CNS 3153 Legal Issues In Construction Chapter 8 Delays

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• Morse/Diesel, Inc. v. Trinity Industries, Inc.
  Mosher Steel Co., and Aetna Insurance Co.,67 F.3d
  435, 1995 U.S. App. LEXIS 27614 (2d Cir. Sept.
  26, 1995).
•  Morse/Diesel, Inc. ("Morse/Diesel") was the
  general contractor for the construction of the
  Marriott Marquis Hotel in Manhattan's Times
  Square. In August, 1982, Morse/Diesel entered
  into a subcontract with Mosher Steel Company, a
  division of Trinity Industries, Inc. ("Trinity")
  to fabricate and erect the steel members
  necessary for hotel construction within 13
  months, excluding inclement weather. In fact, the
  job took 20 months, from January, 1983 until
  September, 1984. Morse/Diesel sued Trinity and
  Trinity's bonding company, Aetna Insurance
  Company, for damages in the amount of 37 million
  arising from the cost of an acceleration program
  designed to recapture the delay, as well as
  losses suffered by the hotel's owner, the
  architect and other subcontractors. Trinity
  counterclaimed for its own damages arising from
  additional work and delay in completing the
  subcontract.
• Responsibility for the delay surfaced as the
  central question in the trial court litigation.
  Morse/Diesel blamed Trinity, producing evidence
  of fabrication errors, shipping mishaps, crane
  failures, and so on. In support of its
  counterclaim for increased cost and delay,
  Trinity alleged that the project's architect,
  John Portman Associates, and structural
  engineer, Weidlinger Associates, made unwarranted
  demands regarding the installation of certain
  special steel trusses, known as Vierendeel
  trusses, and the use of additional bracing during
  erection. Following six and a half weeks of
  trial, the jury substantially agreed with
  Morse/Diesel and awarded the company almost 26
  million in damages, to which the court added an
  additional 27 million in prejudgment interest.
  Trinity appealed.

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• On appeal, Trinity argued, inter alia, that the
  trial court's treatment of various clauses
  regarding delay unfairly precluded Trinity from
  presenting its counterclaim to the jury. Schedule
  B, paragraph 53, of Trinity's subcontract
  provided
• Should the Subcontractor be obstructed or
  delayed in the commencement, prosecution or
  completion of the work, without fault on his
  part, by action or inaction on the part of the
  Owner, Architect, Engineer or Contract, or by
  changes in the work, the Subcontractor shall be
  entitled to include as cost the cost of labor,
  materials, equipment, supplies and other
  resultant costs occasioned by such delays and
  changes notwithstanding any other provision
  contained in this agreement. (Emphasis added).
• However, two other provisions in Trinity's
  subcontract contained no-damage-for delay
  clauses. Should the subcontract be obstructed
  or delayed in the commencement, prosecution or
  completion of the work . . . then he shall be
  entitled to an extension of time . . . the
  subcontractor expressly agrees not to make, and
  hereby waives, any claim for damages, including
  those resulting from increased supervision, labor
  or material costs, on account of any delay,
  obstruction or hindrance for any cause whatsoever
  . . . and agrees that the sole right and remedy
  therefor shall be an extension of time.General
  Conditions, Article 16-G (emphasis added). And
  Article 3.4 of the subcontract provides, in part
  All loss or damage arising from any of the Work
  through unforeseen or unusual obstructions,
  difficulties or delays which may be encountered
  in the prosecution of same or through the action
  of the elements shall be borne by the
  Subcontractor.

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• Against this contractual backdrop, Trinity
  requested a jury instruction that it could
  recover damages under paragraph 53 for costs
  associated with delays caused by others. The
  trial court denied the request and instructed the
  jury that Trinity's "claim for damages on account
  of delays allegedly caused by Morse/Diesel and
  its subcontractors" was an "area of ambiguity" in
  the subcontract, citing Article 16-G of the
  General Conditions and Article 3.4 of the
  subcontract. She then noted Trinity's contention
  that these two provisions have been negated by
  paragraph 53. In the face of such apparent
  ambiguity, Judge Preska instructed that it was
  the jury's job to interpret the allegedly
  ambiguous subcontract.
• The Court of Appeals for the Second Circuit held
  the jury instructions to be fatally flawed
  because the subcontract contained no ambiguity.
  The Court initially noted that under New York
  law, a written contract is to be interpreted so
  as to give effect to the intention of the parties
  as expressed in the unequivocal language of the
  subcontract. It then found that the
  "notwithstanding" clause of paragraph 53 relieved
  any tension among the three contract provisions
  addressing delay. More specifically, the court
  held that paragraph 53 overrode the otherwise
  inconsistent clauses of Article 3.4 and Article
  16-G of the General Conditions.

