Basic Principles of Construction Law Art Berger Special Counsel, Construction FDOT, Tallahassee
Formation of a contract: A contract is a promise or a set of promises for the breach of which the law gives a remedy. The “promise” is referred to as “consideration.” Example:“In consideration for the sum of $3,000,000 contractor agrees to construct the project.”
Consideration: The cause, motive, price, or impelling influence which induces a contracting party to enter into a contract. Gift: A voluntary transfer of property to another made gratuitously and without consideration.
Department contracts must be written contracts. The Department cannot be sued on an oral contract.
Standard Specifications: 1-3 Definitions: Contract: The term “Contract” means the entire and integrated agreement between the parties thereunder and supersedes all prior negotiations, representations, or agreements, either written or oral.
Florida Statutes 337.19(1): Suits by and against department: Suits at law and in equity may be brought and maintained by and against the department on any contract claim arising from breach of an express provision or an implied covenantof awritten agreement or a written directive issued by the department pursuant to the written agreement. In any such suite, the department and the contactor shall have all of the same rights and obligations as a private person under a like contract except that no liability may be based on an oral modification of either the written contract or written directive.
A contract can be amended. For Department contracts, theamendment must be in writingapproved by the parties. Standard Specifications: 1-3 Definitions: Supplemental Agreement: A written agreement between the Contractor and the Department, and signed by the surety, modifying the Contract within the limitations set forth in these Specifications.
4-3.2 Increase, Decrease or Alteration in the Work: The Engineer reserves the right to make alterations in the character of the work which involve a substantial change in the nature of the design or in the type of construction or which materially increases or decreases the cost or time of performance. Such alteration shall not constitute a breach of Contract, shall not invalidate the Contract or release the Surety.
Other reasons to amend the Contract: Delay of Contractor’s work (5-12.2.2 and 1-3). Written direction to Accelerate the work (5-12.8). Error or omission in Contract Documents (5-4). Expand the physical limits of the project (4-3.4). Unforeseeable work(4-4 and 4-3.4) Differing site conditions (4-3.7) Clarify plans or specifications (4-3.4) Excusable Delays Latent physical conditions
Condition Precedent: A condition precedent must be fulfilled before the effect can follow. A prerequisite.Example:8-7.3.2: As a condition precedent to an extension of Contract Time the Contractor must submit to the Engineer: A preliminary request for an extension of Contract Time must be made in writing to the Engineer within ten calendar days after the commencement of a delay to a controlling item of work.
Contracts contain express terms and implied terms. Implied terms are frequently referred to as implied covenants. Examples of implied covenants: The implied covenant of good faith and fair dealing applies to every contract.
In construction contract law an owner (FDOT) has: • 1. an implied obligation not to do anything to hinder or obstructperformance by the other person; • 2. an implied obligation not to knowingly delay unreasonably the performance of duties assumed under the contract; • 3. an implied obligation to furnish information which would not misleadprospective bidders.
Types of Contracts by payment: • Lump sum payments: A single payment of the entire amount due at one time rather than in installments. The payment is for everything needed to perform the desired work. • Unit price payments: Contract items are priced per unit and not on the basis of a flat contract price.
Recoverable Damages: • Delay Damages (5-12.2.2 & 5-12.10(b)) • Extra Work (5-12.2.1) Non-Recoverable Items of Damage (5-12.10) • Loss of Profit (lost profits) • Consequential Damages • Loss of Bonding Capacity • Loss of Bidding Opportunity • Attorney Fees • Acceleration, unless by written directive
Doctrine of Mitigation of Damages: The doctrine of mitigation of damages imposes on a party injured by breach of contract a duty to exercise reasonable diligence and ordinary care in attempting to minimize his damages, or avoid aggravating the injury.
Mitigation: 5-126.96.36.199: For any delay claim, the Contractor shall be entitled to monetary compensation for the actual idle labor and equipment, and indirect costs, expenses, and profit thereon, as provided for in 4-3.2.1(d) and solely for costs incurred beyond what reasonable mitigationthereof the Contractor could have undertaken.
Also, 5-2.2.2: “ except that in the instance of delay to a non-controlling item of work the Contractor may be compensated for the direct costs of idle labor or equipment only, at the rates set forth in 4-3.2.1(a) and (c), and then only to the extent the Contractor could not reasonably mitigate such idleness.”
