Category Archives: Construction Law

Measure of Damages for Breach of Construction Contract

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What is the Measure of Damages for Breach of Construction Contract?

The measure of damages for breach of a construction contract is the reasonable cost of construction and completion in accordance with the contract. Magnum Constr. Mgmt. Corp. v. City of Miami Beach, No. 3D15-2239, 2016 WL 7232268, at *4 (Fla. 3d Dist. Ct. App. Dec. 14, 2016). Damages cannot be based upon speculation or guesswork, but must have some reasonable basis in fact.

In Magnum Constr. Mgmt. Corp. v. City of Miami Beach, Magnum Construction Management (“MCM”) appealed from a trial court ruling in favor of the City of Miami Beach, Florida (“City”).  MCM contracted with the City to construct a new park (“the Project”).  After completion, the City found several defects in the soil compaction and landscaping of the Project.

In fixing the landscaping issues, the City fundamentally changed the landscaping.  The City sought 3 million dollars in damages against MCM, which was the cost of the new construction.  The trial court found that the new construction constituted “betterments” or upgrades to the original plans.  The trial court awarded the City $1,290,037, stating that the difference between its total award and the amount sought by the city constituted a betterment.

On appeal, the Third District Court of Appeal of Florida reversed the award of damages holding that the measure of damages was the reasonable cost of construction and completion in accordance with the contract.  Where an owner elects to adopt a more expensive design in making the repairs, the owner is limited to recovery of what would have been the reasonable cost of repairs according to the original design.  The trial court was correct to exclude betterments from its award, but the City did not cite any evidence as to the value of the betterments, or what it would have costed the City to restore the playground to the condition it would have been in if the contract had been performed.  The trial court could not speculate as the value of betterments.  Damages cannot be based upon speculation or guesswork, but must have some reasonable basis in fact.

Accordingly, when a non-breaching party corrects the defects of a contractor, the party must keep in mind that any improvements or betterments that radically differ from the original design of the project will not be recoverable in court.

Ambiguities in Construction Contracts

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How Does a Court Interpret Ambiguities in Construction Contracts?

In the recent case of Daake v. Decks N Such Marine, Inc., 201 So. 3d 179 (Fla. 1st DCA 2016), the First District Court of Appeal analyzed who were the correct parties to an ambiguous construction contract.

In this case, Decks N Such Marine (“DNS”) entered into a contract to construct a seawall on real property owned by Daake Family Trust.  The contract’s first page stated that the agreement was between Thomas and Adele Drake as Owner and DNS as contractor.  The first page did not mention the Family Trust.  However, in the signature section, Thomas and Adele Drake executed  in their corporate capacity as members of the Family Trust.

The Court held that the conflict between the drafted provision and the handwritten notation on the signature created an ambiguity as to who was a party to the seawall contract.  The Court applied the following rules of contract construction:

  1. The primary rule of contract construction is to ascertain the intention of the parties;
  2. Courts must give contractual language its plain meaning;
  3. If there is an ambiguity between printed words and written words, the written words ordinarily prevail;
  4. Ambiguities are construed against the drafter of the contract; and
  5. A contract must be interpreted in a manner that does not render any provision meaningless and arrive at a reasonable interpretation of the entire agreement to accomplish its stated meaning and purpose.

The Court held that applying the rules of contract construction, the handwritten notation on the signature should prevail as a clear expression of the Family Trust’s intention to enter into the contract.  The Family Trust was the owner of the property.  The agreement had a provision giving consent by the owner to the recording of construction liens.  If the agreement was not with the Family Trust, this provision would have been meaningless.  Therefore, the trial court correctly found that the contract with DNS was with the Family Trust and not Thomas and Adele Drake individually.

It is important to ensure that your construction contracts are clear and unambiguous.  This provides certainty in contracting.  If the agreement is ambiguous, the contract will be construed and interpreted in accordance with the above-stated rules.

Can Surety Enforce Venue Selection Provision From Construction Contract

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Can Surety Enforce Venue Selection Provision From Construction Contract

Can a surety on a public project enforce a venue selection provision from the construction contract?

