within that space, regardless of any amount of coordination efforts by the contractor, is defective...This claim does not involve work that could have been avoided by timely recognition of the clearance problems. Rather, the claim arises from extra work that could not have been avoided by additional coordination.”