Spearin Doctrine: If a construction contractor is bound by contract to build according to plans and specifications provided by the owner, he will not be responsible for the consequences of defects in the plans and specifications. On the contrary, there is an “implied warranty” that “if the specifications were complied with ,” the work would be adequate. The implied warranty is not overcome by the customary self-protective clauses the government inserts in its contracts, as in Spearin itself, requiring the contractor to examine the site, to check the plans, and to assume responsibility for the work, including its safekeeping, until completion and acceptance. Al Johnson Const. Co. v. United States, 854 F.2d 467, 468 (Fed. Cir. 1988).
Severin Doctrine: Under the Severin doctrine, a suit of this nature may be maintained only when the prime contractor has reimbursed its subcontractor for the latter's damages or remains liable for such reimbursement in the future. These are the only ways in which the damages of the subcontractor can become, in turn, the damages of the prime contractor, for which recovery may be had against the Government. Thus, when the subcontract contains a clause completely exonerating a prime contractor from liability to its subcontractor for the damage complained of, suit cannot be maintained by the prime contractor against the Government. The same result will follow when the subcontract provides for a complete release of the prime contractor's liability to the subcontractor upon the granting of additional time for the latter's performance, or the acceptance of final payment by the latter. George Hyman Const. Co. v. United States, 30 Fed. Cl. 170, 174 (Fed. Cl. 1993) aff'd, 39 F.3d 1197 (Fed. Cir. 1994)
Sovereign Immunity: A judicial doctrine which precludes bringing suit against the government without its consent. Florida Constitution, Article X, § 13: Provision may be made by general law for bringing suit against the state as to all liabilities now existing or hereafter originating.
Waiver: An intentional or voluntary relinquishment of a known right, or such conduct as warrants an inference of the relinquishment of such right.
5-12.2.2: Failure by the Contractor to comply with the ten calendar day notice shall constitute a waiver of the claim. Use of Waiver:
Waiver“MEI asserts that the County waived the written change order requirement by directing work changes without following its own formalities. We decline to hold that the doctrines of waiver and estoppel can be used to defeat the express terms of the contract. Otherwise, the requirement of Pan Am that there first be an express written contract before there can be a waiver of sovereign immunity would be an empty one. An unscrupulous or careless government employee could alter or waive the terms of the written agreement, thereby leaving the sovereign with potentially unlimited liability.”County of Brevard v. Miorelli Engineering, Inc., 703 So.2d 1049, 1051 (Fla. 1997)
● FDOT contract must be in writing● Contracts can be amended● Condition Precedent = Prerequisite● Implied covenants● good faith and fair dealing● not to hinder performance● not to knowingly delay● not to mislead● Only Damages Payable● Extra Work● Delay
Contract interpretation is for the court as amatter of law, rather than the jury, only whenthe agreement is:(a) totally unambiguous, or(b) when any ambiguity may be resolved by applying the rules of construction to situations in which the parol evidence of the parties' intentions is undisputed.
Rules of Construction(1) Words and other conduct are interpreted in the light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight.
(2) A writing is interpreted as a whole endeavoring to give every provision its full meaning and operative effect.(3) Unless a different intention is manifested:(a) The plain meaning of the wordsin the document should be used to ascertain the parties’ intent.(b) technical terms and words of art are given their technical meaning when used in a transaction within their technical field.
(4) Where an agreement involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performanceaccepted or acquiesced in without objection is given great weight in the interpretation of the agreement.
(5) Wherever reasonable, the manifestations of intention of the parties to a promise or agreement are interpreted as consistent with each other and with any relevant course of performance, course of dealing, or usage of trade. A reasonable interpretation of a contract is preferred to an unreasonable one.
Subarticle5-2: A requirement occurring in one part of the contract is as binding as though occurring in all. In addition to the work and materials specified in the Specifications as being included in any specific pay item is incidental work necessary for the proper completion of the work.In cases of discrepancy, the governing order of the documents is as follows: 1. Special Provisions. (utility schedules) 2. Technical Special Provisions. 3. Plans. 4. Design Standards. 5. Developmental Specifications. 6. Supplemental Specifications. 7. Standard Specifications. Computed dimensions govern over scaled dimensions.