No, in disputes over a payment bond, a surety cannot enforce a venue selection provision from a construction contract.  A viable forum selection clause is strongly controlling in all but exceptional circumstances. Dane Constr. & Co., Inc. v. Travelers Cas. & Sur. Co. of Am., 2016 WL 5724280, at *2 (S.D. Fla. Sept. 19, 2016).  Section 255.05(1)(a), Florida Statues, prohibits the inclusion of language in any bond seeking to restrict the venue of any proceeding thereupon.

In Dane Construction , Tutor Perini, the general contractor, entered into a subcontract with Dane Construction for a public construction project in Broward County, Florida.  Tutor Perini posted a payment bond for the project.  This bond contained no provisions governing venue for any action under the bond.  The subcontract between Tutor Perini and Dane Construction had a venue provision naming the State court of the 17th Judicial Circuit of Broward County, Florida as exclusive venue for all disputes.

The general contractor failed to remit payment and Dane filed a complaint in the United States District Court, Southern District of Florida against the surety for breach of payment bond.  The surety then filed a motion to dismiss on grounds of forum non conveniens, asserting that the venue  provisions contained in the Owner’s agreement and subcontract require venue in the Seventeenth Judicial Circuit Court in and for Broward County, Florida.  When moving for motion to dismiss on grounds of forum non conveniens, the moving party must demonstrate that (1) an adequate alternative forum is available, (2) the public and private factors weigh in favor of dismissal, and (3) the plaintiff can reinstate his suit in the alternative forum without undue inconvenience or prejudice.

The United States District Court denied the surety’s motion to dismiss.  The Court reasoned that this suit is a dispute between the Subcontractor and the surety for a claim against the bond — not a claim under the contracts that contained a venue selection provision.  The bond itself has no provisions regarding venue and only incorporated the Owner’s agreement, not the subcontract.

Even if the court was to incorporate the Owner’s agreement into the bond, §255.05(1)(a), Florida Statues, prohibits the inclusion of language in any bond restricting venue. Thus, no legally enforceable venue provision existed in the bond.  Accordingly, the court denied the motion to dismiss based on forum non conveniens.

 

Arbitration in Construction Contracts

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Arbitration in Construction Contracts

Many construction contracts contain arbitration provisions, requiring that all disputes be decided by arbitration as opposed to in court.  A court has a three-pronged test to determine whether a dispute is subject to arbitration: (1) whether there is a valid agreement between the parties to arbitrate; (2) whether the specific issue is subject to arbitration; and (3) whether the right to arbitration was waived.

The recent case of Am. Eagle Veteran Contracting, LLC v. Eiland highlights when a party waives its right to arbitration by actively participating in the lawsuit or by acting in a way that is inconsistent with the right to arbitrate.  2016 WL 6023934, at *1 (Fla. Dist. Ct. App. Oct. 14, 2016).

In American Eagle, American Eagle, the general contractor, subcontracted with Architectural Drywall for work on a construction project.  The contract between American Eagle and Architectural Drywall contained an arbitration provision.  A dispute arose between the parties and Architectural Drywall sued American Eagle for breach of contract as a result of American Eagle’s failure to make payment.  American Eagle responded by filing a motion to stay the proceedings pending arbitration.

Architectural Drywall filed a motion for summary judgement.  American Eagle responded by filing a motion to stay the proceedings, compel arbitration, and to strike Architectural Drywall’s motion for summary judgement.  While American Eagle’s motion to compel was still outstanding, the trial court granted summary judgment in favor of Architectural Drywall.

On appeal, American Eagle argued that summary judgement was inappropriate because a genuine issue remained relating to American Eagle’s motion to compel arbitration.  The Fifth District Court of Appeals agreed with American Eagle, finding that the trial court erred in failing to rule on the motion to compel arbitration prior to the entry of summary judgment.  Florida public policy favors arbitration and parties with an agreement for arbitration have a right to arbitrate disputes.

By consistently claiming its right to arbitration from the beginning of the action and not filing an answer or any other pleading in response to the complaint, American Eagle did not waive its right to arbitration.  A party must be careful not to take any action in litigation that may cause it to unintentionally participate in litigation.  Such action may be construed as waiver of the right to arbitrate.

When Is A Construction Lien Fraudulent

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When is a Construction Lien Fraudulent?

