Below is an excerpt of an article published in the Spring 2021 edition of Under Construction, a newsletter publication of the American Bar Association Forum on Construction Law.
Potential Impacts of the Coronavirus Pandemic on Construction Projects
As the coronavirus/COVID-19 pandemic continues to spread and the governmental and private sectors formulate their responses, it has become apparent that the associated economic impacts will be significant and affect all sectors of the economy, including construction. Robinson+Cole’s Construction Group has been monitoring these developments and is already seeing preliminary notices being sent out by
Who Will Bear the Risk and Cost for Coronavirus Construction Delays? A Contractual Analysis.
As the Coronavirus spreads across the globe, its impact continues to disrupt many industries, including construction. Over the last twenty years, the construction industry in the United States has substantially increased its reliance on China as a supplier for all types of construction materials including electrical and lighting equipment, elevators and component parts, plumbing fittings
Will Strict “No Damages for Delay” Clauses Be Outlawed on New York Public Construction Projects? Stay tuned.
For years, general contractors and trade contractors have faced very strict “no damages for delay” clauses on New York State construction projects. The tides are changing. If signed into law, S. R. 06686, Reg. Sess. 2017-2018 (NY 2017) will require public entities to allow contractors, subcontractors and suppliers to recover for costs associated with project delays to the extent the delays were caused by the entity’s actions or inactions. Public entities would include, without limitation, any state agency, department, board, bureau, municipal corporation, school district or any instrumentality or public subdivision of the State of New York.
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Contract Barred Recovery of Lost Productivity Damages Suffered by Contractor
Construction projects are no stranger to delays and the inevitable resulting disputes. To allocate such risks, parties frequently include no damage for delay causes in their contracts. These provisions commonly provide that in the event of a delay the contractor’s remedy is limited to an extension of time. Given that there are often multiple causes of delays and a variety of types of delay damages it is critical that at the onset of a construction project the parties consider and properly allocate the risk of such delays and the potential resulting costs in the contract documents.
A recent Massachusetts Superior Court decision offers further insight into the importance of the contract in allocating the risk of delay damages. In Cumberland Farms, Inc. v. Tenacity Constr., Inc. (Mass.Super, 2016), the court held that the terms of the contract precluded the contractor from recovering lost productivity and costs associated with work inefficiencies incurred while performing Winter work. The case arose from two distinct construction projects involving the plaintiff Cumberland Farms, Inc. (“CFI”) as the owner and Tenacity Construction, Inc.(“Tenacity”) as the contractor. Both projects suffered severe delays. As a result CFI granted Tenacity an extension of time and agreed to pay Tenacity time and materials for costs incurred while performing work during the Winter months. Prior to performing the work Tenacity claimed that reimbursement for time and materials would likely not fully compensate Tenacity for any lost productivity or inefficiency costs incurred during the Winter and that Tenacity may seek such costs at a later date. Although CFI did not deny this request it also did not agree to the request. A couple months after completing the Winter work, Tenacity sent CFI a letter claiming that it was entitled to an equitable adjustment of the contract price for lost productivity and inefficiency costs attributable to Winter conditions. In response CFI requested back-up information in support of Tenacity’s claim but ultimately denied the request.
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Recipe for a Project Bankruptcy: Part 2
The Contractor in Bankruptcy Through the Lens of the Owner
My last article examined strategies for construction managers facing an owner bankruptcy. Now, looking through the lens of the owner, let’s examine best practices when it is the contractor who has filed for bankruptcy.
Throughout New England and the United States the construction industry continues to thrive with several new projects underway and on the horizon. Last month, Dodge Data & Analytics projected that total U.S. construction will increase in 2017 by five percent. Lenders and sureties continue to aggressively underwrite contractors and subcontractors allowing businesses to grow quickly. But growing too quickly can lead to cash flow and labor allocation issues both of which are ingredients for a project bankruptcy.
Recipe for a Project Bankruptcy: Part 2 The Contractor in Bankruptcy Through the Lens of the Owner
My last article examined strategies for construction managers facing an owner bankruptcy. Now, looking through the lens of the owner, let’s examine best practices when it is the contractor who has filed for bankruptcy.
Throughout New England and the United States the construction industry continues to thrive with several new projects underway and on the horizon. Last month, Dodge Data & Analytics projected that total U.S. construction will increase in 2017 by five percent. Lenders and sureties continue to aggressively underwrite contractors and subcontractors allowing businesses to grow quickly. But growing too quickly can lead to cash flow and labor allocation issues both of which are ingredients for a project bankruptcy.
Limitations of Liability – Scenario 3: Pay if Paid and Flow Through Clauses
I suppose that it is apropos that I have been delayed in writing this final piece in the four-part Limitations of Liability series, relating to subcontract pay if paid and flow through clauses. Being more than one step removed from a project’s funding source, subcontractors are used to being dealt with last, and only after a lag in the schedule, whether foreseeable or not. Subcontractors will tell you that “it” tends to flow downhill, and financial issues and project glitches tend not to improve by the time they make their way to the subcontractor, whether the issues or glitches are tied to the subcontractor or not.
Their concerns regarding delays in payment appear to be justified. In a recent ENR survey, thirty percent (30%) of payments from contractors to subcontractors were late, by an average of 36.4 days. Eighty-Three of the subcontractors surveyed reported that more than 6 in 10 payments were past due. Although most states now have prompt pay laws, with varying degrees of penalties, the survey reflects that these laws seem to have minimal impact on the timing of payments. Perhaps these timing issues relate to project owners holding funds as long as possible to earn additional interest, but with interest rates so low, that seems unlikely. Maybe project owners are being cautious and remain as far ahead of their contractors and subcontractors as possible in the funding of the project. More likely, subcontractors are reluctant to harm their business relationship with contractors, or simply don’t wish to incur added costs in pushing the timing of payments.
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Judges Imposing Personal Liability on Scofflaws
As the recession recedes, courts are busy sifting through the remnants of construction projects that were impacted by the hard times we all faced. Shady deals and disreputable conduct often come to light in times like this, and can present opportunities for judges to hold bad actors personally accountable for unscrupulous behavior, under the right circumstances. Two recent cases in Connecticut illustrate how the creation of business entities don’t always shield their owners from liability for egregious conduct.
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Limitations of Liability— Scenario Two: No Damages for Delay Clauses
This is the third post in the four-part series “Limitations of Liability—The Elephant in the Room.”
Owners often attempt to limit their liability to contractors through what is commonly known in the construction industry as a “no damages for delays” clause. Much like waivers of consequential damages, a “no damages for delays” clause, which limits damages for construction delays, accelerations and other inefficiencies, can serve a fair purpose, despite the perceived severity to a contractor who falls behind schedule for reasons beyond its control. These delay-related costs (especially indirect costs such as extended home office overhead or lost bonding capacity) tend to be speculative and difficult to prove. Proving and defending delay claims is also a very expensive proposition, both as to entitlement and quantum. Finally, project owners presume that contractors are better prepared to confront project delays, and to carry costs for such a contingency in their pricing.
In many jurisdictions these clauses are fully enforceable, albeit with limited exceptions that courts have restricted in recent years. Contractors that choose to ignore these clauses do so at their peril.
Nonetheless, no contractor can anticipate every delay or impact, and a protracted delay in a project can have a devastating financial impact on the construction team. There should be a means by which contracting parties can fairly allocate the cost issues that come with unexpected delays, without leaving the door open for speculative claims.
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