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71 Rev. Jur. U.P.R. 29

Construction in Puerto Rico: Navigating the Legal Quagmire

Stuart A. Weinstein-Bacal and Dennis B. Parces-Enriquez*

Copyright (c) 2002 Revista Jurídica Universidad de Puerto Rico

* Mr. Weinstein-Bacal is the founder of Weinstein-Bacal & Associates, P.S.C., in Old San Juan. He is also

admitted to practice in Virginia, Washington D.C. and the U.S. Virgin Islands. Mr. Parces-Enriquez is a

professional engineer registered in Florida and Puerto Rico, and a Juris Doctor candidate for May, 2002.

In recent years, the Construction Industry in Puerto Rico has experienced a wealth of activity

unparalleled in its history. While public construction projects have always carried the Industry, private

construction accounted for nearly half of the new construction on the Island last year. The billions of dollars

of annual work has led, in turn, to unprecedented tensions between Owners and Contractors, Contractors and

Subcontractors, and often drawn Architects, Engineers, and Sureties into the fray. With the veritable

explosion of litigation, arbitration, and mediation, the tendency has been that none of the parties emerges

satisfied from the process. Fears of financial failure take hold early, and more than a handful of project

developers (Owners), Contractors, and Subcontractors and suppliers have ended up in bankruptcy. This

article is offered with the hope that it may serve as a navigational chart to assist the participants of the

Construction Industry in guiding them through the increasingly turbulent waters of the Industry.

The tie that binds all of the players is the construction contract. It is that document from which the

parties' rights and obligations arise. As we shall discuss below, there is much preparation that must be done if

one is to successfully navigate a construction project through the legal quagmire present in our Estado de

Derecho. It is a quagmire in part because of the limited consideration given to the construction contract in

our Civil Code and in part from the limited and frequently confusing interpretations of that Civil Code by the

Supreme Court of Puerto Rico.

Until quite recently, the Supreme Court did not avail itself of the opportunity to address directly the legal

principles governing the traditional problems arising from the performance of construction contracts in

Puerto Rico. Until the last decade, there was little construction litigation in Puerto Rico. The traditional

business practices insulated the participants in the Construction Industry from an abundance of litigation. The

Construction Industry is now one of our economy's most litigious sectors and, in recent years, the Puerto

Rico Supreme Court has entered the fray on a variety of occasions, producing decisions that have failed to

infuse much needed predictability into the Construction Industry and, instead, have rather caused confusion

and unpredictability.1

1 Constructora Bauza, Inc. v. Luis Garcia-Lopez, 129 D.P.R. 579 (1991) (addressing issues relating substantial

completion, performance, and warranties); Francisco Levy v. Autoridad de Edificios Publicos (AEP), 135 D.P.R. 382

(1994) (addressing delays and damages for delay); RBR Construction, S.E. v. Autoridad de Carreteras y Transportacion

de P.R., 1999 T.S.P.R. 184, 2000 J.T.S. 7 (damages for contractor where Government terminates contract for its

convenience, but in bad faith); and Master Concrete Corp. v. Fraya, S.E.; Comp. de Fomento Recreativo, 2000 T.S.P.R.

179, 2000 J.T.S. 192 (establishing requirements for and consequences of substantial completion).

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Construction contractors and project owners have made great strides to improve contracting practices.

However, most of the advances in this field have come about as a result of a change in philosophy from the

former notion that the contractor should bear all the risks associated with the construction project, to the

current notion of risk-sharing among the contracting parties. Notwithstanding, Puerto Rico lags behind in this

area. When proper attention is not paid to the terms of the construction contract, a chain of events is

unleashed whereby each party seeks to skew the agreement in a conservative effort to protect its interests,

and the economies and predictability which everyone fundamentally desires can be cast into the sea. Given

the realities of this situation, it is the authors' desire to try and point the participants in the Construction

Industry in the right direction, so they do not end up on the shoals as they perform their contracts.

In this article, we will discuss the many strides that have been made in the Construction Industry to

address the aforementioned problems. We will dissect the provisions of various contracts, the Puerto Rico

Civil Code, and the jurisprudence of the Puerto Rico Supreme Court and mainland courts, both state and

federal, in an attempt to promote the recognition and understanding of the problems confronting the

Construction Industry. The authors will also suggest some possible solutions to the fundamental problem of

ineffective contract administration and the inappropriate allocation of risk among the parties to Contracts.

This work will also answer some of the questions associated with construction contracts. What

alternatives are available to both Owners and Contractors to ensure what is known as intelligent bidding?

How do we allocate the risk, inherent in such contracts, between Owner and Contractor in a fair and

equitable manner? How do we define the different types of claims common to the Construction Industry?

How can the parties better understand the significance of the adage that Time is Money? How can we avoid

and, if unavoidable, satisfactorily resolve construction disputes? How can we promote more efficiency, and

thereby more harmony, in the Construction Industry?

We begin by briefly discussing the particulars of bidding and contracting, as they pertain to the

construction contract, and continue with the issues that can eventually lead to litigation.

Section II of the article will discuss the various types of clauses generally included in the construction

contract, as well as the corresponding obligations of both, owner and contractor, emanating from such

clauses. In addition, there is a subsection on what is known as Differing Site Conditions, a particular breeding

ground for disputes amongst owners and contractors. Finally, the section discusses the subject of Exculpatory

Clauses, their application, and their interpretation in various jurisdictions.

Section III analyzes the fertile litigation ground of Extras and Changes, including the contractor's

favorite moneymaking tool (and the Owners' nemesis): the Change Order. The different types of

specifications, design or performance oriented, are also discussed in this section. Cardinal Changes are

explained, and practice tips are offered.

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Section IV presents the issue responsible for most of the litigation in the construction arena: Time. The

topic of delay is broken down to better explain its different aspects, including allocation of responsibility for

delays between Owners and Contractors, and the various kinds of delay, including excusable and

inexcusable, compensable and non-compensable, and concurrent delays. Also included under the subsection

entitled The New Construction Order: Francisco Levy v. A.E.P., is a thorough discussion of the most

controversial decision by the Supreme Court of Puerto Rico dealing with the issue of construction. The now

famous 1994 decision has confused the Construction Industry in Puerto Rico and it is a prime cause of some

very unpredictable circumstances in which the Industry must now operate. It is hoped that the Supreme Court

of Puerto Rico will clarify in a future ruling that Levy v. A.E.P. was not intended to protect the purveyors of

government inefficiency from their negligence and mismanagement, and insulate them from the pecuniary

injuries they may cause.

We conclude by suggesting some of the approaches available to our State Legislature, and to the main

players in the construction arena: Owners and Contractors. These suggestions range from the need of

effective legislation to amend Puerto Rico's outdated Civil Code to the proper ways of allocating risk

between the parties involved in a construction project.

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I. GENERAL PRINCIPLES OF CONTRACT LAW IN PUERTO RICO

A. The Law of Construction Contracts Generally

Unless otherwise specifically provided, it can be generally assumed that if a construction contract was

performed in the Commonwealth of Puerto Rico, Puerto Rico law will govern its interpretation.2

There is not much in the Puerto Rico Civil Code regulating construction contracts. What does exist

contributes little to the resolution of disputes in the modern construction industry. For instance, the title

Contrato de Arrendamiento de Obras y Servicios, Subchapter II, Obras por Ajuste o Precio Alzado, consists

of only thirteen articles.3

Unfortunately, the Puerto Rico Supreme Court has not had the opportunity to elaborate upon, develop, or

study at length the legal principles governing the traditional problems that arise during the performance of

construction contracts. Simply put, until recently, contractors and owners of construction projects rarely

litigated in Puerto Rico. The reasons for this apparent peace and harmony in the construction industry make

an interesting topic, but one outside the scope of this work.

Given the lack of local precedents and guides, the courts of Puerto Rico, as well as our engineers,

architects, and other construction professionals, have little alternative but to study, consider, and be guided

by the solutions to the distinct problems of the construction industry developed in jurisdictions outside

Puerto Rico, especially in the United States. That is particularly so because we are faced with the reality that

most of the construction contracts utilized in Puerto Rico are virtual duplicates of or very similar to the

construction contracts utilized in the United States. Given the enormous experience of the United States

Courts in dealing with construction contract litigation, the decisions of these courts, as well as those of the

administrative tribunals dealing with construction disputes, have great persuasive power for any adjudicating

body, including the Courts of Puerto Rico and the pertinent arbitration panels.4

The Puerto Rico Supreme Court in Futurama Import Corporation v. Trans Caribbean endorsed the

practice of recurring to decisions of North American courts to fill the voids in our Civil Code and

jurisprudence.5 Note that when considering the general concept of Incumplimiento de Contrato (Breach of

Contract), there is little substantive difference worth mentioning between the criteria of the common law and

those applied in the Civil Code.6 However, in relation to construction contracts in particular, there is much

2 See, e.g., Article 7.1.1. of the General Conditions of the Standard American Institute of Architects Contract (AIA,

Document A201-1997). ("The Contract shall be governed by the law of the place where the Project is located.").

3 31 L.P.R.A. § 4121 (1999). 4 See generally Caribe General Constructors, Inc. v. Municipio de San Juan, Puerto Rico, Civil No. 84-562 (908) (P.R.

Super. Ct., May 2, 1988), cert. denied, Num. RE-88-339 (September 8, 1988), at 16.

5 104 D.P.R. 609, 614-15 (1976).

6 See 2-I JOSE PUIG BRUTAU, FUNDAMENTOS DE DERECHO CIVIL 393 (ed. 1978).

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to be learned from the decisions of courts in the United States. The decisions of certain federal courts have

particularly strong persuasiveness.7

If a party to a construction contract with the federal government wishes to appeal a decision of the

government's "contracting officer" on a federal project, appeal is taken either to the U.S. Claims Court or to

one of the administrative tribunals created for that purpose, known as the "Board(s) of Contract Appeals" or

"BCAs" of such federal agencies as the General Services Administration (GSBCA), Armed Services

(ASBCA), etc. Thereafter, appeal can be taken to the Federal Circuit and then to the United States Supreme

Court. Accordingly, the U.S. Claims Court and the Federal Circuit are the courts with the greatest expertise

in construction law and the greatest familiarity with the problems that arise in the construction industry.

Thus, they have ample influence on other courts and administrative agencies, including arbitration tribunals

adjudicating construction contract disputes.8

In its first decision, South Corporation v. United States,9 the Federal Circuit incorporated as its body of

precedent all the United States Claims Court's decisions not in conflict with its own. Accordingly, citations to

decisions of the United States Court of Claims prior to October 28, 1982, are particularly persuasive, as they

are the law of the Federal Circuit, unless overruled by the Federal Circuit en banc (with all of its judges

sitting together). It has been said that the U.S. Claims Court adjudicates more claims in dollar value than all

of the other courts of the United States combined!

Where there exists a provision of the Civil Code or a decision from the courts of Puerto Rico to support

an argument, it should be cited by litigants, and is generally good authority for the legal propositions that the

parties may wish to advance. Nevertheless, Puerto Rico law should be supported, as appropriate, by citations

to the decisions of the various federal and, in some instances, state courts. Where no Puerto Rico law is

available on a given point, the highest federal authority, and the various civil law commentators, including

Spota, Puig Brutau, Castan, and Bezzi should be cited.

B. The Law Governing the Interpretation of a Contract

The general contract law of Puerto Rico is codified in Articles 1206 through 1266 of the Civil Code of

Puerto Rico.10

Article 1233 of the Civil Code provides that where the terms of a contract are clear and leave

no doubt as to the intention of the contracting parties, they should be interpreted literally. n11 Where,

however, the words utilized in a contract appear contrary to the evident intention of the contracting parties,

7 On October 1, 1982, the United States Court of Appeals for the Federal Circuit (hereafter referred to as the "Federal

Circuit" or "Fed. Cir.") was created by act of the United States Congress. Before the creation of the Federal Circuit,

other courts and decision-makers looked for guidance in the United States Court of Federal Claims' decisions, formerly

the U.S. Claims Court, and before that, the U.S. Court of Claims (identified hereafter by the abbreviations "Fed.Cl.",

"Ct.Cl." or "Cl.Ct."). 8 See generally The Contracts Disputes Act of 1978, as amended, 41 U.S.C. § § 601-03; The Federal Courts

Improvement Act of 1982, as amended, 28 U.S.C. § 116-77.

9 690 F.2d 1368 (Fed. Cir. 1982).

