Introduction
Billions of dollars are spent on construction projects across New York state each year. For all but the smallest projects, a written construction contract governs the relationship between the parties involved. For smaller projects, the contractor typically issues a proposal describing the work, price and payment terms, which may be accepted through payment or performance. For more complicated projects, the contract may contain lengthy legal terms and conditions, and may also define the responsibilities of subcontractors, architects, engineers, and suppliers. This article provides a general overview of the terms commonly found in private and public construction contracts, with a focus on terms that, if not adhered to, may result in a waiver of claims.
Forms of Construction Contracts in New York
A construction contract in New York can take many forms. Fixed price contracts, generally the riskiest from a contractor’s point of view, involve a lump price with minimum flexibility for price adjustment in the event of unforeseen conditions or other deviations from a defined scope. Cost-plus contracts provide an alternative to this arrangement by providing the contractor a fixed profit margin in addition to its costs. These may or may not be subject to a guaranteed maximum price (GMP). Finally, unit price contracts base payment on the quantities of work completed, allowing for the most flexibility for price adjustments. This can be useful for circumstances, such as masonry restoration or roof decking replacement, where the quantities are not known upfront. The form of the contract will depend on a variety of factors including the size of the project, whether the project is private or public, and whether a bidding process proceeds the award of the contract.
Key Terms
All construction contracts should contain certain essential terms. These include a well-defined scope of work, a payment schedule, a project schedule defining certain benchmarks for completion, a procedure for changes in the work, a warranty, indemnification and insurance language, and a dispute resolution procedure. From a contractor’s point of view, it is especially important to understand and comply with provisions regarding modifications to the original scope of work, often referred to as “change orders”. For example, a contract may include a provision requiring a contractor to notify the owner of the condition necessitating the additional work within a certain time after discovery. These deadlines are often short. Failure to comply could result in a waiver of the contractor’s claim for payment for the extra work.
Another issue which frequently leads to litigation is claims for costs resulting from delay, also known as “delay damages”. Such damages may not be compensable even if delays are caused through no fault of the contractor. This is a result of commonly included no-damage-for-delay clauses, which are a feature of most public works contracts and larger private contracts. This can be hugely consequential to a contractor due to the high costs associated with mobilization and remobilization, material and labor cost escalation, and disruptions to the sequencing of the work.
The New York Court of Appeals placed limits on the enforceability of these no-damage-for-delay clauses in Corinna Civetta Const. Corp. v. City of New York, 67 NY2d 297 (1986). Specifically, the Court of Appeals confirmed the following exceptions to the enforceability of these clauses: “(1) When delays were not contemplated at the time of contract; (2) delays so unreasonable to be considered abandonment of the contract; (3) delays caused by a breach of a fundamental obligation under the contract; and (4) delays through bad faith, fraudulent misrepresentation, willful or grossly-negligent conduct.”
In practice, the Corinna Civetta exceptions are applied narrowly and in increasingly limited circumstances, as evidenced by the New York Appellate Division, Second Department’s decision in Plato General Construction Corp. v. Dormitory Authority of State of New York, 89 AD3d 819 (2d Dept. 2011). In Plato, the Second Department reversed an award of delay damages to the Plaintiff contractor, finding that the evidence proffered by the contractor regarding the source of the delays was not enough to implicate the Corinna Civetta exceptions. The Plato decision held that poor administration and planning of a project, absent clear bad faith conduct, is generally insufficient to avoid the enforcement of a no-damage-for-delay clause.
There is an extremely high bar for proving delay damages even if a contract permits recovery of delayc damages or a contractor can satisfy one of the exceptions set forth in Corinna Civetta. In Manshul Constr. Corp. v. Dormitory Authority of New York, 79 A.D.2d 383 (1st Dept. 1981), the First Department made clear that delay damages are compensable only if it is proven that such costs are excess direct costs due to delay and over what the cost would have been but for the delay. As such, a showing of concurrent delays may defeat a contractor’s claim for delay damages. It is common for parties to hire expert witnesses to perform a critical path method analysis (CPM) to evaluate the apportionment of responsibility for delays on a construction project.
Special Construction for Public Works Contracts
When contracting with a governmental authority in New York for a public works contract, there are a number of unique provisions that must be adhered to. As a preliminary matter, a contractor awarded a public works contract after a competitive bidding process will have almost no leverage to negotiate the terms that appear in the standard form contract. Accordingly, the contractor must have a comprehensive understanding of the provisions it contains, and strictly comply with those provisions to a avoid a waiver of claims.
Notice provisions are of particular importance because, in some cases, failure to strictly comply with their requirements can result in a waiver of valuable claims. Furthermore, a notice requirement in a contract may supplement, refer to, or incorporate a statutory notice requirement such as Public Authorities Law Sec. 1744(2), which provides, in relevant part:
No action or proceeding for any cause whatever, other than one for personal injury, death, property damage or tort ... shall be prosecuted or maintained against the authority ... unless (i) it shall appear by an allegation in the complaint . . . that a detailed, written, verified notice of each claim upon which any part of such action or proceeding is founded was presented to the board within three months after the accrual of such claim ... In the case of an action or special proceeding for monies due out of contract, accrual of such claim shall be deemed to have occurred as of the date payment for the amount claimed was denied."
In Hilt Construction vs. the New York City School Construction Authority, 2020 N.Y. Misc. Lexis 9497, the Supreme Court, New York County was presented with the question of what actions on the part of a governmental owner may constitute a “denial” for purposes of triggering the notice requirement set forth in Public Authorities Law Sec. 1744. The School Construction Authority filed a motion to dismiss the Plaintiff’s complaint on the basis that a denial ostensibly occurred when the School Construction Authority issued a unilateral change order, establishing the value of certain work for purpose of progress payments, and when its architect issued answers to requests for information directing the contractor to perform the work “as per base contract scope”. The court held that these documents were sufficiently clear denials of the contractor’s claim for payment to trigger the limitations period. Contractors should be mindful that limitations period for asserting claims against a government owner are often shortened by contractual and statutory provisions. When in doubt, contractors should err on the side of caution by promptly notifying a government owner of potential claims and submitting all required documentation in to substantiate this claim as soon as practicable.
Conclusion
Construction contracts should always be reviewed by an attorney with industry experience to minimize risk. Even in cases where there is little room to negotiate, such as public works contracts, it is beneficial to consult with an attorney regarding the intricacies of the standard form contracts. It is particularly important to understand the procedure and timeframe for asserting claims, as failure to do so properly may result in waiver.
Are you an owner or contractor negotiating a construction contract or a disputed contract claim in New York? If so, contact Garrett Cusack or any of our attorneys at (917) 932-0922 to navigate you through the process effectively and to clearly explain your rights and obligations.
About Author
Garrett Cusack graduated from the University of Maryland School of Law in 2019, where he served as an Editor of the Journal of Business & Technology Law. Read more.
Questions? Contact us today.
Related Articles
