Volume: 18, Issue: 17 - 09/16/2020
This issue could be subtitled “Bonding Companies Behaving Badly.” Two cases involved sureties engaged in sharp, heavy-handed tactics. One got its way. The other didn’t. In this week’s first case, a surety informed the project owner that its indemnification agreement with the bonded contractor gave the surety the right to the contractor’s contract payments. The surety instructed the owner to direct all payments to the surety, even though the owner had not terminated the contractor for default and considered the contractor entitled to an outstanding progress payment and, eventually, the contract retainage. The surety got its way. The General Indemnity Agreement assigned all the contractor’s payment rights to the surety, even in the absence of default, and this was enforceable against the contractor. The third case this month is a no-damage-for-delay clause unenforceable on a Pennsylvania project. Read more.
Under the terms of a General Indemnity Agreement imposed on a contractor by its bonding company, the surety could usurp the contractor’s progress payment, retainage and any other contract payment even in the absence of a declaration of default by the federal project owner. The government had discretion to waive the application of the federal Anti-Assignment Acts.
A project owner’s failure to require shop drawings or to perform inspections prior to issuing progress payments did not discharge a performance surety of its bond obligations. Owner quality assurance measures are for the sole benefit of the owner. It is the responsibility of the surety to monitor the performance of its bonded contractor.
A “no-damage-for-delay” clause was unenforceable because the project owner issued the notice to proceed knowing a lead contractor had not completed its work and the follow-on contractor would not have full access to its work area. This was affirmative interference with the contractor’s work. And, despite the absence of critical path analysis, the contractor had established causation and damages. The contractor had not simply applied a “total cost” calculation.
Volume: 18, Issue: 16 - 09/01/2020
Construction contract disputes do not reach the federal appeals court level on a frequent basis. When they do, the rulings can immediately impact federal construction contracting and can be influential in subsequent state court decisions. This issue features two rulings by the U.S. Court of Appeals. This week's issue contains two major decisions - one dealing with limitations of amount of work that can be subcontracted out and the other dealing with the reasonableness of interpreting subsurface conditions in order to justify a differing site conditions claim. Read more.
A performance surety could not use the alleged illegality of its principal’s construction contract to rescind the bond prior to project completion. The federal regulation limiting subcontracting on set-aside contracts is based on total personnel expenditures to complete the work, not a comparison of the prime contract and subcontract amounts.
A contractor’s interpretation of subsurface data may have been less unreasonable than the government’s interpretation, but the contractor still had the burden of showing it had interpreted the contract documents reasonably. It had not. The contractor could not recover for a differing site condition despite the comparative unreasonableness of the government’s position.
Volume: 18, Issue: 15 - 08/17/2020
It is common for a project owner to furnish equipment for its own project. Procuring the equipment directly from a third party may provide the owner with cost savings or better project control. It raises the obvious question of division of responsibility between owner and contractor. This can be clearly addressed by explicitly listing owner-furnished and contractor-furnished equipment. Sometimes, however, it is not, as in this week's first case that proved costly to the contractor not only in direct costs, but 299 days of liquidated damages. This case also relied on testimony from scheduling experts to determine and apportion total project delay.
The second case this week also involved liquidated damages while the third case left a contractor holding the bag for heightened security measures on an overseas project. Read more.
Kitchen equipment for an assembly hall was not listed in the contract as contractor-furnished or government-furnished. But a requirement to provide a complete, operational facility made it the responsibility of the contractor. Government approval of final kitchen design documents omitting the equipment did not waive or alter the contract requirements. The contractor incurred the cost of procuring and installing the equipment, as well as the cost of 299 days of delay. The Board relied on the testimony of the scheduling experts to determine the various contractor, owner and concurrent delays incurred on the project.
A state payment statute authorized contractor recovery of interest and attorney fees for late payment of the amount due under the contract. The amount due could not be calculated without a determination of the public project owner’s entitlement to contractual liquidated damages.