● Principal purpose of the parties.● Writing is interpreted as a whole.● Plain meaning of the words used. ● Check defined terms.● Technical terms given technical meaning.● Course of performance important.● A reasonable interpretation is preferred.● Governing order of the documents - Section 5-2.
Florida Statutes §334.03 “Definitions”
Standard Specification 8-3.2“Submission of Working Schedule: Within 21 calendar days after Contract award or at the preconstruction conference, whichever is earlier, submit to the Engineer a work progress schedule for the project. The Engineer will review and respond to the Contractor within 15 calendar days of receipt.”
8-3.2 (continued)Provide a schedule that shows the various activitiesof work in sufficient detail to demonstrate a reasonable and workable plan to complete the project within the Contract Time. Show theorderand interdependence of activities and the sequence for accomplishing the work. Describe all activities in sufficient detail so that the Engineer can readily identify the work and measure the progress on of each activity. Show each activity with a beginning work date, a duration, and a monetary value.Include activities for procurement fabrication, and deliver of materials, plant, and equipment, and review time for shop drawings and submittals.
Sub-article 8-3.2 continued:Submit and updated Work Progress Schedule, for Engineer’s acceptance, if there is a significant change in the planned order or duration of an activity.. . . . . . .If the Contractor fails to finalize either the initial or a revised schedule in the time specified, the Engineer will withhold all Contract payments until the Engineer accepts the schedule. Not approval
Fortec Constructors v. United States, 8 Cl.Ct. 490 (1985).“It is essential that any changes in the work and time extensions due to the contractor be incorporated into the progress analysis concurrently with the performance of the changes or immediately after the delayand thus integrated into the periodic computer runs to reflect the effect on the critical path. Otherwise, the critical path chart produced by the computer will not reflect the current status of the work performed or the actual progress being attained.”
J.A. Jones Constr. Co., supra, 72–1 BCA at 42,931.“The value and usefulness of the CPM is dependent upon the Contracting Officer making prompt decisions when excusable delays are alleged by the contractor and upon the contractor promptly revising and updating the CPM chart to incorporate time extensions, whether they be tentative or finally determined, within a short time after occurrence of the delay.”
Blinderman Const. Co., Inc. v. U.S., 39 Fed.Cl. 529 (1997).“Finding plaintiff’s CPM network diagram unhelpful, we turn to plaintiff’s CPM mathematical analyses and find them gravely flawed as well.One deficiency is plaintiff’s failure to update its CPM schedulesin accordance with the requirements of the contract, which states in no uncertain terms that “[w]hen changes in the work are necessary, the Contractor will submit revisions to the [CPM] network of all activities affected by the change.”
Section 1-3: Definition of Delay: Delay: Any unanticipated event, action, force or factor which extends the Contractor’s time of performance of any controlling work item under the Contract. The term “delay” is intended to cover all such events, actions, forces or factors, whether styled “delay,” “disruption,” “interference,” “impedance,” “hindrance,” or otherwise, which are beyond the control of and not caused by the Contractor, or the Contractor’s subcontractors, materialmen, suppliers or other agents. This term does not include “extra work.”
Controlling Work Items: Section 1-3: Controlling Work Items: The activity or work item on the critical path having the least amount of total float. The controlling item of work will also be referred to as a Critical Activity.
8-7.3.2 Contract Time Extensions: The Department may grant an extension of Contract Time when a controlling item of work is delayed by factors not reasonably anticipated or foreseeable at the time of bid. The Department may allow such extension of time only for delays occurring during the Contract Time period or authorized extensions of the Contract Time period. When failure by the Department to fulfill an obligation under the Contract results in delays to the controlling items of work, the Department will consider such delays as a basis for granting a time extension to the Contract.
Delays: All delays are either excusable or nonexcusable. • An excusable delay, in general, is a delay that is due to an unforeseeable event beyond the Contractor’s control. • Error or omission in the plans. • Owner directed changes. • Nonexcusable delays are events that are within the Contractor’s control or that are foreseeable. • Delays caused by subcontractors. • Faulty workmanship by the Contractor.
Excusable delays are either compensable or noncompensable. • A compensable delay is a delay where the Contractor is entitled to additional time or compensation. • Only excusable delays are compensable. • A noncompensable excusable delay is frequently beyond the control of both the contractor and the owner, or the terms of the contract may exclude compensation despite being an excusable delay.