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the intention of the parties should prevail. n12 The law may be used as a supplementary basis for the

interpretation of contracts when they are ambiguous. n13 Interpretation of a contract is a matter of law and,

if a plaintiff's interpretation is reasonable, it will prevail. n14 Many other cases support this proposition;

articulating it is one of the contractor's strongest weapons in an owner/contractor dispute. A contractor is

responsible, however, for his failure to inquire or seek clarification prior to contract award if an ambiguity is

patent or obvious. n15

In order to judge the intentions of the parties, attention must principally be paid to their acts,

contemporaneous with and subsequent to their contract. n16 This is to be done by the adjudicating entity.

n17

Article 1240 of the Civil Code establishes that the interpretation of obscure provisions of a contract must

not favor the party occasioning the obscurity, particularly in the case of adhesion contracts. n18 An adhesion

contract is one in which only one of the parties prescribes the conditions to be accepted by the other. n19

This situation is typical of construction contracts, where the general conditions are embodied in a model or

form contract prepared by the owner, who also furnishes the plans and specifications pursuant to which the

work is to be constructed. In such contracts, which include AIA contracts and most government contracts,

ambiguities must be interpreted in such a way as to operate in a manner least favorable to the party that

drafted the contract. n20

The government, clearly, is not always right, notwithstanding the ever-present protestations to the

contrary. In Firestone Tire & Rubber Company v. United States, n21 the Court of Claims stated, in adopting

the contractor's interpretation of the contract documents and finding in its favor: "The rules of contract

interpretation, which control the eventual disposition of this case, are well settled." n22 Attributing to both

parties "at least a modicum of business acumen," the Court held that "the drafting party must bear the risk of

any contractual uncertainty, ambiguity or inevitable consequence." n23 Placing itself "into the shoes of a

reasonable and prudent construction contractor," in order to "consider the language of the contract and

attempt to divine its meaning," the Court held that: "The unexpressed, subjective, unilateral intent of one

party [the government] is insufficient to bind the other contracting party, especially when the latter

reasonably believes otherwise." n24

In Singer-General Precision, Inc. v. United States, n25 the Court of Claims opined that: "We need not

expound, once more, that the unexpressed, subjective, unilateral intent of one party is insufficient to bind the

other." n26 The Court continued, however, "the Government, as we are called upon to repeat so often, bears

the full burden and the risk when it leaves its contract open to more than one reasonable construction." n27

"It follows that, if there was ambivalence, the doubt was primarily attributable to the Government, and the

Government had the obligation to clarify. Its failure to do so leaves it with the liability." n28 "That principle

10

31 L.P.R.A. § § 3371-3525 (2000).

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is more than merely just: it is the only effective prod we can use to reduce the needless imprecision in federal

contractual forms." n29

In Corbetta Construction Company, Inc. v. United States, n30 the contractor's interpretation of the

specifications prevailed once again. The Court entered summary judgment for the contractor and held the

government liable for an equitable adjustment. The Court of Claims held that certain work--which the U.S.

Navy had erroneously argued was required by the contract according to its (the Navy's) reading of the

specifications, and which the Navy had thereby ordered the contractor to performer--was not a part of the

contract. Thus, the Court ordered the Navy to compensate the contractor for performing the work. In that

contract, there was no explicit mention of any requirement for the contractor to do the work required by the

Navy. Furthermore, the Court in Corbetta held that, "[a] government contractor cannot properly be [*38]

required to exercise clairvoyance in determining its contractual responsibilities." n31 In Corbetta, as in so

many contractual disputes, the government "points to nothing in the voluminous Contract Documents which,

objectively viewed, clearly and unambiguously prescribed that the Contractor perform the work alleged to be

a part of the Contract." n32

Following are some excerpts by well-known commentators on the subject of good faith in contracting.

The concept is well established both in Puerto Rico and the United States.

The Argentine commentator O.M. Bezzi, in his book El Contrato de Obra Publica, expresses it as

follows:

En interes del buen funcionamiento de los servicios publicos y de la buena ejecucion de los

trabajos, se considera que los contratos de obras publicas son contratos que deben ejecutarse de

buena fe, deben interpretarse en forma tal que se mantenga, en la medida de lo posible, el

equilibrio financiero considerado en el momento en que se han celebrado.

....

Pero esta formula juridica tambien significa, como contrapartida, que el alea que debe quedar a

cargo de la parte contratante es el alea ordinario; aquel que razonablemente se puede decir que las

partes han debido tener en sus previsiones. No podria, por tanto, suceder lo mismo, por lo demas,

con los calculos que las partes han podido hacer al celebrar el contrato y que exceden los limites

extremos que las partes han podido considerar en ese momento, las circunstancias que alteran la

economia del contrato y, por [*39] otra parte, las que no se deben al azar sino al hecho de una de

las partes. n33

The Commentator Alberto G. Spota, in his work Tratado de Locacion de Obra, with respect to buena fe,

expresses it as follows:

Diremos, conforme al nuevo Art. 1198, que los contratos deben prepararse, celebrarse, cumplirse,

y ademas interpretarse, con buena fe y que, con esas directivas, no solo debe reembolsarle al

empresario los costos y beneficios industriales inherentes al trabajo imprevisible, sino tambien los

mayores costos imprevisibles de trabajos previstos. n34

Castan, in his work Derecho Civil Espanol, Comun y Foral, cites Puig Brutau with approval, expressing

it this way:

Por lo que a nuestro derecho se refiere, se basa todavia la doctrina de la interpretacion en la

intencion de los contratantes. En lo que las partes hayan previsto, no es licito al Juez prescindir de

la voluntad de ellas. La interpretacion ha de ser, pues, subjetivista. Pero hay que tener en cuenta

en primer lugar, que la interpretacion del contrato ha de buscar la voluntad comun a una y otra

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parte, lo que exigira ver, como indica Puig Brutau (si cada una de las partes ha podido formarse

una representacion racional de lo ofrecido por la otra, y si, conforme a ello, ha asentido), lo cual

conduce al mismo resultado practico que la adopcion del punto de vista radicalmente objetivo; y,

en segundo termino, que los efectos del contrato no son solo los queridos por las partes, sino,

ademas los derivados de la buena fe, del uso y de la ley. n35

Similarly, Puig Brutau, in his work Fundamento de Derecho Civil, says:

Es principio fundamental que los contratos han de exigirse y cumplirse de buena fe. Pero es

necesario contar con criterios que permitan saber cuando una prestacion contractual [*40] es

todavia exigible, y en casos, sin dudas excepcionales, la buena fe obliga reconocer que no puede

ser exigida.

Aunque el Codigo Civil no se refiere a la buena fe en las reglas sobre interpretacion de los

contratos, el Art. 1258 (espanol) dice que estos han de producir todas las consecuencias que sean

conformes a la buena fe. Ademas, el Art. 7 del mismo Codigo dispone, que los derechos, sin

distincion, deberan ejecutarse conforme a las exigencias de la buena fe y que la ley no ampara el

abuso del derecho o el ejercicio anti-social del mismo. n36

C. Breach of Contract Generally

Not all failures to comply with the obligations and conditions of a contract constitute a breach of the

contract. It is necessary that the noncompliance deals with a condition or obligation within the contemplation

of the parties at the time of contracting and that it encompasses an essential condition of the contract. In most

construction contracts, perhaps the most critical condition is Timely Completion, insofar as the owner is

concerned, and Timely Payment, insofar as the contractor is concerned.

Other possible owner breaches of a construction contract include: (1) the owner's failure to disclose

superior knowledge about the conditions to be encountered in performing the work at the project; (2) the

wrongful termination of the contract by the owner; (3) the furnishing by the owner of defective plans and/or

specifications for a project; (4) differing site conditions encountered at the project (which is not necessarily a

breach); (5) the failure of an owner to cooperate with a contractor and/or its interference with the contractor's

work; (6) an owner's making untimely and/or excessive changes to a contract; (7) an owner's acting in bad

faith; and (8) an owner's effecting a "cardinal" change to a contract.

There are various ways a contractor can breach a construction contract. They include: (1) abandonment

of the project; (2) untimely performance; (3) the failure to perform work in a workmanlike manner; and (4)

failure to pay subcontractors. Moreover, a contractor must not be undercapitalized; it must coordinate its

work; it must work with adequate men and equipment; it must not perform its work in an unworkmanlike

manner; and it must not abandon a project without being absolutely certain of its right to do so. n37 Having

said this, let us explore further some of the rules for bidding for construction contracts, and, upon

successfully bidding, some of the contract clauses common in the Construction Industry.

II. CONTRACT CLAUSES

A. Bidding

1. In General

The first occasion on which any Owner or Contractor must consider the implications of a construction

contract is during the bidding process. It is at this stage that the educated Owner or Contractor begins to

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clarify and understand its rights and obligations. To enter into a contract, a Contractor must first be awarded

a contract. That generally requires a bid for the work, whether public or private, and whether by sealed

bidding or negotiation. And there the lessons begin. Careful preparation by the Owner of the documents

included in its bid package is of paramount importance. Careless drafting by or for an Owner - whether of a

contract, its general, special or supplementary conditions, its specifications, or its drawings - plants the seeds

of future disputes. Careless review of the bid documents (which generally contain the proposed contract

documents) by a Contractor, likewise, sows the seeds of future disputes - ones that the Contractor may well

lose.

2. Potential Liability for Bid Errors

Everybody makes mistakes. Perhaps there is no greater truth. Given the chaotic and extraordinarily

competitive environment in which construction bids are prepared and submitted, contractors quite often

make mistakes in their bids for construction projects. Thus, there are provisions in the laws governing

construction contracts that allow some room for error. n38

There are generally two kinds of errors in bidding: the error of fact and the error of judgment. An error of

fact can generally be corrected if the contractor can prove that the error is, indeed, an error. An error of

judgment generally cannot be corrected and, will often result in the imposition of liability in the same

manner as is created pursuant to a normal contractual relationship. n39 Some courts have refused to relieve

bidders even for mistakes of error of fact. In the event of fact errors, construction bids are generally voidable.

n40

Errors of fact include those errors which are inadvertent (and, generally, obvious), and include apparent

clerical mistakes, such as typographical errors like misplaced decimals, numerical transpositions, Owner-

induced misunderstanding of bid documents, and the like. n41 Not included, for example, would be mistakes

in estimating labor hours necessary to complete the work or cost of materials, or other items that could

reasonably result from a contractor's desire to obtain a competitive advantage. Such mistakes would be errors

in judgment. Courts generally allow bidders to be relieved from errors of fact, but not from errors of

judgment. n42 In Balaban-Gordon, the court held that a contractor [*43] may be excused for an error

caused by the misinterpretation of contract specifications when the mistake is objectively verifiable. n43 In

addition, a mistake of fact must be material in order for the mistaken bidder to obtain relief from its mistake.

n44

Mistakes in bids can be unilateral, where the bidder alone is responsible for the error, or mutual, where

both the bidder and the procuring entity have caused a mistake. Relief from a unilateral mistake is limited.

n45 Whether the error is one of fact or of judgment, it is necessary that the error be remediable in order for

the bidder to obtain relief from the obligations of a contract award. n46 A remediable error may be found to

exist when clear and convincing evidence is adduced that:

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(1) the bidder's mistake is related to a material aspect of the contract; (2) the mistake is of such magnitude

that enforcement of the contract, based upon the bid as filed, would be unconscionable; (3) the mistake was

made despite the exercise of reasonable care by the bidder; and (4) the granting of relief would not result in

substantial prejudice to the offeree. n47

To allow bidders off the hook without extracting a very high standard of justification for doing so would

diminish the integrity of the bidding process, particularly in the public sector. In United States v. Mississippi

Valley Generating Co., n48 the United States Supreme Court explained the importance of the need "to

guarantee the integrity of the federal contracting process and to protect the public from the corruption which

might lie undetectable beneath the surface of a contract conceived in a tainted transaction." n49

In M. Steinthal & Co. v. Seamans, n50 the Court opined on the issue of government procurement, when

it added that "the courts are properly concerned that the procurement activities of the [*44] Government be

carried out in accordance with the applicable statutes and agency regulations and that these governmental

functions not be permitted to deteriorate into actions reflecting personal predilections of administrative

officials, whether ascribable to whim, misplaced zeal, or impermissible influence." n51

A Bid Bond must generally guarantee the prices given in bids from an acceptable surety. The surety

guarantees that the bidder, if awarded the contract, will perform at the price bid. If a bidder refuses, in bad

faith, to enter into a contract or perform the work bid for, the surety will be called upon to cover the

contracting authority for any damages incurred by it in re-procuring the contract.

If, during the period between the opening of bids and the award of a contract, the (public) contracting

authority ascertains what seems to be a mistake in an otherwise apparently successful bid (which requires

both a bid responsive to the invitation and a bidder which is responsible), it will ask the bidder to verify its

bid. Bid errors are often found in this way.

If, during the foregoing period, an award is made to a bidder who subsequently refuses to enter into the

contract, the bidder may be liable for consequential or liquidated damages, or (with his surety) on a bid bond

in accordance with its terms. n52 If, however, the contracting authority fails to comply with its procedures

for award required by the invitation and the bid is not withdrawn during its effective period, such liability

will not be imposed. n53 Nor will liability be imposed if the contracting authority awards a contract knowing

of a mistake in the bidder's bid, i.e., when it has notice of the mistake, awards without inquiring as to the

nature of the mistake when an inquiry would have confirmed it. n54

If a mistake in a bid is discovered after a contract pursuant to the bid has been awarded, it will be more

difficult for the contractor to be allowed to correct the bid or withdraw it. n55 Notice of an [*45] error

detected after award should be given to the contracting authority, following the guidelines for notification of

an error detected prior to award. Sometimes a bidder will be relieved of his obligation to perform, even after

his bid had been accepted, provided that he is not guilty of laches. n56 However, in such circumstances, the

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bidder may be required to sustain the additional burden of showing that the other contracting party knew or

should have known, prior to acceptance, that the bid was infected with error. Demonstrating a great disparity

between the bid containing the error and other bids submitted may carry this burden. n57

A bid error may not be discovered until after a contract has been awarded and partially or substantially

performed. In that situation, the bidder may, under certain circumstances, be entitled to relief, such as an

upward adjustment in the contract price. Generally, the later a bidder discovers that his bid is infected with

error, the more difficult it is to obtain relief. n58

B. Implied Contract Obligations

1. An Owner's Obligations

It is a general premise that "a contractor's default may be excused if the causes of the default were

beyond the contractor's control." n59 Perhaps most significantly, an owner cannot withhold pertinent

information. It has a duty to disclose superior knowledge not available to the contractor from other sources.

n60

a. The Duty Not to Interfere with Contractor's Work

It is an implied term of every construction contract that an owner -and by implication its agents,

representatives, etc.- will not hinder or delay a contractor in its performance of the required work.

