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Notes On Litigating Construction Contracts

In Florida, an architect’s negligent supervision is actionable when supervision is a part of his or her responsibilities. Id.; Montgomery Industries International, Inc. v. Southern Baptist Hospital of Florida, Inc., 362 So.2d 145 (Fla. 1st DCA 1978); Palm Bay Towers Corp. v. Crain & Crouse, Inc., 303 So.2d 380 (Fla. 3d DCA 1974), quashed 326 So.2d 182; Lee County v. Southern Water Contractors, Inc., 298 So.2d 518 (Fla. 2d DCA 1974). See also Mai Kai, Inc. v. Colucci, 186 So.2d 798 (Fla. 4th DCA 1966), quashed 205 So.2d 291.

Concerning the evidentiary significance of certificates issued by the design professional, see Bickerstaff v. Frazier, 232 So.2d 190 (Fla. 1st DCA 1970) (architect’s certificate inconclusive); Franklinville Realty Co. v. Arnold Const. Co., 120 F.2d 144 (5th Cir. 1941) (certificate was prima facie evidence of contents)

No immunity is extended to the architect for negligent failure to issue a certificate on completion of the project. A. R. Moyer, Inc. v. Graham, 285 So.2d 397 (Fla. 1973), 65 A.L.R.3d 238, limited 620 So.2d 1244. Moreover, an architect was found not to be immune from liability for failing to make reasonably expeditious decisions during the course of construction in E. C. Ernst, Inc. v. Manhattan Construction Co. of Texas, 551 F.2d 1026 (5th Cir. 1977), modified 559 F.2d 268

Architects have been held liable for delays that were the result of the architect’s failure to promptly act on submittals from the general contractor. E. C. Ernst, Inc. v. Manhattan Construction Co. of Texas, 551 F.2d 1026 (5th Cir. 1977), modified 559 F.2d 268. See also Gurtler, Hebert & Co. v. Weyland Machine Shop, Inc., 405 So.2d 660 (La. Ct.App. 1981).

 

Change orders:

When the owner and contractor rely on the architect to make adjustments in the contract amount and abide by his or her decisions in that regard, the parties can place in the hands of the architect the final authority to authorize increases and decreases in the contract. See Fletcher v. Laguna Vista Corp., 275 So.2d 579 (Fla. 1st DCA 1973); §3.27. Contractual notice provisions regarding claims for additional compensation may be strictly construed, however, and an architect’s denial of these claims on the procedural basis of untimely notice may not be actionable even if the claims have substantive merit. Tuttle/White Constructors, Inc. v. State, Dept. of General Services, 371 So.2d 1096 (Fla. 1st DCA 1979) (reference to claims for delay were contained in meeting minutes between contractor and supervising architect)

 

In Forest Construction, Inc. v. Farrell-Cheek Steel Co., Florida Diversified Properties Division, 484 So.2d 40 (Fla. 2d DCA 1986), the contract required the owner to order any changes to the work in writing, with the amount and method of compensation to be determined at the time of ordering. The basic principle of law regarding change orders is that, when extra work is done outside the original contract and is not similar to or of the same nature as that for which a price has been established, the work or materials will be paid for according to their reasonable value. The Forest Construction court held that the owner was properly found to be responsible for payment of the additional asphalt, even though a written change order had not been executed by the parties. Although the contract provided that any changes or extras should be agreed to in writing, the parties had waived this requirement.

 

A contractor’s failure to comply with a contract’s procedural change order requirements can have a variety of effects. In some cases, courts have liberally interpreted the contractual language and surrounding facts and circumstances to allow a contractor or subcontractor to be compensated for work actually performed, in spite of procedural irregularities. See, e.g., De Lotto v. Fennell, 56 So.2d 518 (Fla. 1952); Bryan & Sons Corp. v. Klefstad, 237 So.2d 236 (Fla. 4th DCA 1970). In other cases, contractors have been denied recovery for additional work due to their failure to comply with procedural notice requirements. See, e.g., Tuttle/White Constructors, Inc. v. State, Dept. of General Services, 371 So.2d 1096 (Fla. 1st DCA 1979); Inland Dredging Co., L.L.C. v. Panama City Port Authority, 2005 WL 4813429 (N.D. Fla. 2005), aff’d 190 Fed.Appx. 906 (11th Cir. 2006); Marriott Corp. v. Dasta Construction Co., 26 F.3d 1057 (11th Cir. 1994).

