Contractor’s Insistence That Subcontractor Execute Release Not Required By Subcontract As Condition To Final Payment Permits Imposition Of Penalty Interest Under Pennsylvania Contractors And Subcontractors Payment Act

Scandale Associated Builders & Engineers, Ltd. v. Bell Justice Facilities Corp.
No. 4:03-CV-1773, 2007 U.S. Dist. LEXIS 25112 (M.D. Pa. April 4, 2007)

In January 2001, Scandale Associated Builders & Engineers, Ltd. (“Scandale”) entered into a subcontract (“Subcontract”) with Bell Justice Facilities Corporation (“Bell”) for work on the construction of the U.S. Penitentiary/Federal Prison Camp at Canaan, Pennsylvania (“Prison”). The Subcontract required Scandale to perform cast-in-place concrete work on the Prison. Bell was the general contractor and the United States through the Federal Bureau of Prisons was the Owner.

Scandale began its work in May, 2001 and completed its work in July, 2003. The project was delayed by, among other things, suspension of the earthwork for 54 days. The 54 day delay led to Bell’s earthwork subcontractor abandoning the project which increased the delay substantially.

After presentation of the Scandale’s case in chief, Bell submitted a Motion for Judgment as a Matter of Law (“Rule 52 Motion”) as to the three remaining counts of the complaint, 1) breach of contract 2) delay and impact costs claim; and 3) Pennsylvania Contractors and Subcontractors Payment Act (“PCSPA claim”).

Scandale submitted its brief in opposition to Bell’s Rule 52 Motion and the Court found that Bell was entitled to judgment as a matter of law on the delay and impact costs claim, but not as to the PCSPA claim. (Bell conceded that Scandale was entitled to judgment as a matter of law on its breach of contract claim in the amount of $287,307).

Bell contended that it was entitled to a judgment as a matter of law with respect to Scandale’s delay and impact costs claim because, among other reasons, 1) the “no damages for delay” provision in the Subcontract was enforceable and 2) Change Order 11 constituted a full accord and satisfaction.

The Court recognized that in Pennsylvania, an owner or general contractor cannot enforce a “no damages for delay provision” when the owner or general contractor affirmatively interferes with a contractor’s work or fails to act in some essential matter necessary to the prosecution of the work. Accordingly, because Scandale presented evidence that Bell actively interfered and failed to act in some essential matters, its delay claim was not as a matter of law barred by the “no damages for delay” clause.

However, the language in Change Order 11 was found to explicitly release all claims, precluding Scandale’s delay claim. Change Order 11 stated, in relevant part, “This Change order represents full and final settlement for time and money for the work required in this change, including delays…and other impact costs associated with this change.” The Court found that Change Order 11, executed by Scandale, contained comprehensive release language and regardless of Scandale’s claimed intent not to release delay claims, it in fact did so.

With respect to the PCSPA claim, the Court found that the PCSPA claim remained a viable claim and judgment thereon would be reserved until after Bell had a chance to put on its case once the trial resumed.

Specifically, the Court determined that although Bell contended Scandale, pursuant to the contract, was required to sign a final waiver prior to final payment, no such provision existed in the Subcontract and therefore Bell’s contention failed. Further, the Court rejected Bell’s argument that because it tendered the contract balance to Scandale, Bell was in compliance with the PCSPA. However, because the tender was predicated upon Scandale signing a final waiver, again, not required by the Subcontract, Bell’s qualified offer did not indicate it was in compliance with the PCSPA. Finally, the Court concluded Bell’s contention that it acted in good faith when it tendered payment to Scandale and therefore it fell within the “good faith exception” to the PCSPA’s penalties was insufficient. The Court agreed with Scandale, that Bell’s actions were motivated by its desire to have Scandale execute a final waiver and that was the type of behavior the PCSPA was designed to prevent.

Click here to view full opinion as PDF (provided with the permission of LexisNexis).

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