Sauer Incorporated (Sauer) entered into a design-build
contract with the U.S. Army Corps of Engineers for the design and construction
of the Operational Readiness Training Complex at Fort Hunter Ligget, California. Sauer then executed a subcontract with Agate
Steel, Inc. (Agate) for the structural steel (install only) scope of work. The
subcontract required that Agate provide all labor, materials, equipment, and
tools required to complete the ‘Structural and Miscellaneous Steel (Erection)’
scope of work. The subcontract also
contained a ‘no damages for delay’ clause that provided Agate’s sole remedy for
a delay on the project was a commensurate extension of time and Agate waived any rights to financial claims based upon delay.
The scope of work required Sauer to
provide structural steel to Agate in accordance with the plans and
specification through Sauer’s fabricator. Additionally, the contract
specifically called for steel stairs to be delivered fully assembled and ready
for final install by Agate. The subcontract also contained references to the project schedule with a defined duration of 121 days for Agate’s work.
During the execution of the work, Agate experienced numerous
delays and disruptions claiming significant revisions to the contract drawings resulted in changes to the steel fabrication and
erection sequences; that Sauer’s fabricator delivered hundreds of non-conforming
pieces of steel to the project which then required field modifications; the
contract documents underrepresented the amount of steel clips required for the
work by 4,000 pieces; and the steel stairs were delivered in pieces which the
required labor intensive field fabrication.
As a result of these delays, Agate’s installation duration ultimately was
422 days, a 301-day delay.
As a result, Agate filed suit against Sauer for: 1) breach
for outstanding contract balances plus unpaid change orders in the amount
$649,739; 2) breach for delay and disruption in the amount of $698,253 in extended
field & office overhead plus attorney’s fees; 3) unjust enrichment for the
reasonable value of materials it had not been paid for; and 4) breach of good
faith and fair dealings for lost revenues, profits and opportunities for the
extended duration it was onsite. Sauer
moved to dismiss the second, third and fourth claims.
The Court began its analysis of Agate’s claim for delay
and disruption by identifying the subcontract did include a valid 'no
damages for delay' clause as allowed in federal contracting. Agate argued that the kind of delay it
experienced throughout the project was not within the contemplation of the
parties when the contract was formed, and the ‘no damages for delay’ clause
should not be enforceable. The Court pointed to Sauer’s inability to properly
schedule trades, unwillingness to process change orders, and numerous design changes
as detriments to Agate’s efficient work flow and found them as a plausible
basis to seek relief for a delay and disruption claim.
The Court also addressed Agate’s argument that the ‘no
damages for delay’ clause is unenforceable because through its actions, Sauer
abandoned the subcontract. Agate points
to California case law that states, “[P]rivate parties may impliedly abandon a
contract when they fail to follow change order procedures and when the final
product differs substantially from the original." Amelco Electric v. City of Thousand Oaks, 27 Cal. 4th 228 (2002).
In its review of whether the contract was abandoned, the Court
again pointed to the facts that the subcontract stipulated Sauer would furnish complete
and correct steel, but numerous field modifications were required due to design
changes and incorrectly fabricated materials.
The Court further acknowledged the 4,000 steel clips installed not depicted
in the contract documents, stairs pieces that arrived loose and required field
assembly contrary to the subcontract, and Sauer not adhering to the contractual
process for change order work. Agate alleged
that those "foregoing, cardinal changes to the Erection Subcontract and
material departures from the reasonable expectations of the Parties, at the
formation of the Erection Subcontract, constitute abandonment of the Erection
Subcontract."
The Court found the totality of these allegations was
sufficient to show the contract had been abandoned and the ‘no damages for delay’
clause was not enforceable. The Court allowed
the claims to proceed beyond the pleading state without a determination of damages.
Based upon the finding that the subcontract was abandoned,
the court then found Agate’s third claim of unjust enrichment in quasi-contract
could precede because no contract existed between the parties and relief could
be sought in equity.
The fourth claim of breach of good faith and fair dealings
was dismissed.
Rai Indus. Fabricators, LLC v. Fed. Ins. Co. (N.D. Cal., May 2, 2018)
--------------------------------------------------
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.
No comments:
Post a Comment