Public works construction contracts normally contain one-sided and onerous provisions favoring the governmental authority. Since bidding contractors have no leverage in negotiating unfair provisions of a contract, it is faced with a “take it or leave it” situation. The contractor should carefully review the contract provisions and be aware of the provisions that a governmental agency may use to reject a legitimate claim for payment.
In the recent case of Lakhi General Contractor, Inc. v New York City School Construction Authority, the Court relied upon two contract provisions to dismiss the contractor’s extra work and delay claims.
In June of 2011, the SCA solicited bids to perform exterior masonry work on a school building in Brooklyn. The notice to bid urged all prospective bidders to attend a pre-bid meeting, which Lakhi did not do. Lakhi similarly did not submit any written request to the SCA for a clarification of any ambiguity in the design drawings, contract drawings or contract documents regarding the scope of work. Lakhi submitted the low bid, which was accepted by the SCA, and was awarded the contract.
After it was awarded the contract, Lakhi submitted several Requests for Information concerning the replacement of certain terra cotta panels and a pre-cast stone band. Lakhi claimed that it was not clear from the drawings whether the terra cotta decorative panels had to be replaced. Lakhi also claimed that the drawings did not provide for replacement of a pre-cast stone band.
The SCA responded that the replacement work was included in the scope of work under the contract, which Lakhi disputed and submitted a change order for the work. The SCA issued a notice of direction for Lakhi to perform the replacement work. In denying Lakhi’s change order, the SCA interpreted the drawings and contract documents to provide that Lakhi would perform the disputed replacement work.
Lakhi filed a notice of claim with the SCA, seeking $824,000 for the extra replacement work performed outside the scope of the contract. Lakhi also filed a claim seeking $323,000 in delay damages caused primarily by the extra time required to perform the replacement work. Lakhi ultimately started a lawsuit to recover its damages. The SCA moved to dismiss the claims as barred by the specific terms of the contract.
The lower court dismissed Lakhi’s lawsuit, finding that the terms of the contract prohibited the extra work claim. The delay claim was also barred by the “no damages for delay” clause in the contract, which provided that the contractor’s sole remedy for any delay was an extension of time.
As for the extra work claim, it was barred by the provision of the contract which provides that in case of any discrepancy or inconsistency between the drawings and the contract documents, the decision of the SCA shall be final. The court pointed out that Lakhi failed to seek a pre-bid clarification from the SCA about the perceived ambiguities concerning the replacement work. The court noted that Lakhi sought clarification of the contract drawings and documents concerning the replacement work only after it was awarded the contract. Accordingly, Lakhi was bound under the stated terms of the contract by the SCA’s interpretation that the disputed extra work was within the scope of the contract.
Lakhi appealed, but fared no better before the appellate court. In affirming the dismissal of Lakhi’s complaint, that court held that the bid documents mandates that the bidding contractor discover and inquire about any claimed ambiguity prior to the submission of a bid, and that by failing to seek such clarification its extra work claims were barred.
The appellate court further agreed with the lower court that Lakhi’s delay damage claims are barred by the contract’s “no damages for delay” clause described above.
Disputes over the scope of the work defined in the contract are a major source of construction litigation. However, the contractor may avoid scope of work issues by thoroughly reviewing the contract provisions and documents concerning possible ambiguities and inconsistencies in the scope of the work prior to submission of its bid.
In the Lakhi case, had the contractor followed the bid instructions by examining the contract documents and obtaining an SCA clarification prior to submission of its bid. Lakhi probably would have avoided unnecessary litigation over the scope of the work.