Construction Law

Legal issues, news, and regulations concerning the construction industry

1
State Liable for Damages When Delay Results from State’s Failure to Disclose Material Facts
2
Public Contractors Who Follow Plans and Specifications of Another Are Generally Shielded from Liability for Defects by Contract Specifications Defense
3
California Business and Professions Code § 7031(a) Bars All Claims for Recovery for Unlicensed Contract Work Regardless of Equities
4
General Contractor’s Recovery for Invalidation of Contract Limited if Contractor Was on Notice of Statutory or Regulatory Violation
5
No-Damages-for-Delay Clause Precludes Recovery of Delay Damages
6
Express Agreement to One-Year Claims Limitation Clause is Enforceable
7
“Pay When Paid” Provision Cannot Indefinitely Delay Payment to Subcontractor
8
Multi-Prime Contractors Have Right of Action Against Each Other If Made Third-Party Beneficiaries
9
Damages Awarded to Plaintiff Stopped from Completing Contract; Calculation Based on the Fair Price of the Entire Work and Lost Profits for Work Not Performed
10
Lack of Privity Does Not Bar Action Against Design Professional for Personal Injury

State Liable for Damages When Delay Results from State’s Failure to Disclose Material Facts

P.T. & L. Constr. Co. v. N.J. Dep’t of Transportation, 531 A.2d 1330, 108 N.J. 539 (1987)

In this case, P.T. & L. Construction Co. was awarded a contract to perform work on a portion of Route 78.  Due to extremely poor working conditions, the project, which was contracted to end on November 15, 1974, was not completed until June of 1976.  P.T. & L. filed suit to recover damages, attributing the delay to the State’s failure to inform them of the actual conditions of the land.  Specifically, where P.T. & L. expected to work in normal or dry conditions, they instead faced wet conditions, including flooding of the work area.  The court, looking at the issue of whether an owner can be liable for damages where it fails to disclose certain critical information regarding the project to bidders, found that a sufficient factual basis existed to warrant recovery for nondisclosure of material facts.
 

Public Contractors Who Follow Plans and Specifications of Another Are Generally Shielded from Liability for Defects by Contract Specifications Defense

Puget Sound Nat’l Bank v. C. B. Lauch Constr. Co., 73 Idaho 68, 245 P.2d 800 (1952)

Saxon Painting entered into a contract with Lauch Construction to do all of the painting for a government housing project.  The contract required Saxon to apply two coats of a certain type of paint, which was provided by Lauch.  Saxon followed the specifications in the contract and completed the painting in a timely manner without any objections to the work from Lauch.  Saxon alleged that he was still owed $19,958 from the contract and three months after completing the work, a lawsuit was commenced.

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California Business and Professions Code § 7031(a) Bars All Claims for Recovery for Unlicensed Contract Work Regardless of Equities

Hydrotech Sys. Ltd. v. Oasis Water Park, 52 Cal. 3d 998 (1991)

Hydrotech Systems Ltd., a New York manufacturer of wave simulation machinery, was hired by a general contractor to build a surfing pool for a California water park.  Hydrotech did not possess a valid California contractor’s license, but the general contractor and Oasis Water Park persuaded Hydrotech to proceed.  The general contractor and Oasis Water Park promised to help arrange for Hydrotech to receive a license and promised to pay for the equipment and services provided by Hydrotech regardless of Hydrotech’s license status.  Hydrotech performed the work without securing a California license.  A payment dispute arose and Hydrotech sued.
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General Contractor’s Recovery for Invalidation of Contract Limited if Contractor Was on Notice of Statutory or Regulatory Violation

Earthmovers of Fairbanks, Inc. v. Dept. of Transp. & Public Facilities, 765 P.2d 1360 (Alaska 1989)

In this case, the Supreme Court of Alaska considered as a case of first impression what remedy is appropriate for a contractor who is awarded a public contract that turns out to violate a statute or regulation.  The facts concerned Earthmovers of Fairbanks (EM), the apparent low bidder for a public project.  When a discrepancy was discovered in the second lowest bid and corrected as permitted by the applicable Standard Specification, the state agency awarded the project to the second lowest bidder.  EM sued and won a permanent injunction.  EM also prevailed on appeal, and the contract was awarded to EM on April 27.  However, on April 30, the Supreme Court of Alaska reversed itself and on May 1, it entered a stay.  Subsequently, EM sued the state agency for damages. 

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No-Damages-for-Delay Clause Precludes Recovery of Delay Damages

Edwin J. Dobson, Inc. v. State, 526 A.2d 1150, 218 N.J. Super. 123 (N.J. Super. App. Div. 1987)

In this case, a contractor brought suit against the state for delay damages arising out of the construction of a public project.  The delays were caused by a variety of reasons primarily stemming from the state’s requirement that the contractor use a specific manufacturer for supplies.  The contract included a “no damage for delay” clause which provided an extension of time for completion, but no additional payment, for damages, in the event of any hindrance or delay in the progress of the work, even if caused by the state.  The court found that the clause was legal and that it precludeed recovery by the plaintiff.

