U.S. District Court in Missouri Holds Three-Month Suspension of Work Due to Work Safety Concerns Did Not Constitute Unreasonable Delay to Work Permitting Subcontractor to Terminate Subcontract Under AIA-Type Provision

SAK Construction of CA, L.P. v. PSC Industrial Outsourcing, L.P.
2012 U.S. Dist LEXIS 123473 (E.D. Mo. 2012)

This action arose out of the Los Coyotes Water Reclamation Plant Interceptor Project in Los Angeles County, California. General Contractor, SAK Construction of CA, L.P. (“SAK”) was retained by the County to perform sewer rehabilitation work. SAK subcontracted with PSC Industrial Outsourcing, L.P. (“PSC”) to perform the inspection, cleaning, waste removal and disposal work on the Project. The Project consisted of rehabilitating 16 stretches or “shots” of pipeline.

Work commenced on December 9, 2009. As of November 14, 2010, PSC had completed its work on each shot, except Shot 8, which underlay the City of Downey, California. Shot 8 was recognized to be the most difficult work to complete. In 2010, the City of Downey, had implemented a holiday moratorium that precluded work within the City from Thanksgiving to the new year. Thus, cleaning on Shot 8 was scheduled to resume on January 5, 2011. Following the 2010 Christmas holiday season, however, a storm caused a back-up in the County’s sewer system near Shot 8. Due to safety concerns, the County informed SAK that no underground work on the Project could be carried out until April 18, 2011. On January 3, 2011, SAK, in turn, informed PSC’s project manager that work on the Project had been suspended until mid-April.

In mid-January 2011, PSC informed SAK that it would not complete the work on Shot 8 and that it was getting out of the municipal sewer cleaning business. On March 3, 2011, counsel for SAK wrote to PSC demanding full performance of PSC’s work under the contract. Counsel for PSC responded by letter dated March 9, 2011, stating that 110 days had passed since PSC was last engaged to perform work on the Project and stating that it was terminating the parties’ contract pursuant to Section 12.4, as the work had been “abandoned or suspended for an unreasonable period of time.”

After PSC refused to complete its work, SAK brought suit for breach of contract and unjust enrichment. In defense, PSC asserted that the Project had been suspended for an unreasonable period of time and that, pursuant to Section 12.4 of the parties’ contract, it was entitled to terminate. The Court first noted that the relevant time frame for determining the reasonableness of the work suspension was January 5, 2010 to April 18, 2011 (rejecting PSC’s arguments that two work suspensions prior to November of 2010 were relevant). The Court held that “under the nature of the contract and the factual setting presented, reasonable minds could draw only one conclusion . . . that a three-month suspension of work imposed due to concern for the safety of PSC’s and SAK’s workers does not constitute an unreasonable period of time.” As such, the Court granted summary judgment in favor of SAK.

Ann B. Graff

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