In NASDI, LLC v. Skanska Koch Inc. Kiewit Infrastructure Co. (JV), 2024 WL 1270188 (2d Cir. Mar. 26, 2024), the U.S. Court of Appeals for the Second Circuit affirmed the District Court’s grant of summary judgment dismissing a subcontractor’s delay claim against a general contractor on a public project in New York state.  The Court enforced a typical no-damages-for-delay provision to bar the subcontractor’s breach of contract claim.  The no-damages-for-delay provision in the subcontract at issue provided:

NO DAMAGE FOR DELAY. Except as otherwise provided …, Subcontractor agrees that it shall have no Claim against Contractor for any loss or damage it may sustain through delay, disruption, suspension, stoppage, interference, interruption, compression, or acceleration of Subcontractor’s Work (‘Delay Damages’) caused or directed by Contractor for any reason, and that all such Claims shall be fully compensated for by Contractor’s granting Subcontractor such time extensions as it is entitled to as a result of any of the foregoing.

The Second Circuit enforced this clause under well-established New York state law.  The Court also examined two exceptions to the enforcement of no-damages-for-delay provisions previously recognized by New York state law, which the Court made clear involve a heavy burden on plaintiffs to successfully invoke.  The subcontractor in NASDI sought to avoid the clause by asserting that the delays on the subject project were (1) uncontemplated and (2) so unreasonable that they constitute an intentional abandonment of the contract.

In response to the subcontractor’s claim that the delay on the project was uncontemplated, the Court recognized a total delay to the project of 19 months but found that such a delay was not uncontemplated because New York courts have recognized that lengthy delays are generally foreseeable on complex construction projects.  The Court cited cases where no-damages-for-delay clauses were enforced against claims for delays of 20 to 32 months. Thus, without some other extenuating circumstances, the length of the delay alone will most likely not defeat a no-damages-for-delay provision under the uncontemplated delay exception.

The Court followed the same reasoning in rejecting the subcontractor’s second claim that the delays were so unreasonable that they constitute an intentional abandonment of the contract.  The length of the delay alone was insufficient to make them unreasonable under New York law.  The subcontractor also claimed a cardinal change had occurred on the project but failed to provide sufficient evidence to support such a claim.

A no-damages-for-delay provision provides significant protection against delay claims under New York law.  In addition to the two exceptions addressed in this case, New York law recognizes two additional exceptions: (1) delays caused by bad faith or willful, malicious, or grossly negligent conduct and (2) delays resulting from the breach of a fundamental obligation of the contract.  However, as the NASDI Court made clear, exceptions to no-damages-for-delay provisions are rarely successful.  When faced with a no-damages-for-delay provision under New York law, a subcontractor would be well-advised to include in its claim time-related damages arising from a cause other than the delay covered in such provision. 

This post was co-authored by Abby M. Warren and Christohper A. Costain who are members of Robinson+Cole’s Labor, Employment, Benefits + Immigration Group.

In June 2024, the Equal Employment Opportunity Commission (EEOC) issued guidance tailored to the construction industry concerning harassment in the workplace or at the jobsite. The guidance is important for construction industry leaders and employers to understand how to prevent and remedy harassment in the workplace — more than a third of all EEOC discrimination charges filed between 2019 and 2023 asserted harassment. The guidance represents the EEOC’s latest effort in executing its Strategic Enforcement Plan for Fiscal Years 2024 to 2028, which, in part, focuses on combatting systemic harassment and eliminating barriers in recruitment and hiring, particularly for underrepresented groups in certain industries, including women in construction, through the EEOC’s enforcement efforts. In this article, we highlight key principles and practices from this guidance

Leadership and Accountability

          The guidance reiterates that consistent and demonstrated leadership is critical to creating and maintaining a workplace culture where harassment is unacceptable and strictly prohibited. Worksite leaders, including project owners, crew supervisors, and union stewards, are each expected to regularly communicate that harassment is intolerable through several suggested efforts.

          Project owners and general contractors, who play a vital role in oversight and project execution, are expected to be leaders in creating a culture of collaboration and professionalism. General contractors are expected to share critical information regarding their expectations of a harassment-free workplace with subcontractors and to refer those who may require assistance complying with anti-discrimination and harassment laws to the EEOC’s various resources for employers. To that end, the EEOC recommends that anti-harassment policies be included in contractor bids for projects and in agreements between general contractors and subcontractors so that clear expectations of a harassment-free jobsite are set before a project begins.