Express Agreement to One-Year Claims Limitation Clause is Enforceable

A.J. Tenwood v. Orange Senior Citizens Hous. Co., 491 A.2d 1280, 200 N.J. Super. 515 (N.J. Super. Ct. App. Div. 1985)

In this case, a construction contractor brought a claim for breach of contract against the owner of a housing project.  The contract between the parties included a one-year claims limitation clause.  The court upheld that one-year limitation relying on precedent that the statutory limitation on contract actions could be waived by the express agreement of both parties.  Therefore, as long as the period is reasonable and does not violate public policy, shortened statutes of limitation clauses are valid.
 

“Pay When Paid” Provision Cannot Indefinitely Delay Payment to Subcontractor

Seal Tite Corp. v. Ehret, Inc., 589 F. Supp. 701 (D.N.J. 1984)

In this case, a subcontractor sued the general contractor for failure to pay in a timely fashion, and moved for summary judgment.  Relying on the “pay when paid” provision of the subcontract, the general contractor claimed that it had not yet been paid in entirety by the owner and therefore the lack of payment to the subcontract was not in breach of the contract.  The court ruled that the “pay when paid” clause was designed to postpone payment by general contractor to subcontractor for a reasonable period after work has been completed to afford the general contractor the opportunity to procure from the owner the funds necessary to pay the subcontractor.  The purpose is not to require the subcontractor to wait to be paid for an indefinite period of time.  Accordingly, the court granted the subcontractor’s motion for summary judgment and awarded the amount due under the subcontract.

Multi-Prime Contractors Have Right of Action Against Each Other If Made Third-Party Beneficiaries

Broadway Maint. Corp. v. Rutgers Univ., 447 A.2d 906, 90 N.J. 253 (1982)

In this case, two prime contractors brought suit against the university for damages caused by delays in construction.  In the appeal, the Supreme Court of New Jersey looked at three issues:  (1) whether in an instance of multi-prime contractors each prime contract is liable to the other; (2) whether the owner has a duty to coordinate multi-prime contractors; and (3) whether the exculpatory clause in the prime contracts shielded Rutgers from liability.

The court found that each of the prime contractors, absent privity, had a right of action against the other as long as the contract between the owner and each prime contractor made the remaining contractors third-party beneficiaries.  Second, the court found that an owner entering into multiple prime contracts has the obligation to act in good faith to coordinate the various contractors to avoid unreasonable delay, if the owner has not delegated that responsibility to one of the prime contractors.  Finally, the court found that the exculpatory clause shielded Rutgers from all delays, not just reasonable delays.

Damages Awarded to Plaintiff Stopped from Completing Contract; Calculation Based on the Fair Price of the Entire Work and Lost Profits for Work Not Performed

Zulla Steel v. A & M Gregos, Inc., 415 A.2d 1183, 174 N.J. Super. 124 (N.J. Super. Ct. App. Div. 1980)

In this case, a subcontractor brought an action against the prime contractor for breach after contractor failed to make progress payments when due.  The plaintiff did not complete the project. The court found that the contractor’s failure to make timely payments constituted a material breach and that the plaintiff was therefore justified in terminating its performance.  The court held that the measure of damages in a matter where the plaintiff was stopped from completing the contract is “such a proportion of the entire price as the fair cost of that work bears to the fair cost of the whole work and, in respect to the work not performed, such profits as he would have realized as a result of the complete performance.”  Accordingly, the judgment of the trial court was affirmed, with slight modification.
 

Lack of Privity Does Not Bar Action Against Design Professional for Personal Injury

Conforti & Eisele, Inc. v. John C. Morris Assocs., 418 A.2d 1290, 175 N.J. Super. 341 (N.J Super. Ct. Law Div. 1980)

In this case, a general contractor sued the State and its design professionals for economic damage due to the faulty plans prepared by the design professionals and provided by the State.  There was no privity between the general contractor and the design professional defendants.  However, the court found that a design professional can be held responsible for the losses suffered by a contractor regardless of privity.  The decision was based on a line of New Jersey cases that look with disfavor on the privity doctrine especially with regard to design negligence and physical injuries sustained by third-parties.  The court created a test to determine whether liability should be imposed on design professionals when third-parties are injured.  The elements are:  (1) the extent to which the transaction was intended to affect the plaintiff; (2) the foreseeability of harm to him or her; (3) the degree of certainty that the plaintiff suffered injury; (4) the closeness of the connection between the defendant’s conduct and the injuries suffered; (5) the moral blame attached to the defendant’s conduct; and (6) the policy of preventing future harm.
 

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