Brick by Brick: Laying the Foundation for Strict Compliance in Construction Contracts
Earlier this year, an intermediate New York appellate court affirmed a trial court’s dismission of a subcontractor’s contract and mechanics’ lien claims in connection with a dispute over a 33-story building project.
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The case serves as a reminder that New York courts may insist upon strict compliance with the terms and conditions of construction contracts.
By way of background, the plaintiff, Hudson Meridian Construction Group LLC (Hudson Meridian), entered into a subcontract with Senator Construction Group Inc. (Senator Construction) to provide equipment related to the construction of a 33-story building in Manhattan. About nine months later, Senator Construction assigned its subcontract to another construction company, Bayport Construction Corp. (Bayport and, collectively with Senator Construction, the Defendants). Shortly thereafter, Hudson Meridian terminated the subcontract, claiming that the project suffered delays because of the Defendants’ failure to pay their sub-subcontractors and consultants, which required Hudson Meridian to pay the sub-subcontractors and consultants directly to ensure that the work proceeded in a timely manner. After terminating the subcontract, Hudson Meridian took possession of the Defendants’ on-site equipment. Notably, the subcontract contained conditions precedent to payment, including signed and notarized payment applications and signed, written change orders.
Hudson Meridian sued the Defendants, seeking compensation for delays and additional costs resulting from the defective work. The Defendants asserted a counterclaim against Hudson Meridian, asserting breach of contract and enforcement of a mechanic’s lien. The Defendants also commenced a third-party action against the property owner. On summary judgment, the trial court interpreted the subcontract as requiring payment applications to be both signed and notarized and change orders to be formally documented and approved. The trial court dismissed the Defendants’ counterclaims and third-party claims that relied on unsigned and unnotarized payment applications and change orders. In affirming the trial court, the First Department highlighted the importance of maintaining thorough records related to damages and delays, which are necessary to prove their impact on project timelines and costs associated therewith. In other words, strict compliance with the terms of a contract may be required for payment or to assert claims.
Lastly, the court rejected the Defendants’ counterclaims for unpaid equipment rental because they could not show that the proposed monthly rental rates had been agreed upon with Hudson Meridian. Per the subcontract, the rental rate was only for a 12-month rental period, and the Defendants did not provide evidence to show additional rental terms beyond that time.[1]
This case serves as a reminder that construction claimants should strive to meet all contractual requirements, including inter alia requirements related to signatures, documenting change orders and claims, and notice provisions. Further, to the extent strict compliance is not feasible, this case shows the importance of developing admissible evidence of substantial compliance or mitigation. In addition, whether strict compliance is required may vary from one jurisdiction to another. Thus, a firm understanding of jurisdictional nuance is required.
[1] The court also found that Hudson Meridian presented evidence establishing triable issues of fact concerning whether the Defendants’ actions caused a delay in completing the project, or otherwise caused damages to Hudson Meridian. Specifically, Hudson Meridian showed detailed evidence of the work that other vendors had to perform to remedy delays, the number of working days the project was delayed due to defendants’ alleged deficiencies and the payments plaintiff made to other subcontractors as a result of the Defendants’ alleged deficiencies.
Co-authors Gaetano Piccirilli, partner, and Stephanie Wolbransky, associate, are members of the firm’s Litigation Department.