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PCCA Journal|1
st
Quarter 2010
26
a clause in the contract that merely
allows the contractor to receive an
extension of time and no monetary
damages for owner-caused delay. A
typical provision is as follows:
If the contractor is delayed by
the owner or architect or any
agent or employee of either, the
contractor’s sole and exclusive
remedy for the delay shall be
the right to a time extension for
completion of the contract and
not damages. This provision does
not preclude the owner’s recovery
of damages for contractor-caused
delay under other provisions of
the contract documents.
Most of the standard contract
forms do not include a clause limit-
ing the contractor’s recovery of
damages for delay. “No Damages For
Delay” clauses are generally enforce-
able, but they are strictly construed
by the courts. The contractor may
circumvent such a clause and
recover additional damages if the
delay (a) was not contemplated
by the parties, (b) amounted to an
abandonment of the contract by the
owner, (c) resulted from the owner’s
bad faith or arbitrary action, or (d)
resulted from the owner’s active
hindrance or interference with the
contractor’s work.
Notice Requirements
If a contractor is going to recover ex-
tra compensation or time extensions
from the owner, it must comply with
contractual notice requirements.
Every contract requires the contrac-
tor to provide the owner with some
type of notice for various claims,
and the contractor should be careful
to adhere to these notice provisions.
Notice provisions vary, so identify
and be familiar with the ones in
your particular contract. Pay particu-
larly close attention to those claims
for which notice is usually required,
including differing site conditions,
changes, and delays. Also determine
how much notice the owner must
give the contractor if it wishes to
take over the work or terminate the
contract.
Like all contract provisions, notice
obligations may be waived or modi-
fied by conduct or informal agree-
ment. For instance, the owner’s
actual knowledge of and acquies-
cence in the work has been held
by the court to impliedly waive the
notice requirement. Other instances
in which the notice requirement has
been waived include: (1) a course
of dealing that repeatedly disregards
the requirement, (2) a promise to
pay for extra work orally requested
by the owner and performed in reli-
ance upon the promise, or (3) any
other actions or omissions by the
owner inconsistent with an intent
to insist upon the requirements.
However, it is never advisable for a
contractor to neglect to comply with
notice requirements in the expecta-
tion that a court will conclude that
the owner waived its right to notice.
A legal case is an expensive proposi-
tion, particularly when it is a case
for waiver of clear contractual notice
requirements based on he-said-she-
said oral evidence.
Pay-When-Paid and
Pay-If-Paid Clauses
The general rule is that, as between
the contractor and the subcontractor,
the contractor bears the risk of an
owner’s insolvency or an architect’s
refusal to certify an application for
payment. This rule flows from the
relationship between the parties.
The contractor is in privity of con-
tract with the owner and thus is in
a position to protect itself from the
risk of late payment or insolvency
through the use of contract clauses,
guarantees, and similar devices. A
subcontractor, in contrast, is not in
privity with the owner and therefore
is not able to protect itself from the
owner’s late payment or insolvency.
Contractors have attempted to
shift the risk of the owner’s late pay-
ment or insolvency to subcontrac-
tors through the use of “pay-if-paid”
clauses. In most jurisdictions a pay-
if-paid clause will be effective only if
written in unequivocal, unambigu-
ous language. An effective pay-if-
paid clause would likely be created
by the following: “Payment by the
owner to the general contractor is a
condition precedent which must oc-
cur before the general contractor will
be obliged to pay the subcontractor.
The subcontractor hereby assumes
the risk of the owner’s insolvency or
of late payment by the owner to the
general contractor and agrees that
payment to the subcontractor will
be made only with funds received
by the general contractor from the
owner in payment for work per-
formed by the subcontractor.”
If clear and unambiguous lan-
guage is not used, the courts will
likely interpret the clause as a
“paid-when-paid” clause, meaning
only that the contractor will pay the
subcontractor either after it gets paid
by the owner
or
within a reasonable
period of time after the subcontrac-
tor’s payment application. This is
more a matter of the timing of pay-
ment as opposed to the right to it.
Termination Clauses
Termination clauses also vary con-
siderably from contract to contract.
A typical termination provision pro-
vides for termination by the contrac-
tor and the owner as follows:
Termination by the Contractor
If the work is stopped for a period
of 30 days under an order of any
court or public authority having
jurisdiction, or as a result of an act
of government, such as a declara-
tion of a national emergency mak-
ing materials unavailable, through
no act or fault of the contractor or
a subcontractor or their agents or
employees or any other persons
performing any of the work under
a contract with the contractor, or
if the work should be stopped for
Legal Watch
Continued from page 25