Section 713.31(2)(a), Florida Statutes, states that “[a]ny lien . . . in which the lienor has willfully exaggerated the amount for which such lien is claimed or in which the lienor has willfully included a claim for work not performed upon or materials not furnished for the property upon which he or she seeks to impress such lien or in which the lienor has compiled his or her claim with such willful and gross negligence as to amount to a willful exaggeration shall be deemed a fraudulent lien.”

The recent case of Gator Boring v. Westra held that a claim of lien that overstates the amount claimed is not necessarily fraudulent, unless the exaggeration was made willfully. Gator Boring & Trenching, Inc. v. Westra Const. Corp., No. 2D15-5453, 2016 WL 5807805, at *5 (Fla. Dist. Ct. App. Oct. 5, 2016).

In Gator Boring, Gator Boring & Trenching contracted with Westra Construction to drill a portion of a pipeline in Polk County.  After commencing the work, Gator discovered a substantial amount of rock, instead of sand, at the project, which dramatically increased the cost of the contracted work.  After Gator completed the project, Westra did not pay Gator all of the monies due and Gator recorded a construction lien. The total amount of the lien that Gator asserted was $889,792.70, which included $676,556.90 for the additional costs associated by drilling through the unanticipated rock. Gator then filed suit against Westra Construction Corp. and its surety, Travelers Casualty and Surety Company of America.

Westra and Travelers argued that the lien was fraudulent and unenforceable under section 713.31(2) because Gator’s lien included the $676,556.90 for the changed conditions claim, which was not recoverable under the contract. The trial court granted Westra’s motion for partial summary judgment on this issue and Gator appealed.

On appeal, Florida’s Second District Court of Appeal reversed the trial court’s ruling, holding that a lien is not to be deemed fraudulent merely because it is not embodied in a written contract or change order, so long as there is a good-faith basis for the claim. The burden of proof is with the party asserting that a claim of lien is fraudulent.  In this case there was no record evidence to establish that Gator willfully exaggerated its lien by intentionally including amounts that were not recoverable or that it included an amount for changed site conditions in bad faith.  A minor mistake or error in a claim of lien, or a good faith dispute as to the amount due does not constitute a willful exaggeration that operates to defeat an otherwise valid lien.

Since the record reflected that the parties had a genuine dispute about Gator’s right to recover on its changed conditions claim, summary judgment was improper.  Accordingly, it is important that the party claiming a fraudulent lien establish evidence of willful exaggeration of the lien.

General Contractor Duty of Good Faith and Fair Dealing

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General Contractor Duty of Good Faith and Fair Dealing

A contractor can be barred from recovering for additional work performed if the contractor violates its duty of good faith and fair dealing.

In Underwater Engineering Services, Inc. v. Utility Bd. of City of Key West 194 So. 3d 437 (Fla. Dist. Ct. App. 2016), the Utility Board of Key West contracted Underwater Engineering Services, Inc. to perform maintenance on 57 pillars of the seven-mile bridge in the Florida Keys.  The contract was based on unit pricing.  The planned quantities of the work called for 200 square feet of Concrete Coating Repair at a price of $110 per square feet, for a total of $22,000.  The contract also required that Underwater provide the Utility Board with 24 hours prior to completing the surface preparation and before the coatings were applies to the poles.  The purpose of the notification was to allow the Utility Board to inspect the structures prior to coating.

After an assessment of the profitability of the project by Underwater, the project manager decided that Underwater would increase its profit if it increased the quantities of work.  Without notifying the Utility Board, Underwater performed 5,006 square feet of work, instead of the planned 200 square feet.  Underwater also did not provide this 24 hour notice to the Utility Board before performing this coating work.  Underwater filed suit against the Utility Board alleging that it was owed nearly $700,000 for the overruns based upon the unit pricing.

The Florida Third District Court of Appeal denied Underwater’s claim finding that it breached teh contract and breached the implied covenant of good faith and fair dealing.  Florida law recognizes an implied covenant of good faith and fair dealing in every contract, which is intended to protect the reasonable expectations of the contracting parties in light of their express agreement.  The court found that Underwater’s failure to properly notify the Utility Board of the inspection was designed to conceal the increase the quantities of work performed.  If Underwater allowed such an inspection, the Utility Board would has discovered the increase in the contract price.  This decision by Underwater violated both the contract and the implied covenant of good faith and fair dealing.  As a result, the Utility Board was thereby relieved of its contractual obligation to pay for this work.

