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Thelen Reid Brown Raysman & Steiner LLP
Blake Construction Co., Inc. and Poole & Kent Corp., operating as a joint venture, contracted with the Upper Occoquan Sewage Authority to build a wastewater treatment facility in Fairfax County, Virginia. The contractor began work on the project in January 1997. Numerous changes were made throughout the project, some of which resulted in legal disputes.
As a public authority, the owner was subject to the Virginia Public Procurement Act, Va. Code Ann. §§2.2-4300 to 2.2-4377. The act allows contractors on public projects six months to appeal adverse final decisions by public owners on their claims to the Circuit Court. See Va. Code Ann. §2.2-4363. The owner rejected the contractor's claims for additional compensation, and the contractor filed numerous suits against the owner. The trial court consolidated six of the suits.
The contractor sought a declaratory judgment that a no-damage-for-delay clause in a public contract was prohibited by Virginia Public Procurement Act §2.2-4335 (A) and was void as against public policy. The trial court sustained the owner's demurrer. The contractor appealed to the Virginia Supreme Court.
The Supreme Court began its analysis by noting that public works contractors may seek time extensions and delay damages unless barred by contract. Some contracts bar such damages, and many courts have developed exceptions to no-damage-for-delay clauses, such as for owner fraud, bad faith, active interference, gross negligence and abandonment of contract.
The Supreme Court considered whether the contract violated Virginia Code §2.2-4335 (A) regarding no-damage-for-delay clauses in public contracts. It provides:
Any provision contained in any public construction contract that purports to waive, release, or extinguish the rights of a contractor to recover costs or damages for unreasonable delay in performing such contract, either on his behalf or on behalf of his subcontractor if and to the extent the delay is caused by acts or omissions of the public body, its agents or employees and due to causes within their control shall be void and unenforceable as against public policy.
The Supreme Court recognized that no prior Virginia case had addressed enforcement of a no-damage-for-delay clause, whether exceptions might be recognized under Virginia common law or what constitutes "unreasonable delay" under §2.2-4335 (A).
At issue were General Provisions 91.K and 91.L of the public contract. Taken together, they granted time extensions and waived, released and extinguished all unreasonable delay damages available to the contractor unless the unreasonable delay was coupled with bad faith, willful conduct, malice, gross negligence or abandonment of the contract by the owner. It also made exceptions for late payments, late owner-furnished equipment and delayed access to work areas.
The owner argued that because the statute does not specifically forbid "restriction" of unreasonable delay damages, a public construction contract would comply if it prohibited such damages so long as some type of unreasonable delay damage was available regardless of how minimal or remote.
The trial court concluded that nothing in §2.2-4335 (A) prohibited the parties from agreeing on a definition of what will constitute an "unreasonable delay" and found that the contract's definition of "unreasonable delay" was not repugnant to §2.2-4335 (A) or violative of Virginia's public policy. The trial court further determined that bad faith, malice, gross negligence or abandonment define unreasonable delay and are, therefore, not ruled out under §2.2-4335 (A).
The Supreme Court reversed. Blake Construction Co., Inc. / Poole & Kent v. Upper Occoquan Sewage Authority, 266 Va. 564, 587 S.E.2d 711 (2003). It found that the plain language of the statute and the statute's express identification of permitted exceptions required reversal of the trial court's finding.
The Supreme Court held that §2.2-4335 (A) means what it says: "Any provision. to waive, release, or extinguish the rights of a contractor. shall be void." The court found that the Virginia General Assembly's use of the inclusive and comprehensive term "any" was instructive and mandatory and that contract provisions such as General Provisions 91.K and 91.L contradict the specific statutory prohibition of §2.2-4335 (A). Once the General Assembly has prohibited an act by statute, a contract that violates the statute is void. The court held that General Conditions 91.K and 91.L were prohibited by §2.2-4335 (A) and were, therefore, void as against public policy.
The Supreme Court rejected the owner's argument that the Legislature had impliedly limited the statute to the exceptions to no-damage-for-delay clauses recognized by courts.
The court also held that a contract provision requiring a party claiming delay to give notice of the claim is valid and enforceable under §2.2-4335 (B) and that it is permissible under §2.2-4335 (A) to limit recoverable damages to those within the owner's control.
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-369-7229 or at pwberning@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
©2005 Thelen Reid Brown Raysman & Steiner LLP
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