The most widely discussed change in the City's standard construction contract is the elimination of an express "no damage for delay" clause.
With its new Standard Construction Contract, issued in December 2013, the City of New York (the "City") has implemented numerous significant changes as compared with its 2008 standard contract. This Alert briefly summarizes some of the new provisions.
Some Delays Are "Compensable"
The most widely discussed change in the City's standard construction contract is the elimination of an express "no damage for delay" clause. At least ostensibly, the new contract represents a more flexible approach to delay damages by enabling the contractor to recover for delays in factual settings not previously amenable to delay claims. The scenarios in which recovery for delay damages may now be available are listed in Article 11.4 of the new contract, entitled "Compensable Delays."
Among others, these scenarios include such familiar circumstances as (i) extended delays by the City in reviewing or issuing change orders, or in reviewing and approving shop drawings, or delays resulting from the "cumulative impact of multiple change orders," if such delays have a "verifiable impact on Project costs"; (ii) extended site unavailability that "significantly affects the scheduled completion of the Contract"; and (iii) differing site conditions not "reasonably ascertainable on a pre-bid inspection of the Site or review of the bid documents or other publicly available sources" and "not ordinarily encountered" in the geographical area of the site or the type of work being performed.
One of the more significant changes embodied in the new Article 11 is the possibility of recovering for delays resulting from "[t]he failure of the City to take reasonable measures to coordinate and progress the work …." "Coordination" issues, under prior practice, were precluded by the no damage for delay clause. However, this apparent flexibility regarding "coordination" issues may be tempered by subsequent court decisions defining more precisely or narrowly what the City's coordination responsibilities are—particularly since, under the new Article 11, the City's coordination responsibilities are explicitly limited by the contractor's own responsibility to coordinate its subcontractors and to progress the subcontractors' work.1
The new provisions concerning delays may be said to reflect a greater flexibility than previously existed. However, this is not to say, and it should not be assumed, that delay claims have necessarily become "easy" or even significantly easier to pursue. Many of the strictly enforced notice provisions that have barred delay claims in the past are still in place; and where a contractor is undergoing a delay that is or may be "compensable," care should be taken to comply with all pertinent contract requirements. The designated notices and statements of claim are required not only to preserve a claim for additional costs due to delay but also to qualify for an extension of time under the contract.
Thus, the new standard contract, similar to the prior one, requires written notice to the Engineer of any condition that "is causing or may cause a delay." This notice must be provided within a brief time period (seven days after the commencement of the condition) and must state "the existence, nature and effect of such condition upon the approved progress schedule and the Work," and "why and in what respects, if any, the condition is causing or may cause a delay." (Article 11.1)
Further, after a delay is first encountered and damages are first incurred, updated verified written statements specifying the damages and extensive additional detailed information (as listed in Articles 11.1.2 and 11.6), along with "documentary evidence of such damages," must be submitted every 30 days. The initial verified statement containing this information and the "documentary evidence of such damages" must be submitted within 45 days from the time the damages are first incurred.
If the contractor is successful on its delay claim, the costs that may recoverable could include the following: direct labor costs; necessary materials as reflected by time and materials records; reasonable equipment rental values; and insurance and bond costs. Extended field office costs, extended site overhead and extended home office overhead also may be recoverable.
After final completion, the Commissioner of the relevant agency determines whether a delay claim is compensable and, if so, the amount that shall be paid, although an earlier determination may be made on the threshold question of whether a delay is compensable. Challenges to the Commissioner's determinations are not made to the Contract Dispute Resolution Board under the City's mandatory dispute resolution procedure (contract Article 27 and Procurement Policy Board Rules § 4-09). Whether the contractual changes regarding delay claims will in fact permit compensation for delays on a greater scale than previously would seem to depend in large part upon determinations made at the Commissioner's level.
Overhead for Extra Work
Compensation for extra work by the contractor shall now include a factor for overhead at the increased rate of 12 percent (up from 10 percent). (Article 26.2.11)
Prevailing Wages / Referrals to Prosecutors
Under Article 37.4.3 of the new contract, "[a] determination by the Comptroller that a Contractor and/or its Subcontractor willfully violated" the prevailing wage law under Labor Law § 220 "will be forwarded to the City's five District Attorneys for review." Given this mention of possible criminal responsibility, and since any such review could adversely impact a contractor's status as a "responsible" bidder, this is possibly a questionable provision for a general or prime contractor that at worst is only "vicariously liable" for a subcontractor's willful violation—as distinct from being actively or "willfully" involved in the subcontractor's violation. Other penalties and consequences for prevailing wage violations, also impacting "responsibility" and the ability to bid public projects, are listed in Article 37.4.
Prevailing wages must be paid by check or direct deposit; and in cases of contracts exceeding $1 million, or subcontracts exceeding $750,000, the checks must be issued by a payroll service or through an in-house payment system approved by the agency. Cash payment of prevailing wages is not recognized. (Article 37.6.7)
Although not a new requirement, Article 37.6.2 of the contract requires the maintenance of daily sign-in / sign-out sheets both for contractors' and subcontractors' employees. Consideration should be given to strictly maintaining such sign-in (and sign-out) records in case of any subsequent prevailing wage issue, e.g., as evidence of who actually worked at the site and during what general time periods and hours. Electronic or biometric sign-in systems may be acceptable, but they have to be approved by the City's Chief Procurement Officer (the "CCPO").
The new contract also requires "site laminated identification badges" with photographs of workers and listing the worker's "trade" (among other identifying information) as a "condition of employment on the site." (Article 37.6.4) Again, close adherence to this provision should be considered (e.g., to assist in determining who was and was not employed at the site in connection with prevailing wage claims, among other possible issues).
As a material obligation of the new contract form, contractors are required to list their subcontractors in the "web-based Subcontracting Reporting System through the City's Payee Information Portal (PIP), available at www.nyc.gov/pip." Specified information about the subcontractor and its work, and the payments to it, must be entered. Failure to comply may be deemed a "default" of the contract, resulting in liquidated damages. (Article 17.3)
The subcontract document must include the prevailing wage rates and supplemental benefits to be paid to the subcontractor's employees under Labor Law § 220.
The City's new standard construction contract contains many other new or changed provisions. All contractors and vendors who perform City projects or contracts may want to become familiar with the new contract form.