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PORT CHESTER ELEC. CONST. CORP. v. HBE

October 2, 1991

PORT CHESTER ELECTRICAL CONSTRUCTION CORP., PLAINTIFF,
v.
HBE CORPORATION AND THE FIREMAN'S FUND INSURANCE COMPANY, DEFENDANTS.



The opinion of the court was delivered by: Nina Gershon, United States Magistrate Judge:

  OPINION AND ORDER

This is an action by an electrical subcontractor against a general contractor and its surety for delay damages following completion of a contract for renovations and new construction on the Nyack Hospital in Nyack, New York. Pursuant to the parties' consent under 28 U.S.C. § 636(c), a bench trial was held before me. This Opinion and Order contains the findings of fact and conclusions of law required by Rule 52(a) of the Federal Rules of Civil Procedure.

The Delays and Their Effect on Port Chester

As a "design/build" contractor, defendant HBE Corporation ("HBE") was responsible for the architectural design of the work and served as general contractor. Defendant The Fireman's Fund Insurance Company was HBE's surety on the Project. The "Phase II" work (the "Project") called for in HBE's contract with the Hospital consisted of both new construction and the renovation of an existing multi-floor building.

Port Chester Electrical Construction Corp. ("Port Chester") and HBE entered into a subcontract in the amount of $1,222,000 for the electrical work on the Project in October 1982. Although the expected completion date for the Project was December 31, 1983, the Project, including Port Chester's final work, was not in fact completed until June of 1986.

The principal cause of the delay was that the original contract work was changed significantly, both by the addition of new work and by the alteration of the original plans. These changes created "extra work" for Port Chester, that is, work not contemplated by the subcontract (referred to here as "base subcontract work"). The extra work was reflected in change orders comprised of both ICOs (internal change orders for which HBE, as architect, was responsible and which were not reimbursable by HBE from the Hospital) and OCOs (owner, i.e., Hospital initiated change orders). The change orders include the amount of payments from HBE to Port Chester for its extra work. The amounts in the change orders reflect either a price negotiated between HBE and Port Chester or, where they could not agree or work was ordered on an emergency basis, a price based upon time and material tickets, which reflect the cost of labor, materials plus a profit percentage.

HBE issued a total of 63 change orders to Port Chester. The total amount of the change order work, $877,845, itself indicates the massiveness of the changes.

Port Chester was paid the subcontract price of $1,222,000 and was paid for all of its extra work, as reflected in the change orders. Port Chester sues here not for the cost of the extra work itself, but for the additional costs to its base subcontract work caused by the delays in its ability to complete that work. Its claim is limited to the period after January 1, 1984, because, in Change Order # 17, HBE and Port Chester agreed to an additional payment of $35,000 to cover both extra work and any claims for delay damages through January 1, 1984. Defendants' argument that Change Order # 17 was intended by the parties to cover delays that had not yet occurred but would occur in the future is belied by the express language of Change Order # 17 that it covers "delays thru January 1, 1984," and by the testimony establishing the contemporaneous understanding of the negotiating parties.

The great bulk of the extra work on the Project occurred after January 1, 1984. Of the 63 change orders issued, none but Change Order # 17 covered delay damages claims. Nor was there any requirement that claims for delay damages to base subcontract work be included in the change orders. The extent to which extra work was delaying base subcontract work could not be fully determined until it was completed.

Port Chester, as the electrical subcontractor, was a "following trade," i.e., because of the nature of electrical work, Port Chester's work generally followed most of the other subcontractors at a given work site (although it also had to provide temporary electrical power throughout the Project and secure the safety of areas that were being demolished); and it did not leave the site until the Project was complete. It is undisputed that portions of Port Chester's base subcontract work could not be completed until after major change order work, performed by Port Chester itself and by other subcontractors, was completed. While every major construction project entails some degree of change order work, the evidence was overwhelming that in this case the extent of such work was unusual in scope and caused significant delay in completion of the Project including completion of Port Chester's base subcontract work.

