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Sub's Failure to Explain Low Labor Productivity Bars Claim for Constructive Acceleration
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October 27, 2008
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Howrey LLP
Murdock & Sons Construction, Inc. was the masonry subcontractor for construction of a maximum security state prison in Terre Haute, Indiana. Goheen General Construction, Inc. was general contractor. Murdock bid $1,629,825 for the masonry work. The only other two bids for that work exceeded $2.4 million.
The project was very dense with masonry because it involved 288 cells that were 7 feet by 12 feet. There were many small, short walls to be constructed of concrete blocks. Masons had to work in small spaces. The specifications required both horizontal and vertical rebar every 8 inches. Continuous grouting with cement rather than mortar was required. The plans called for extensive placement of embeds, which required that blocks be cut frequently.
Murdock, although generally experienced, had no prior experience with prison projects. For this project, Murdock was required to use union labor and could not set minimum productivity levels. It never before had dealt directly with the local union in Terre Haute. Based on prior projects, Murdock believed that a mason could lay 200 blocks a day. Because of the complexity of this project, Murdock estimated that it would be able to achieve, with local union labor, productivity of 150 masonry blocks per day per mason. In fact, Murdock’s workers were able to place only an average of 50 blocks per day per mason.
Murdock attempted to increase productivity in a number of ways, including modifying the construction process, adding equipment and firing slow workers. It increased crew size from the planned 35 to 83. But, none of the steps provided more than a temporary increase in the productivity. Murdock fell behind schedule.
The State of Indiana, as project owner, and the general contractor requested and then demanded that Murdock pick up the pace. Murdock made a contractual request for more time and more money. The general contractor forwarded the request to the state, which denied it nearly five months later, stating that any such request must come directly from the general contractor.
Shortly afterward, Murdock stopped work, left the job and sued. Murdock argued that its contract entitled it to relief because the delay either was caused by a labor dispute or by a cause beyond Murdock’s control. It asserted a claim for constructive acceleration. After a bench trial, the U.S. District Court ruled against Murdock and in favor of the contractor and the state. The U.S. Court of Appeals for the 7th Circuit affirmed. Murdock & Sons Construction, Inc. v. Goheen General Construction, Inc., 461 F.3d 837 (2006).
The appeals court wrote that a claim for constructive acceleration arises when the project owner requires the contractor to meet the original project schedule even though the contractor is entitled to time extensions under the contract. To recover on such a claim, the contractor must prove that:
 | The contractor experienced an excusable delay entitling it to a time extension;
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| The contractor properly requested the extension;
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| The project owner failed or refused to grant the requested extension;
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| The project owner demanded that the project be completed by the original completion date despite the excusable delay; and
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| The contractor actually accelerated the work in order to complete the project by the original completion date and incurred added costs as a result.
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In the eyes of both the trial court and the appeals court, Murdock failed to prove the first element – that it had experienced an excusable delay. The appeals court noted that Murdock conceded it had introduced no evidence at trial explaining why productivity was low and instead admitted that “the reason for the slowdown was never determined.”
The appeals court also held that Murdock’s claim of delay caused by a labor dispute with its masons was “based solely on speculation.” According to the appeals court, the claim rested on Mr. Murdock’s testimony that he believed there was a labor dispute because he did not receive a fair day’s work from the union masons in return for a fair day’s pay. Rather, he claimed there was an organized work slowdown by the masons to force him to hire more masons for the job. But, at other points, Mr. Murdock and other company executives testified that they could only speculate on the cause of the low productivity. The appeals court also found that Murdock had failed to introduce evidence of activities that satisfied statutory definitions of a labor dispute.
As for Murdock’s second argument, the appeals court held that Murdock failed to prove that the delays were beyond its control because there was no evidence of what caused the delays, only speculation.
The appeals court noted that the “real crux” of Murdock’s argument was that every “management technique or effort” that it tried failed to increase productivity and, therefore, the slow progress was beyond Murdock’s control. However, the appeals court noted: 1.) Murdock admitted that when it added more masons to the job, productivity did increase, at least for a time. But, Murdock did not continue with this approach because of its cost; and 2.) Murdock in fact “did not try everything.” For example, it noted that Murdock did not offer productivity bonuses to masons.
The appeals court also rejected Murdock’s claim of entitlement to force majeure relief. It noted that a “force majeure clause is not intended to buffer a party against the normal risks of a contract.” The court held that Murdock had knowingly taken the risk of mason productivity and concluded that Murdock’s estimate “had grossly understated” the time and effort required to perform a unique project. The appeals court held: “Unexpected difficulties in the performance of a construction contract do not relieve a contractor from its obligations or serve as a justification for more time or money.”
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-848-4996 or at paulberning@howrey.com or contact your Howrey attorney. For more information about Howrey’s Construction Practice Group, click here.
©2008 Howrey LLP
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