Interference with a contractor's work by an owner is a breach of contract, for which the contractor is entitled

to damages. n61

b. The Duty Not to Delay Changes or Make Excessive Changes

There is also imposed upon an owner "an implied obligation not to cause unreasonable delay in making

changes." n62 Causing unreasonable delay is a breach of these obligations. n63 The damages to which a

contractor is entitled when an owner interferes with, hinders and/or delays the contractor's work are

discussed below.

c. The Duty Not to Deny Time Extensions Due

When an owner's interference (including its failure to make changes in a timely manner) causes delay

and disruption to a project, the contractor is entitled to an extension of the contract [*47] completion

deadline, as well as all damages caused by the delay. n64

d. The Duty to Make Timely Payments

Contractors often unilaterally adjudge an owner in default when he fails to make payment, justifying

abandonment of the project. This is a dangerous determination, and should not be lightly made. It is,

however, a fundamental principle of construction contract law that a failure to make a progress payment will

justify abandonment of a construction contract by the contractor. n65

This principle is recognized in the Puerto Rico Civil Code. n66 "Anticipatory breach" is when one party

expresses clearly and unequivocally its intent not to perform its contractual obligations. In U.S. v. DeKonty

Corp., n67 a contractor's abandonment of a project was held improper because the government's statement

that payments due were "on hold" was not a sufficiently unconditional and unequivocal statement as to

amount to anticipatory breach. n68

[*48] In Appeal of Martin & Co., n69 the Armed Services Board of Contract Appeals strongly

emphasized the need for the government to respond in a timely manner to a contractor's request for payment

and opined that while some interval of time must necessarily elapse between the submission of a contractor's

invoice and the mailing of a check in payment for the work done, that interval of time must be reasonable. If

the government should fail to honor a correct invoice within a reasonable time and so embarrass the

contractor financially as to affect performance adversely, any delay caused is thereby excusable.

A government owner's failure to make contractually required progress payments is a material breach of

contract. n70 In Appeal of Short Electronics, Inc., n71 a contract for the supply of relay assemblies was

terminated for default, after the contractor could not perform because the government refused to make

progress payments. The Board found that the solicitation contained a latent ambiguity with respect to

whether progress payments would be made, and the contractor bid for the project with the understanding that

they would be. Since the contractor reasonably interpreted the solicitation as requiring progress payments,

the government's failure to make those payments was a material breach of the contract, and the termination

for default was converted into a termination for convenience.

Very recently, in Morganti National, Inc. v. United States, n72 the United States Court of Federal

Claims outlined the circumstances in which late progress payments constitute a breach of contract. In

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pointing out that the failure to make progress payments due is not a per se material breach of contract, the

court held that: "Materiality must be shown by the totality of the facts and circumstances." n73 The Court

added that in this connection, "the amount of money involved, the length of time of the non-payment, and the

payment procedure agreed to by the parties are [*49] significant factors to consider" in determining whether

a breach due to non-payment is material. n74

The court recognized that: "prolonged failure to pay large amounts could constitute a material breach."

n75 However, the court denied the Contractor's claim, finding that, "Morganti failed to prove its contention

that the late payments constituted a material breach that would have justified Morganti's nonperformance."

n76 Moreover, to support its finding, the court in Morganti cited D.W. Sandau Dredging, n77 holding that

"contractor complaints that late or no payments are affecting performance is a significant factor in

determining materiality" and Jones Plumbing & Heating, Inc., n78 "finding breach was not material where

contractor did not pursue payment or assert any urgency." n79

Also, in Alliant Techsystems, Inc. v. United States, n80 the United States Court of Appeals for the

Federal Circuit made clear the implications of a material breach of contract on the remedy-granting

provisions of that contract. Such a material breach has the effect of freeing the contractor of its obligations

under the contract, including its obligations under the disputes clause. n81

In Municipio v. Vidal, the Puerto Rico Supreme Court stated that:

In bilateral contracts, there are obligations and correlative obligations so interdependent between themselves

that one is a consequence of the other, and the performance of said obligation by a contracting party

constitutes the motive of the contract for the other party, and vice versa. Thus, we see that in a contract of

sale, the obligation of the vendor to deliver the thing sold is the motive of the contract for the purchaser; and

likewise, the correlative obligation of the purchaser to deliver the value is the [*50] motive of the contract

for the vendor. Such are the reciprocal obligations contemplated by article 1077 of the Civil Code. n82

There are also other obligations which are incorporated into contracts for the sole purpose of supplementing

and clarifying the stipulations of the contracting parties which do not constitute the real motive for the

contract and are known as accessory or complementary obligations. In a contract of sale, for example, there

is, among others, the obligation of the vendor to be liable for the eviction and warranty, and of the purchaser

to pay the value of the thing sold at the time and place fixed by the contract. The breach of these accessory or

complementary obligations shall give rise to an action for damages or to any other action justified under the

special circumstances of each case, but never to the resolutory action regulated by article 1077 of the Civil

Code, which is reserved exclusively for the breach of reciprocal obligations. n83

The Vidal case notwithstanding, in Ramirez v. Club Cala de Palmas, the Puerto Rico Supreme Court

stated that if one of the parties' breach of an accessory condition of a contract causes the other party to breach

an essential condition, then the party breaching the essential condition may elect to resolve the contract or

demand its specific performance. n84

2. A Contractor's Obligations

It is a general provision of contracts for construction (and implied in every construction contract) that

certain defined (or implicit) events constitute default under the contract, among them: (1) failure to prosecute

the work in a workmanlike and/or diligent manner; (2) unexcused delays in performing the work; (3)

persistent failure to pay subcontractors, suppliers, and workers in a timely manner; (4) performing and failing

to correct defective work; and (5) failure to complete the project in a timely manner. [*51] Customarily, a

contractor and owner rarely agree on whether or not a default has occurred. n85

A widely known Contractor obligation is to pay its Subcontractors within a reasonable time, despite the

existence of what is commonly referred to as a pay-when-paid clause. Most Subcontractors object to pay

when paid clauses because they have no direct contractual relationship with the Owners, and thus have no

ability to evaluate the risk of Owner nonpayment or insolvency. Another common argument is that Owner

nonpayment is often caused by a dispute between the Owner and the Contractor that has nothing to do with

the Subcontractor's performance.

In an effort to delay payment to Subcontractors and suppliers until they are paid, general Contractors

frequently include a pay-when-paid clause in their subcontracts. Such clauses provide that payment to a

Subcontractor or the project's Owner will not be due until the Contractor has paid the supplier for that work.

Often, Contractors seek by their actions to convert pay-when-paid clauses into pay-if-paid clauses.

Both federal and state courts have dealt with this issue on numerous occasions over a period of decades.

In Dyer v. Bishop International Engineering Company, n86 the fundamental principles applicable to a pay-

when-paid clause were first set forth:

It is, of course, basic in the construction business for the general contractor on a construction project of any

magnitude to expect to be paid in full by the owner for the labor and material he puts into the project. He

would not remain long in business unless such was his intention and such intention was accomplished. That

is a fundamental concept of doing business with another. The solvency of the owner is a credit risk

necessarily incurred by the general contractor, but various legal and contractual provisions, such as

mechanics' liens and installment payments, are used to reduce this to a minimum. These evidence the

intention of the parties that the contractor be paid even though the owner may ultimately become insolvent.

This expectation and intention of being paid is even more pronounced [*52] in the case of a subcontractor

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whose contract is with the general contractor, not with the owner. In addition to his mechanic's lien, he is

primarily interested in the solvency of the general contractor with whom he has contracted. He looks to him

for payment. Normally and legally, the insolvency of the owner will not defeat the claim of the subcontractor

against the general contractor. Accordingly, in order to transfer this normal credit risk incurred by the general

contractor from the general contractor to the subcontractor, the contract between the general contractor and

subcontractor should contain an express condition clearly showing that to be the intention of the parties.

...

If such was not the intention of the parties it could have been so expressed in unequivocal terms dealing with

the possible insolvency of the owner. ... It deals with the amount, time and method of payment, which are

essential provisions in every construction contract, without regard to possible insolvency. In our opinion ...

paragraph 3 of the subcontract is a reasonable provision designed to postpone payment for a reasonable time

after the work was completed, during which the general contractor would be afforded the opportunity of

procuring from the Owner the funds necessary to pay the Subcontractor. ... To construe it as requiring the

Subcontractor to wait to be paid for an indefinite period of time until the general contractor has been paid

by the Owner, which may never occur, is to give to it an unreasonable construction which the parties did not

intend at the time the subcontract was entered into. n87

The foregoing case, which has been followed by courts throughout the nation, makes it clear that a pay-

when-paid clause only allows a Contractor to defer payment to a sub for a reasonable period of time. n88

Receipt of payment by a Contractor from an Owner is clearly not a condition precedent to payment by the

Contractor to a Subcontractor. "Unless its language is plain and [*53] unambiguous in making payment by

the Owner an express condition precedent to the contractor's duty to pay, such a provision will be construed

as postponing the contractor's obligation only for a 'reasonable time'." n89 State court cases are

overwhelmingly, if not uniformly, in agreement with the majority view. n90 In Havens Steel Company v.

Randolph Engineering Company, the court used a period of three months and defined it as a reasonable

period of time. n91

Finally -and, perhaps, most significantly- the United States Court of Appeals for the First Circuit recently

addressed the pay-when-paid/pay-if-paid controversy. In Northeast Drilling, Inc. v. Inner Space Services,

Inc., n92 the Court addressed first the pay-if-paid controversy in the case. The Court found the pay-if-paid

clause in the subcontract was, indeed, a valid condition precedent to payment. It further found, however, that

because the conduct [*54] of the Subcontractor, "materially contributed to [the prime contractor's] failure to

pay [the Subcontractor] ..., [the Subcontractor] is estopped from arguing that it was entitled to be paid by [the

prime contractor] before it reimbursed [its sub Subcontractor] for [the applicable work]. [Thus, applying the

Prevention Doctrine, under which,] a contractual condition precedent is deemed excused when a promisor

hinders or precludes fulfillment of a condition and that hindrance or preclusion contributes materially to the

non-occurrence of this condition." n93

The Court of Appeals in Northeast Drilling v. Inner Space also addressed the pay-when-paid issue, n94

favorably citing Moore Bros. Co. v. Brown & Root, Inc., n95 in which the Circuit Court applied the

Prevention Doctrine to render inoperative a pay-when-paid condition precedent in a construction subcontract.

n96

C. Differing Site Conditions

1. In General

Unexpected conditions, particularly subsurface conditions, at a construction site can profoundly alter the

scheduled course of a project and increase the cost of the work. Changed Conditions clauses and Differing

Site Conditions clauses are generally the contractual provisions pursuant to which an owner seeks to prevent

a contingency factor from being included in a contractor's bid, and pursuant to which contractors submit their

claims for excusable and compensable delays due to changes in the work, as defined in the contract

documents. By introducing an element of certainty into construction contracts, contractors are less inclined

to include contingencies in their bids, thereby lowering the cost of construction generally.

[*55] Occasionally, there is no specific contractual provision pursuant to which such claims can be

made. In such situations, a contractor must utilize the various clauses that are in the contract, or rely on the

law, to underpin its claim. The principal theory for such a differing site condition claim, in the absence of

appropriate contractual clauses, would be negligence or misrepresentation theories under the Spearin

Doctrine, discussed below. In Ruby-Collins, Inc. v. City of Charlotte, the Court discusses the perils that a

contractor faces when there is no "changed conditions" clause included in a contract and the contractor's

claim was denied in toto. n97

2. The Contractor's Right to Rely; Its Duty to Investigate

Virtually all standard form contracts, including those of the American Institute of Architects (AIA),

Associated General Contractors of America (AGC), and the contracts of the federal and Puerto Rico

governments, include provisions requiring a contractor bidding for or offering to perform construction work

to inspect the site of the work. The AIA General Conditions for the Contract of Construction establishes that

"the execution of the Contract by the Contractor is a representation that the Contractor has visited the site,

become familiar with local conditions under which the Work is to be performed and correlated personal

observations with requirements of the Contract Documents." n98

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The Federal Acquisition Regulations (FARs) provision, which governs site inspections, is more specific

and provides:

The Contractor acknowledges that it has taken steps reasonably necessary to ascertain the nature and location

of the work, and that it has investigated and satisfied itself as to the general and local conditions which can

affect the work or its cost, including but not limited to: (1) conditions bearing upon transportation, disposal,

handling, and storage of materials; (2) the availability of labor, water, electric power, and roads; (3)

uncertainties of weather, river stages, tides, or similar physical conditions at the site; (4) the conformation

and conditions of the ground; and (5) the [*56] character of equipment and facilities needed preliminary to

and during work performance. The Contractor also acknowledged that it has satisfied itself as to the

character, quality, and quantity of surface and subsurface materials or obstacles to be encountered insofar as

this information is reasonably ascertainable from an inspection of the site, including all exploratory work

done by the Government, as well as from the drawings and specifications made a part of this contract. Any

failure of the Contractor to take the actions described and acknowledged in this paragraph will not relieve the

Contractor from responsibility for estimating properly the difficulty and cost of successfully performing the

work, or for proceeding to successfully perform the work without additional expense to the Government.

n99

The site inspection made by a bidder requires him to conduct a reasonable inspection under the

circumstances. n100 In Stock & Grove, Inc. v. United States, n101 the Court of Claims found that the Board

of Contract Appeals erred, as a matter of law, by "imposing upon the bidder ... an obligation to make a

scientifically educated and skeptical analysis of the contract." n102

3. An Owner's Duty to Disclose Material Information

An owner has a duty to disclose information that may have a bearing on the contractor's work. n103 An

owner may not withhold pertinent information from a contractor. It has a duty to disclose superior

knowledge, not available to a contractor from other sources, which may materially affect the contractor's

work. n104 Generally, the contract documents will make affirmative representations as to the expected site

conditions to be encountered at the site of the project. It is not necessary, however, that site conditions [*57]

be affirmatively represented; they may be implied from the contract. n105

The reasonableness of the inspection required depends on various factors, including the time between the

bid invitation and the bid date, the nature of the information furnished, and the disclaimers contained in the

bid documents. FAR Contract Clause 52.236-3(b) provides:

The Government assumes no responsibility for any conclusions or interpretations made by the Contractor

based on the information made available by the Government. Nor does the Government assumes

responsibility for any understanding reached or representation made concerning conditions which can affect

the work by any of its officers or agents before the execution of this contract, unless that understanding or

representation is expressly stated in this contract.

