• Massachusetts Superior Court Judge Awards Delay Damages for Utility Delays Despite No-Damage-for-Delay Clause
  • April 22, 2013 | Authors: Rhian M.J. Cull; Christopher W. Morog
  • Law Firms: Hinckley, Allen & Snyder LLP - Providence Office ; Hinckley, Allen & Snyder LLP - Boston Office
  • “No damage for delay” clauses have enjoyed a long history of relatively unquestioned enforcement in Massachusetts and elsewhere, with courts in the Commonwealth inclined to uphold those provisions in construction contracts absent extraordinary circumstances. Nevertheless, a Massachusetts Superior Court Judge recently determined that such circumstances were present in ordering the former Massachusetts Highway Department (which had since been integrated into the Massachusetts Department of Transportation (“MassDOT”)) to pay more than $3.8 million to a general contractor’s performance bond surety, XL Specialty Insurance, for the increased costs of a 749-day delay in completing a roadway reconstruction and bridge replacement project in Waltham. The decision - XL Specialty Ins. Co. v. Mass. Highway Dep’t [1] - presents legal issues that further define the liability of public owners for causing job delays.

    The Delayed Utilities Relocation

    The project in XL Specialty Insurance consisted primarily of bridge replacement work. Before commencing that work, the general contractor, Roads Construction, had to install temporary earth supports and drilled shafts for abutments and piers. However, Roads could not begin this work until after the relocation of several utilities, which included electric, data, gas, telephone, and others.

    Under its general contract with Roads, MassDOT was responsible for relocating those utilities through force account agreements. The construction contract work was scheduled to commence January 17, 2005, with a completion date of November 10, 2007. Although the critical bridge replacement work could not begin until completion of utility relocations, MassDOT issued a notice to proceed (“NTP”) to Roads with no force account agreements in place. The Judge found that MassDOT could have arranged for the force account agreements prior to the NTP and that MassDOT at trial had failed to explain why it did not do so. When MassDOT finally entered into force account agreements with the utilities, it set a completion date for the relocation work of June 30, 2009 - almost 20 months after the project completion date under Roads’ contract, and almost four years after the utility work completion date contemplated by Roads’ project schedule.

    The Court noted some glaring examples of delays by MassDOT in finalizing force account agreements with utility companies. The Court found that after the utilities had submitted their materials to MassDOT, the agency had routinely waited 12-18 months or more to issue a force account agreement. Electric lines owned by NSTAR had to come down first, but MassDOT did not issue NSTAR’s force account agreement until July 20, 2005 and did not complete the relocation until September 22, 2006.

    As the Court noted, MassDOT’s force account completion date of June 30, 2009 provided no sense of urgency. The utilities worked sporadically and failed to prosecute the relocation work with ordinary diligence. In March 2006, Roads suffered financial setbacks, and its surety, XL, undertook completion of the project under a Takeover Agreement with MassDOT. With little to do in the field until utility relocations could be completed, XL requested that MassDOT “mothball” the project until completing the utility relocation work. MassDOT rejected this alternative for fear of public perception that the project had been abandoned. While AT&T and Comcast completed their relocations of telephone and data lines in November 2006 and March 2007, respectively, XL was able to rebid the job and engage a new contractor when the project was still only 15% complete. The new contractor was in place on April 1, 2007.

    On April 27, 2007, XL requested a time extension of the completion date from November 10, 2007 to June 28, 2010, or 962 days. MassDOT agreed to 944 days. However, as the Court explained in its decision, over the next two years, MassDOT granted only piecemeal extensions to allow contract payments to be released to XL. The Court found that MassDOT used this approach to maintain its bargaining leverage in the negotiations with XL over compensation for the delays:

    [I]t would appear that someone in the [Executive Office of Transportation] general counsel’s office was leery about adding to the record of a costly two-year snafu of [MassDOT’s] own making, and/or wished to gain whatever negotiating advantage a phony, near-term deadline might afford in the settlement of XL’s monetary claim. The result was that [MassDOT] failed in its obligation to grant a meritorious request for extension of time promptly and in good faith.

    The No-Damage-for-Delay Clause

    The Court next addressed the effect of the no-damage-for-delay clause applicable to claims for delays caused by utilities (Section 5.05 of the Standard Specifications). As a threshold matter, the Court noted that MassDOT’s mere failure to discharge its responsibility to manage and coordinate the utility relocation work was not in itself sufficient to override the no-damage-for-delay clause, even if such conduct might be negligent or unreasonable. This observation reflected the courts’ historical inclination to enforce no-damage-for-delay clauses absent additional findings that the owner had acted arbitrarily, capriciously and in bad faith. However, when the Court examined MassDOT’s conduct as a whole, the Court found just that. The Court noted several acts and omissions by MassDOT that were sufficient to disregard the no-damage-for-delay limitations to the contract, such as the following:

    1. MassDOT rejected XL’s request to “mothball” the job and insisted that a crew remain onsite for appearance's sake, despite the agency's knowing there would be lengthy utility delays;
    2. MassDOT dealt in bad faith with XL’s time extension request by allowing time extensions only in small increments; and
    3. MassDOT accepted Roads’ schedule showing the utility work completed in two months, despite knowing the utility work was not ready to begin.

    As the Court stated in its conclusion:

    From the outset, in other words, [MassDOT] willfully disregarded that most basic and time-honored of owners’ obligations: to provide the contractor with a site that is ready for the work that he is contracted to do, and then to permit him to do it without hindrance.

    The Calculation of Delay Damages

    The Court awarded XL $3,853,453. The Court, after hearing testimony from three experts, essentially adopted the methodology of XL’s expert witness, who provided a meticulous analysis of costs leading to the recovery of additional general conditions and direct cost escalation. This award included $592,249 for additional general conditions, which consisted of field office costs and supervisory and other indirect costs. For the remainder of XL’s damages - comprising the increase in labor, materials, and equipment costs on the lump sum and unit price items - XL’s expert used the unit price estimator tool on MassDOT’s website and examined pricing changes in the date range from December 2007 (the date of the rebid contract) to October 2010. Analyzing 169 pay items, XL’s expert found that median prices increased20.72% during this period.

    The Significance of the Court’s Decision Going Forward

    Contractors and their sureties are cautioned not to interpret the XL Specialty Insurance decision to mean that all delays caused by public owners will now be compensable. The Court made clear that the case involved “extraordinary circumstances” and that the Court’s holding was “an unusual finding in an unusual case.” Nevertheless, public owners are now on notice that where they fail to execute basic responsibilities within their control - like providing site access to the contractor - they risk negating the traditionally broad protections of a no-damage-for-delay clause.

    [1] 2012 Mass. Super. LEXIS 383 (Jan. 3, 2013) (Billings, J.).