A recent decision from the Massachusetts Appeals Court is likely to have a substantial impact on construction contract and claims practice in the Commonwealth. The Massachusetts State College Building Authority (“MSCBA”) hired Suffolk Construction Company, Inc. (“Suffolk”) to serve as general contractor on a dormitory project at Westfield State University (the “Project”). Central Ceilings, Inc. (“Central”) submitted a bid to serve as the subcontractor for exterior heavy metal gauge framing and sheathing, interior light gauge framing, drywall, and hollow metal door frames. The Project was plagued with scheduling difficulties, and Central asked Suffolk for extensions of time on several occasions, while its workforce sat idle, unable to perform its work as a consequence of certain delays, principally caused by Suffolk’s inability to manage and coordinate the project. Suffolk rejected these requests, apparently out of concern about a substantial liquidated damages assessment from MSCBA, if the Project missed its completion date. Central accelerated its performance, and completed its work on a compressed schedule. Central brought a lawsuit against Suffolk for breach of contract, seeking loss of productivity damages in the amount of $321,315, as well as payment of $82,538 for unpaid change orders.
Suffolk argued that a “No-damages-for-delay” clause barred Central’s claim for loss of productivity damages. The clause provided, in pertinent part, that the subcontractor “shall have no claim for money damages or additional compensation for delay no matter how caused” but “shall be entitled only to an extension of time for performance of its [work].” The Court rejected Suffolk’s argument on two grounds. First, Suffolk was precluded from invoking the clause because it had materially breached the contract by refusing to allow Central’s requests for extensions of time, thereby depriving Central of its sole contractual remedy. Second, the loss of productivity damages were not “delay” damages, but rather they were project costs incurred by Central as a result of a compressed schedule.
Suffolk also challenged the trial judge’s adoption of the “total cost” method for calculating damages, which had been advocated at trial by Central’s expert witness. This method takes as a measure of damages the difference between the subcontractor’s bid and its ultimate costs. It has been historically disfavored, because it tends to ignore several mitigating factors, such as unrealistic subcontractor bids, and the subcontractor’s own participation in the delay. Here, the Court determined that the “total cost” method was appropriate, largely because the nature of Central’s loss made it impossible or highly impracticable to determine its damages using more traditional methods. Rather, as opined by Central’s expert, the loss was best quantified through the impact it had on manpower, and he reviewed Central’s original estimate for labor costs and compared that against the actual labor costs incurred.
This decision, unless or until reversed or modified by the Massachusetts SJC, will have significant and immediate impact on construction law risk management in Massachusetts. Look for an increase in “total cost” claims, and a corresponding adjustment in drafting “No-damage-for-delay” clauses, including expanding the definition of “delay” damages, and potentially eliminating the right of subcontractors to request additional contract time.