Federal District Court in Virginia Holds That Prime Contractor’s Payment Bond Surety Cannot Rely on No-Damages-For-Delay Clause in Subcontract to Limit Liability to Subcontractor Under Miller Act

United States v. John C. Grimberg Co., Case No. 1:16-cv-991, 2017 U.S. Dist. LEXIS 173362 (E.D. Virginia, October 19, 2017)

John C. Grimberg (“Prime Contractor”) was awarded a contract (the “Prime Contract”) to design and complete certain improvements at the FBI Academy in Quantico, Virginia (the “Project”).  Hartford Accident and Indemnity Company (“Surety”) issued payment and performance bonds for the Project pursuant to the Miller Act.  The Prime Contractor thereafter entered into a subcontract (the “Subcontract”) with Kitchens-to-Go (“Subcontractor”) to furnish, install, lease and remove a temporary kitchen facility for the Project.  The Subcontract contained a “no-damages-for-delay” clause, which provided that the Prime Contractor shall not be liable for delays beyond its control and that the Subcontractor is “entitled only to reimbursement for damages for delay actually recovered from the Owner.”  The Subcontract also incorporated the dispute resolution procedures in the Prime Contract, which required that all “disputes arising out of Owner acts, omissions or responsibilities” be submitted through an administrative process with the government’s contracting officer under 41 U.S.C. §§7101 et. seq.

The Subcontract originally contemplated a Project duration of approximately 13 months, ending on April 5, 2014, but was ultimately extended until June 27, 2015.  The Subcontractor submitted its Application for Payment to the Prime Contractor, which included $607,221 for extended rental of the kitchen facilities.  Although the Prime Contractor submitted a payment request to US Department of the Navy (“Owner”), for the extended rental and use of Subcontractor’s temporary kitchen facilities, this request was rejected by the Owner.  The Prime Contractor refused to pay Subcontractor’s Application for Payment and the Subcontractor filed a complaint against the Surety under the Miller Act.  Continue reading “Federal District Court in Virginia Holds That Prime Contractor’s Payment Bond Surety Cannot Rely on No-Damages-For-Delay Clause in Subcontract to Limit Liability to Subcontractor Under Miller Act”

Federal Court in Idaho Rules That a Government Contractor May Recover Consultant Fees, So Long as Those Fees Were Incurred in Contract Administration and Negotiation of an Equitable Adjustment But Denies Recovery Because the Consultant Failed to Maintain Proper Records

Tri-State Elec., Inc. ex rel. Apex Enters. v. Western Sur. Co., 1:14-CV-00245, 2017 U.S. Dist. LEXIS 4974 (D. Idaho Jan. 11, 2017)

The United States Department of Veterans Affairs (the “VA”) contracted with Sygnos, Inc. (“Sygnos”) for improvements to the electrical system at a VA hospital in Boise, Idaho. Sygnos subcontracted a portion of the work to Apex Enterprises, Inc. (“AEI”), who in turn subcontracted a portion of its work to Tri-State Electric, Inc. (“Tri-State”).  Delays plagued the project from the outset, and the work – originally scheduled for completion in 240 days – ultimately took more than 950 days to perform.  Disputes concerning responsibility for and the amount of delay damages ensued.

Sygnos submitted a request for equitable adjustment to the VA as a result of the delays. Receiving no timely response from the VA, Sygnos converted the request for equitable adjustment to a claim for delay damages under the Contract Disputes Act, which the VA and Sygnos settled for $645,000.  AEI and Tri-State subsequently sued Sygnos for delay damages they incurred on the project.  Sygnos did not dispute that AEI and Tri-State had suffered delays but it disputed some categories of damages claimed and cited the no-damage-for-delay clause in Tri-State’s contract as barring its claims. Continue reading “Federal Court in Idaho Rules That a Government Contractor May Recover Consultant Fees, So Long as Those Fees Were Incurred in Contract Administration and Negotiation of an Equitable Adjustment But Denies Recovery Because the Consultant Failed to Maintain Proper Records”

Missouri Court of Appeals Reverses Trial Court Decision That Subcontractor Could Claim Damages From a General Contractor Despite a “No Damages for Delay” Provision in the Subcontract Agreement

Roy A. Elam Masonry, Inc. v. Fru-Con Construction Corporation,
1996 Mo. App. LEXIS 481 (March 26, 1996).

On November 14, 1988, the general contractor, Fru-Con Construction Corp. (Fru-Con) entered into a construction contract with Southwestern Redevelopment Corp (SRC), the owner. In early 1989, Fru-Con and a subcontractor Roy A. Elam Masonry (Elam) entered into a subcontract for masonry work to commence September 1, 1989 with a completion date of July 1, 1990.

The terms of the General Contract were incorporated into the subcontract; however, the Subcontract also provided; “In the event of conflict between the contract documents and this subcontract, the provisions of this subcontract shall govern.” And included Article 3(c):

“Should Subcontractor be delayed by any act or omission of Contractor … or by any other cause beyond Subcontractor’s control and if the cause of delay is not due to any act or omission of Subcontractor, Subcontractor shall be entitled to request a reasonable extension of time … No payment of any kind, for compensation, or for damages, or otherwise, shall be made to Subcontractor … unless Owner is obligated to pay Contractor compensation or damages …”

Fru-Con encountered various problems prior to September 1, 1989, which greatly delayed the start of the subcontract. These schedule extensions resulted in Elam not beginning its work under the subcontract until November 1, 1990 – a delay of 14 months.

In March 1991, Elam sent to Fru-Con a “formal request for an equitable adjustment to our contract … based on the delay in the project that has caused us to incur unanticipated costs”. Fru-Con replied to Elam by informing them that their claim had been forwarded to SRC, and directed Elam to the terms of the subcontract.

In August 1991, Elam asserted that they were entitled to compensation due to the 14 month delay which was beyond Elam’s control, unreasonable in duration, and were beyond the contemplation of the parties. Elam stated that there was a significant body of case law (from jurisdictions outside of Missouri) indicating that under these conditions, a “no damages for delay” clause is legally unenforceable.

On July 23, 1992, Elam filed suit against Fru-Con for breach of contract requesting damages for costs caused by delay. Fru-Con answered by saying their damages was precluded by the subcontract. On August 3, 1992, Fru-Con filed a petition against SRC seeking damages (including Elam’s claim).

The trial court directed the jury that the issue raised by subcontract clause 3(c) was withdrawn from the case and should not be considered. Fru-Con appealed alleging that the trial court erred in removing Article 3(c) from the jury’s consideration. The Court of Appeals of Missouri agreed with Fru-Con’s contention, stating that the record showed that Fru-Con included Elam’s claim for damages in it own claim against SRC, which was still pending. Elam’s action was, at best, premature.

The Court of Appeals noted Article 3(c) was not, in fact, a “no damage for delay” clause at all. Elam was not absolutely barred from seeking damages for delay, but could recover, through Fru-Con, its share of those delay damages for which SRC is liable. Elam’s right to recover delay damages was, and is, contingent upon the success of Fru-Con’s pending action against SRC.

The court saw no reason why this unambiguous provision could not be enforced as written. The subcontract was agreed to by two experienced commercial entities, in equal bargaining positions. Its terms were readily ascertainable, and applied to all delays, regardless of whether the delay was contemplated or reasonably foreseeable by the parties. Elam could still recover delay damages if SRC were obligated to Fru-Con for the same; its right to seek such damages has not been extinguished. Therefore, the judgment of the trial court was reversed and the cause was remanded for dismissal of Elam’s action as premature.