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When an owner can be held liable for delays.

Generally, bad coordination of trade contractors results in delays and disruptions to the project completion. A trade contractor seeking damages for such delays must look to the one responsible for coordination of the project. Typically, the general contractor's contract includes coordination and supervisory obligations. Ordinarily, a subcontractor can sue the general contractor for damages resulting from the general contractor's inability or failure to coordinate construction, but the subcontractor generally cannot sue the owner with whom the subcontractor has no contractual relationship.

A contractual duty to coordinate may be imposed on the owner who enters into multiple prime contracts. Such contracts are commonly found on public projects. In New York, the Wicks Law mandates separate price contractors. A prime contractor suffering damages because of delays resulting from an owner's failure to coordinate may be permitted to sue the owner for such damages. For example, in Broadway Maintenance Corporation vs. Rutgers. the State University, 90 N.J. 253, 447 A.2d 906, the State University of Rutgers entered into multiple prime contracts for the construction of its medical facility. The project was completed well beyond the scheduled completion date. Two of the prime contractors sued Rutgers claiming, among other things, damages due to delays and disruptions caused by Rutgers' failure to coordinate the activities of the various contractors on the site.

In Rutgers, the Court determined whether Rutgers, as owner, owed a duty to its prime contractors to coordinate the work of the various trades on the project. In doing so, the Court stated the following:

If no one were designated to carry on the overall supervision, the reasonable implication would be that the owner would perform those duties. In so doing, the owner impliedly assumes the duty to coordinate the various contractors to prevent unreasonable delays on the project. (citations omitted) That is a reasonable assumption because the contracting authority has the power to use its superior position and to evoke its contractual rights to compel cooperation among contractors. (citations omitted) The owner is impliedly obligated to act in good faith and to do that which it reasonably can to ensure that the other contractors adhere to the time schedules established for the project. (citations omitted) An owner's failure to take action in the face of unnecessary and unreasonable delay by one of the contracting parties would ordinarily evidence bad faith and constitute a breach of its implied duty to coordinate.

The Court in Rutgers determined that Rutgers had in fact delegated its duty to coordinate to the prime contractor on the project who was designated as the general contractor. The court also found that each of the prime contracts contained a valid and binding "no-damage-for-delay" clause which limited the contractor to an extension of time in lieu of a claim for delay damages.

The court upheld the validity of this clause as binding upon the plaintiff. There are a number of important cases in New York construing the "no damage for delay" clauses since the Rutgers case was decided.

Reasoning contrary to Rutgers was found in Blitman Construction Corp. vs. Kent Village Housing, 91 A.D.2d 173, 457 N.Y.5.2d 817. In Blitman, the contractor, Blitman, was retained by the owner, the Kent Village Housing Company, Inc. (Kent), but the Department of Housing Preservation and Development of the City of New York (HPD), which was the "supervising agency" at the site, was named as an additional defendant.

The contract between Kent and Blitman stated in relevant part:

"The work to be done by the contractors shall at all times be subject to the supervisor, regulation and approval of [HPD] and its duly authorized representatives."

HPD had ordered an extended work stoppage of Blitman. Blitman's complaint was grounded in breach of contract seeking damages for work performed and for an extended work stoppage. Blitman alleged against HPD that Kent was its agent in executing the contract and that HPD ratified the contract through countless acts during construction.

HPD moved to dismiss the complaint, since it was not a signatory to the construction contract. Special term denied HPD's motion on the ground of its control it had exercised over Blitman.

The Appellate Division held that there was no contractual relationship between HPD and Blitman and the supervisory acts over the project did not make it accountable in this action. The Court dismissed the action against HPD and maintained the action against Kent.

Depending on the contractual scenario involved in each transaction, it is imperative to determine whose responsibility it is to coordinate such activities before commencing legal action.

The more direct involvement the owner engages in vis-a-vis the coordination of the contractors, the more the owner exposes himself to a direct suit from the trade contractors. Of course, those projects which are constructed by a construction manager who acts as an agent for the owner, the owner will be liable directly to the trade contractors in the event the construction manager failed to carry out his coordination duties properly. The common practice for private work in New York City is for owners to construct their projects with construction managers as opposed to general contractors.
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Title Annotation:Construction Corner
Author:Goetz, Peter
Publication:Real Estate Weekly
Date:Apr 1, 1992
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