Recent Supreme Court Case Teaches Important Lessons

Construction going on in the city.

It is no secret that public works construction is a difficult business.  On any given project there are innumerable ways that things can go wrong. With any project involving excavation and underground utilities, encountering changed conditions should not be a surprise.  Of course, such changed conditions are not the contractor’s responsibility.  What is the contractor’s responsibility, however, is providing the public owner with proper notice of its claims in accordance with the subject agreement.

One of the reasons public works construction projects are more onerous than their private counterparts is because public owners rarely negotiate contract terms. Contracts that are slanted significantly in the public owner’s favor are the norm.  Thus, as the contractor in a recent state Supreme Court decision learned, it is vitally important to read the contract and abide by its terms.

One of the lessons from Old Colony Cosntr., LLC v. Town of Southington, 316 Conn. 202 (Conn. April 21, 2015) is that general assertions of entitlement to damages and/or additional contract time is not sufficient when the contract requires more detail.  During the long duration of the project, the contractor in Old Colony repeatedly indicated that each problem that occurred impacted its schedule and costs.  The contractor even made such notations on change orders pertaining to what the public owner agreed were changed conditions but, instead of detailing the costs or the schedule impact in the change order, the contractor indicated that the full impact of the changes had not yet been determined.

The court found fault with the contractor’s approach in two ways.  First, the general assertions of schedule and costs impacts were insufficient to meet the contract’s notice requirements.  The court then went on to say that contractors seeking an “equitable adjustment” to a public contract must strictly comply with the contract’s notice requirements.  Second, the court noted that the contractor accepted change orders that did not include detailed information about its claims.  The trial court’s approach, which was upheld on appeal, is interesting because the public owner knew the contractor intended to make a claim and, from the opinion, did not appear to suffer any prejudice from the contractor’s delay in quantifying its claim; yet, the court still held that the contractor had waived its right by not strictly adhering to the contract.

The other important lesson from Old Colony is that the court upheld a trial court decision that allowed a public owner to assess liquidated damages after terminating the contract for convenience despite acknowledging that the public owner bore some responsibility for the delays.  The court first noted the general rule that concurrent delay by the public owner abrogated its right to liquidated damages but then discussed the “modern trend” that “apportions liquidated damages between at fault parties.”  Id.  What the court found determinative was the fact that the subject contract provided a way to excuse delay that was not the contractor’s fault.  Specifically, the court was referring to the contract provisions that entitled the contractor to additional contract time if it provided proper notice of its claim.  Thus, again, the contractor suffered because it did not strictly comply with the provisions of the contract.

It is not to be taken lightly, however, that the court allowed the assessment of liquidated damages after a termination for convenience. The public owner could have terminated for cause and threatened to do so several times but ultimately decided to terminate for convenience.

Traditionally, termination for cause and termination for convenience have two separate and distinct meanings.  A termination for cause involves fault and entitles the owner to withhold payment until the project is completed in order to deduct from monies otherwise due the contractor the contractor the additional costs it incurred. Conversely, a termination for convenience is a termination without fault and entitles a contractor to payment for work completed prior to termination.  Some standard form agreements even provide the contractor with its lost profits on the uncompleted portions of the work after a termination for convenience. Thus, upholding a public owner’s entitlement to liquidated damages after a termination for convenience appears inconsistent with industry standards and conventional norms.  However, the court explained that the decision to allow liquidated damages after a termination for convenience neither deprived the contractor of any rights it would have had after a termination for cause, nor did it subject the contractor to any damages for which it would have been potentially liable after a termination for cause.  Instead, the court stated that the parties agreed to liquidated damages and the public owner’s right to the liquidated damages came about once the project was not completed on schedule without the contractor obtaining an extension of time in the manner provided for in the contract.

The take away from the Old Colony decision is that any future trial will be won or lost during the construction of the project. While the number of contractors that employ in-house counsel is growing, that is still a luxury most companies cannot afford.  Therefore, if you are a contractor that does not have an attorney on the payroll, you should, at least, realize that you need good legal counsel from the moment a project starts down the wrong path.

If you are engaged in a trouble construction project, please give me a call.  I am a licensed Professional Engineer who first worked as a project manager for over 10 years and who has been   a construction litigation attorney for the last 14 years.  I can help you navigate the treacherous waters that Old Colony decision has laid out.

Scott Orenstein
(860) 760-3317