4. Notice

For both an owner and a contractor, the foremost consideration must be acting reasonably and prudently

under the circumstances. For an owner, it is prudent to require its architect to carry Errors & Omissions (E &

O) insurance, so that the cost of defective plans and specifications can be passed along. Owners should seek

to hire architects and engineers with proven track records, since it is often the case that shoddy draftsmanship

leads to large contractor claims. In Puerto Rico, it is particularly important that an owner ensures the

correctness of the language in the contract, which is generally English. A misplaced comma or an erroneous

adverb or adjective can have dire consequences for an unwary owner. And a wily contractor can spot such

ambiguities like an eagle finds a mouse.

The contractor should immediately advise the owner's representative of any defect he perceives in the

plans and specifications, [*58] and follow all reasonable instructions from the owner and his

representatives. Clear lines of authority and responsibility should be established early in the project, if not

before it commences. Contractors should make clear, in writing, that its field foremen and laborers shall not

accept instructions that require any modification in the work. All efforts should be undertaken to minimize

the effect of a differing site condition on the work, lest delays occur, with the corresponding claims for

damages that inevitably follow.

From the perspectives of both the owner and the contractor, the job management techniques are similar.

Photographs, diaries, daily logs, and inspection reports are essential to a well-managed project. The more

objective data of this kind that is available when a dispute arises, the easier will be the resolution. That "a

picture is worth a thousand words" is truer in few situations than on a construction project. Daily, weekly

and/or monthly photographs -including aerial photos- should be taken from the same location and direction

to show the continuity of a project. All photographs should be dated and should identify the photographer on

the reverse side.

When the contractor believes that a site condition is different than indicated in the contract, the owner

should be notified, in writing, immediately. n106 Notice should be given before the site conditions are

disturbed. Any claim for the impact -for time and/or for additional costs- of differing site conditions should

be made as expeditiously as possible, also in writing.

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The reason for the prompt notice requirement is to permit an owner to mitigate any damages caused by

the differing site condition by investigating the site, ascertaining the facts, and determining whether in its

opinion the site condition is in fact different. Many claims are forfeited by failure to give proper notice and to

submit a proper claim within the time limits required by the contract. n107 Any analysis of a claimed right

depends in the first instance on the language of the governing contract between the parties. Often the General

Conditions of a contract require notice of any claim as a prerequisite to any claim. If a Contractor [*59]

fails to give an Owner the notice required by their contract, it may waive any claim it may have for a

differing site condition or any other claim. n108

A prudent contractor will scour its contract for all time/notice provisions, summarize them on a page or

two, and post the summaries at the project site. Failure to do so can be fatal. There is no damage more

avoidable in the construction industry than a party's losing a valid claim for failure to give proper notice of it

to the responsible party.

5. Contractual Remedies

Most contracts seek to shift the entire risk for unknown and undiscovered changes in the conditions

either represented or expected to be encountered at the site. Owners will often seek to disclaim all

responsibility for any information provided to the contractor in the bid documents. In the absence of a

Changed Conditions or Differing Site Conditions clause, the contractor must be particularly careful, since the

disclaimer will not necessarily conflict with other provisions of the contract.

Exculpatory provisions of a contract cannot, however, be raised as a defense where there has been

affirmative or positive interference with the contractor's work or a failure on the part of an owner to act in

some essential manner necessary to the prosecution of the work. n109 A misrepresentation by an owner as to

the conditions expected to be encountered at the site need not be intentional in order for a contractor to

recover the costs associated with the different condition. n110 Perhaps, the most vivid example of an

owner's unabashed attempt to shift all responsibility for its actions to bidders can be seen in a recent

government contract:

The Contractor acknowledges that it assumes the entire risk of conditions at the ... Site, including the nature

and character of all surface and subsurface materials and conditions, except to the extend otherwise provided

in Subsection [*60] [x] below. Accordingly, no increase in the Contract Price or extension of the Contract

Time for the Work will be allowed to the Contractor on account of Site conditions, except as provided in

Subsection [x].

Subsection [x] then reads:

If, in the course of performance of the Work, actual subsurface or latent physical conditions at the exact

locations of the borings identified in the boring logs set forth in the Contract Exhibit[s], entitled "Preliminary

Geotechnical Investigation Report...," differ materially from the physical conditions identified in the boring

log for that exact location (no claim by the Contractor may be made, however, based upon ... Site conditions

at locations other than the exact location of the reported boring (i.e., no claim may be made based upon

expected ... Site conditions derived from interpolations between or among various boring locations)), then, if

such conditions ... occur, the Contractor may be entitled to a Change Order increasing the Contract Price or

extending the Contract Time for the Work, or both, if the Differing Site Conditions so dictate and all other

requirements hereunder applicable to Change Orders are satisfied. n111

Welcome to the days of Draconian contracting. No extrapolation between borings! One might query,

then, why give them in the first place? Needless to say, before bidding, bidders should carefully review the

site inspection requirements, and read them together with any disclaimers of liability. Exculpatory clauses

have thus reached new heights; or is it depths? Ultimately, the courts will decide whether such an all

encompassing risk-shifting clause transcends the boundaries of good faith.

When a contractor fails to make its own inspection, moreover, the owner's implied warranties are voided.

This is particularly true where an owner makes disclaimers as to the accuracy, suitability and/or

completeness of the information it provides. n112

[*61] a. TYPE I Conditions

When latent or hidden physical conditions which differ materially from those indicated in the contract

documents (upon which the bid was based) are discovered, a "TYPE I" differing condition is encountered.

n113

In order to recover on a TYPE I claim, the contractor must establish that:

a. certain subsurface or site conditions were indicated in the plans and specifications that form a part of the

contract;

b. the contractor reasonably relied on the representations made by those documents;

c. the subsurface conditions varied materially from those indicated and to the contractor's detriment; and

d. the contractor gave proper notice and satisfied any other prerequisites called for in the contract, i.e., site

investigation. n114

The prudent contractor will carefully examine the representations made in the bid and contract

documents as to the conditions expected to be encountered. Experience may tell him that the actual

conditions will differ and that he can expect to make a claim. On the other hand, the site inspection must be

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carefully made to adduce what indications may be present in order to ascertain whether there may be

manifest indications that the contract information as to site conditions is incorrect. If a bidder/Contractor was

warned to investigate the situation before submitting the bid, but did not or did a poor job of inspecting, then

the Contractor will not recover. For example, in Lamb Engineering & Construction Co., n115 "a contractor

contending that [*62] wet topsoil was a differing site condition could not recover, despite the fact that the

contract documents did not inform the contractor of the wet conditions, because the contractor had sufficient

knowledge of the possibility of moisture and of potentially problematic soil that it should have gotten out its

shovel and investigated the site." The contractor will not be permitted to take advantage of an apparent error

in the contract documents. A fine line must be walked, and staying on the right side of the line can prove

lucrative for the skilled contractor.

b. TYPE II Conditions

When unknown or latent physical conditions are encountered, which differ materially from those

normally encountered and generally recognized as inhering in the type of work and the area of the project, a

"TYPE II" differing site condition exists. n116 The condition encountered must be both unknown and

unanticipated. That is, unusual, notwithstanding reasonable site inspection. Additionally, the condition

encountered must be materially different from that expected. Empirical evidence of the materiality of the

difference will be required in order to establish such a claim, and should be proved by expert testimony of

professionals such as geologists, soil engineers, hydrologists, climatologists, and others. n117

D. Exculpatory Clauses

1. Indemnity

Generally speaking, a party may obtain indemnification against its own negligence, but it may not

generally obtain indemnification from its willful or grossly negligent acts. Nonetheless, it can be expected

that most construction contracts will contain strong indemnification language, and leave for the courts the

decision of whether particular actions of a party who seeks to be indemnified are properly indemnifiable.

This difficult relationship [*63] between indemnitor and indemnitee is accounted for, for example, in the

AIA General Conditions of the Contract for Construction, by prefacing the indemnifications provisions with

the caveatory statement, "to the fullest extent permitted by law". n118

2. "No Damages for Delay" Clauses

It is common practice in this litigious society for owners to seek to exculpate themselves from delay

damages by including No Damages for Delay clauses in their contracts, which seek to prevent the recovery

of delay damages by contractors. While such clauses are generally valid and enforceable, their severe effect

has resulted in their application under a set of rules best described as strict interpretation. n119 Such clauses

will generally not be enforced if: (1) the delays suffered were not contemplated by the parties to the contract;

(2) the delays were tantamount to an abandonment of the contract by the owner; (3) the delays resulted from

the active interference of the owner, its bad faith or willful, malicious or grossly negligent acts; or (4) are

arguably waived when the clause is ambiguous or deemed so when construed together with other terms of the

contract. n120

In Marriott Corp. v. Dasta Construction Co., n121 the Circuit Court affirmed the denial of a contractor's

delay claim by the means of summary judgment in the face of a no damages for delay clause in the contract,

since the contractor was aware of the provision when it bid for the project and thus had an opportunity to

increase its proposed bid to account for such costs.

[*64] 3. Disclaimers of Liability

It has been widely held that disclaimers are to be narrowly construed and contractors' remedy granting

provisions are generally held to prevail over them. n122 This law is well supported in the state and federal

courts in the United States.

In bidding for a project, all bidders must carefully evaluate the contract documents prepared by the

owner and its representatives in order to ascertain their inspection requirements. As the Supreme Court of the

United States stated in United States v. Spearin, n123 "disclaimers ... have found little patience with the

courts, which have rejected them wholeheartedly on the solid grounds that contractors must be permitted to

rely on the accuracy and suitability of the Specifications if intelligent bidding is ever to survive." n124 This

is commonly referred to as the Spearin Doctrine.

The Supreme Court of Puerto Rico enthusiastically endorsed this principle in Chico v. Editorial Ponce.

n125 The philosophy underlying the Spearin Doctrine was, and still is, that if ownersupplied specifications

are not warranted against defects, the contractor is obligated to make excessive and expensive (often,

prohibitively expensive) investigations pre-bid in order to verify the accuracy and suitability of the

documentation provided by an owner. That requirement, in turn, threatens the ability of [*65] smaller

contractors to compete with their limited resources, and increases prices bid. n126

Thus, the public interest is harmed by permitting an owner to escape liability for the consequences of its

negligence. As the Puerto Rico Supreme Court established in Chico v. Editorial Ponce: "Exculpatory clauses

are not encouraged. In the past, we have rejected the contractual clauses directed to exculpate a priori one of

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the parties to a contract for the damages subsequently caused to the other contracting party for negligent acts

of the first." n127 The Court continued:

The waiver of rights [allowed in Article 4 of the Civil Code] shall be clear, conclusive, and unequivocal.

Even more so when dealing with agreements exculpating a person from liability for its future negligent acts.

... An important factor in determining the validity of an exculpatory clause depends on the bargaining power

of each one of the contracting parties. If they are not on the same footing and power, so that a party is under

the obligation to accept the exculpation from liability for negligence of the other party, the clause is null.

n128

Government contracts are almost always contracts of adhesion, except in limited circumstances such as

Request-For-Proposals (RFP's) or design-build contracts. This is so because in such contracts the

Government has all of the bargaining power. Thus, exculpatory clauses contained in government contracts

pursuant to which the Government might try to wiggle out of its responsibility for the damages caused to a

contractor by its actions, will generally be null.

4. Limitations of Liability

The concept of limitation of liability is intertwined with that of disclaimers of liability and

indemnification. Often, an owner will [*66] seek to limit his liability in a construction contract to known

percentages of overhead and profit. This is common in government contracts, and in federal contracts in

particular. When a claim is made within a contract that has a limitation of liability clause, the terms of the

clause will generally be valid and enforceable. Where, however, the actions of an owner constitute a breach

of the contract, the remedies of a contractor fall outside the contract.

