Pennsylvania Commonwealth Court Holds Written Notice of Claim Requirement Excused and Accepts “Measured Mile” Method of Proving Inefficiency Damages

James Corp. v. North Allegheny School District
No. 1268 C.D., 2007 Pa. Commw. LEXIS 636 (Pa. Commw. Ct. Nov. 30, 2007)

The Pennsylvania Commonwealth Court held that the “measured mile” method of proving damages for an acceleration claim was legally sufficient to establish the extent of the contractor’s damages. The Court also held the contractor’s failure to provide notice in accordance with the contract was not fatal to the claim, and that attorney fees and expenses under the Prompt Payment Act must be apportioned to those fees and expenses associated with recovering payment’s due under the contract.

Plaintiff James Construction (“Contractor”) entered into a contract with Defendant North Allegheny School District (“Owner”) for renovations to the Hosack Elementary School (“Project”). The Owner also hired a construction manager to oversee the Project and administer the Project’s schedule. The project was afflicted with several Owner caused delays.

Accordingly, the construction manager recommended that the Owner grant an extension of time for the Contract to complete the Project. The Owner refused to grant an extension of time and terminated the construction manager. The replacement construction manager informed the Contractor that it was to complete the Project in accordance with the original schedule. Despite the delays to the Project, the Contractor finished the Project in accordance with the original completion date. In the end, the owner terminated the Contractor for alleged failure to perform certain punch list work.

The Contractor initiated suit against the Owner seeking to recover acceleration damages it incurred due to the Owner’s refusal to recognize construction delays and adjust the Project completion date accordingly. The Contractor alleged that it had accelerated to achieve the Project completion date. The Contractor also sought damages under Pennsylvania’s Prompt Payment Act, 62 Pa. C.S. 3902, et seq., claiming that Owner withheld payments under the contract in bad faith.

At trial, the Contractor used the “measured mile” method to calculate its damages resulting from accelerated efforts to achieve the Project completion date. Under this approach, the Contractor compared the cost of performing work not subject to delay or acceleration with the cost of performing work during the period of impact, the difference representing the measure of damages. The Contractor’s claim expert divided the Project into two time periods comparing the percentage of work completed in each time period to the number of labor hours utilized. The claims expert derived an efficiency factor from this comparison, which was used to compute the number of inefficient hours incurred during the impacted period, which were multiplied by the applicable hourly rates. On appeal, the Court determined that this method was legally sufficient. The Court held that damages need not be calculated with mathematical precision, but there only need be a reasonable basis for the calculation. The Court noted that although this was the first Pennsylvania appellate case considering the measured mile approach, the approach had been considered in the Pennsylvania Board of Claims.

The Court also considered the Owner’s argument that the claim should have been barred Contractor did not provide formal written notice of its claim within 21 days as required by the contract. The Court concluded that formal notice was not required. First, the Contractor would not have been able to accurately assess the damages associated with inefficient labor until after Project completion. Additionally, the Owner had actual notice of the circumstances giving rise to the claim. The Court concluded that these factors satisfied the contract, albeit informally. Further, the Court considered it significant that the Owner failed to demonstrate that any prejudice from the Contractor’s failure to submit a written claim. The Court also held that because the Owner had interfered with the Contractor’s performance, and because it was clear it would not have granted an extension, a “no damage for delay” clause did not bar the acceleration claim.

Finally, the Court also reviewed the award of attorney fees and expenses under the Prompt Payment Act. The Court accepted the Owner’s argument that Act supported recovery only of attorney fees and expenses the extent they were expended in pursuit of payments due under the contract as opposed to the acceleration damages. It held that the trial court had properly allocated the attorneys fees, and held that it was not objectionable that the fees exceeded the amount recovered. However, the Court refused to allow the recovery of expert fees because the expert’s testimony pertained only to damages due for the Contractor’s acceleration efforts.

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

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