Unlicenced Subs are not entitled to enforce the contract:

In equally certain terms, F.S. 489.128 provides that contracts entered into by unlicensed contractors are unenforceable as a matter of law. This principle was illustrated in Deep South Systems, Inc. v. Heath, 843 So.2d 378 (Fla. 2d DCA 2003), which held that a contractor was precluded from enforcing its contracts as a matter of law because it was not certified or registered when it entered into the contracts, even though it was working under the supervision of a licensed contractor. See also John Hancock-Gannon Joint Venture II v. McNully, 800 So.2d 294 (Fla. 3d DCA 2001) (contractor whose temporary license had expired could not enforce contract at law or in equity); Sterner v. Phillips, 721 So.2d 450 (Fla. 5th DCA 1998) (under F.S. 489.128, unlicensed contractor could not enforce contract or even recover cost of materials used

Statute of Limitations:

Florida law provides for both two- and four-year statutes of limitations in actions against design professionals. F.S. 95.11(3)(c), (4)(a). Although the issues regarding which statute of limitations applies to whom — and under what circumstances — have not been conclusively resolved, case law provides some guidance.

 

Construction Manager Agency Approach

Under the CM agency approach, the owner hires the CM early in the construction process. The CM acts as an independent advisor and is paid a fee for its professional services. As agents, CMs bind their principals to contracts with trade contractors but do not become liable themselves. Gateway Erectors Division of Imoco-Gateway Corp. v. Lutheran General Hospital, 430 N.E.2d 20 (Ill. App.Ct. 1981); Owen Steel Co. v. George A. Fuller Co., 563 F.Supp. 298 (S.D. N.Y. 1983). This follows the general rule that an agent does not assume liability for a disclosed principal, even for its own actions, unless those acts are unauthorized. Panama Realty, Inc. v. Robison, 305 So.2d 34 (Fla. 1st DCA 1975); Smith v. Platt Motors, Inc., 137 So.2d 239 (Fla. 1st DCA 1962). Therefore, it is the owner who is liable directly to trade contractors or other third parties for improper coordination and management of the work.

Approval of Work by TRC:

The construction contract usually provides that the architect must approve the contractor’s work and certify its entitlement to payment. A certification concerning the acceptability of work is generally binding in the absence of fraud or mistake. James A. Cummings, Inc. v. Young, 589 So.2d 950 (Fla. 3d DCA 1992). But compare Bickerstaff v. Frazier, 232 So.2d 190 (Fla. 1st DCA 1970) (issuance of architect’s certificate of completion does not estop owner as matter of law from asserting breach of contract claim against contractor for alleged breach that occurred prior to issuance of certificate), with City National Bank of Miami v. Chitwood Construction Co., 210 So.2d 234 (Fla. 3d DCA 1968) (no issue of material fact regarding sufficiency of contractor’s performance under contract when architect approved contractor’s work). Unless approval is waived, the contractor must comply with the requirement of obtaining the architect’s approval for payment. Clement v. Pensacola Builders Supply Co., 138 Fla. 629, 189 So. 852 (1939).

 

Delay in Performace:

If the contractor fails to request an extension of time, it may be liable to the owner for liquidated or consequential damages for extending the job beyond the contractual completion date. Lynch v. Florida Mining & Materials Corp., 384 So.2d 325 (Fla. 2d DCA 1980)

The burden of establishing delay and resulting damages is on the party asserting the delay. Fred Howland, Inc. v. Gore, 152 Fla. 781, 13 So.2d 303 (1943); Bradford Builders, Inc. v. Dept. of Water & Sewers of City of Miami, 142 So.2d 137 (Fla. 3d DCA 1962). Delay is an affirmative defense to a claim for payment and must be pled and proved. Id. Furthermore, the party claiming delay cannot recover if completion was prevented by that party’s own acts. Fred Howland, Inc. A provision in a contract requiring that a building be constructed by a time certain may be waived by the actions of the owner. Jacksonville & A. R. Co. v. Woodworth, 26 Fla. 368, 8 So. 177 (1890). This waiver, however, does not invalidate other provisions of the contract. Id

 

If the contractor is delayed because of a subcontractor’s failure to perform on time, and if the contractor suffers a loss or increased costs as a result, it may recover its reasonable consequential damages from the subcontractor. Commercial Mechanical Co. v. State ex rel. American Air Filter Co., 260 So.2d 540 (Fla. 1st DCA 1972). The subcontractor is not liable, however, for a liquidated damages penalty that the contractor must pay to the owner unless the subcontract contains this requirement. Id.