5. Appropriations Limitation

If there have not been funds appropriated for construction work, no contract expending non-appropriated

funds will be valid. One significant question, which every Contractor in a government contract must ask, is

whether it is obligated, or even permitted, to perform change order work on a project without having a fully

executed change order. The short answer is that the contractor in a government contract is not obligated to

perform change order work without a fully executed change order, and, in fact, does so at its own

considerable risk.

Government contracting in Puerto Rico requires a budget allocation, a written agreement, and notice to

the Comptroller within 15 days of the execution of the written agreement. Once the contractor submits his

change order/proposal, he cannot commence work until he receives written authorization from the

government and he is assured that there is a budget assignment covering the change order/proposal. n129

In Epifanio de Jesus Gonzalez v. Autoridad de Carreteras, n130 the Puerto Rico Supreme Court

indicated that when the contract involves the use of public funds or goods, the rigorous application of all

norms regarding contracting and disbursement of those funds is essential, in order to protect the public

interest and funds. The basic limitation in appropriations and contracting is supplied by our Legislature in

and reads as follows:

Los departamentos, agencias, instrumentalidades, oficinas y todo organismo y los municipios del Estado

Libre [*67] Asociado de Puerto Rico, sin excepcion alguna, mantendran un registro de todos los contratos

que se otorguen, incluyendo enmiendas a los mismos, y deberan remitir copia de estos a la Oficina del

Contralor dentro de los quince (15) dias siguientes a la fecha de otorgamiento del contrato o la enmienda....

El termino "instrumentalidad" incluira a toda corporacion publica, sus subsidiarias o cualquiera entidad

gubernamental que tenga personalidad juridica propia, creada por ley o que en el futuro pudiere crearse,

sin excepcion alguna. n131

This presupposes that when a government agency or municipality is a party to a contract, or an

amendment thereto, the contract or amendment must be reduced to writing, executed by both parties, and

registered with the Office of the Comptroller; otherwise, it is null and void. Our Supreme Court readily

alluded to the efficacy of said statute in Fernandez & Gutierrez v. Municipio de San Juan, n132 and added

that it "reflects the legislative intent of creating a mechanism of checks and publicity of contracts executed

by the municipalities, which is of a constitutive nature with respect to their efficacy." n133

The Supreme Court, making reference to Hatton v. Municipio de Ponce, n134 established that the

purpose of the statute is to avoid favoritism, corruption, carelessness and the risks of default under the

contract terms. In Hatton, the Supreme Court further stated:

Los acuerdos entre Hatton y los funcionarios del Municipio se efectuaron en abierta violacion de todas las

normas del orden publico atinentes a la contratacion entre gobiernos y entidades privadas.... Las normas

estatutarias aplicables persiguen proteger el interes publico y no a las partes contratantes.

...

[*68] El manejo prudente de fondos publicos esta saturado de intereses de orden publico.... En definitiva,

nos negamos a elevar a rango de precedente judicial actos efectuados contra las leyes que encarnan

principios fundamentales de politica publica y sana administracion de fondos publicos. De la manera mas

energica rechazamos esa pretension. n135

This jurisprudential norm invalidates any verbal agreement authorizing any change order/proposal work

that has not been reduced to writing. Thus, there is considerable peril in performing change order/proposal

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work in a Puerto Rico Government contract in the absence of a written, registered modification to the

contract. The performance of any such change order/proposal work without the written, registered

modification to the contract is at the contractor's own considerable risk.

III. EXTRAS AND CHANGES

A. Scope of Work

1. The Fundamental Principle

Shortly after the conclusion of World War I, it was unequivocally held by the United States Supreme

Court that a contractor does not assume risks incident to a defective design where the other party to the

contract prepared the design, and the contractor was required by the terms of his contract to follow it, and did

follow it. n136

That rule of law governs construction contracts throughout the United States, and has created what is

generally referred to as the Owner's Warranty or implied warranty of the plans and specifications it furnishes

a contractor. This principle, generally referred to as the Spearin Doctrine, provides that the plans and

specifications for a construction project must be both reliable and suitable for the work to be performed. The

Spearin Doctrine was foreseen in Christie v. United States, n137 where the Supreme Court held that an

error in the drawings and specifications was cause for the additional expenses of excavation and pile driving

to be paid to the contractor. n138

Again, the philosophy underlying the Spearin Doctrine is that if owner-supplied specifications are not

warranted against defects, the contractor is obligated to make excessive and expensive pre-bid investigations

in order to verify the accuracy of the documentation provided by an owner. Thus, permitting an owner to

escape liability for the consequences of its negligence harms the public interest. Unfortunately, the Puerto

Rico Supreme Court disagreed in Levy v. Authoridad de Edificios Publicos. n139 This decision has had a

negative effect on the predictability of Puerto Rico's construction industry.

Except in Puerto Rico, as discussed below, the Spearin Doctrine has become a widely accepted portion

of both state and federal construction contract law, whether in public or private projects. That acceptance has

been repeatedly confirmed by recent decisions of both state and federal courts. n140 The Puerto Rico

Supreme Court, in deciding Levy v. A.E.P., n141 joined the distinct minority of courts which do not presume

that Contractors and Owners have equal experience, in particular, as it pertains to construction methods or

designs. n142

Generally speaking, therefore, when a contractor performs its work in a manner consistent with the

drawings and specifications furnished by the owner of a project (whether prepared by the owner itself or by

the Owner's agents, generally architects or engineers), it will not be responsible for defects in those drawings

and specifications. n143

[*70] While a contractor must inspect the drawings and specifications furnished by an Owner, and

inspect the site of the proposed project, it is not necessary for a contractor to poke a hole in the ceiling to

discover latent defects. n144 A Contractor must not, however, bind himself irrevocably to the correctness of

the owner-supplied plans and specifications by explicitly waiving any claim, or he will not be protected by

the Spearin Doctrine. n145

2. Design v. Performance Specifications

A Contractor must make an early determination of whether he is to be bound by design or performance

specifications. Large, complex construction projects are often a combination of design and performance

specifications, complicating a contractor's burden. n146

In design specifications, the method of carrying out the work is described in detail, and it is impliedly

warranted that, if they are followed, an acceptable result will be produced. n147

In performance specifications, the owner provides only a general description of the end result and the

contractor assumes the [*71] responsibility for accomplishing the result by methods of its own choosing.

n148

The requirement that an inspection of the site and a review of the drawings and specifications be done by

a contractor is not unreasonable. Any inspection, however, must only be reasonable. Apparent defects and

ambiguities in the drawings and specifications, will not constitute grounds for recovery. Obscure ones will.

For instance, one court has established that "if every bidder were required to perform all the investigations

even though the chance of receiving the bid was remote, the number of bids would decrease and the dollar

amount of the bids would increase ... it would be unrealistic to expect each bidder to perform the boring

himself." n149 One way of measuring reasonableness (after the fact) is to inquire other bidders on what kind

of inspections they have made; i.e., did they take their own soil borings, etc. The time between a bid

invitation and the bid itself is particularly relevant in this regard, as is the condition of, and access to the site

and the availability of information about it. The time, cost, and completeness of the owner's data are the

acknowledged factors to consider when evaluating the reasonableness of a contractor's site inspection. It has

been widely held that disclaimers are to be narrowly construed and contractors' remedy granting provisions

are generally held to prevail over them. n150

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When the warranties of the accuracy and suitability of owner-furnished drawings and specifications are

breached, the owner must pay any damages caused by the breach. This is true whether the warranty was

express or implied. n151 If the contractor reasonably relies on incorrect drawings or specifications, and is

injured thereby, it is entitled to all costs incurred in resolving the problem, as well as all costs arising from

any delay caused thereby. n152

[*72] As a matter of general law, site inspection requirements imposed by an owner do not shift the

responsibility for errors in drawings and specifications to a contractor. Exculpatory provisions of a contract

cannot generally be raised as a defense were there has been affirmative or positive interference with a

contractor's work or a failure on the part of an owner to act in some essential manner necessary to the

prosecution of the work. n153 A misrepresentation in drawings and specifications furnished by an owner

need not be intentional in order for a contractor to recover; negligence is sufficient. n154 But if a Contractor

is not damaged by the existence of a differing site condition, it will not recover any costs or receive any time

extension on account of it. Evidence of impact can be found in the project documents, including, in

particular, daily logs and reports. However, a contractor's particular experience and knowledge of site

conditions can be held against it. n155

3. The Puerto Rico Standards

While a contractor is generally responsible for defects in design specifications only when he is negligent

in performing the work, the standards in Puerto Rico are, as might be expected, somewhat different.

Article 1483 of the Puerto Rico Civil Code provides:

Liability of Contractor and Architect for Collapse of Building

The contractor of a building which may have been destroyed [not literally] by reason of defects in the

construction [*73] shall be liable for the losses and damages if said building should collapse within ten (10)

years, to be counted from completion of the construction; and during the same time the same liability shall be

incurred by the architect who may have directed the work if the collapse is due to defects in the ground or in

the direction.

If the cause should be the noncompliance of the conditions of the contract, the action for indemnity may be

brought within fifteen (15) years. n156

This provision distinguishes Puerto Rico law from that in the United States. n157 Architects, therefore,

remain on the hook for a very long term.

Contractors should look to the decision of the Puerto Rico Supreme Court in Geigel v. Mariani, n158

our leading case on the issue. The Contractor had warned the owner that its plans and specifications were

defective (and that the roof would leak if they were followed), but went ahead with the work anyway. The

Supreme Court held the contractor liable for the defects, stating:

It has also been held that neither the architect nor the contractor, as the case may be, may be released from

liability by alleging that he called the attention of the owner to the defects in the proposed construction. The

duty of the contractor in that case is to refuse to undertake the work. The reason therefore is that the safety of

what is build is of great public interest The destruction of a building affects the owner as well as the

community and, since the engineer contractor has technical knowledge of his art, he is obligated by law to

refuse to construct, if the proposed work does not meet the measure of safety required by the profession, the

laws, and the regulations. n159

Contractors, especially engineer contractors, must therefore proceed with great caution in the face of

apparent defective plans and specifications. n160

[*74] As discussed at length in The Powerlite of P.R. v. C.R.U.V., n161 once a Contractor becomes

aware of a defect of the nature discussed above, it should refuse to proceed with the work. Should it choose

to proceed, it does so at its own risk. Therefore, this is a very dangerous area.

When construction defects arise, blame for them will be apportioned between a contractor and an

architect, who may be held jointly and severally liable to an owner. n162 Thus, in Puerto Rico, defects in the

plans and specifications do not necessarily exculpate a contractor if it should have known of the defect. n163

Each professional will be held responsible for the knowledge which it should, by nature of its profession, had

about the defects.

In a fairly recent case applying Article 1483 of the Civil Code, Wang Laboratories Puerto Rico, Inc.

Industrial Risk Insurers v. F & R Construction Corp., n164 the Puerto Rico Supreme Court held that a

property owner has a cause of action under Article 1483 against the responsible party or parties even after

repairs have been made and the property sold, if the original property owner suffered damages caused by the

alleged vicios de construccion.

4. The Federal Standard

To recover for defects under the Spearin Doctrine, a Contractor must meet the strict standards

applicable. It must be shown that: (1) the contractor complied with the defective specification; (2) the

specifications were, in fact, defective; and (3) the work caused delay to or problems with the contractor's

performance under the contract. n165 It must be remembered in this context, that Puerto Rico law, in light of

the decision in Levy v. Autoridad de Edificios Publicos, n166 seems to exculpate the Puerto Rico

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government and [*75] its agencies and instrumentalities from paying damages under the Spearin Doctrine

for the first forty-five percent (45%) of the cost delay on a project.

Federal law imposes significantly greater responsibility on the government than what was imposed by

the Supreme Court of Puerto Rico in Levy v. A.E.P. n167 A series of decisions by the Court of Claims has

clarified the federal government's responsibility. For instance, in Singer-General Precision, Inc. v. United

States, n168 the court stated that "the Government ... bears the full burden and the risk when it leaves its

contract open to more than one reasonable construction." To that extent, in Firestone Tire & Rubber

Company v. United States, n169 the Claims Court expressed that the Government must "place itself into the

shoes of a reasonable and prudent contractor" in order to "consider the language of the contract and attempt

to divine its meaning." Similarly, in Corbetta Construction Company, Inc. v. United States., n170 the same

court expressed that "[a] contractor cannot be expected to exercise clairvoyance in determining its

contractual responsibilities." In Ceccanti, Inc. v. United States, n171 the court further added that if a

contractor's interpretation of a contract is reasonable, it will prevail. n172 Accordingly, as decided in A & K

Plumbing & Mechanical, Inc. v. United States, n173 the contractor's interpretation need not be the only

reasonable interpretation. The general rule, as expressed in Gorn v. United States, n174 is that: "Where the

government draws specifications which are susceptible of a certain construction and the contractor actually

and reasonably so construes them, justice and equity require that that construction be adopted."

Unfortunately, that no longer appears to be the standard governing the performance of construction contracts

in Puerto Rico.