          General contractors are encouraged to engage in the following harassment-prevention measures:

          • Determine the scope and substance of training for the project.
          • Monitor and enforce subcontractor compliance with anti-harassment policies.
          • If applicable, coordinate with unions, tradeswomen organizations, and apprenticeship programs to form a committee tasked with identifying and preventing harassment and collaborating to develop solutions.
          • Verify that subcontractors are implementing and enforcing anti-harassment policies and monitoring the effectiveness of subcontractor efforts to mitigate harassment.
          • Assist subcontractors in addressing and finding solutions to harassment concerns, especially when harassment occurs between workers from different employers.
          • When circumstances warrant, work with a subcontractor’s management or site supervision team to remove harassers from the worksite.
          • As appropriate, acknowledge and thank workers for preventing or addressing workplace harassment on behalf of themselves or others.

          General contractors are also encouraged to solicit and share feedback (including through anonymous surveys) from workers at the jobsite regarding the efficacy of the collective anti-harassment effort to remedy shortcomings or reiterate expectations.

          Comprehensive and Clear Harassment Policies

            The guidance recommends that robust and clear anti-harassment policies be prepared with input by the supervisors and managers responsible for implementing them. Employers in the construction industry should also consider soliciting feedback from workers at all levels to ensure that the policies are clear and understandable, that policies are consistent with workers’ native languages, and that they routinely communicate about the relevant policies. Such policies should be accessible and posted in a central and accessible location. The EEOC also encourages general contractors to make their own anti-harassment policies or a model policy available for subcontractors to adopt. 

            An Effective and Accessible Harassment Complaint System

              Generally, the complaint procedure is a crucial aspect of any harassment policy. The EEOC recognizes the complexity of a multiple employer/entity environment that is typical in the construction industry and recommends that while each onsite employer may have its own complaint reporting procedure, the general contractor of the construction project should make supplemental complaint channels available for all workers regardless of their employer of record. Further, general contractors should coordinate such complaint procedures across projects and subcontractors. The EEOC guidance includes several best practices about complaint procedures. 

              Effective Harassment Training

                In its guidance, the EEOC recommends that comprehensive, interactive, and live (if possible) anti-harassment training be provided to all workers with input from jobsite leaders and other workers at various project seniority levels to ensure that the training is tailored to the workforce and the dynamics of the worksite. The guidance suggests that the training include industry-specific topics, examples, and risk factors in the construction industry.

                Construction Industry Harassment Risk Factors

                The EEOC’s guidance identifies certain construction industry risk factors and provides that employers should remain extra vigilant of potential harassment as a result:

                • A homogenous workforce (e.g., it states that women comprise just 11% of the construction workforce even though they represent 47% of the labor force. African American workers made up nearly 13% of the labor force in 2023 but represented less than 7% of the construction workforce).
                • Pressure to conform to traditional stereotypes.
                • Decentralized workplaces.
                • Worksites with multiple employers present.
                • The cyclical, project-based work of the construction industry.

                ***

                The issuance of this guidance may signal an increase in the EEOC’s enforcement efforts in the construction industry. Therefore, employers in the construction industry should consider reviewing the principles and best practices in the guidance in comparison to their own policies and practices and implementing changes with the assistance of competent counsel. 

                On June 6, 2024, Connecticut Governor Ned Lamont signed into law Public Act 24-151 (H.B. 5524) (Bill 5524). Bill 5524 authorized and adjusted bonds of the state and provisions related to state and municipal tax administration, as well as addressed school building projects. Notably, Bill 5524 removed the ban on construction managers self-performing work on public school construction projects, effective July 1, 2024. Allowing construction managers to self-perform certain portions of the work, such as general trades, subject to the standard bidding requirements, is a common industry practice that, theoretically, reduces total project costs by reducing the amount of subcontracted work. However, proponents of banning self-performance argue that construction managers have too much information to bid fairly and competitively.

