2007 – Page 12 – Construction Law

State Agency Entitled to Liquidated Damages Even Though Agency Caused Delay

Jan 01 2007

Southeast Alaska Constr. Co., Inc. v. Dept. of Transp. & Public Facilities, 791 P.2d 339 (Alaska 1990)

This case concerned a public construction project that suffered from design and material deficiencies. When the contractor failed to complete the project, the agency sued and won on a claim for liquidated damages. The contractor appealed, arguing that because the agency was responsible for the delay, it should not be entitled to damages.

Termination Clauses that Provide Profit for Breaching Party Void as Against Public Policy

Jan 01 2007

Saxon Constr. & Mgmt. Co. v. Masterclean of N.C., Inc., 641 A.2d 1056, 273 N.J. Super. 231 (N.J. Super. Ct. App. Div. 2004)

In this case, the court found a termination clause void as against public policy. The plaintiff, Saxon, a general contractor was awarded a contract to renovate a building owned by the Veterans Administration. Saxon entered a subcontract with defendant, Masterclean, for asbestos abatement and removal. Masterclean defaulted and Saxon terminated the contract. The termination clause of the contract provided that if the subcontractor defaulted and the unpaid contract value was less than the expense of finishing the project, then the subcontractor was entitled to the difference. Saxon was able to procure a substitute contractor at a price lower than Masterclean’s initial contract price. Masterclean, therefore, invoked the clause to claim the difference between its contract price and the amount paid to the new contractor. The court found that that type of termination clause violated public policy because it permitted a defaulting party to profit by its breach and discouraged the non-breaching party to minimize its losses.

Lost Profits Recoverable as Consequential Damages if Foreseeable

Jan 01 2007

Perini Corp. v. Greate Bay Hotel & Casino, Inc., 610 A.2d 364, 129 N.J. 479 (1992)

In this case, a casino owner sought judicial enforcement of an arbitration award of lost profits against the general contractor hired to manage the casino renovation project. The project took longer to complete than anticipated and the casino was not fully operational for its peak summer season. The court held that lost profits may fall under the category of consequential damages and are therefore recoverable as long as they are foreseeable at the time of contract.

Withholding Monies Owed on Unrelated Project Constitutes Material Breach

Jan 01 2007

Vinen Corp. v. Alan W. Nau Contracting, Inc., 557 A.2d 1056, 232 N.J. Super. 589 (N.J. Super. Ct. App. Div. 1989)

In this case, the court looked at an action by a contractor against the construction manager for breach of contract for withholding monies from payment that were owed on an unrelated project. The defendant entered into a contract with the property owner to act as construction manager on a shopping center construction job. Subsequently, the defendant entered into a subcontract with the plaintiff to act as the site contractor for the project. During the course of construction, the plaintiff discontinued performance because the defendant withheld $11,000.00 from payment to the plaintiff for monies owed by the plaintiff to the defendant on a different project. The defendant also insisted that the plaintiff sign a release of lien and threatened that failure to do so would result in defendant’s refusal to pay plaintiff any of the money it was owed for work up to that time. The plaintiff filed suit for breach and defendant filed a counterclaim. The court found that the withholding of money constituted a material breach and that the plaintiff was entitled to discontinue performance and was not liable for breach.

Subcontractor’s Indemnity Clause Must Contain Explicit Waiver of Immunity of Workers’ Compensation Act

Jan 01 2007

Brown v. Prime Constr. Co., 102 Wash. 2d 235, 684 P.2d 73 (1984)

In this negligence suit filed by an injured employee of a subcontractor against the general contractor, the latter filed a third-party indemnification claim against the subcontractor. The case involved the validity of an indemnity provision in a contract between a general contractor and its subcontractor. The Superior Court, King County, granted summary judgment, and on appeal, the Washington Supreme Court affirmed, holding, among other things, that the subcontractor’s indemnity clause did not clearly and specifically contain a waiver of immunity of the Workers’ Compensation Act. Therefore, the indemnity clause was not enforceable to compel subcontractor to indemnify general contractor for damages paid to subcontractor’s employee who was injured on the job and sued general contractor for negligence.