Impossibility of performance excuses performance. Thus, extremely defective specifications render

performance impossible. [*76] Therefore, according to The Powerlite n175 decision, whatever costs are

incurred up to the time of the discovery of the impossibility of performance should be compensable. The

Court of Federal Claims recently held in Fru-Con Construction Corp. v. United States, n176 citing the

"modest proposition" of Neal & Co. v. United States, n177 that "the Government warrants a prescribed

method of performance against impossibility or commercial impracticability resulting from a defective

design specification." In Fru-Con, the contractor's claim was disallowed because it was given non-specific

performance-type specifications. n178

5. Other Considerations

Prior to bidding, a contractor should disclose to the owner all of the problems it can reasonably discover

in the drawings, specifications, and other information provided by the owner, especially in light of Levy.

n179 The architect should be consulted, and the problems worked out pre-bid. The Puerto Rico government,

at least, should be asked in pre-bid meetings to disclose the history of delays on its prior projects, in order to

bring to the contemplation of the bidders the delays which can be anticipated to be suffered by the contractor,

without compensation, under the doctrine advanced by the Supreme Court in Levy. n180 Otherwise, the risks

of loss increase dramatically.

Playing its cards close to its chest can be perilous to a contractor in Puerto Rico because of The Powerlite

n181 decision. Plans and specifications should be very carefully inspected and evaluated. Written

information should be demanded from an owner. Contract clauses granting remedies to a contractor should

be carefully evaluated and compared with risk-shifting clauses. Otherwise, the contractor can be caught in a

semantics trap. n182

Defects in drawings and specifications, once discovered, often lead to changes in a contract. In those

instances, a contractor [*77] must be cautious. Excessive changes arising from such defects can become a

cardinal change. n183

B. Constructive Changes; Cardinal Changes

1. Constructive Changes

"A constructive change entails two base components, the change component and the order or fault

component." n184 Constructive changes are discussed in Miller Elevator v. U.S. n185

The damages recoverable for constructive changes, or other changes, are recovered generally pursuant to

an "equitable adjustment," i.e., a change order. The components of such damages are discussed in the

aforementioned decision. n186

2. Cardinal Changes

Cardinal changes occur when excessive change orders greatly increase the burden of the contract ...

changes that are outside the scope of the contract itself. Courts will determine whether a change: (1) has

reasonably altered the nature of the work; (2) has unduly increased its cost; and (3) was a radical departure

from the original contract, essentially constituting an abandonment of it. n187 A cardinal change can free a

contractor from continuing with the work under its contract. It is, essentially, a breach of the contract. n188

[*78] In the case of a cardinal change, a contractor's relief is not limited to the relief provisions of the

contract. Rather, the damages incurred can be recovered under theories of breach of contract

(incumplimiento). n189 It must be remembered, however, that an authorized representative of the

government must direct any change for which compensation is sought. n190 "Apparent authority is not

applicable to Government contracts." n191

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Excessive changes arising from defects in an owner's plans or specifications can become a cardinal

change. n192 As stated above, a cardinal change removes a contractor's basis for recovery from the four

corners of the Contract, making its claim for relief an extra contractual claim. Such a right effectively

eliminates issues relating to any individual change order--and thereby the limitations of liability in a contract

itself--as a basis for a contractor's relief, and agglomerates them into a claim for damages for breach of

contract. The law in this area is well settled. n193

Another way of describing the damages caused by a cardinal change is cumulative impact costs. n194

Such costs accrue as a result of a multitude of changes, and consist of the impact on unchanged work which

is not attributable to any particular change but flows from the synergistic relationship between the number

and scope of changes issued on a project. The theory which supports cumulative impact or ripple damages is

that numerous changes cause a cascading, ripple-type impact on a contractor's performance, time, and

efficiency, which is too uncertain or diffuse to be readily discernable at the time each individual change is

priced. n195 According to this principle, cumulative impact results from changes that have had such an

impact on a contractor's performance that there is a separately compensable claim that does [*79] not

include the direct costs of the change orders to the contract. n196 It is not necessary for a claiming

contractor to trace its costs to specific causes of increased performance. The claimant can show that the

cumulative impact costs arose from changes which, when viewed in retrospect, were so many and had such

effect on performance that there arises a separately compensable impact claim. n197 The Armed Services

Board of Contract Appeals in Godwin Equip., Inc., n198 relied on cases allowing Contractors to recover for

breach of contract when the government makes a cardinal change to the contract's scope of work. In Godwin,

the Contractor alleged that the government had significantly delayed the project, i.e., was responsible for a

"cardinal delay," and because of the material breach, the Contractor should not be held to the contract's

limited remedy for delay.

The cumulative impact of many changes to a construction contract are significant if the magnitude of the

changes effected to the contract constitute a cardinal change to the contract and, thus, a breach of the

contract. Simply stated, if a contractor is compelled to build a project, which is substantially different than

the project it was contracted to build, then a cardinal change to the contract has occurred. The implications of

a cardinal change are well known in the construction industry.

As stated, where numerous changes are effected, it is not necessary for a claim to be made under the

contract:

The basic philosophy in determining whether there has been a cardinal change is that a bidder has the right to

rely upon the plans and specifications submitted for bidding purposes, since only through those plans and

specifications can he make an intelligent bid. Hence, if they are substantially altered, the performance

continues under an agreement differing from that originally entered into, and the contractor should receive

additional compensation in the form of the reasonable value of his work. Wunderlich Contracting Corp. v.

United States. Reasonable value is defined as the amount for which the work could be obtained [*80] under

like circumstances. A cardinal change is in reality a breach of contract, because the change is so profound

that it is not redressable under the contract. The contractor is not limited to a suit for extra costs incurred in

performing duties fundamentally outside the scope of the contract, and he can recover anticipatory profits as

well. n199

Essentially, where the scope of work is sufficiently changed from that contracted for, damages can be

sought for breach of contract, in order to put the damaged party in as good a position as it would have been if

there had been no breach. n200 It is, however, always preferable to have a negotiated price before

commencing work. At least, a written order to perform should be obtained.

Recovery may be had for work specifically ordered which is not within the scope of the contract, i.e.,

which constitutes a cardinal change. The degree of change permissible within the contract is determined by

considering the magnitude and quality as well as the quantity of the changes; therefore, even a single change

can be a breach. n201 As Judge Acosta held in Paul N. Howard v. P.R.A.S.A.:

As an exception to the above-stated general rule, where the change is made necessary by defective plans and

specifications, the party ordering the change must pay the entire resulting damage without any reduction for

time to make changes as will be the case if the redesign were made necessary by a changed condition or the

like. n202

In fact, a forced change in the sequence of the contractor's work or the owner's failure to follow that

sequence is a breach of the contract. n203 Generally, the rule is that where the contract contains [*81]

provisions permitting the owner to make unilateral changes, there is no breach when a reasonable change is

made. It is well established, however, that a change incorporating extensive redesign resulting from defective

specifications is beyond the scope of the contract and, therefore, constitutes a cardinal change. n204

The general rules can be broken because an owner makes excessive changes, makes them at inopportune

times so as to repeatedly disrupt and interfere with a contractor's schedule for the work, delays inordinately

in approving change orders and, in the aggregate, effects a cardinal change to the contract. In fact, with

respect to delays in making changes, an exception to the Rice rule n205 is found in those cases where an

owner has delayed unreasonably in ordering changes. This result is reached by holding that the contract,

while providing the owner with room to maneuver, or more specifically, for an insulation from liability for

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delays occasioned by changes authorized in the contract, does not also contemplate that there will be an

unreasonable delay in ordering changes. n206

C. Pricing

The pricing of changes will either be on the basis of a contract provision, on the basis of an equitable

adjustment (in government contracts), or quantum meruit (what it's worth) in private contracting. In

government contracting, the FARs will govern. Pricing will be based on a unit cost or force account basis,

unless a change order can be negotiated. n207 Essentially, an equitable adjustment entitles a contractor to

"the difference between what it would have reasonably cost to perform the work as originally required [*82]

and what it reasonably cost to perform the work as changed." n208

Where numerous changes are effected, it is not necessary for a claim to be made under the contract.

Essentially, where the scope of work is sufficiently changed from that contracted for (see discussion of

cardinal change ante), damages can be sought for breach of contract, to put the damaged party in as good a

position as it would have been if had there been no breach. n209 However, it is always preferable to have a

negotiated price before commencing work; at least, a written order to perform should be obtained. With

respect to the damages recoverable by a contractor in general, see Section IV.B.3 below.

D. Written Change Orders, Exceptions, and Reservations of Rights

A prudent contractor will scour its contract for all time/notice provisions, summarize them on a page or

two, and post the summaries at the project site. Failure to do so can be fatal.

An owner, contractor or subcontractor may lose its right to claim (waiver) by failing to comply with the

applicable notice requirements contained in a contract. While on the one hand, courts have expanded a

contractor's right to recover damages for delay, on the other hand, claims have been rejected for failure to

give adequate notice. The theory behind strict adherence to notice requirements is simple. If a party is aware

that another party will be seeking money as well as time for a delay, it may be compelled to act more

expeditiously in resolving the problems causing the delay, thereby mitigating any damages for which it might

be liable.

Contractors often attempt to negotiate time extensions without discussing the impact costs they later seek

to recover. This is risky. If the contractor signs a change order extending the contract time without including

therein the costs associated with any delay it believes to be compensable, various consequences may flow

from such execution. First, if the change order included language indicating that it includes all costs

associated with the work required by the change, a contractor will generally be [*83] deemed to have

waived any right to seek damages for delay. Vanlar Construction v. County of Los Angeles, 217 Cal. Rptr. 53

(Cal. App. 1985) (withdrawn from publication). n210 If nothing is said in a change order regarding damages

for delay, whether claim rights have been preserved or waived will generally be a fact question. NRM

Corporation v. Hercules, Inc., 758 F.2d 676 (D.C. Cir. 1985). n211 Finally, if the contractor includes on the

face of the change order a reservation of its rights to claim delay damages at a later date "at such time as the

impact and other indirect costs of the delay caused by the change(s) can be fully and accurately determined

...[,]" such rights can generally be preserved. E.F. Matelich Constr. Co. v. Goodfellow Brothers, Inc., 702

P.2d 967 (Mont. 1985). n212

There are various ways by which a contractor can seek to protect its claim. The safest way is to give

timely notice. Otherwise, as happened to the contractor in Galin Corp. v. MCI Telecommunications Corp., 12

F.3d 465 (5th Cir. 1994). n213 any claim may be barred. A general discussion of claim preservation is

contained in Mega Corp. v. U.S. (final payment bars claims). Mega Construction Corp. v. U.S., 29 Fed.Cl.

396 (1993). See also Coastal Industries, Inc. v. United States, 32 Fed.Cl. 368 (1994) (contractor voluntarily

executed waiver and release; judgment for government); Vulcan Painters, Inc. v. MCI Constructors, Inc., 41

F.3d 1457 (11th Cir. 1995) (subcontractor's execution of release barred claim on change order).n214 A

demand for monetary relief can be a claim under the Contracts Disputes Act of 1978. n215

Regarding change order proposals that are silent about extended overhead the Federal Claims Court

recently held: "Accordingly, unless the parties explicitly agreed otherwise, [the Contractor] is not entitled to

recover its costs arising from [any] delay." See Linda Newman Const. Co. v. United States, 48 Fed.Cl. 231,

233 (2000) (citing ITT Fed. Servs. Corp. v. Widnall, 132 F.3d 1448, 1451 (Fed. Cir. 1997), and Dalton v.

Cessna Aircraft Co., 98 F.3d 1298, 1304 (Fed. Cir. 1996)). n216

Finally, it is worthy of note that the United States. Court of Federal Claims may award the government

even greater damages than it seeks. n217

[*84] IV. TIME

A. Project Scheduling

No more acutely than in the construction industry is there truth to the homily that time is money. Proper

scheduling of a construction project is critical to any project's success. Equipment rental costs, labor costs,

overhead costs in estimating, and many other factors depend of accurate scheduling. Delays and other cost-

sensitive occurrences during construction projects are usually costly to all of the parties concerned. Delay

claims are the principal area of construction disputes, and such claims are generally made by contractors,

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inasmuch as an owner's recovery is generally limited to liquidated damages. The analysis in evaluating the

nature of any given delay is the same, whether applicable to an owner, contractor or subcontractor.

Projects can be scheduled in a variety of ways, but the Critical Path Method (CPM) schedule is the only

truly sound method for complex projects in this computerized age. The use of Bar Charts (also known as

Gantt charts) on any but the most elementary construction project is akin to the use of quill pens in lieu of

computers. Moreover, in a litigation or arbitration setting, bar charts are of little utility in establishing

causation for delay claims, since they do not and cannot adequately or accurately depict the interrelationship

between and among the different activities and phases of construction. Because of that, a CPM is needed.

n218 Proper use of a CPM is required, however, in order to support a delay claim. n219

1. The New Construction Order: Francisco Levy v. Autoridad de Edificios Publicos.

The law of delay damages was, as evidenced by the extensive opinion in Caribe Constructors, n220

determined principally by looking [*85] at the jurisprudence from mainland courts, principally the U.S.

Court of Federal Claims. Thereby, a significant measure of predictability was brought into the construction

process in Puerto Rico. That measure of predictability--fundamental to the survival of intelligent bidding by

contractors, as strongly endorsed by the United States Supreme Court in Spearin n221 --went out the

window with the decision of the Supreme Court of Puerto Rico in Francisco Levy v. Autoridad de Edificios

Publicos. n222

Levy was a case which arose from two 1972 contracts between Francisco Levy, Hijo, Inc., a general

contractor, and the Public Buildings Authority (hereafter A.E.P. for its Spanish acronym) for the construction

of regional hospitals in Humacao and Arecibo (Levy Contracts). The disputes involving alleged damages for

delays to the projects by Levy were consolidated.

