“It is undisputed that virtually all of the drawings and specifications … contained substantial errors, conflicts and discrepancies, which rendered them unusable for the construction of the project … .” Eaton Electric Inc. v. Dormitory Authority of the State of New York, (N.Y. Superior Court 2008). This circumstance was outrageous, but it was not enough to void the contract. The electrical contractor still had to overcome the barriers of harsh contract language in order to prevail. The techniques for how this feat was accomplished are suggested in the Eaton case.
The awful facts
The Dormitory Authority, a public entity, runs construction projects for the City University of New York. In this case, the project was a renovation and expansion of the Brooklyn College library. The electrical portion was worth $9 million.
As a public project in New York, the construction used a multiple “prime” system, with a construction manager.
The project was so poorly designed and managed that the duration of electrical work was extended from a planned 22 months to 40 months. The claims for damages, $12.5 million, were 140 percent of the original budget.
Principally, Eaton’s claims were of a delay/disruption category. For this circumstance, the subcontractor’s emphasis in its proof concentrated on the multiple, interrelated causes of job confusion (entitlement to recovery). A correlation between any individual cause and the discrete cost associated with it may not reasonably be possible. Accordingly, Eaton presented its cost overruns (the quantum) in a “total cost” format.
Elements of causation and their proof
The following are the categories of breaches of contract used by Eaton:
1. Errors, conflicts and discrepancies in the drawings and specifications
• Most courts accept that there is an implied warranty by the owner that the drawings and specifications are not defective.
• This warranty (an absolute promise) is often modified by express contract terms, for example, placing a requirement on the contractor to verify dimensions. The courts also have created a distinction between obvious (patent) defects in drawings, which create a burden on the contractor to detect them during the bid phase, and hidden (latent) defects.
• In either event, where errors are detected, corrections can be made through the changes clause.
• Eaton needed to prove the drawings were so substantially wrong that the normal mechanisms for handling corrections failed. A number of techniques in proof have been successful to reach this goal.
• One method is to mark up each drawing to highlight every error. A second is to have a written tabulation of those highlighted areas. The most effective is to have a witness testify to the drawing defects and their effects on job progress.
2. Unauthorized shop drawing changes
• This type of design change is not contemplated by the contract. It can have adverse repercussions on design coordination, and is just sneaky. If the contractor does not catch the revision in time, there may be unexpected installation cost consequences, lost supervisory time in tracking down the problem and delays. I have seen the negative effects of these surreptitious changes where the designer has added access panels, mounting details and even performance criteria to shop drawings.
3.Continuous design revisions
• Loss of morale is a reality on disrupted jobs, with real cost consequences in productivity. However, the courts do not accept this labor factor as a legitimate excuse for poor performance.
• The productivity itself, affected by serial design modifications, is more subject to objective measurement. Depending on the detail of the contractor’s daily reports, approximations can be made as to the number of start/stop cycles, with time estimates for each. Similarly, estimates of time lost by a crew for mobilization/demobilization in affected areas can be made.
• Recognition should be given to the effects of changes. Generally, these instances include when 1.) the work is stopped at the time the need for a change arises; 2.) there is a delay in waiting for direction; 3.) there are restart efforts (redirected crews) once the change is resolved; and 4.) there are impacts on unchanged work.
4. Early occupancy
• Electrical contractors (ECs) tend to be first and last on any job, so changes to almost any other trade will affect the EC’s work. Often the greatest interferences occur toward the end. Where the job has been disrupted, the EC will often find itself needing to tie up an excessive number of loose ends, and productivity slips significantly.
• In the Eaton case, the Dormitory Authority worsened the situation by occupying portions of the incomplete building before the electrical work was substantially complete. The Eaton case is proof that the effects of this interference will turn on the details of what work remained and in what locations of the project.
In one case I tried, proof was presented that the electrical contractor had to use ladders instead of scaffolds for lighting, and time/cost comparisons were made on that basis, among others.
Proof of claims doing double duty
As noted, many major contracts have clauses that attempt to absolve the owner from responsibility for the costs of delays and disruptions, including a “no damages for delay” clause. In most states, there are exceptional circumstances that bar enforcement of such clauses. An owner’s “bad faith” can be an exception, as can delays “beyond the contemplation of the parties” and “active interference” by the owner. These quoted terms are not subject to simple definition.
In many respects, the exceptions turn on quantity, not the inherent quality or genre of interference. One bad drawing will probably not dismember a no damages clause; a high percentage of bad drawings likely will. Some coordination of the drawings’ problems can always be contemplated as possible. A lot of such problems may not be.
Eaton’s proof of the amount of job problems, and its pervasiveness, establish breaches of warranties and of contract. The proof also creates a basis for exceptions to the no damages for delay clause. Lastly (triple duty), this proof may justify the use of a total cost basis for relief.