A prime example involves the removal of asbestos. Although HBE was aware of the likelihood that asbestos would exist in a building of the age of the building to be renovated, and although the drawings furnished to HBE by the Hospital indicated the presence of asbestos, HBE did not take the removal of asbestos from the building, which was necessary to effect the renovations, into account in estimating its work on the Project. Therefore, when asbestos was encountered in an area, all work had to be suspended and an asbestos remover hired to remove it. This caused delays to the Project and specifically to Port Chester's work. While HBE and the Hospital disputed which of them was responsible for the delays, the delay assuredly was not attributable to Port Chester.

Delays by other subcontractors also delayed completion of Port Chester's base subcontract work. For example, Donaldson Acoustics failed to timely install the ceiling grids, into which Port Chester was to install the lighting fixtures. This significantly delayed completion of Port Chester's base subcontract work.

While it was part of Port Chester's agreement that the renovation work be done within the restrictions imposed by the Hospital's continuing to function during the life of the Project, changes imposed by the Hospital to the design of the Project created unanticipated delays of which HBE itself complained repeatedly to the Hospital. For example, the Hospital made major changes, causing many months of delay, regarding the construction of the new operating rooms and the renovation of the old operating rooms.

Defendants' argument that this case is about "work schedule" changes, which, under the subcontract cannot be the basis for increased payments, is without merit. Plaintiff does not seek recovery for mere changes in work schedule,*fn1 but for massive delays, which it has proved and for which HBE is responsible. See Quaker-Empire Construction Co. v. D.A. Collins Construction Co., 88 A.D.2d 1043, 452 N.Y.S.2d 692 (3rd Dep't 1982).

The opinions of HBE witnesses that Port Chester's losses were the result of its own problems were without factual support. Wayne Zimmerman, vice-president of estimating for HBE, made an estimate that Port Chester had been 22% inefficient in its work, because it had experienced a loss in its first fifteen months on the Project and because, in his view, Port Chester had "overmanned" the job. This testimony was offered for the purpose of reducing Port Chester's damages by 22% to reflect damages caused not by HBE but by Port Chester itself. But Mr. Zimmerman's testimony was completely speculative and without factual foundation. He had no personal knowledge of the Project and was never at the site. Moreover, it was contradicted by other credible and persuasive evidence from witnesses with detailed, personal knowledge of the work. Indeed, Port Chester established its efforts to be efficient, and to move the Project along, in the face of overwhelming odds. Mr. Mollica, an HBE superintendent on the Project, testified that, among the many problems on the job which delayed completion were problems with subcontractors, not including Port Chester.

In sum, Port Chester established that conduct for which it was not responsible and for which HBE was responsible, caused delays in the completion of its base subcontract work. It also established that these delays, which required it to be at the site two and a half years longer than expected, caused increased expense, principally from enhanced labor costs.

Notice

Defendants do not dispute that Port Chester's service and filing of its Amended Notice of Mechanic's Lien satisfied its notice obligation to Firemen's Fund Insurance Co. pursuant to the terms of its Payment Bond.

The dispute between the parties is whether the notice provisions of the contract between HBE and Nyack Hospital bind the plaintiff subcontractor. HBE relies upon Section 12.1.9 of the General Conditions, which provides that, "If HBE claims that additional cost is involved because of . . . (4) any delay which is cause for the contract time to be extended under Paragraph 8.3.1., HBE shall make such claim as provided in Paragraph 12.2." Section 12.2.1 provides, "If HBE wishes to make a claim for an increase in the Contract Sum, it shall give the Architect and the Owner written notice thereof within thirty days after the occurrence of the event giving rise to such claim. . . . No such claim shall be valid unless so made." HBE argues that these provisions are incorporated into its subcontract with HBE.

Plaintiff argues that an incorporation clause in a construction subcontract binds the subcontractor only to those provisions of the prime contract which relate to the scope, quality, character and manner of the work. Plaintiff also argues that a mere blanket incorporation would not have fulfilled HBE's own contractual obligation to the Hospital to obtain specific consent from Port Chester to a notice provision which would have allowed HBE to make timely claims to the Hospital. In response, defendants argue that Port Chester is barred from making such contentions under the doctrine of judicial estoppel because of its express assertions to the Court of Appeals for the Second Circuit in a prior proceeding in this case that it was bound by the delay notice provision ...


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