The Levy Contracts contained clauses allowing for changes thereto by means of change orders and

provided for extensions of the time in which to perform the work under the contracts. The Supreme Court, in

an opinion by Associate Justice Antonio Negron Garcia, found that Levy's agreement to perform work

pursuant to change orders did not imply a waiver of its right to additional compensation therein which was

just and reasonable. n223

As a result of the change orders to the Levy Contracts and other delays to and disruptions of the work

thereunder, the completion dates of the projects were delayed significantly; in Humacao by some six hundred

and thirty (630) days, and in Arecibo by some seven hundred and sixty-nine (769) days. Levy's claim for

additional compensation occasioned by the delays was rejected by the A.E.P., and Levy sued. n224

In the Levy Superior Court proceedings, Judge Guillermo Arbona Lago took judicial notice that in Puerto

Rico, the time allowed for the completion of a construction project is normally extended in order to correct

unforeseen circumstances in both the project and the plans therefore. Thus, the Superior Court held that due

to the magnitude and complexity of the projects constructed [*86] pursuant to the Levy Contracts, "[levy]

en su cotizacion debio haber calculado una extension de tiempo de 25% por concepto de cambios aditivos y

20% por ordenes de paralizacion...". ["[levy], in its quotation, should have calculated an extension of time of

25% by reason of additive changes, and 20% for stop orders...."] n225

Thus, the same Superior Court, as in Caribe Constructors v. Municipio, created an apparent new

principle of construction law in Puerto Rico: (a) that a contractor should consider at the time it bids on a

complex project the experience of the contracting authority in similar projects, (b) the government is bound

to revise the scope of the contract extending the contract time by at least twenty-five percent (25%) due to its

obviously anticipated need to revise the scope of the project by at least that amount, and (c) the government

is bound to stop the project at various intervals, and thereby extend the contract time, due to errors in the

plans and specifications or other unforeseen circumstances. The Levy decision, however, was based on

uncontroverted expert testimony offered by the A.E.P. at trial which demonstrated the magnitude of the

delays customarily suffered on similar A.E.P. projects as a result of both defects in the specifications and

changes ordered by the A.E.P. n226 Thus, the use of experts is strongly recommended.

The Superior Court's decision in Levy might have been anticipated by the same court's reduction of the

delay damages awarded in Caribe Constructors by twenty percent (20%) for similar reasons (that the

decision was appealed, and the appeal accepted by the Supreme Court, but the case settled without any

decision by the Supreme Court), but no one could have predicted the Supreme Court's astonishing decision

confirming the Superior Court opinion. n227 Worthy of note is the Supreme Court's use of the phrase, taken

out of context, from the work by Bramble and Callahan, which expresses that "without encouraging

cynicism, the parties should anticipate (not expect) delays and provide [*87] for them in the contract."

n228 The quote is found under the section titled "Addressing Impacts in Contract: § 2.1 Introduction" and

refers to the effective use by owner and contractor of contract clauses which will assign the risk inherent in

the construction industry in an equitable manner and thus prevent or help resolve possible conflicts. n229

Thus, the bedrock principles enunciated by the Supreme Court of the United States in United States v.

Spearin--followed by virtually every federal and state court in the United States--were substantially modified

in Puerto Rico, and with them, the ability of construction contractors in Puerto Rico to bid projects

intelligently was significantly hampered. Essentially, the Levy decision seems to either require that

contractors arbitrarily increase their mobilization or overhead estimates in bids by approximately forty-five

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percent (45%) in order to take account of the government's anticipated errors, omissions, indecision,

negligence, and other forms of poor performance in the design and administration of construction contracts

which cause delays to a project, or ask lots of questions at pre-bid meetings in order to lock in the

Government's estimations of delays on like projects in the past.

The Puerto Rico Supreme Court stated that:

Reafirmamos los pronunciamientos de Unisys v. Ramallo, 91 JTS 69, res. en 28 de junio de 1991, a los

efectos de que determinar la intencion de las partes exige tomar en consideracion, no solo los contratos, sino

tambien la practica de mercadeo en la industria, los actos de los contratantes anteriores, coetaneos y

posteriores y quienes son las partes, haciendo particular hincapie en el conocimiento especializado que todos

o algunos de ellos pudieran tener sobre la materia objeto del contrato. n230

The Supreme Court concluded in Levy v. AEP that: "Neither the trial court, nor we, presume to establish

a general rule." n231 A contractor must establish in its claims, therefore, that there is [*88] nothing to

indicate that it could in any way have foreseen the inadequate nature of the plans and specifications for its

project; nor could it have anticipated the tremendous volume of change orders ultimately required by the

owner, or the persistently dilatory conduct of the owner and its representatives. n232

One thing which emerges from the Supreme Court's decision in Levy gives a contractor some leeway,

even though a contractor "debe prever los atrasos". n233 The decision in both the Superior Court and the

Supreme Court rested heavily on the comparative testimony of the parties' delay experts. The testimony of

the A.E.P.'s expert was extensive and detailed, demonstrating that the typical A.E.P. hospital construction

project suffered the delays allowed by the courts; thus, those delays should have been anticipated by Levy.

n234 On the contrary, Levy's expert's testimony was glib, explaining that the foreseeable extension of a

construction contract should be a maximum of five percent (5%). His testimony was a result of his general

experience. On the contrary, the A.E.P.'s expert's testimony was based on a study of similar projects by the

A.E.P. Thus, in the battle of the experts, the A.E.P. won handily. The Court decidedly expressed that

"estamos persuadidos de la validez de los estudios especificos del Ing. Davila Siaca". n235

Notwithstanding the Supreme Court's disclaimer that "ni el tribunal de instancia, como tampoco

nosotros, pretendemos establecer una regla general," n236 the lesson is clear: Know your government owner

and, especially, if you are a contractor, know your own delay experience with it. Then, calculate the

foreseeable delays into your overhead costs before bidding. Thus, a contractor's experience with the

incompetence/negligence of the government must be taken into account in its bid if those costs are to be

recovered. The authors strongly recommend extensive questioning of government officials at pre-bid meeting

regarding the delay experience on other contracts. Hence, some calculations can be [*89] intelligently made

and incorporated into a bid. Otherwise, expect the first forty-five percent (45%) of the delay in a construction

project to be uncompensated! Amusingly, albeit a bit late, the Supreme Court in Levy cited approvingly the

case of United States v. William F. Klingensmith Inc., n237 mentioned below, which is a primer on

construction delays.

In the next pages, we will discuss the normal law relating to delays, which can still be applied with

confidence in Puerto Rico only in connection with contracts with the federal government.

B. Types of Delay in a Construction Project

1. Contractor Caused Delay: Liquidated Damages

An owner of a construction project is generally protected against delays by the contractor in completing

the project by a liquidated damages clause which, stipulates the daily damages that the owner will suffer if

the completion of the project is delayed by causes within the contractor's control. Generally, when a

contractor is late, liquidated damages will accrue until the contractor has achieved the substantial completion

of the project.

The date of substantial completion of a construction project is "the date certified by the architect when

the work or a designated portion thereof is sufficiently complete, in accordance with the contract documents,

so that the owner may occupy the work or designated portion thereof for the use for which it is intended."

n238 The determination of substantial completion is customarily made by the project architect, generally an

"independent" expert retained by the owner of the project. The AIA General Conditions define Substantial

Completion in Article 9.8.1:

[*90] "Substantial Completion is the stage in the progress of the Work when the Work or designated

portion thereof is sufficiently complete in accordance with the Contract Documents so the Owner can occupy

the Work for its intended use." n239

In the recent case of Constructora Bauza, Inc. v. Garcia-Lopez, n240 however, the Puerto Rico Supreme

Court refined the definition of substantial completion in Puerto Rico. The Court held that the value of the

work completed on a project, compared with the total cost of the project, is one of the factors to be

considered in determining whether a project has been substantially completed, stating that "we have no

doubt" that when a project has been certified by a contractor, inspected by an expert, and paid by an owner in

an amount in excess of ninety percent (90%) of the overall price of the project, it is, "for all practical

purposes," substantially complete. n241

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In the very recent case of Master Concrete Corp. v. Fraya, S.E.; Comp. de Fomento Recreativo, n242

the Supreme Court of Puerto Rico added further clarification to the timing and significance of the

achievement of substantial completion. Without mentioning its decision in Constructora Bauza, the Supreme

Court held that substantial completion--which carries with it significant consequences for the parties--occurs

when the necessary and essential elements of the project have been performed so that the project can be used

for its intended use, in such a way as there is a good approximation of final completion. n243

Not for all delays in achieving substantial completion of a project, however, is a contractor obliged to

respond by paying liquidated damages. Moreover, an owner may, in certain circumstances, be awarded

actual, rather than liquidated, damages. n244 This is particularly true where a contract does not contain a

liquidated damages provision. n245

[*91] There are various kinds of delay that can be attributed to a party other than the contractor. The

following section will discuss some of the so-called Non-Contractor caused delays.

2. Non-Contractor Caused Delay: Delay Damages

a. Excusable Delay n246

An excusable delay is a delay for which a contractor has no responsibility and for which it is entitled to

an extension of the substantial completion date. Such grounds include causes of delay within the exclusive

control of the owner (compensable delay) and causes of delay outside the control of either the contractor or

the owner (non-compensable delay), such as acts of God, strikes, unusually severe weather, and the like.

n247

A request for time extensions or compensation for rain delays would be based under Article 1058 of the

Puerto Rico Civil Code n248 as unforeseeable or caso fortuito. A contractor is not released from its

obligation to complete a project in a timely manner unless its obligation to perform is impeded, not by mere

difficulty, but by impossibility, according to the Supreme Court of Puerto Rico in P.R. American Insurance

Co. v. Duran Manzanal, n249 and Rivera v. Caribbean Homes. n250 Rain in the area of a project is

foreseeable, although inevitable. While it may create difficulties for a contractor, it does not make it

impossible for it to comply with its obligations.

"Weather conditions generally are considered to be acts of God. Neither party is obligated to the other

for additional costs or [*92] price increases resulting solely from acts of God." n251 "Consequently,

additional costs or losses resulting solely from unanticipated weather conditions are typically not

recoverable. ... [A] contract may contemplate adjustments for extreme and unusual weather entitling the

contractor to compensation." n252

b. Compensable Delay

A compensable delay occurs when a contractor is delayed by the acts of the owner or its agents or

representatives. In such cases, a contractor (or subcontractor if the responsibility for the delay rests with the

contractor) is entitled not only to Time, i.e., an extension of the substantial completion date, but also to

Money, i.e., damages for the delay. n253 Compensable delays, including apportionable delays, discussed

below, must be on the critical path of the project. n254

3. Delay Damages Recoverable by a Contractor

When a contractor is damaged by such acts of an owner as breach of contract, breach of warranty, and

interference and delay, the contractor is entitled to seek compensation "in an amount equal to the reasonable

value of services and materials, including overhead and profit, for which they could be obtained under like

circumstances." n255

An owner is liable for a variety of damages for delay, including, but not limited to, the following:

[*93] a. Overhead

i. Extended Project (Field) Overhead

This includes the costs associated with operating at the project site during the delay period, a direct cost

of the work. n256

Jobsite or Field Overhead consists of costs incurred on a particular project, which cannot be reasonably

allocated to any direct item of work. Typical costs included are project supervisory and clerical salaries,

office equipment and supplies, utilities, telephone costs, postage and the like, as well as sanitation facilities,

transportation, rental and maintenance of automobiles and pickup trucks and incidental jobsite personnel

costs. n257

When performance on a project is delayed, a contractor often continues to incur expense at the jobsite

even in the absence of productive work. Bills for such items as supervision, office space, storage, utilities,

telephone service and insurance continue to accrue. All these costs are time related and are recoverable.

n258

ii. Extended Home Office Overhead

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This includes the costs associated with the operation of the Contractor's home office, as further explained

below. In the original contract, this cost is usually figured into the Mobilization and/or General Conditions

line item. n259

The Eichleay n260 formula for calculating home office overhead was given permanent validity by the

Federal Circuit in its decision [*94] in Capitol Electric. n261 The formula is based upon an assumption that

home office overhead can be broken down into a daily rate, and once affixed at a daily rate, can be extended

over the additional days taken to perform a contract. Therefore, the formula takes the total bid amount under

a contract and divides it by all the billings of the contractor during the same time period as the original

contract was to be performed. The product of this fraction is then multiplied by the entire home office

expenses incurred by the Contractor during the same period, in order to obtain the total home office overhead

devoted to the contract. That number is then divided by the number of days in the original contract in order to

obtain the daily overhead rate, and then multiplied by the number of days of delay to establish total home

office overhead costs incurred as a result of the delay. n262 The Eichleay Formula is now on a roll. n263

The Federal Circuit plainly held that the Eichleay Formula is the exclusive method for calculating

unabsorbed overhead on federal construction projects. But the proper relationship of the factual situation to

the Eichleay Formula's applicability must still be shown. n264

[*95] To recover unabsorbed overhead, a contractor must show that it was on standby, required to

resume work at a moment's notice, and thus was unable to take on other work. n265 A Contractor is on

standby only when work is suspended for a period of uncertain duration and the contractor can at any time be

required to return to work. n266

iii. The Difference between Overhead and Extended Overhead

Perhaps one of the most difficult concepts in delay damages for owners of construction project -and by

derivation, their representatives- to comprehend is the difference between overhead, on the one hand, and on

the other, the extended overhead incurred by a contractor when a delay in a project occurs. In change orders

to a contract, a contractor always includes overhead and profit as part of its price. Some change orders

involve extensions of the contract time. Hence, when a contractor claims extended overhead, it is a

customary reflex for an owner to point to the overhead markup in the various change orders which may have

extended the contract time, and deny the contractor's claim. That is precisely what occurs with claims for the

extended overhead costs incurred during a project. Owners often reflexively deny such claims, alleging that

the contractor was already paid overhead on its change orders. Such an analysis is contrary to the applicable

law.

