Massachusetts Supreme Court Declares That State Contract Principles, Not Federal Precedent, Govern the Interpretation of Termination for Convenience Clauses

A.L. Prime Energy Consultant, Inc. v. Mass. Bay Transport Auth., 479 Mass. 419 (May 2, 2018)

In a case of first impression, the Massachusetts Supreme Court held that general contract principles, and not federal case law, govern the treatment of termination for convenience clauses in state procurement contracts.

In January 2015, the Massachusetts Bay Transportation Authority (“MBTA”) issued an invitation for bids for the supply of ultra-low sulfur diesel fuel for a two year term.  Following bidding, the MBTA awarded the contract to A.L. Prime Energy Consultant, Inc. (“Prime”) in July 2015.  The contract included a termination for convenience clause that provided:

The [MBTA] may, in its sole discretion, terminate all or any portion of this Agreement . . . at any time for its convenience and/or for any reason by giving written notice to the Contractor thirty (30) calendar days prior to the effective date of termination. . . . (emphasis added).

Approximately a year later, the MBTA determined that it could acquire its fuel supply from a different supplier at a lower price.  Accordingly, the MBTA notified Prime of its intent to terminate the contract for convenience. Continue reading

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Federal Court in California Holds That Subcontractor May Proceed With Claim for Delay Damages, Despite No-Damage-For-Delay Clause, Where Changes to the Work Amount to an Implied Abandonment of the Subcontract

Rai Indus. Fabricators, LLC v. Fed. Ins. Co., 2018 U.S. Dist. LEXIS 74612 (N.D. Cal., May 2, 2018)

Sauer Incorporated (“Sauer”) contracted with the U.S. Army to design and construct the Operational Readiness Training Complex at Fort Hunter, California.  Sauer subcontracted with Agate Steel, Inc. (“Agate”) for the erection of steel for the project.  Agate’s subcontract with Sauer contained a no-damage-for-delay clause, which generally provided that extensions of time were Agate’s sole remedy for delay.

According to Agate, the project suffered from substantial delays because of the acts and omissions of Sauer.  In particular, Agate alleged that Sauer failed to properly coordinate the work of its subcontractors, failed to follow the project’s schedules, failed to follow the subcontract’s change order procedures, and made unanticipated changes to the project’s scope and work flow sequence. Agate argued that these delays constituted a cardinal change and/or abandonment of the subcontract, which rendered the no-damage-for-delay clause unenforceable.  Agate sued Sauer for damages from the delays and disruptions to its work.  Continue reading

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Subcontract Provision Requiring Subcontractor to Pass Through its Claims Does Not Prevent the Subcontractor From Suing to Recover Against Miller Act Bond

Pinnacle Crushing & Constr. LLC v. Hartford Fire Ins. Co., 2018 U.S. Dist. LEXIS 67965 (W.D. Wa. Apr. 23, 2018)

The Army Corps of Engineers (the “Corps”), as owner, and Cherokee General Corporation (“CGC”), as prime contractor, entered into a contract (the “Contract”) in connection with work at the Yakima Training Center (the “Project”).  CGC subcontracted with SCI Infrastructure (“SCI”) for certain work related to the Project (the “SCI Subcontract”), and SCI subcontracted with Pinnacle Crushing & Construction, LLC (“Pinnacle”) (the “Pinnacle Subcontract”).  CGC obtained a Miller Act payment bond (the “Bond”) from Hartford Insurance Co. (the “Surety”) to provide coverage for labor and materials supplied in carrying out the work.

After the Corps terminated the Contract with CGC, CGC submitted a claim under the Contracts Disputes Act.  As required by the SCI Subcontract, CGC asserted SCI’s pass through claims against the Corps, which included amounts allegedly owed to both SCI and Pinnacle.

Separately, SCI and Pinnacle sued CGC and the Surety to recover under the Bond for the work they performed under the subcontracts, but for which CGC had not paid them. Continue reading

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Under Louisiana Payment Act, Once Contractor Meets Contractual Requirements for Final Payment, Public Entity Has a Duty to Issue Final Payment and Has No Discretion to Withhold Payment Based on a Separate Claim Against Contractor

Woodrow Wilson Constr. LLC v. Orleans Par. Sch. Bd.,  2018 La. App. LEXIS 762 (April 18, 2018)

The Orleans Parish School Board (“OPSB”) awarded a prime contract to Woodrow Wilson Construction (“WWC”) for the construction of a new elementary school (the “Project”).  On May 23, 2016, WWC submitted its request for payment of final retainage to OPSB.  OPSB withheld payment from WWC, claiming that WWC owed liquidated damages for the delays in completion of the Project, which allegedly exceeded the amount due to WWC.  WWC filed a petition for writ of mandamus pursuant to La. R.S. 38:2191(D) (the “Act”), which provides that “[a]ny public entity failing to make any … any final payment when due as provided in this Section, shall be subject to mandamus to compel the payment of the sums due under the contract …”  The trial court denied the petition and WWC appealed.  The question on appeal was whether OPSB may withhold final payment due under the Act because of alleged delays in the Project, despite the fact that liability for the delays had not yet been adjudicated.

Section A of the Act provides that “[a]ll public entities shall promptly pay all obligations arising under public contracts when the obligations become due and payable under the contract.  All … final payments shall be paid when they respectively become due and payable under the contract.”  Under the prime contract, retainage was due upon the occurrence of six enumerated requirements.  The Court determined that these requirements were all satisfied as of May 23, 2016 and therefore final retainage was due to WWC as of that date.  The Court further found that upon satisfaction of these requirements, the public entity owed a ministerial duty to issue final payment.  By providing the right to mandamus relief in the Act, the legislature intended to eliminate the public entity’s discretion to withhold payment from a contractor.  Continue reading

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Void Means Void – Municipal Contract That Did Not Conform to Statute Is Void and No Claim for Breach or Quasi-Contract or Unjust Enrichment Is Permitted

Aquatic Renovations Sys. v. Vill. of Walbridge, 2018 Ohio App. Lexis 1581 (April 13, 2018)

This post was published on July 7, 2018 in The Pennsylvania Record.

On May 2, 2012, Aquatic Renovations Systems, Inc. (“Aquatic”) entered into a contract with the Village of Walbridge (“the Village”) for the installation of a new pool liner (“Contract 1”).  Prior thereto, the Village council adopted an ordinance which authorized the mayor to enter into Contract 1 (“Ordinance”).  On April 12, 2013, the mayor signed a new contract for the balance of the work (“Contract 2”).  A few days after Aquatic completed its work, the pool liner began to lift.  The Village then refused to pay Aquatic for the completed and approved work.

Aquatic sued the Village for non-payment, alleging the Village breached Contract 2.  Aquatic also alleged that the Village was liable under a theory of quantum meruit and unjust enrichment.  The trial court granted the Village’s motion for summary judgment, holding that Contract 2 was not valid because it did not comply with the Ohio Revised Statute which required the mayor, the clerk, and the Village administrator to authorize all Village Contracts.  Thus, because Contract 2 was unenforceable, Aquatic could not recover under a breach of contract, quantum meruit or unjust enrichment theory.    Continue reading

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