Construction Channel Cases of the Month

Cases of the Month

Significant Cases and Decisions Affecting the Construction Industry

By: Joseph H. Bucci, Esquire
Saul Ewing LLP

January 2017

1. For a General Contractor to prevail on its claim against the surety of a Subcontractor under a performance bond, the Contractor must comply strictly with the procedural terms of the Subcontractor’s bond. Arch Insur. Co. v. John Moriarty & Associates of Florida, Inc., 2016 WL 7324144 (U.S. Dist. Ct., S.D. Florida) December 12, 2016.

* What the Court Considered: The Court looked closely at the four corners of the Subcontractor’s performance and payment bond to determine whether or not the General Contractor complied with the conditions precedent of the bond before the Contractor unilaterally proceeded to complete the Subcontractor’s scope of work without the surety’s consent.

* What the Court Said: The actions of the General Contractor clearly breached the express terms and procedures set forth in the bond for the mitigation of the surety’s damages, thereby precluding the General Contractor from seeking economic relief from the surety notwithstanding a failure or inability to perform by the Subcontractor.

* What the Opinion Means: In a Subcontractor default under a bonded project, the General Contractor must comply fully with the conditions precedent and the procedural requirements set forth on the face of the bond or the surety will be released of its obligations to perform, complete or fund the completion.

2. For a Contractor performing a government contract, compliance with the dispute resolution procedures set forth in the Contract Disputes Act (“CDA”) is a prerequisite to the Court of Federal Claims’ exercise of jurisdiction over claims that fall within the CDA. ASI Constructors, Inc. v. The United States, 2016 WL 7368666 (United States Court of Federal Claims; December 20, 2016).

* What the Court Considered: The Court of Federal Claims considered the formal claims submitted to the Contracting Officer by the Contractor, as well as the legal memorandum submitted with the Contractor’s claim and two supplements to the claim to determine if the Government’s Motion to Dismiss was meritorious.

* What the Court Said: The Court dismissed the Government’s Motions to Dismiss because the Court found that the Contractor had met its burden to submit its differing site conditions and superior knowledge claims in conformance with the CDA. The Court also stated that where the contract documents make affirmative representations about site conditions, broadly worded exculpatory clauses do not relieve the Government of liability for changed conditions experienced by the Contractor.

* What the Opinion Means: To preserve your rights to pursue a claim for an equitable adjustment on a government contract, you must comply with the CDA and there must be issued a final decision by the Contracting Officer.

3. If a contract awarded by the Federal Government for placement of concrete and concrete pavement work is drafted such that the successful bidder is to perform all of the Government’s requirements for the specified type of construction work, then the contract will be deemed a “requirements contract” and the Contractor may recover lost profits for any breach of this agreement by the Government. Certified Constr. Co. of Kentucky, LLC v. The United States, 129 Fed.Cl. 55, U.S. Court of Federal Claims (October 31, 2016).

* What the Court Considered: The Court of Federal Claims considered three contracts awarded to the contractor to determine if they were: (1) contracts for a definite quantity; (2) contracts for an indefinite quantity; or (3) contracts for requirements.

* What the Court Said: If the contract is found to be a “requirements contract”, then the Government agrees to purchase all of its actual needs for the particular service or scope of work from the awardee, who agrees to provide the work at a stated price. The touchstone right conferred on the Contractor by a federal requirements contract is exclusivity. Where the government breaches a requirements contract by awarding the same type of work to another, the remedy is the recovery of lost profits on the work diverted from the Contractor.

* What the Opinion Means: If you have been awarded a requirements contract and the government wrongly gives the work of your contract to another Contractor, then you may sue under the CDA for your lost profits.

4. It is error for a trial court to consider and rule upon a motion for summary judgment where one of the parties has pending a motion to stay and to compel arbitration where the agreement between the parties provides for arbitration. . American Eagle Veteran Contracting, LLC v. Mark D. Eiland and Architectural Drywall Systems, Inc., 201 So.3d 829, (Dist. Court of Appeals of Florida; October 14, 2016).

* What the Court Considered: The court considered the subcontract agreement between the parties that contained an arbitration clause and also considered the actions of the Contractor who at all times refrained from active participation in litigation and instead argued that the District Court should rule on the motion to compel arbitration before considering the Subcontractor’s motion for summary judgment.

* What the Court Said: Deciding whether a dispute is subject to arbitration raises three issues: (1) whether there is a valid agreement between the parties to arbitrate; (2) whether the specific issue is subject to arbitration; and (3) whether the right to arbitration was waived.

* What the Opinion Means: Because a party may waive its rights to arbitration by actively participating in litigation, it is reasonable that one having an arbitration agreement should actively press the court for a ruling on a motion to compel arbitration before proceeding with pleadings in court.

5. Where responsibility for damages for breach of contract is clear, it is not essential that the amount thereof be ascertainable with absolute exactness or mathematical precision. A fair and reasonable approximation of damages is sufficient. . Entergy Nuclear Indian Point 2, LLC v. The United States, 128 Fed.Cl. 526, (U.S. Ct. of Federal Claims; Oct. 13, 2016).

* What the Court Considered: The Court here considered a claim by the Plaintiff of a breach by the United States under a 1983 Standard Contract for Disposal of Spent Nuclear Fuel allegedly incurred by plaintiff between August 31, 2008 and June 30, 2013.

* What the Court Said: Under the Nuclear Waste Policy Act of 1982 (“NWPA”), Congress created an arrangement whereby utilities would pay fees into the Nuclear Waste Fund in exchange for the Government’s performance of spent nuclear fuel disposal services. This arrangement was to be carried out in accordance with a Standard Contract published by the Department of Energy in February of 1983. Although the DOE was contractually obligated to accept spent nuclear fuel from utilities, the DOE failed to do so, thereby breaching its contract with Entergy and forcing Entergy to incur additional costs. The remedy available to Entergy for a partial breach of contract is the recovery of damages sufficient to place the damaged party in as good a position as it would have been had the breaching party fully performed. Available damages include the non-breaching party’s mitigation expenses, specifically Entergy’s costs of arranging alternatives to the breaching party’s required performance.

* What the Opinion Means: If you are the non-breaching party, you have an obligation to mitigate the damages flowing from the breach, which expenses, as reasonable, are recoverable even if they are unsuccessful. The plaintiff’s burden of proof to be met by a preponderance of the evidence are: (1) that the damages were reasonably foreseeable by the breaching party at the time of contracting; (2) that the breach is a substantial causal factor for the damages; and (3) the damages are shown with reasonable certainty.

Joseph H. Bucci is a Partner in the Construction Litigation Group at Saul Ewing LLP, and resides in the Pittsburgh office. Joseph represents contractors, subcontractors, owners, real estate developers, wind farm developers, public utilities, architects, engineers, construction managers, design builders, sureties and government agencies related to construction and/or real estate development projects.