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• Accordingly, the Court held that the district
  court erred when it submitted the contract's
  meaning on this point to the jury. The district
  court should have construed the contract
  according to its unambiguous terms, and clearly
  instructed the jury that Trinity had the right
  under paragraph 53 to recover any costs
  occasioned by delays that were not its own fault.
• Moreover, the Court proceeded to hold that the
  error could not be deemed harmless. The jury
  returned a general verdict. While the jury
  apparently concluded that Trinity was at fault
  for much of the delay and resulting acceleration
  damages, Morse/Diesel did not recover all that it
  sought. Thus, the Court found it very possible
  that the jury believed Morse/Diesel was indeed to
  blame for some of the delay. Finding it
  impossible to isolate the counterclaim for
  retrial, the Court found it necessary to reverse
  the judgment in total and to remand both the
  complaint and the counterclaim for retrial.

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• Rights and obligations associated with delays
  arise from the implied obligation in every
  contract that each party will not delay, hinder
  or interfere with the performance of the other
  party. Or, more commonly the contract contains
  an explicit obligation to perform by a given date
  or within a specified time frame.

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• time is of the essence contractual clause
  that makes time a component of the contractors
  performance obligation.
• Substantial Completion the work is sufficiently
  complete so that the owner may occupy or utilize
  the facility for its intended use. An owner may
  not assess l.d.s after substantial completion.

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• Nonexcusable Delays
• A delay that could have been anticipated or
  avoided. The party that causes a nonexcusable
  delay usually creates an excusable delay for the
  other party.
• Excusable Delays
• Generally, when an unanticipated outside force
  delays completion.
• Design problems
• Differing site conditions
• Unusually adverse weather
• Acts of God

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• Compensable Delay the contractor is entitled to
  both time and monetary damages.
• Defective drawings or specs.
• Failure to provide access
• Improper site prep.
• Failure to supply materials or labor
• Failure to approve shop drawings
• Failure to coordinate prime contractors
• Failure to give timely orders for work

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• Compensable Delays contd.
• Failure to make timely payments
• Failure to inspect
• Suspensions
• Excessive change orders
• Failure to accept completed work
• Acceleration
• Can a contractor recover damages for delays even
  if they finished the project before the contract
  completion date?

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• Noncompensable Delay the contractor is entitled
  to a time extension only.
• Unusually severe weather
• Acts of God
• Labor problems

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• Concurrent Delay
• When an excusable compensable delay and an
  unexcusable delay occur at the same time or
  overlap in time.
• The current trend is to use CPM analysis to
  evaluate the delays and apportion damages
  accordingly.

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• Written Notice the contractor who gives prompt
  written notice of delays increases their
  opportunity to recover damages.
• Time extensions are almost always granted for
  excusable delays.
• Recovery of additional costs may be limited by a
  no-damages-for-delay clause.

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• Exceptions To no-damage-for-delay
• The delay was not contemplated by the clause in
  the contract (some clauses explicitly list delays
  that fall under the n-d-f-d clause).
• The delay resulted in an abandonment of the
  contract.
• The delay was due to fraud, bad faith or an
  arbitrary action.
• The delay was due to the owner interfering with
  the contractors work.
• The delay was unreasonable.
• The contractors work was hindered by the owner
  (hindered vs. actively interfered)

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• What costs can the contractor recover?
• Liquidated damages
• Labor inefficiency
• Equipment inefficiency
• Acceleration and overtime
• Extended field overhead
• Home office overhead
• Escalated material and labor costs
• Legal fees
• Interest
• Loss of profits
• Loss of bonding capacity

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• Owner Damages
• Most often owner damages are fixed in the
  contract as liquidated damages.
• If the liquidated damages do not reasonably
  approximate foreseeable actual damages, but
  appear to act as a penalty, the provision will
  likely be unenforceable. Under such
  circumstances, the owner will have to prove their
  actual damages in order to recover.
• Can liquidated damages work in favor of the
  contractor?