Therefore, it is important for a contractor to always act in good faith and deal fairly in performing its work.  If a contractor decides to perform additional work, without notice or prior authorization, the contractor may not be able to recover any money for this additional work.

Contractor Right to Repair Defective Construction Work

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Contractor Right to Repair Defective Construction Work

Does a contractor have the right to cure defective construction work?

Where a contract requires notice of a defect and an opportunity to cure, an owner must give a contractor proper notice of their defective work and an opportunity to repair that defective work.

In Underwater Engineering Services, Inc. v. Utility Bd. of City of Key West 194 So. 3d 437, 441 (Fla. Dist. Ct. App. 2016), the Utility Board of Key West contracted Underwater Engineering Services, Inc. to perform maintenance on 57 pillars of the seven-mile bridge in the Florida Keys.  The contract between the Utility Board and Underwater had a defect assessment provision, which required the Utility Board to give notice of any defects to Underwater and to give them an opportunity to cure.  After completion of the project, the Utility Board discovered defects in the concrete coating of the pillars.  Without notifying Underwater, the Utility Board hired a contractor to repair Underwater’s defects, then sued Underwater for failing to properly pour eight concrete collars according to the project specifications.  Underwater raised a defense that the Utility Board was required to give them notice of the defect and an opportunity to cure the defect before engaging someone else to repair the collars.

The trial court held that Underwater was liable for the defects.  On appeal, the Florida Third District Court of Appeal reversed, holding that where the contract requires notice and an opportunity to cure, Underwater must have been afforded the opportunity to repair any of the work that was not conforming to specified requirements.  As a result, the Utility Board could not recover for the cost incurred to fix Underwater’s defective work.

Therefore, it is very important for an owner to provide a contractor with notice and an opportunity to cure its defective work where the contract provides for this right.  If an owner subsequently repairs the defect without giving the contractor notice and an opportunity to repair, the owner may not be able to recover the amount expended for the repairs from the contractor.

 

Indemnification Between Contractor and Surety

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Indemnification Between Contractor and Surety

Does Florida’s limitation on Indemnification in Construction Contracts apply to the general agreement of indemnity between a surety and principal on a bond?

No, Florida’s limitation on Indemnification in Construction Contracts (section 725.06, Florida Statutes) does not apply to the general agreement of indemnity between a surety and a principal on a bond.

This question was recently answered in the case of Great Am. Ins. Co. v. Brewer, No. 6:16-CV-63-ORL-37KRS, 2016 WL 3640395, at 2 (M.D. Fla. July 8, 2016).  The court held that section 725.06 does not apply to this relationship because a surety is not an owner of real property, or an architect, engineer, general contractor, subcontractor or material supplier.  Accordingly Florida statue §725.06 does not apply to indemnity agreements between a surety and a principal on a bond.

The Court in Brewer analyzed this question as follows:  Florida statue §725.06 renders contracts void and unenforceable under the following circumstances: (1) the contract concerns or guarantees “any construction, alteration, repair, or demolition of a building, structure, appurtenance, or appliance, including moving and excavating associated therewith” (“Construction Contract”); (2) the parties to the Construction Contract include “an owner of real property and an architect, engineer, general contractor, subcontractor, sub-subcontractor, or materialman or any combination thereof” (“Contracting Party Requirement”); (3) one of the parties to the Construction Contract promises “to indemnify or hold harmless” the other party “for damages to persons or property caused in whole or in part by any act, omission, or default of the indemnitee arising from” the Construction Contract or performance of the Construction Contract; and (4) the Construction Contract does not contain “a monetary limitation on the extent of the indemnification that bears a reasonable commercial relationship to the contract and is part of the project specifications or bid documents, if any.”

In Great Am. Ins. Co. v. Brewer, Brewer argued that, because Brewer Paving & Development, Inc. (principal) is a contractor, Florida statue §725.06 applies to the agreement, making it void. Great American Insurance Company (surety) argued that BPD being a contractor is irrelevant, and Florida statue §725.06 does not apply to the agreement.