 

Many contracts contain a clause exonerating the owner from responsibility for delay damages. A “no damages for delay” clause has generally been held to be valid. Triple R Paving, Inc. v. Broward County, 774 So.2d 50 (Fla. 4th DCA 2001). However, a no damages for delay clause will not bar a party from recovering for delays caused by the active interference, concealment, or fraud of the party seeking to enforce the clause, because the courts imply a promise and obligation on the parties not to hinder or impede performance. Triple R Paving, Inc.; Newberry Square Development Corp. v. Southern Landmark, Inc., 578 So.2d 750 (Fla. 1st DCA 1991).

Part Performance:

Generally, a party who partly performs a contract, then stops and refuses to proceed when the other party is willing to proceed, is not entitled to recover, by lien foreclosure or otherwise, for the work it has completed. Reitano v. Fote, 50 So.2d 873 (Fla. 1951). See also Stephens Lumber Co. v. Cates, 62 Fla. 385, 56 So. 298 (1911). However, when part performance is beneficial to the owner and has been accepted, the contractor may maintain an action in quantum meruitfor the actual value of labor and materials accepted. Boyce Construction Corp. v. District Board of Trustees of Valencia Community College, 414 So.2d 634 (Fla. 5th DCA 1982).

 

Lost Profits:

Additionally, when the contractor’s failure to complete is the fault of the owner, the contractor may recover the profits that it would have realized had it been allowed to complete the contract work. Lost profits are measured by deducting the cost of completion from the contract balance; percentage of completion is not competent evidence to prove damages for breach of a partially performed construction contract. Puya v. Superior Pools, Spas & Waterfalls, Inc., 902 So.2d 973 (Fla. 4th DCA 2005)

Failure to pay justifies Contractor’s terminating performance:

The owner’s failure to pay sums due on the contract or sums due for extra work properly documented and approved, justifies the contractor’s suspension of further performance. J.M. Beeson Co. v. Sartori, 553 So.2d 180 (Fla. 4th DCA 1989); Bryan & Sons Corp. v. Klefstad, 237 So.2d 236 (Fla. 4th DCA 1970). The AIA General Conditions recognize the contractor’s right to stop work for nonpayment. AIA Document A201-2007 §9.7.

 

Default and Termination:

During the course of a construction project, disputes between the contractor and subcontractor are commonplace. A dispute is not necessarily a default. Under general principles of contract law, the failure to perform some minor part of a contractual duty is not a material or vital breach, and does not necessarily excuse the injured party from further obligations under the contract. Beefy Trail, Inc. v. Beefy King International, Inc., 267 So.2d 853 (Fla. 4th DCA 1972)

 

Claim of Lien/Substantial Performance:

Construction contracts are an exception to the rule exacting strict performance of a contract. Williams v. Board of Public Instruction of Flagler County, 61 So.2d 493 (Fla. 1952). “It is well-established that a judgment on a construction lien requires a determination of substantial performance, not strict performance.” Kenmark Construction, Inc. v. Cronin, 765 So.2d 129, 130 (Fla. 2d DCA 2000). If the construction contract is substantially performed, the contractor is entitled to payment and the owner has the correlative right to recover damages for failure to render full performance. Casa Linda Tile & Marble Installers, Inc. v. Highlands Place 1981, Ltd., 642 So.2d 766 (Fla. 4th DCA 1994)

“Substantial performance” is “performance of a contract which, while not full performance, is so nearly equivalent to what was bargained for that it would be unreasonable to deny the promisee the full contract price subject to the promisor’s right to recover whatever damages may have been occasioned him by the promisee’s failure to render full performance.” Ocean Ridge Development Corp. v. Quality Plastering, Inc., 247 So.2d 72, 75 (Fla. 4th DCA 1971). See Roberts v. CFW Construction Co., 586 So.2d 1309 (Fla. 5th DCA 1991). See also AIA Document A201 §9.8.1, which defines “substantial completion.” Whether there has been substantial performance is normally an issue of fact. If the record is clear, the question of substantial performance may be withdrawn from the trier of fact and determined as a matter of law. Substantial completion cases are not susceptible to categorization; each depends on its individual facts. See, e.g., Poranski v. Millings, 82 So.2d 675 (Fla. 1955); Fred Howland, Inc. v. Gore, 152 Fla. 781, 13 So.2d 303 (1943); Braverman v. Van Bower, Inc., 583 So.2d 381 (Fla. 3d DCA 1991); Ocean Ridge Development Corp.; Bryan & Sons Corp. v. Klefstad, 237 So.2d 236 (Fla. 4th DCA 1970

 

Before a contractor can be found in default of a construction contract, there must be a material breach of the contract, which is a breach that goes to the essence of the contract rather than a failure to perform some minor contractual duty. Beefy Trail, Inc. v. Beefy King International, Inc., 267 So.2d 853 (Fla. 4th DCA 1972). This is particularly important when the owner is seeking to rescind the contract. See Gittlin Cos. v. David & Dash, Inc., 390 So.2d 86 (Fla. 3d DCA 1980).

