Delay Claims in the Era of COVID-19: Assessing Subcontractor Responsibility for Construction Delays on New York Projects in the Wake of COVID-19

Delays on construction projects are common given the variables involved. Now, however, a new wave of delay claims looms on the horizon as the fallout from the COVID-19 pandemic unfolds. Site closures, supply chain disruption and workforce unavailability are only a few examples of how the pandemic has and will continue to affect the construction industry, and owners, general contractors and subcontractors are all left asking who will bear the financial brunt of these delays.

Between general contractors and subcontractors, the law in New York has been clear for some time – unless the contract specifies otherwise, a general contractor is not responsible for delays experienced by its subcontractor unless those delays are a result of something under the general contractor’s direction or control.

In 1991, the New York Court of Appeals issued its seminal decision on the subject in Triangle Sheet Metal Works, Inc. v. James H. Merritt & Co.[1] There, a subcontractor brought a claim against the general (or prime) contractor on a public works project, seeking damages for delays on the project caused by the city’s architect. The court held that “absent a contractual commitment to the contrary, a prime contractor is not responsible for delays that its subcontractor may incur unless those delays are caused by some agency or circumstance under the prime contractor’s direction or control.” The court explained that many delays on construction projects are outside of the general contractor’s control, and where the general contractor lacks control, there is no fundamental basis for imputing responsibility for delays on the general contractor.

New York courts continue to cite Triangle with approval,[2] so contractors should continue to be aware of its potential effect in light of COVID-19 and subcontractor delay claims likely on the horizon. However, while there is a strong argument that the holding in Triangle is controlling when assessing pandemic-related delays, such delays present a dissimilar fact pattern and, consequently, there is a possibility that pandemic-related delays could garner different results. For example, under Triangle, an owner-caused delay that harms both a general contractor and subcontractor may entitle the general contractor to recover damages from the owner, yet preclude the subcontractor from recovering anything from the general contractor. It remains to be seen whether the courts will apply the same “control” analysis in assessing delays arising from the COVID-19 pandemic where no party is responsible for the cause of delay.

And what if New York courts determine that Triangle does not apply to COVID-19 delays, thereby opening the door to subcontractor claims? The existence of “no damage for delay” language will then become paramount. Such clauses, which became common in New York construction contracts well before COVID-19, limit recovery for delays to an extension of time for performance and exclude any monetary remedy. The New York Court of Appeals upheld the enforceability of such provisions in the 1986 landmark decision Corinno Civetta Construction Corp. v. City of New York. Thus, even if the “control” element is not a consideration, where there is a “no damage for delay” clause, there is a strong possibility that subcontractors’ recovery for COVID-19-related impacts will be limited.

There are, however, additional considerations when assessing the applicability of “no damage for delay” provisions to the pandemic. The New York Court of Appeals has identified four exceptions to the applicability of such exculpatory clauses: (1) delays caused by the contractee’s bad faith or its willful, malicious or grossly negligent conduct, (2) uncontemplated delays, (3) delays so unreasonable that they constitute an intentional abandonment of the contract by the contractee, and (4) delays resulting from the contractee’s breach of a fundamental obligation of the contract.[3]

The second exception is squarely connected to COVID-19. In discussing this particular exception further, the Corinno Civetta court stated:

The exception is based on the concept of mutual assent. Having agreed to the exculpatory clause when he entered into the contract, it is presumed that the contractor intended to be bound by its terms. It can hardly be presumed, however, that the contractor bargained away his right to bring a claim for damages resulting from delays which the parties did not contemplate at the time. … Thus, even broadly worded exculpatory clauses, such as the one at issue in these actions, are generally held to encompass only those delays which are reasonably foreseeable, arise from the contractor’s work during performance, or which are mentioned in the contract.[4]

Relying on this exception, however, may not be easy. For example, the court in Bovis Lend Lease (LMB), Inc. v. Lower Manhattan Development Corp.[5] analyzed whether the delays alleged by the plaintiff-contractor were “uncontemplated” in connection with the contractor’s deconstruction of a building that had been damaged during the events of 9/11. Specifically, the contractor alleged that regulatory oversight and interference during the asbestos abatement phase of the project led to the imposition of far more strenuous standards than had been required under existing regulations, causing substantial delays and additional costs. In holding that these delays were not uncontemplated, the Bovis court noted that the party seeking to invoke the above exceptions has a heavy burden. In Bovis, the contract included language that stated the contractor specifically assumed the risk for regulatory delays, so the court reasoned that even though the conditions that caused delay “may not have been anticipated, the possibility, however unlikely, of their arising was contemplated and addressed by the parties in their agreement.”

Whether New York courts apply the “uncontemplated delay” exception to COVID-19 remains to be seen. Was a global pandemic of this nature “reasonably foreseeable,” or was this pandemic something different? Arguments exist for both sides, so only time will tell while these cases wind their way through the legal system.

In the interim, as general contractors assess their potential exposure to their subcontractors when “no damage for delay” provisions exist, they will need to pay close attention to the language of the contract. Force majeure clauses and other relevant exculpatory language that addresses pandemics, global health crises, governmental actions or similar events could demonstrate that such events were “contemplated” at the time the parties entered into their respective contracts. Similarly, just as in Bovis, parties should be cognizant of specific assumptions of risk contained in their agreements, especially in connection with delays attributable to supply chain disruption and labor shortages.

In the absence of express exculpatory language, though, when it comes to subcontractor claims for COVID-19-related delay damages, general contractors in New York should rely on the Triangle decision, emphasizing their lack of control over the cause of delays, unless and until a different opinion is expressed by the courts.

[1] Triangle Sheet Metal Works, Inc. v. James H. Merritt & Co., 79 N.Y.2d 801, 802 (1991).

[2] See, e.g., Advanced Automatic Sprinkler Co. v. Seaboard Sur. Co., 139 A.D.3d 424, 425 (1st Dep’t 2016); Superior Site Work, Inc. v. NASDI, LLC, 2018 WL 3716891, at *23 (E.D.N.Y. Aug. 3, 2018); The Hanover Ins. Co. v E.E. Cruz & Tully Const. Co., 2019 WL 3778348, at *6 (N.Y. Sup. Ct. Aug. 12, 2019).

[3] Corinno Civetta Const. Corp. v. City of New York, 67 N.Y.2d 297, 309 (1986).

[4] Id.

[5] 108 A.D.3d 135, 147 (1st Dep’t 2013).

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