One Out of Eight Ain’t Bad: NH Court Rules First Reservation of Rights on Final Release for Project Long Claims is Enough to Sustain Lien Rights

Design/builder IPS-Integrated Project Services (IPS) entered into a subcontract with Fraser Engineering (Fraser) for work on a new pharmaceutical manufacturing facility in Portsmouth, NH.  Fraser signed the contract in February of 2016 for the mechanical and plumbing scopes of work in the amount of $5,312,100.00.  During the course of contract negotiations starting in the fall of 2015, IPS and the owner made Fraser aware that it may be required to accelerate its work on the project for certain schedule considerations.  In December of 2015 IPS directed Fraser to institute an overtime program for the project which ended up lasting for months.  During this time, IPS and Fraser were in communication about the costs and labor inefficiencies associated with such a prolonged overtime schedule. Ultimately Fraser worked an additional 59,845 manhours on the project.

Fraser’s subcontract contained two provisions related to additional work it might experience during the execution of the project.  The first required Fraser to report any unforeseen conditions resulting in a change and any failure to provide IPS notice would result in the waiver of claims for time or money.  The second provision required Fraser to submit conditional lien waivers with each monthly requisition of which Fraser submitted eight throughout the project. The first of the seven waivers Fraser submitted contained no reservation of rights related to the additional manhours for the IPS-directed acceleration, the eighth and final did. 

At some point Fraser submitted a claim for over $4 million of which $3,324,083.30 was related to labor inefficiencies due to the owner and IPS directed acceleration. Fraser further contended it was owed $1,554,867.29 in retainage and unpaid contract balances.  On January 26, 2017, Fraser filed a motion for and was granted an ex parte attachment to perfect a mechanic’s lien in Rockingham County Superior Court.  After objecting to the attachment in state court, the defendant removed the matter to federal court.

IPS argued that Fraser waived its lien rights by executing waivers throughout the project before finally reserving its rights for the acceleration claim on its final requisition. The Court rejected IPS’s lien waiver argument by pointing out in the record IPS had actual knowledge when the seven lien waivers were submitted that Fraser would seek additional costs related to the directed acceleration.  The Court identified Fraser’s numerous communications with IPS between December 2015 and August 2016 that it was experiencing labor inefficiencies due to the directed acceleration.  

The Court also discussed due to the “remedial nature” of the mechanic’s lien statute, it could not state with certainty the N.H. Supreme Court would “ignore the defendant’s awareness of the labor inefficiencies and strictly enforce the lien waivers.” 

Finally, the Court found that IPS made no attempt to separate costs for the additional work Fraser experienced between the seventh lien waiver in May 2016 and the eighth and final lien waiver in August 2016. Since IPS does not dispute the work was actually completed, it is impossible for the Court to reduce the lien amounts for work prior to May 2016.

Ultimately the Court found the lien enforceable in the amount of $4,917,122.20.

Fraser Engineering Company, Inc.v. IPS-Integrated Project Services, LLCand Lonza Biologics, Inc.  

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The author, Brendan Carter, Esq., is the Director of Industry Advancement & Labor Relations with the AGC of Massachusetts based in Wellesley, MA. He is a monthly contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law.  He may be contacted at 781.786.8916 or carter@agcmass.org.

A Contractor's Second Chance - The Massachusetts Supreme Judicial Court Relaxes Rules to Establish Contract Performance & Equitable Claims

In G4S Tech. LLC vs. Mass. Tech. Park Corp., SJC-12397, -- N.E.2d --, (Mass. June 13, 2018) the Supreme Judicial Court of Massachusetts clarified that to recover under the contract itself “complete and strict performance requirements” only applies to the provisions regarding “the design and construction work," but that for breaches of other provisions ordinary contract principles of materiality control.  The Supreme Judicial Court also overturned a line of cases that established the rule that intentional violations of contract provisions “precluded a finding of good faith to fully perform,” barring quantum meruit claims.  The Supreme Judicial Court articulated its new rule, “that intentional breaches, even those involving material breaches, alone are not dispositive of the right to equitable relief, at least when such breaches do not relate to the construction work itself.”

This contract dispute arose from a construction project to build a fiber optic network spanning 1,200 miles and 123 communities throughout western and central Massachusetts.  Massachusetts Technology Park Corporation (MTPC) received funding for this project from both state and federal government funding. MTPC awarded G4S Tech. LLC (G4S) the design-build project for a total contract value of $45.5 million.  Due to restraints imposed by the federal government based on its funding, the project had to be completed within a certain period of time. Thus the contract had several provisions regarding G4S’s liability and responsibility for not completing specified portions of the project by specific deadlines.  The project was completed over one year after the specified project deadline, however, the facts are disputed as to whether GS4 or MTPC was at fault for the delay.  Due to the delays in completion, MTPC refused to pay G4S the last $4 million owed under the contract,  withholding the amount as liquidated damages for the delays.  Further, MTPC later discovered that G4S violated a provision requiring that the subcontractors be paid on time, instead G4S delayed paying subcontractors until after their fiscal quarters closed, to show “a more favorable cash flow in its quarterly reports.”  G4S brought claims under breach of contract and quantum meruit theories, MTPC then brought a fraud claim against G4S.

Massachusetts’s rule for performance of construction contract terms is “that a contractor cannot recover on the contract itself without showing complete and strict performance of all its terms…” G4S argued that this rule was outdated and the Supreme Judicial Court should adopt the “materiality rule” per the Restatement (Second) of Contracts.  While the Supreme Judicial Court declined a wholesale adoption of the Restatement, it did clarify that this rule is limited only to “the design and construction work” and that other provisions “should be analyzed pursuant to ordinary contract principles, including the materiality standard[.]"  That said, in this case, the complete and strict performance requirement controlled because “paying subcontractors on time was an essential and inducing feature of the contract between MTPC and G4S.”  The Court noted that a public works project "prompt" payment is a "legislative purpose" and the Recovery Act's purpose, under which this project was funded, was to maximize jobs and improve the economy. By not properly paying the subcontractors, G4S was clearly frustrating that purpose.  The Supreme Judicial Court subsequently upheld the trial court’s granting of summary judgment to MTPC as to the contract claim.

Turning to G4S’s quantum meruit claim, historically, a line of Massachusetts cases supported the rule that “[g]enerally, ‘[i]n the absence of special exculpating circumstances and intentional departure from the precise requirements of the contract is not consistent with good faith in the endeavor fully to perform it, and unless such departure is so trifling as to fall within the rule de minimis, it bars all recovery.’”  The Supreme Judicial Court decided, after sources have long criticized and questioned the rule, that “intentional breaches, even those involving material breaches, alone are not dispositive of the right to equitable relief, at least when such breaches do not relate to the construction work itself.”  Under this new rule, the Supreme Judicial Court reversed the granting of summary judgment to MTPC as to the quantum meruit claim due to disputed factual questions as to which party caused the delay in completion of the project.

Lastly, the Supreme Judicial Court reversed the trial court’s decision to dismiss MTPC’s fraud claim under a duplicative damages analysis. The Supreme Judicial Court determined that there were “separable and distinguishable acts forming the basis of recovery under the breach of contract and fraud claims.”  Accordingly, the Supreme Judicial Court remanded the quantum meruit and fraud claims to the Superior Court.

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Katharine Kohm, Esq. is a committee member for The Dispute Resolver.  She practices construction law at Pierce Atwood, LLP in Providence, Rhode Island.  She thanks Brenna Riley, a rising 3L at Roger Williams University in Bristol, Rhode Island, for this noteworthy case review.