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Contract Put Full Financial Responsibility On Sub's Shoulders

Thursday, July 27, 2017 05:06 am

 

Contract Interpretation---Delay Damages

U.S. f/u/b/o Sustainable Modular Management, Inc. v. Custom Mechanical Systems, Corp., 2017 U.S. Dist. Lexis 68835 (S.D. Ind. May 5, 2017)

A subcontractor struck out three times, failing to secure: damages for contractor-caused delay, payment for additional work, and compensation for state excise taxes. Express contract language---and the enforceability of no-damages provisions in Indiana---were to blame.

Custom Mechanical Systems, Corp. (Custom Mechanical) was the general contractor on a federal government project to construct a temporary medical facility at the Marine Corps Base in Kaneohe Bay, Hawaii. Sustainable Modular Management, Inc. (SMM) entered into two subcontracts with Custom Mechanical, one to provide modular buildings equipped with fire prevention and voice/data systems, the other to install electrical and water/sewer systems.

The project work ended up costing SMM significantly more than it (apparently) expected for three reasons: (1) Custom Mechanical caused numerous delays on the project that increased SMM's costs by $268,065; (2) Custom Mechanical instructed SMM to perform, but did not pay for, additional work valued at $232,667; and (3) Custom Mechanical refused to reimburse the sub for $151,948 worth of Hawaii excise taxes.

SMM's submitted invoices totaled $3,378,016, an amount it claimed that the government paid Custom Mechanical. However, Custom Mechanical paid SMM just $2,230,358. SMM asserted breach of contract and quantum meruit claims against Custom Mechanical, as well as a breach of payment bond claim against the project surety. An Indiana district court dismissed all three claims.

No damages for delay, no matter the cause

The subcontracts contained no-damages-for-delay provisions that stated: "[SMM] shall not be entitled to extra compensation for any suspension, delay, or acceleration not specifically allowed and paid to [Custom Mechanical] by its Client or other for [SMM's] benefit." The subcontracts also provided that "[SMM] shall be responsible for any losses or penalties incurred as a result of delays in completing its Work ...".

SMM argued that the above language didn't contemplate a situation where Custom Mechanical caused the delays for which the sub sought to recover. SMM didn't dispute that "a properly and clearly worded contract provision may operate as a waiver of claims for delay damages on a given project," but it alleged that such a provision didn't exist here.

The court disagreed, noting that Indiana courts enforce no-damages-for-delay contract provisions. Here, the unambiguous subcontract language held that "the financial responsibility associated with anySign up now for Construction Claims Monthly Online! Your own virtual help desk of must-have techniques, tutorials, and how-to articles.

 
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