The United States District Court agreed with the surety, ruling that, as long as the surety is not an owner of real property, or an architect, engineer, general contractor, subcontractor or materialman, then Florida statue §725.06 does not apply to indemnity agreements between a surety and a principal on a bond.

Triggering a Subcontractor’s Performance Bond

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Triggering a Subcontractor’s Performance Bond

Does a Contractor Need to Provide Notice to Trigger Liability Under a Subcontractor’s Performance Bond?

The answer depends on whether the performance bond and incorporated subcontracts include language explicitly requiring notice to be given. (International Fidelity Insurance Company and Allegheny Casualty Company v. Americaribe-Moriarty JV, 1 F.Supp. 3d 1 ( S.D. Fla 2016)).  If no language is present under the terms of the performance bond explicitly requiring notice to be given, then the contractor may remedy the default itself and then later sue the surety to cover the shortfall.

In the recent case of International Fidelity Insurance Company and Allegheny Casualty Company v. Americaribe-Moriarty JV, AMJV, the general contractor, entered into a subcontract with Certified Pool Mechanics, Inc., to perform pool work for a project. International Fidelity Insurance Company (Surety) issued a performance bond in connection with the subcontract with Certified Pool, as principal.  AMJV was not satisfied with Certified Pool’s performance on the subcontract and obtained a proposal from a different subcontractor to complete Certified Pool’s work.

AMJV only notified Surety of Certified Pool’s default two days prior to the replacement subcontractor starting its work.  Surety sued AMJV seeking a declaration that AMJV did not comply with the notice requirements of the performance bond.

The U.S. District Court found in favor of Surety holding that the surety “had a right to reasonable notice before [the contractor] undertook to arrange for the performance of work to cure the default.” Since the contractor failed to provide such notice to the surety, the surety was relieved of its obligations under the bond per Florida law. Although AMJV may have had a right under the subcontract to hire a replacement subcontractor, it needed to first allow Surety an opportunity to exercise its rights under the performance bond.

Accordingly, it is important that a contractor strictly adheres to the conditions and notice requirements of a performance bond when attempting to trigger liability of a surety.

Deadline To File Action Against Lien Transfer Bond

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Deadline to File Action Against Lien Transfer Bond

Section 713.24, Florida Statutes, provides a mechanism to transfer a construction lien from real property and place that lien on a surety bond or cash bond held with the clerk of court.  The statute also states that a proceeding to enforce the transferred lien must be filed within the time required by section 713.22, Florida Statutes.  Additionally, if a lien foreclosure action is pending at the time of the transfer, the action against the bond must be filed within 1 year after the transfer, unless otherwise shortened by operation of law.

In the recent case of Hiller v. Phoenix Associates of South Florida, Inc., Phoenix recorded a construction lien on Hiller’s home due to nonpayment for construction work.  189 So. 3d 272 (Fla. 2d DCA 2016).  Phoenix then filed a lawsuit to foreclose the lien.  During litigation,  Hiller transferred the lien to a surety bond pursuant to section 713.24, Florida Statutes.  Hiller then filed a notice of contest under section 713.22, shortening the time within which Phoenix could commence an action on the transfer bond to 60 days from the date of the notice of contest.

After expiration of the 60 days, Phoenix filed a motion to file a supplemental complaint naming the surety on the lien transfer bond.  Hiller argued that the lien was automatically extinguished and filed a motion directing the clerk to release the transfer bond.  The circuit court denied Hiller’s motion.

On appeal, the Second District Court of Appeal reversed holding that the lien law must be strictly construed and requires strict compliance.  Section 713.24 provides the requirements for when an action must be commenced against a lien transfer bond.  The statute also has a provision which allows this period to be “shortened by operation of law.”  Hiller shortened this time period to bring an action against the lien transfer bond.  Phoenix failed to commence its action against the bond within this time.  Accordingly, the law requires that the lien is extinguished and bond returned to Hiller.  There is no excuse for noncompliance.

When faced with a lien transfer bond, a contractor must be wary of the time limitations to file suit against that bond.  This is true even if there is a lien foreclosure action pending.