State Liable for Damages When Delay Results from State’s Failure to Disclose Material Facts

Jan 01 2007

P.T. & L. Constr. Co. v. N.J. Dep’t of Transportation, 531 A.2d 1330, 108 N.J. 539 (1987)

In this case, P.T. & L. Construction Co. was awarded a contract to perform work on a portion of Route 78. Due to extremely poor working conditions, the project, which was contracted to end on November 15, 1974, was not completed until June of 1976. P.T. & L. filed suit to recover damages, attributing the delay to the State’s failure to inform them of the actual conditions of the land. Specifically, where P.T. & L. expected to work in normal or dry conditions, they instead faced wet conditions, including flooding of the work area. The court, looking at the issue of whether an owner can be liable for damages where it fails to disclose certain critical information regarding the project to bidders, found that a sufficient factual basis existed to warrant recovery for nondisclosure of material facts.

Public Contractors Who Follow Plans and Specifications of Another Are Generally Shielded from Liability for Defects by Contract Specifications Defense

Jan 01 2007

Puget Sound Nat’l Bank v. C. B. Lauch Constr. Co., 73 Idaho 68, 245 P.2d 800 (1952)

Saxon Painting entered into a contract with Lauch Construction to do all of the painting for a government housing project. The contract required Saxon to apply two coats of a certain type of paint, which was provided by Lauch. Saxon followed the specifications in the contract and completed the painting in a timely manner without any objections to the work from Lauch. Saxon alleged that he was still owed $19,958 from the contract and three months after completing the work, a lawsuit was commenced.

California Business and Professions Code § 7031(a) Bars All Claims for Recovery for Unlicensed Contract Work Regardless of Equities

Jan 01 2007

Hydrotech Sys. Ltd. v. Oasis Water Park, 52 Cal. 3d 998 (1991)

Hydrotech Systems Ltd., a New York manufacturer of wave simulation machinery, was hired by a general contractor to build a surfing pool for a California water park. Hydrotech did not possess a valid California contractor’s license, but the general contractor and Oasis Water Park persuaded Hydrotech to proceed. The general contractor and Oasis Water Park promised to help arrange for Hydrotech to receive a license and promised to pay for the equipment and services provided by Hydrotech regardless of Hydrotech’s license status. Hydrotech performed the work without securing a California license. A payment dispute arose and Hydrotech sued.
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General Contractor’s Recovery for Invalidation of Contract Limited if Contractor Was on Notice of Statutory or Regulatory Violation

Jan 01 2007

Earthmovers of Fairbanks, Inc. v. Dept. of Transp. & Public Facilities, 765 P.2d 1360 (Alaska 1989)

In this case, the Supreme Court of Alaska considered as a case of first impression what remedy is appropriate for a contractor who is awarded a public contract that turns out to violate a statute or regulation. The facts concerned Earthmovers of Fairbanks (EM), the apparent low bidder for a public project. When a discrepancy was discovered in the second lowest bid and corrected as permitted by the applicable Standard Specification, the state agency awarded the project to the second lowest bidder. EM sued and won a permanent injunction. EM also prevailed on appeal, and the contract was awarded to EM on April 27. However, on April 30, the Supreme Court of Alaska reversed itself and on May 1, it entered a stay. Subsequently, EM sued the state agency for damages.

No-Damages-for-Delay Clause Precludes Recovery of Delay Damages

Jan 01 2007

Edwin J. Dobson, Inc. v. State, 526 A.2d 1150, 218 N.J. Super. 123 (N.J. Super. App. Div. 1987)

In this case, a contractor brought suit against the state for delay damages arising out of the construction of a public project. The delays were caused by a variety of reasons primarily stemming from the state’s requirement that the contractor use a specific manufacturer for supplies. The contract included a “no damage for delay” clause which provided an extension of time for completion, but no additional payment, for damages, in the event of any hindrance or delay in the progress of the work, even if caused by the state. The court found that the clause was legal and that it precludeed recovery by the plaintiff.

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