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• Delay Claims Analysis
• Detailed documentation is essential to recovering
  the maximum amount possible.
• Proper scheduling techniques are imperative in
  evaluating delay impacts.
• Seek expert advice if necessary.

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• Kingston Constructors, Inc. v. Washington
  Metropolitan Area Transit Auhority,1996 U.S.
  Dist. LEXIS 8427 (D.D.C. June 6, 1996).
•  The defendant Washington Metropolitan Area
  Transit Authority ("WMATA") contracted with
  plaintiff Kingston Contractors, Inc. ("Kingston")
  to remove and destroy existing electrical
  transformers in WMATA's rapid transit rail
  system, and procure and install replacement
  transformers. The contract contained a liquidated
  damages provision which provided for 1000 for
  each calendar day of delay beyond a specified
  completion date.
• Kingston subcontracted the manufacturing of the
  transformers to Power Energy Industries ("PEI").
  Contractually required pre-installation testing
  of the manufactured units revealed that they
  contained misplaced insulation which caused a
  short circuit defect. In addition, when the first
  unit was installed, it functioned for only a few
  minutes before failing and releasing a cloud of
  smoke.
• In an attempt to assure that the transformers
  would still be capable of performing as required,
  the parties then subjected the transformers to
  additional tests, beyond those required in the
  contract. Six out of 11 transformers failed these
  tests. WMATA also rejected another solution
  proposed by Kingston, because WMATA thought that
  the proposed solution might compromise the
  structural integrity of the transformers and
  shorten their useful lives.

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• When two transformers failed another round of
  tests, WMATA rejected the entire lot of 22
  transformers that had already been manufactured,
  stating that it had completely lost confidence in
  the ability of the PEI transformers to function
  as required. Kingston was forced to reprocure the
  transformers, at substantial additional cost.
  Also because of the reprocurement, Kingston was
  unable to finish on time and, as a result,
  incurred liquidated damages costs.
• Kingston asked the Board to grant it a time
  extension and an equitable adjustment in the
  amount of the contract. The Board granted an
  equitable adjustment for costs and delays
  associated with the additional extra-contractual
  testing, and reduced the amount of liquidated
  damages from 1000 per day to 500 per day.
  Kingston then appealed to the district court,
  challenging, inter alia, the Board's decision to
  reduce the liquidated damages. Kingston claimed
  that the Board's only alternative was to declare
  the clause unenforceable.

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• The Board had found that, in determining the
  1000 liquidated damages figure, WMATA had
  included a 500 contingency for the possible
  assessment of Environmental Protection Agency
  penalties associated with the work, even though
  WMATA already knew that the EPA was not going to
  assess such penalties. Citing the general rule
  that a liquidated damages provision which is an
  unreasonable approximation of damages must be
  stricken as an unenforceable penalty, the
  district court agreed with Kingston that WMATA
  had acted unreasonably in setting the liquidated
  damages amount, and that the Board had erred in
  reducing the liquidated damages amount rather
  than striking the clause altogether.
• The court disagreed, however, with Kingston's
  assertion that striking the damages clause was
  the only course of action open to the Board.
  Rather, the court held that actual damages should
  be awarded instead of liquidated damages, and it
  remanded the case for a determination of the
  amount of such damages. The case may have been a
  Pyrrhic victory for Kingston, since WMATA claimed
  that its actual damages were more than 1000 per
  day.

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• The court disagreed, however, with Kingston's
  assertion that striking the damages clause was
  the only course of action open to the Board.
  Rather, the court held that actual damages should
  be awarded instead of liquidated damages, and it
  remanded the case for a determination of the
  amount of such damages. The case may have been a
  Pyrrhic victory for Kingston, since WMATA claimed
  that its actual damages were more than 1000 per
  day.

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