Pennsylvania Court Requires Strict Compliance With Conditions Precedent to Payment on Public Contract; Construes Attorneys Fee-Shifting Provision in “No Damage for Delay” Clause

Boro Construction, Inc. v. Ridley School Dist.
2010 Pa. Commw. LEXIS 124 (Pa. Commw. Ct. Mar. 8, 2010)

The Pennsylvania Commonwealth Court ruled that where a contractor failed to submit an application for final payment, a school district was excused from its duty to tender final payment. At the same time, the Court held that the school district was not entitled to attorney’s fees pursuant to language in the contract’s no damage for delay clause because the clause specifically stated that the contractor was only required to reimburse the agency if it “loses [the] litigation,” and in this case, the contractor defeated some of the agency’s counterclaims.

Boro Construction, Inc. and Ridley School District entered into two contracts for the construction of a new high school building. Both contracts contained numerous provisions detailing the procedures that Boro was required to follow prior to receiving payment. When the District failed to pay the final sums due under the contracts, Boro filed a complaint in the Court of Common Pleas of Montgomery County alleging that the District was in breach of both contracts. The District subsequently filed its answer, which included counterclaims seeking, amongst other things, damages for doors that were allegedly installed improperly by Boro. In addition, the District sought attorney’s fees pursuant to language in the “no damage for delay” clause in the contract. Specifically, the clause stated that “in the event the Contractor shall choose to litigate…loses said litigation, the Contractor shall reimburse the Owner, Construction Manager, and the Architect for their reasonable [attorney’s fees and all other expenses].” The trial court entered a verdict in favor of the District on Boro’s complaint and in favor of Boro on the District’s counterclaims. Both parties appealed.

On appeal, the Court noted with respect to Boro’s claim for final payment under the contracts that it is well settled that the fundamental rule in construing the provisions of a contract is to ascertain and give effect to the intention of the parties. Where the contract terms are clear and unambiguous, the intention of the parties must be ascertained from the document itself. Furthermore, as public contracts, these agreements were subject to the Pennsylvania Procurement Code, which provides, in pertinent part, that “the government agency shall pay the contractor strictly in accordance with the contract.” Thus, if a contract contains a condition precedent, the condition must be met before a duty to perform under the contract arises, and where the duty is not fulfilled, the contract lays dormant and no damages are due for non-performance. These particular contracts both contained multiple conditions precedent to the District’s obligation to pay, including submission of a payment application and a certificate issued by the architect and construction manager, supplier and laborer payment information, and insurance information. Boro was required to establish that it strictly complied with the final payment provisions, but instead did not even dispute its failure to do so. Rather, Boro unsuccessfully argued that the District committed an anticipatory breach of the agreements thereby relieving Boro of its duty to submit the required information. When the court determined that Boro’s argument was without merit, it upheld the trial court’s decision that it was not entitled to the balance due on the contracts because of its failure to submit the final payment applications.

Next, the Court addressed the District’s request for attorney’s fees. The District asserted that because Boro pleaded, litigated, and did not succeed on a claim for delay damages in contravention of the clause referenced above, the trial court erred in failing to award attorney’s fees under that section. The Court explained that fee-shifting provisions in a contract are construed in accordance with their plain and ordinary meaning. In this case, that meant that Boro would have to be the “losing party” in order for the District to win its attorney’s fees. When it considered the merits of the District’s claims, the trial court found that it had failed to meet its burden of proof that Boro was responsible for the improper installation of the doors. It then concluded that the District was not entitled to damages as a substantially prevailing party under the clear terms and provisions of the contract. This Court found that in light of the trial courts decision and the specific language of the contracts, the trial court properly determined that it was not entitled to award attorney fees because Boro prevailed on the counterclaims.

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