In a recent decision, Elec. Contractors, Inc. v. Fid. & Deposit Co. of Maryland, No. 3:13-CV-00514 MPS, 2015 WL 1444481 (D. Conn. Mar. 30, 2015), the United States District Court for the District of Connecticut dismissed on summary judgment a subcontractor’s claims for delay damages against the general contractor on a construction project (“Project”) for the State of Connecticut (“State”). The plaintiff subcontractor, Electrical Contractors, Inc. (“ECI”), entered into a subcontracting agreement (“Subcontract”) with the defendant general contractor for the Project, Whiting–Turner Contracting Company (“W-T”). ECI sought, among other things, to recover substantial damages from W-T for additional labor and material escalation costs and inefficiencies it incurred as a result of W-T’s purported mismanagement of the Project. ECI alleged that W-T failed to provide access to the work, failed to properly manage and schedule the Project, required ECI to perform work in a piecemeal and inefficient manner, delayed and disrupted ECI’s work, misrepresented the status and scheduling of the Project, and failed to manage the Project schedule in good faith.
ECI asserted claims against W–T for, among other things, breach of the Subcontract and violation the implied covenant of good faith and fair dealing. W-T moved for summary judgment on all of ECI’s claims. Although the court applied Maryland law, apparently based upon a choice of law provision in the Subcontract (W-T is headquartered in Baltimore, Maryland), the applicable law in Connecticut (and in many other states) is substantially similar to that of Maryland.
The court granted W-T’s motion for summary judgment as to the breach of contract counts, finding that various provisions of the Subcontract provided W-T with complete discretion over scheduling, timing, sequencing and coordination of the work. Moreover, ECI had expressly waived any right to perform its work in a continuous and efficient manner, as well as any right to recover damages for delays caused or allowed by W-T. However, the court also found that ECI’s claim for breach of the implied covenant of good faith and fair dealing (“bad faith”) was not similarly precluded by these provisions of the Subcontract. The court explained that although “the Subcontract unambiguously grants W–T complete discretion over the scheduling and sequencing of ECI’s work, an entirely unreasonable use of that discretion might amount to a breach of the implied covenant.” Id. at *7.
The generally accepted view in many jurisdictions is that bad faith conduct by the party seeking to enforce “no damages for delay” provisions in a construction contract can constitute a common-law exception to such provisions, and allow for the recovery of delay damages. However, many courts will only find bad faith if the party controlling the scheduling acted dishonestly or intentionally sought to harm the delayed party. This level of misconduct is notoriously difficult to prove. However, in a number of jurisdictions, including Connecticut and Maryland, “[t]he covenant of good faith and fair dealing presupposes that the terms and purpose of the contract are agreed upon by the parties and that what is in dispute is a party’s discretionary application or interpretation of a contract term. . . .” Renaissance Management Co. v. Connecticut Housing Finance Authority, 281 Conn. 227, 240 (2007) (emphasis added); see also Questar Builders, Inc. v. CB Flooring, LLC, 978 A.2d 651, 675 (Md. 2009)(“[T]he obligation of good faith and fair dealing requires a party exercising discretion to do so in accordance with the reasonable expectations of the other party.”).
Although ECI had raised facts that supported its claim that W-T’s exercise of its discretion over scheduling on the Project was not in accord with ECI’s reasonable expectectations, the court found that W-T was nevertheless entitled to summary judgment, because ECI had failed to submit its delay claims in writing to W-T within the strict seven-day time period required by the Subcontract. ECI’s written communications to W-T documenting the delays were insufficient to place W-T on notice that ECI was submitting a formal claim under the Subcontract. By the time ECI actually submitted a formal written claim to W-T, it was well beyond the seven-day period from the time ECI was aware of the delays. The court explained that, even if the costs ECI was incurring from labor inefficiencies were difficult and time-consuming to quantify, this did not excuse its failure to at least give notice to W-T within the required seven-days period that ECI was making a claim as to a specific occurrence.
The implied covenant of good faith and fair dealing also played a role in another aspect of the court’s ruling. The court also granted summary judgment in favor of W-T as to certain of ECI’s additional work claims based on the Subcontract’s “pay-when-paid” clause, becasue the State’s determined that those claims were within the Project’s required scope of work. However, the court denied summary judgment as to other of ECI’s extra work claims, because W-T had failed to pass them through to the State. The court held that the implied covenant of good faith and fair dealing required W-T to submit all of ECI’s extra work claims to the State, and W-T’s failure to do with respect to certain claims precluded it from relying on the Subcontract’s “pay-when-paid” provision.