                On July 1, 2024, Governor Lamont signed into law S.B. 501 (Bill 501), which was brought to the Connecticut General Assembly floor during the June 2024 Special Session. Bill 501 is an omnibus bill that addresses motor vehicle assessments for property taxation, innovation banks, the interest on certain tax underpayment, the assessment on insurers, the South-Central Connecticut Regional Water Authority charter, specific state historic preservation officer procedures, and, again, school building projects. Due to political fallout, Bill 501 reinstates the ban on construction managers self-performing work on public school construction projects. By signing Bill 501 into law on July 1, 2024, the same day that the allowance of self-performance in Bill 5524 was to be made effective, Governor Lamont and the state legislature ensured that no construction manager may self-perform work on public school construction projects.

                Earlier this year, the Associated Subcontractors of Massachusetts hired Robinson+Cole attorney Joseph Barra to submit an amicus brief to the Massachusetts Supreme Judicial Court for consideration in the appeal pending before it in Business Interiors Floor Covering Business Trust v. Graycor Construction  Co., Inc. In its June 17, 2024 decision in that case, the Court interpreted the Massachusetts Prompt Pay Act, which applies to private construction projects and “requires that parties to a construction contract approve or reject payment within” an allotted time period and in compliance with certain procedures else such payments will be deemed approved. Two years ago, the Massachusetts Appeals Court, in Tocci Building  Corp. v. IRIV Partners, LLC , decided that an owner who fails to timely advise its general contractor of the reasons as to why it was withholding payment, coupled with failure to certify that such funds are being withheld in good faith, violates the Prompt Pay Act and makes the owner liable for funds owed.[1] However, the Tocci Building Court left open the question of whether one who violates the Prompt Pay Act forfeits its substantive defenses to non-payment, such as fraud, defective work, or breach of material obligation of the contract.

                The facts of Business Interiors involve a general contractor, Graycor, which subcontracted Business Interiors to perform certain flooring work for a movie theatre in Boston’s North End. When Graycor failed to formally approve, reject, or certify, in good faith, its withholding of payment of three of Business Interiors’ applications for payment as prescribed by the Prompt Pay Act, Business Interiors brought suit alleging, among other things, breach of contract. Business Interiors then moved for summary judgement arguing that Graycor’s failure to comply with the Act rendered it liable for the unpaid invoices.

                Graycor argued to the Court that it had a common law defense (of impossibility, due to the project’s shut-down during the pandemic), and that the Prompt Pay Act should not preclude a general contractor from asserting common-law defenses to a breach of contract claim based on failure to pay. Noting that the Prompt Pay Act does not address common-law defenses, the Court found that it does not preclude all common-law defenses categorically. The Act does, however, require that payment of approved (or deemed approved) invoices must be made before such defenses can be raised. And because Graycor had not made payment before attempting to raise its defenses in litigation, the Prompt Pay Act did not permit the trial court to consider Graycor’s defenses to Business Interiors’ claims.

                Practically speaking, the Court’s decision will allow parties to a construction contract to maintain the flow of project funds necessary to keep the project moving and compels the parties who dispute payment to raise those objections in a timely matter in accordance with the Prompt Pay Act.

                This post was authored by Erica Whaley, candidate juris doctor, Roger Williams University School of Law. Erica is not yet admitted to practice law.

                [1] Attorney Barra also submitted an amicus brief in Tocci Building.

                The Connecticut Appellate Court recently provided guidance on what does not constitute property damage under a typical contractor’s Commercial General Liability (CGL) insurance policy in Westchester Modular Homes of Fairfield County, Inc. v. Arbella Protection Ins. Co., 224 Conn App. 526 (2024). In this case, the contractor defended construction defect claims brought by an owner and then sued its insurer to recover $500,000 in defense costs for failing to provide a defense under the contractor’s policy. In Connecticut, an insurer is obligated to provide a defense based on what is alleged in a complaint and if it has actual knowledge of any facts establishing a reasonable possibility of coverage. The contractor provided extrinsic evidence for two defects claimed by the owner: (1) windows were installed improperly such that water was collecting and will continue to collect in the window soffit areas and eventually rot the wall, and (2) the vapor barrier was not installed in the second-floor ceiling which will result in water condensation and water damage to the roof structure if not remedied.

                The insurer relied on typical provisions included in most CGL policies. The insurer has no duty to defend the insured against any suit seeking damages for property damage to which the insurance does not apply. The term “property damage” is defined as “physical injury to tangible property, including all resulting loss of use of that property.” Under well-established Connecticut law, the phrase “physical injury” unambiguously connotes damage to tangible property, causing an alteration in appearance, shape, color, or some other material dimension. It is also well-established that claims for property damage caused by defective work are covered under a CGL policy but claims for repair of the defective work itself are not. The insurer denied any duty to defend because no coverage was triggered under the liability policy. Both parties moved for summary judgment.

