I’ve done a lot of legal work for environmental remediation companies and others doing underground construction so I am always interested in court decisions that arise from those sorts of disputes. A recent case in
Project Dispute
A Property Owner hired a General to perform environmental remediation, including the excavation and removal of contaminated soil, on real property in
About nine months after the originally scheduled completion date, General issued a cure notice and subsequently terminated Sub.
Cross Claims
In letters written back and forth around the time of termination and, ultimately, in the ensuing litigation, General asserted that Sub breached “its subcontract in that it has failed to prosecute the work with diligence so as to ensure completion of the project in accordance with the Schedule." Additional alleged breaches included Sub's failures to: comply with the performance requirements of the Subcontract, meet the Subcontract deadline, submit a revised schedule that included a new completion date, and provide the bonds.
As with most cases like this, Sub presented an alternative point of view. Sub disagreed with the termination and claimed that “site conditions, defective specifications, and schedule impacts/business interruptions, not [Sub], have delayed the project schedule."
Each party filed Summary Judgment motions against the other (in other words, “even assuming the other side’s version of events is correct, or based on facts that we agree on, I should still win because…”).
What the Court Did
There were numerous parties involved in this litigation – in addition to the General and Sub, parties included the property owners, replacement contractors, sub-subcontractors, and equipment suppliers. The main dispute, however, is simply between the General and the Sub.
There were lots of intricate details as to why the project was unsuccessful. There were sufficient disputes between Sub and General about what occurred (defective plans or ineffective implementation of plans?) such that the court said it couldn’t rule without more information. The Court simply skipped the messy “he said/she said.”
However, what was not in dispute was that the Sub never provided the contractually required performance bond. The Court held that in construction contracts, the "failure to furnish and maintain payment and performance bonds or insurance specified by the contract documents is deemed invariably to constitute a material breach of the contract." A material breach is one that "goes to the heart of the contract" and this breach was material because "[b]onds and insurance constitute significant instruments of risk allocation that, if not procured or maintained in force, materially shift to the owner the risk of nonperformance." Due to this material breach by the Sub, General was justified in terminating the contract.
Essentially, Sub never got the chance to prove it’s version of events because Sub never got the bond it was supposed to. Ouch for Sub.
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