John Spearly Constr., Inc. v. Penns Valley Area Sch. Dist., 2015 Pa. Commw. LEXIS 337 (Pa. Commw. Ct. July 24, 2015)

This action arose out of the construction of a biomass boiler system for the Penns Valley Area School Districts (“District”) to house the District’s boiler plant  (“Project”).  The District contracted with general contractor John Spearly Construction, Inc. (“Contractor”) to construct the Project. The District entered into direct contracts with the Project Architect and other contractors responsible for other components of the work.

Construction began in July 2010 and was to be substantially completed no later than October 18, 2010.  From its inception, however, the Project was plagued with delays.  Project delays were caused by, among other things, delays by the District’s Architect in deciding on and responding to submittals relating to changes, disputes between the District and its HVAC contractor responsible for delivering the boiler, and work performed by a sewer contractor the District brought in toward the end of the Project to repair and replace storm water and sewer pipes. Ultimately, the Project was not substantially completed until August 11, 2011.

The District withheld partial payment from the Contractor based on the delay in substantial completion and a dispute as to responsibility for certain tasks.  The Contractor filed suit to recover the balance due under the contract and damages for delay.  The trial court entered a verdict in the Contractor’s favor.  The trial court found that the District actively interfered with the Contractor’s completion of the work, and awarded the Contractor delay damages, penalties and  fees, in addition to the contract payment wrongfully withheld under the Pennsylvania Contractor and Subcontractor Payment Act.  The District appealed.  On appeal, the District argued that the trial court erred in two material respects: (1) holding the District liable for delays of another contractor; and (2) considering change order delays active interference contrary to a “no damage for delay” provision in the contract.

First, the District argued that an owner cannot be liable for delays of third parties.  The Court disagreed.  The Court held that an owner may be liable for the action or inaction of third-party contractors when the owner is ultimately responsible for the scheduling and oversight of those contractors.  The Court found that the Project Architect was responsible for ensuring timely decision-making and enforcing the schedule.  As the District’s representative, the Court concluded that delays caused by the Architect’s lack of oversight were attributable to the District.  As to the remaining delays, the Court found that the District’s decision to hire the sewer contractor to work on-site further delayed the Contractor’s completion and that these delays were also attributable to the District.  The Court reasoned that the hiring of the sewer contractor was not reasonably anticipated by the parties, nor did the parties anticipate the impact of the sewer work on the work site. Thus, the Court found that the trial court did not err in finding that the Architect’s delayed decision-making and the District’s hiring of the sewer contractor constituted  active interferences for which the District bore responsibility.

Second, the District argued that the trial court erred in failing to apply the contractual definition of “active interference” and failing to enforce the prior notice required by the contract.  In particular, the District argued that change orders were not to be construed as “active interferences” as defined in the contract’s “no damage for delay” clause.   The Court disagreed.   The Court strictly construed this provision as an exculpatory clause, as the effect was to attempt to limit the Contractor’s remedy to additional time to perform the work.  The Court noted that such clauses will not be enforced if an owner, or its agent, either took positive action not reasonably anticipated under the contract, or failed to act as needed for a project to progress.  As the trial Court did not err in determining that a majority of the delays were attributable to the District’s positive interference or its representatives’ failure to act in an essential matter, the Court affirmed the trial court’s finding that the District did not sustain its burden of proving that the exculpatory no damages for delay clause was enforceable as written.

The Court also rejected the District’s argument that the Contractor’s failure to submit written notice of the interference precluded a claim for delay damages. The Court found that the absence of formal notice was not fatal to the Contractor’s delay claim for several reasons.  First, the Court noted that the District failed to carry its burden of proving that the exculpatory clause was enforceable as written.  Second, the Court reasoned that case law does not support a forfeiture based on a written notice provision in a public contract where there was actual notice and no prejudice.  The Court concluded that the District had knowledge of the operative facts that caused the delays throughout the Project and failed to act, and that the District failed to establish any prejudice from the lack of formal notice.

Consequently, the Court affirmed the trial court’s finding in favor of the Contractor, and determined that the Contractor was entitled to recover delay damages from the District as a result of the District’s active interference.

To view the full text of the court’s decision, courtesy of Lexis ®, click here.