                The Appellate Court affirmed the superior court’s decision to grant summary judgment in favor of the insurer. The Appellate Court confirmed that the contractor failed to allege that construction defects caused damage to other non-defective property and rejected the contractor’s extrinsic evidence of potential future damage from the water intrusion. Allegations that a contractor’s faulty workmanship could lead to future property damage if not remedied do not constitute a claim for property damage covered under the contractor’s CGL insurance policy. Nor is notification of the mere presence of water, without some corresponding physical damage, sufficient to provide an insurer with actual knowledge of the facts establishing a reasonable possibility of coverage required to trigger an insurance company’s duty to defend.

                Below is an excerpt of an article co-authored by Labor and Employment Group lawyers Abby Warren and Jessica Pinto, which was published in the latest edition of PE magazine, the flagship publication of the National Society of Professional Engineers.

                On January 10, 2024, the US Department of Labor (DOL) published a final rule revising previous guidance on employee and independent contractor status under the Fair Labor Standards Act (FLSA) – a reminder for employers to ensure proper classification of workers. Misclassification poses serious risks to employers as it may deny workers proper protections and benefits and result in fines, penalties, payments, and other liability. Engineers may be susceptible to misclassification due to the varying nature of work among different sectors, contractual or project-based work, and remote work in different locations. Read the full article.

                Below is an excerpt of an article published in the Winter 2023 issue of CONNstruction magazine, the quarterly publication of the Connecticut Construction Industries Association.

                After several decades, Governor Ned Lamont signed a bill into law, effective July 1, 2023, An Act Concerning Liability for False and Fraudulent Claims, Public Act No. 23-129, eliminating language that previously limited enforcement of Connecticut’s False Claims Act to claims relating to a state-administered health or human services program. The revisions dramatically expanded potential liability under the False Claims Act, allowing both private citizens and the Attorney General to bring actions under the Act in any context, including the construction industry. Consequently, contractors, subcontractors, suppliers and design professionals on public construction projects in Connecticut must be familiar with this newly enacted law and take steps to reduce the risks of doing business on such projects.

                Construction and construction-related entities now need to make additional efforts to ensure any submissions to state or local governmental entities are accurate. In general, the Act broadly prohibits individuals and entities from knowingly presenting or utilizing false information to make a claim for payment or receive funds from the State of Connecticut, except for any claim, record, or statement made or presented relative to the payment of any tax to the state. The statute does not limit enforcement of the Act to any particular part of a project, nor does it limit its application to specific parties. Rather, the Act applies to any application for or receipt of state funds, meaning that the Act’s enforcement on public construction projects applies equally to contractors, subcontractors, suppliers and design professionals; it may even apply to claims consultants and others submitting claims to the state on behalf of a contractor. Read the full article.

                The American Arbitration Association (AAA), one of the longest-standing and experienced alternative dispute resolution (ADR) administrators, has unveiled a significant update to its Construction Industry Rules and Mediation procedures. This update, last revised in 2015, became effective March 1, 2024. Changes to the AAA Construction Industry Rules are significant as these rules are incorporated by default in American Institute of Architects standard construction forms, which are widely used in the industry.

                Advancements in remote access technology drive a substantial number of new changes. Others are designed to streamline the arbitrator appointment process and certain prehearing procedures and to make arbitration more cost-efficient by enhancing the arbitrator’s case management authority. Some of the more notable changes are:

                Fast Track

                F-1:  The limit for cases eligible for AAA’s Fast Track Procedures has been increased from $100,000 to $150,000 so long as no claim or counterclaim exceeds that amount.

                F-8: Consolidates two prior rules into one. The new rules specify that motions are not permitted under the fast-track procedure except for good cause shown. Additionally, discovery is not permitted under the fast-track procedure except in extraordinary circumstances. The rule clarifies that a case may be removed from the fast-track procedure if discovery is allowed.

                Regular Track Procedures

                R-7: The rules governing consolidation and joinder have been clarified and streamlined. Requests for consolidation and joinder must now be filed before the merit arbitrator is appointed unless good cause is shown, and prejudice will result if not granted. Additionally, if a party fails to object to a request for a joinder, that party waives any objection to the request.

