September 2002
By ALEXANDER A. MIUCCIO, CIC Legal Counsel
One of the most common types of breach by a contractor is the failure to complete the contracted work on time. An owner normally protects himself from the unreasonable delays of the contractor by providing in the contract that the work must be completed by a definite date, that the contractor must pay stipulated damages for each day's delay in completion of the work after that date and that the owner may terminate the contract at any time upon a certificate from the architect that the work is being unreasonably delayed and that such delay is a sufficient ground for termination of the contract.
An owner should be careful about terminating the contract, however. If the owner wrongfully terminates the contract, he will be considered to be in breach of the contract for terminating the contract prematurely. In the recent case of R.W. Granger & Sons v. City School District (of Albany), the court ruled that the owner was not justified in terminating the contractor for delay in completion of the contract.
Background
R.W. Granger & Sons Inc. was awarded the prime contract for a renovation and addition project at the Albany School of Humanities. The contract encompassed three phases. Phase II dealt primarily with the construction of an addition to the school and was to be completed by February 7, 1995. However, numerous delays extended the scheduled date of completion and, in May 1995, the parties agreed that Phase II was to be substantially completed by June 23, 1995, with total completion by September 5, 1995.
While Phase II was completed on June 23, 1995 to the extent that the owner was able to move furniture and materials into the building, the owner nevertheless terminated that contract on June 28, 1995 because of the contractor's failure to timely progress its work pursuant to the terms of the contract.
The contractor commenced suit against the owner claiming that it was wrongfully terminated. The trial court determined that the contractor's termination was without cause and awarded the contractor $1,412,745 in stipulated damages, plus interest. The owner appealed the decision.
Appellate Decision
The appellate court affirmed the lower court's decision in favor of the contractor. The contractor's expert engineer testified that based on his "critical path" analysis, the project was delayed for a total of 133 days. Of the 133 days, all but 15 days were attributed to the owner because of his failure to coordinate the work of the various prime contractors and to prepare adequate construction schedules. These failures, in turn, resulted in the mechanical, electrical and plumbing work interfering with the contractor's work, thereby causing the complained of delay.
The contractor's engineer testified that the 15 days of delay attributed to the contractor were, in his opinion, neither substantial nor material to completion of the project. The owner's expert witness contradicted the testimony of the contractor's engineer, but the trial court resolved the credibility question in favor of the contractor's engineer. The appellate court deferred to the trial court's determination of credibility in favor of the contractor "due to its ability to observe the tenor and demeanor of the witnesses."
The owner argued that the 15 days of delay attributable to the contractor were sufficient to justify termination of the contract based upon Article XIX, which provided that the contractor's "failure to comply with any of the terms" of the contract would constitute a basis for termination.
The appellate court disagreed with the owner on two grounds. First, the 15 days of delay attributable to the contractor were from December 13, 1994 to January 10, 1995. The trial record established that subsequent to such delays, the parties mutually agreed to an extension of the completion date of the contract and the contractor continued working on the project. Under those circumstances, the court held that the owner waived any complaint as to that 15-day delay.
The court also held that a 15-day delay was too insignificant to justify termination. It noted that such a "basis for termination would amount to a forfeiture which the courts in this state are loath to enforce."
Conclusion
The owner had no right to terminate the contract under the circumstances of this case. The owner had indicated its intent to keep the contract alive by agreeing to an extension of the contract completion date, despite delays on the part of the contractor. The owner could not, thereafter, reverse its position and rely on a completion date, which it had previously waived, as a ground for termination. Consequently, the owner was left with only the 15-day delay caused by the contractor, which was clearly an insufficient ground to terminate the contract.
About the author: Mr.
Miuccio is a partner in the New York City-based law firm Altieri, Kushner,
& Miuccio P.C. and legal counsel to the Construction Industry Council of
Westchester and the Hudson Valley Inc.