Claim of Lien:

The time for bringing an action is limited to one year after the claim of lien has been recorded; the lien will expire unless an action to enforce it has been commenced in a court of competent jurisdiction within that period. F.S. 713.22(1). Practitioners should keep in mind that amending or re-recording a claim of lien may not extend or toll the one-year period. Foy v. Mangum, 528 So.2d 1331 (Fla. 5th DCA 1988). The one-year period may be reduced if the owner records a “notice of contest of lien” and otherwise complies with F.S. 713.22(2). This procedure reduces the time for bringing an action to 60 days. The time for bringing an action on a lien may also be reduced by filing a complaint to show cause, as contemplated by F.S. 713.21(4), which gives the lienor 20 days to initiate foreclosure proceedings or have its lien vacated and canceled of record

A contractor must record a claim of lien no later than 90 days after the final furnishingof labor, services, or materials on or to the construction project. F.S. 713.08(5). A copy of the claim must be served as required by F.S. 713.18, and failure to serve the claim before recording, or within 15 days after recording, renders it voidable to the extent that the failure or delay prejudices any person entitled to rely on the service. F.S. 713.08(4)(c). It should be noted that F.S. 713.18 no longer provides for facsimile transmission as a method of service of construction documents.

 

Although the 90-day rule seems simple enough, questions often arise about what constitutes final furnishing of labor or services to start the running of the 90-day period. Final furnishing does not necessarily coincide with substantial completion. York Corp. v. Brock, 405 F.2d 759 (5th Cir. 1969). Final furnishing, for purposes of F.S. Chapter 713, “means the last date that the lienor furnishes labor, services, or materials.” F.S. 713.01(12). This cannot be measured by another standard such as “the issuance of a certificate of occupancy or the issuance of a certificate of final completion and does not include correction of deficiencies in the lienor’s previously performed work or materials supplied.” Id.

 

 In the past, courts have created and used several methods to determine what constitutes final furnishing, including:

 

 • The good faith test. In Aronson v. Keating, 386 So.2d 822, 823 (Fla. 4th DCA 1980), the test applied was “whether the work was done in good faith, within a reasonable time, in pursuance of the terms of the contract, and whether it was necessary to a ‘finished job.’” See also Otis Elevator Co. v. Employers Insurance of Wausau, 526 So.2d 727 (Fla. 3d DCA 1988).

 • The substantial-trivial test. In Viking Builders, Inc. v. Felices, 391 So.2d 302, 304 (Fla. 5th DCA 1980), the court applied a “substantial-trivial” test, finding that the items of labor and material claimed by the contractor as final furnishing under the statute were too remote in time and too unsubstantial and trivial in quantity to extend the time for filing

Traditionally, the cause of action between the owner and contractor is ex contractu

Economic Loss Rule:. Nevertheless, owners have attempted to assert an action based on negligent performance of the contract as an independent cause of action. See, e.g., Mullray v. Aire-Lok Co., 216 So.2d 801 (Fla. 3d DCA 1969). However, as discussed in §5.14, an owner is generally limited to contract remedies against a contractor due to the economic loss rule and is precluded from asserting a cause of action for negligence in the absence of personal injury or property damage. See Indemnity Insurance Company of North America v. American Aviation, Inc., 891 So.2d 532 (Fla. 2004); Comptech International, Inc. v. Milam Commerce Park, Ltd., 753 So.2d 1219 (Fla. 2000). See also Casa Clara Condominium Ass’n, Inc. v. Charley Toppino & Sons, Inc., 620 So.2d 1244 (Fla. 1993).

 

Liability of Qualifying Agent:

Part I of F.S. Chapter 489, concerning construction contractor licensing, imposes specific responsibilities on a “qualifying agent,” raising the question of whether failure to fulfill those responsibilities may be addressed through a private cause of action. A qualifying agent is “a person who possesses the requisite skill, knowledge, and experience, and has the responsibility, to supervise, direct, manage, and control the contracting activities of the business organization with which he or she is connected.” F.S. 489.105(4). The qualifying agent is the person charged with the responsibility to direct, manage, and control job-site activities and who has the technical expertise and experience necessary to perform these duties as determined by the Department of Business and Professional Regulation

No direct action by owner permitted vs qualifying agent.