Contractor Waived Claims Not Expressly Set Forth in Notice

The First Department of the Appellate Division recently held that a contractor had waived certain claims in connection with a government contract because the contractor did not expressly set forth the claims in an extension of time request.  The decision notes:

The contract governing the construction project required any request for an extension of time filed by petitioner to include a statement, "in detail," that petitioner "waives all claims except for those delineated in the application, and the particulars of any claims which [petitioner] does not agree to waive.

 Apparently, the contractor did not sufficiently identify the claims it wished to preserve when it submitted an extension request.  The Contract Dispute Resolution Board (CDRB) determined that the contractor had, thus, waived the claims.  The Appellate Division agreed and rejected the contractor's argument that the parties prior course of conduct should support no such waiver.  The Court noted that such and argument (called estoppel) is generally unavailable against government agencies and the particular contract at issue here specifically mentioned that the conduct of the City and its agents could not create an estoppel situation.

The case is a good reminder to contractors to carefully read their contracts and be careful in sending out notices.   When sending out any contract notices it is a good idea to engage counsel to review the contract and the notice and make sure that any possible claims are properly preserved.  It is never too early to engage counsel.  A bit of review and consultation during the project could potentially save tens of thousands of dollars on later litigation.

The case was LAWS Const. Corp. v. CDRB.

Vincent T. Pallaci is the managing member of Kushnick Pallaci PLLC.   His practice concentrates on construction law including contract drafting and review.

Case Summary: U.W. Marx, Inc. v. KoKo Contr. Inc. (conditions precedent in construction contract)

The Appellate Court affirmed the holding of the lower court, finding in favor of Koko Contracting, Inc.  U.W. Marx, Inc. was the general contractor on a construction project and entered into a subcontract with Koko for roofing work.  Marx failed to pay Koko for 3 consecutive months, wherein Koko, on October 31, 2007, ceased performance on the roof.  Marx gave Koko 3 days’ notice to cure its alleged default (failing to provide workers) wherein, on November 6, 2007, Koko provided Marx with the 7 days’ notice of its suspension of work based on nonpayment as called for in a section of the subcontract.

Marx argued that Koko should be precluded from recovery due to its non-compliance with the provision in its subcontract (a standard provision clause drafted by the American Institute of Architects) which required 7 days’ notice to be given prior to ceasing performance of the contract.  The Court held that Marx’s material breach, i.e. non-payment, was an “uncured failure of performance,” and therefore Koko was relieved from its remaining obligations under the contract.  Essentially, Marx’s material breach excused Koko from any of its own obligations set forth by the contract.  Furthermore, the Court explained that such a provision is not meaningless, as it is there to protect the subcontractor and to compensate it in the event it has to stop work for lack of payment and then remobilize. 

Decided 1/21/15 at App. Div. 2d Dept.

Quick Construction Contract Tips: Failure to Properly Document May Waive Extra Work Claims

One of the most important things for contractors to remember is that they must document their delay claims and change order claims and, perhaps more importantly, they must read their contracts.  It seems simple, but for the majority of contractors, especially those who don't have in-house counsel, readying a contract is not always a given. 

One example of a contractor that didn't thoroughly read his contract before performing the work is found in the First Department case of F. Garofolo Elec. Co. v. New York University, 300 A.D.2d 186, 754, N.Y.S.2d 227 (1st Dept. 2002).  In F. Garofolo, the contract specifically required that written extra work statements, countersigned by the construction manager, be produced for each day for which extra work was allegedly performed.  The contract was specific that the extra work order must list the name of each worker, the number of hours worked, the nature and description of the work, and the nature and quantity of materials used.  The Court found that this contractual requirement was precondition to payment and, because the contractor didn't provide the required documentation, the owner was granted summary judgment dismissing the claims.  This was clearly a contract that was well written from the owner's perspective and while not over burdensome on the contractor, it likely did not read the contract and understand the requirements for extra work orders. 

As always, it is strongly recommended that all contractors have their attorney review every contract before signing.  While the review of any attorney is generally better than proceeding without an attorney reviewing, when possible the contractor should attempt to find an attorney familiar with the construction industry so that he or she will: 1) understand the terms of the contract and the interplay of those terms in the field; and 2) will know what conditions are likely to come up and will make sure that the proper provisions are in the contract to protect your rights as much as possible. 

Vincent T. Pallaci is a construction attorney that practices law across the State of New York.  He can be reached at (631) 752-7100 or vtp@nyconstructionlaw.com 

Failure to satisfy conditions precedent in contract bar contractor's claim

Many construction contracts, including many of the American Institute of Architects or "AIA" contracts contain alternate dispute resolution procedures that require the parties to pursue an "initial decision maker", the architect and/or a mediator before they may proceed to arbitrate or litigate a dispute.  In MCC Development Corp. v. Daniel Perla, the Appellate Division dismissed a complaint and discharged a mechanic's lien where the contractor failed to comply with the conditions precedent in the contract. 

The particular provision at issue in the MCC case said that "[c]laims . . . shall be referred initially to the Architect for decision" and the "initial decision by the Architect shall be required as a condition precedent to mediation, arbitration or litigation of all Claims between the Contractor and Owner." Pursuant to paragraph 4.5.1, "[a]ny Claim arising out of or related to the Contract . . . shall, after initial decision by the Architect . . . be subject to mediation as a condition precedent to arbitration or the institution of legal or equitable proceedings." This language, or similar language, is in many construction contracts.  Here, because the contractor failed to satisfy these conditions precedent the court found that the complaint and the mechanic's lien were improper.

While the result in this case is not surprising in general, the particular fact that the mechanic's lien was discharged for failure to comply with the conditions precedent is surprising.  I think, perhaps, the entire factual basis in the MCC case was not laid out.  If the time to file a mechanic's lien had expired by the time of the motion to dismiss, and if the lien that existed had expired by that time, then the decision makes sense and is in line with other appellate division decisions.  If, however, this case is saying that a mechanic's lien cannot be filed until the alternate dispute resolution conditions precedent have been satisfied then MCC is significant new law.  Most likely, MCC is not saying that the lien cannot be filed before satisfaction of the ADR conditions.  Public policy in the State of New York favors allowing a party to file a mechanic's lien to secure payment for its labors.  Because the mechanic's lien is so time sensitive, requiring a party to satisfy the numerous conditions precedent in some construction contracts before allowing the contractor to lien could result in being able to prevent a lien from getting filed simply by dragging out the ADR procedure as much as possible.  It is much more likely that MCC does not prohibit the filing of the lien but, rather, only prohibits enforcing the lien until the ADR procedures are satisfied. 

A party faced with an expiring mechanic's lien while ADR conditions precedent are pursued should either extend the lien as of right (if possible) or seek a court order allowing the extension.  The Court always has the power to extend the mechanic's lien upon cause shown and showing the court that you are in the process of pursuing the claim but contractual ADR provisions prevent you from enforcing the lien at the current time is almost certainly going to be considered by the court as sufficient cause to extend the lien.

Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law.  He can be reached at (631) 752-7100 or vtp@kushnicklaw.com