                R-23: Preliminary hearings may now, by Rule, be held via videoconference, telephone, or in person.

                R-34: Arbitrators are now required to consider the cost of preparing and opposing a dispositive motion in determining whether to allow a party to file such a motion. The arbitrator may now assess fees and costs associated with such motion’s practice.

                R-39: Requests for an emergency arbitrator will now be fulfilled no later than three days after the request is made.

                R-44: Parties may now serve notice and communicate via electronic means and platforms.

                R-45: Codifies AAA’s policy and practice that AAA and arbitrators must keep all arbitration matters confidential.

                R-52: This rule modifies a previous rule that only allowed arbitrators to address clerical, typographical, technical, or computational errors in their awards. Arbitrators are now permitted to clarify their awards, although the merits of an award may not be reconsidered.

                Large Complex Disputes

                L-3: The threshold for appointment of a three-arbitrator panel has been increased from $1 million to $3 million.

                As the construction industry and legal professionals continue to embrace ADR and technological innovation, these rules promise to deliver a more efficient and effective arbitration process. Additionally, parties electing to arbitrate contractual disputes can always negotiate alternate procedures by contract. AAA Rule R-2(a) recognizes that “[t]he authority and duties of the AAA are prescribed in the agreement of the parties and in these Rules…”

                New York’s Prompt Pay Act, which sets the standards that govern private commercial construction contracts exceeding $150,000, was amended effective November 17, 2023. The Amendment known as Senate Bill 3539 provides two significant changes which advance the timing of payments from the owner to the contractor. First, Section 756-a now permits a contractor to submit its final invoice for payment to the owner upon substantial completion (as “such term is defined in the contract or as it is contemplated by the terms of the contract”). Failure to release retainage as required by the law will subject the party holding retainage to interest of one percent per month from the date the retention was due and owing. Under the prior version of the law, a contractor had to complete performance of all of its contractual obligations before submitting a final invoice for payment. Second, Section 756-c now provides that no more than five percent retainage may be retained by the owner, contractor, or subcontractor and, in no case, shall retainage exceed the actual percentage retained by the owner. The prior law set no limits for retention and allowed the owner, contractor, or subcontractor to withhold retainage of a “reasonable amount of the contract sum.” The new law applies to all contracts entered on and after November 17, 2023.

                In the wake of the U.S. Supreme Court’s decision in Students for Fair Admissions, Inc. v. President & Fellows of Harvard College, 600 U.S. 181 (2023) (SFFA), which limits the reach of race-based affirmative action programs in college admissions, a federal lawsuit was recently filed in the Eastern District of Kentucky alleging discrimination against the U.S. Department of Transportation’s Disadvantaged Business Enterprise (DBE) program: Mid-America Milling Co., LLC v. Department of Transportation, Case No. 3:23-cv-72.

                Initially adopted in 1983, the DBE program aimed to address discrimination in federally assisted transportation projects. Most recently, it was reauthorized in November 2021 when President Biden signed the Infrastructure Investment and Jobs Act (IIJA). The IIJA also mandated that 10% of all new surface transportation funding (which amounts to more than $37 billion) shall be expended through small business concerns owned and controlled by socially and economically disadvantaged individuals. The DBE program requires state and local transportation agencies receiving federal assistance to establish overall goals for the participation of disadvantaged business enterprises and contract-specific DBE subcontracting goals. The applicable federal regulations (15 U.S.C. § 637(d) and 13 C.F.R. § 124.103-104) require the local transportation agencies to presume that certain racial and ethnic groups and women are socially and economically disadvantaged when considering bids for federally funded projects.  

                The plaintiffs in Mid-America have challenged the use of the DBE presumption when determining whether a person is socially disadvantaged on the grounds that such an affirmative action program giving preference to certain companies based on race and gender constitutes unconstitutional racial discrimination. The plaintiffs allege that such a program prevents them from competing on government contracts on equal footing with firms owned by women and certain racial minorities and should be permanently dismantled under SFFA.

                The plaintiffs seek a court order declaring the race and gender-based classifications in the DBE program unconstitutional and an order to enjoin the federal government from applying both the presumption of social disadvantage in the DBE program and the IIJA 10% set aside for socially and economically disadvantaged individuals. Mid-America may be heading toward the U.S. Supreme Court, where the viability of the DBE program will hang in the balance.