It is well established that when the performance of a construction project is extended beyond the time

originally agreed for its execution, by reason of delays due to the action or inaction of the project owner, the

costs incurred by the contractor after the original date set for the completion of the project are not included as

part of the risks assumed by the contractor. Accordingly, the [*96] contractor has the right to be

compensated for all damages and increased costs incurred. n267

A contractor's extended overhead claim is a cumulative impact claim, as discussed above. Such

separately compensable impact claim does not include the direct costs of changes and need not be traced to

specific causes of increased performance costs. But, it can arise from changes which, when viewed

retrospectively, were so many and had such effect on performance, that there is a separately compensable

impact claim. n268

b. Loss of productivity (inefficiency)

Inefficiencies result from the start-stop nature of a project that is disrupted. Reprocurement and

subsequent additional coordination are a common result of changes in site conditions or in the work

generally, whether by intended change order or otherwise. Conditions on a job often become confused. New

labor is often required on a troubled project, which requires the new components to develop an understanding

of the project prior to achieving the ability to work at peak efficiency. This type of learning curve normally

involves an initial period of total inefficiency, gradually moving towards higher and higher efficiencies, until

peak production is reached. Coordination among new employees and subcontractors--particularly under new

contract conditions and specifications--is time consuming and, if not anticipated in the proposal of the

contractor, inefficient. See S. Leo Harmony v. Binks Manufacturing Co., 597 F. Supp. 1014 (S.D.N.Y.

1984); Ranier Company, ASBCA 3565, 59-2 BCA P2413 (1959).

Rates of inefficiencies of labor will vary from day to day and circumstance to circumstance. For

example, when employees first come onto a job, there will be virtually no productive effort expended, as the

employees will simply be sorting tools, finding routes of ingress and egress to the job site, establishing

materials stockpiles, and the like. Their work is, therefore, one hundred percent inefficient. There are other

times when the employees will be perhaps one-third inefficient by virtue of the fact that they are working

overtime. In such a case, the Contractor will pay an additional fifty percent in wages for the same

productivity that would normally be achieved during the regular eight-hour workday. In other cases, labor

could be twenty-five to fifty percent inefficient, depending upon the degree and amount of coordination of

work with other trades, subcontractors, or other factors on the job site. Moreover, on any kind of impacted

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job, the employees realize the overall problems, and morale declines accordingly. Employees do not work as

efficiently if they cannot understand their goals, or believe that the work they have accomplished will go for

nothing because of additional changed conditions.

When a construction job starts presenting major problems, it is normal for the foremen and supervisors to

devote more resources to finding solutions and to getting the work finished and moving forward to more

productive items. When this happens, additional men, machines, and time naturally cause great areas of

inefficiency. This is true even though the men and machines are devoted one hundred percent to the

inefficient item of work, and are realistically doing all that they can do to achieve the result required by the

particular item.

The best way to measure inefficiency on a job is to segregate two periods, one efficient and the other

inefficient, and compare them to one another.

c. Cost of Idle Labor and Equipment

These damages include depreciation, interest on investment in the equipment, taxes and insurance

thereon, and storage and handling thereof. n270 The average Contractor cannot react immediately to

stoppage of work and move his project labor and equipment to another jobsite, if one is available. Another

twist to this issue comes with the contract between contractor and the unions. Both the labor and heavy

equipment operator unions [*98] have standard agreements whereby the employees are compensated an

established number of hours for idle time as a result of work stoppage.

d. The Right to Finish Early

Even when a project schedule provides longer than a contractor requires, there is nothing preventing the

contractor from completing the project early. This is called the right to finish early. Under certain

circumstances, a Contractor can recover expenses incurred due to the prolongation of the work as a result of

government caused delays. The right to such damages can "only be established if such a Contractor shows

that from the outset of the contract it: (1) intended to complete the contract early; (2) had the capability to do

so; and (3) actually would have completed early, but for the government's actions." n271

e. Concurrent Delays

A concurrent delay occurs when both the owner and contractor (or contractor and subcontractor) are

partially responsible for a delay. In such cases, courts and arbitrators seek, if possible, to determine whether

the delay is concurrent (overlapping) or sequential. If a delay is concurrent, neither party has a right to

recover damages. The contractor is entitled only to a time extension. If it is possible to make a determination

that the delays were sequential, the court or arbitration panel may apportion damages. n272 If the causes of

delay are concurrent, the contractor who wishes to recover must show that its delays can be separated from

those caused by the government. n273

[*99] f. Acceleration

When it becomes necessary for a contractor to perform its work on a project more rapidly than is

required by its contract, there is an acceleration of the work. When there is excusable, compensable delay

and a contractor is ordered to accelerate, it is entitled to the costs incurred as a result of its acceleration. n274

Constructive acceleration occurs when the contractor's completion date is not extended sufficiently to

compensate for excusable delays, and the contractor incurs in extra costs. n275

In Norair, the constructive acceleration found by the court related to the contractor's completion of a

building when the owner applied pressure to open the building as quickly as possible. The court found:

The pressure applied, even if it were implicit [(which it was not)] is particularly strong where liquidated

damages hover in the background. Where the Government refuses [for whatever reason] to tell the contractor

until the end of the project just what delay is excusable and what is not, the contractor is under considerable

additional pressure to accede to a request because it does not know whether it will be found liable for

liquidated damages. n276

In order to recover acceleration damages, a contractor must prove: (1) that the delays it encountered were

excusable and entitled it to a time extension; (2) that a time extension was requested by the contractor; (3)

that the requested extension was denied by the owner; (4) that the contractor was ordered to accelerate its

performance or complete it by the substantial completion date, including time extensions which should have

been granted; (5) that the contractor actually accelerated its performance and incurred additional costs in

doing so; and (6) that notice [*100] of the contractor's claim for acceleration damages was properly given.

n277 Courts will deny contractors' acceleration claims where the contractor fails in its burdens of proving the

foregoing elements. An extension of time, however, is a condition precedent to a contractor's waiver of delay

damages pursuant to a No Damages for Delay clause, so if there is no time extension, delay damages may be

recovered. n278

Whenever a Contractor believes it is being ordered to accelerate its performance, whether explicitly or

impliedly, it should confirm in writing to the owner that it will be accelerating its performance and expects to

be compensated accordingly.

g. Interference and the Total Cost Approach

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When an Owner is responsible for interference and delay suffered by a Contractor, and the delays,

disruptions, changes, etc., are intertwined with regularly scheduled job performance and complex, there is no

practical way of separating them for individual pricing. In such a case, all claims can be made on a Total

Cost basis. n279

The Total Cost approach will succeed if the Contractor can present evidence to the effect that the nature

of the particular costs make it impossible or highly impracticable to determine them with a reasonable degree

of accuracy, the estimate submitted is realistic, the costs presented are reasonable, and that the contractor

[*101] was not responsible for the added expenses. Abundant case law supports this. n280

The Puerto Rico damages tradition arises from Articles 1059 and 1060 of the Civil Code. n281 The

corresponding interpretations by the Puerto Rico Supreme Court are numerous given the general tone of the

law.

V. CONTRACT TERMINATION

In RBR Construction, S.E. v. Autoridad de Carreteras y Transportacion de P.R., n282 the Supreme

Court of Puerto Rico allowed damages for a Contractor where the Government of Puerto Rico terminated a

contract for its own convenience, but justification for the convenience was determined to have been made in

bad faith.

A. Termination for Default

1. Defining Default; Default by Contractor

It is a general provision of construction contracts that certain defined events constitute default under the

contract, among them: (1) failure to prosecute the work in a workmanlike and/or diligent manner; (2)

unexcused delays in performing the work; (3) persistent failure to pay subcontractors, suppliers, and workers

in a timely manner; (4) performing and failing to correct defective work; and (5) failure to complete the

project in a timely manner. Customarily, a contractor and owner rarely agree on whether or not a default has

occurred. Mega Construction Co. v. United States, n283 is as comprehensive an analysis of termination as

one will find, and is must reading when facing a termination situation.

[*102] Contractors often challenge default terminations. In Saxon Const. & Mgmt. Corp. v. Masterclean

of N.C., Inc., n284 the court voided a default termination where the default allowed a defaulted

subcontractor to recover money due the defaulted contractor, since allowing such a recovery to a wrongdoer

would have rewarded it in violation of public policy.

2. Default by the Owner

It is a general premise that "a contractor's default may be excused if the causes of the default were

beyond the contractor's control." n285

As heretofore discussed, an Owner may breach a contract in many ways, the most material of which may

constitute a default entitling the Contractor to suspend its performance. Among those are requiring excessive

change orders, failing to make timely progress payments, making a cardinal change in the contract, failing to

give direction, creating a situation which makes the contractor's performance either impossible or

commercially impracticable, insisting on strict compliance with contract documents in the face of economic

waste, hyper technical inspection, fraud or duress, etc.

It is a fundamental principle of construction contract law that a failure to make a progress payment will

justify abandonment of a construction contract by the Contractor. n286 Contractors often adjudge an Owner

in default when it fails to make payment, justifying abandonment of the project.

A Contractor's surety may also be discharged upon the occurrence of certain conduct by an

owner/obligee. n287 Again, chief [*103] among those is an owner/obligee's failure to abide by the payment

terms of a construction contract. In Fireman's Fund Ins. Co. v. United States, n288 the Claims Court defined

the prejudice that must normally be incurred by a surety before it will be discharged as a material increase in

the surety's risk. Puerto Rico law calls this the "disappearance of the guarantee." n289

3. Notice of Default

Most default clauses require notice to the party being terminated in order to permit it to cure any

deficiencies in performance. n290 When proper notice is not given, a court may determine that termination

was not justified, n291 or that the right to terminate was waived, for example, for not being exercised in a

timely manner. n292 Actually, even when a contract contains no express language regarding the right to cure

a default, an Owner may have an implied duty to give a Contractor adequate notice and an opportunity to

cure defects in its performance prior to terminating it. n293

4. Surety's Obligation upon Default

A performance bond does not give rise to any obligations of the surety unless the Contractor is, and has

been declared by the Owner, to be in default, under the contract.

A surety may be released from its obligations under a performance bond if either the bond itself or the

construction contract [*104] contains a provision requiring notice to the surety of the Contractor's default

and such notice is not given. n294

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The Supreme Court of Puerto Rico decided in Caribe Lumber v. Inter-Am. Builders, n295 that proof of

prejudice to the surety was not required, but that notice was a condition precedent to recovery.

Owners must be careful that failure to give proper notice of default does not render any such declaration

invalid. More importantly, Owners must be careful that lack of notice of default does not release a surety

from its obligations under a performance bond. The logic behind the notice requirement is clear: It will give

the surety some time to effect the assumption of the work and in general, assuming the surety is able to take

assignment of all of the existing subcontracts, this option will likely permit the surety to complete the work

more quickly than the owner could be reprocuring the work. n296

5. Termination for Convenience

In Puerto Rico, an Owner may terminate the construction contract for convenience under the provisions

of Article 1486 of the Civil Code. n297 This article provides that: "The owner may desist, by his own will,

from the construction of the work, even when it has been begun, indemnifying the contractor for all the

expenses, labor, and profits which he may have obtained from the same." The obligated question is: What

profits? Does that include the profits that the contractor would have earned on the unexecuted portions of the

terminated work? If so, there is no Puerto Rico jurisprudence saying so. But a claim for lost profits should

clearly be made to a terminating owner. n298

In the federal contracting practice, a wrongful termination for default by the government converts the

termination into a termination [*105] for convenience. n299 Termination for convenience entitles the

terminated Contractor to payment for work to the date of termination and various other costs relating to his

termination of work. The remainder of the terminated project is not included when calculating lost profits.

VI. CONCLUSION AND SUGGESTIONS

The Construction Industry in Puerto Rico has burgeoned in the past decade. Growth has been driven by

the private sector investment in the Island. n300 There promises to be a robust future for the Construction

Industry, despite the present doldrums of new construction in the public sector.

There are numerous ways that a project can go wrong. Mostly, when the parties to a construction

contract disagree over the meaning and intent of their contract. That is when the fireworks begin. That is

when they require a legal framework for their disagreements, and the discussions arising from them. Too

often, those discussions end up in court, or in arbitration. Things can get heated, from the project to the

courtroom. Then the law becomes increasingly relevant.

The law governing the Construction Industry in Puerto Rico, as discussed at length in this article, does

not give much guidance. It is often a pot luck selection, where the parties do not have any idea what the law

will determine until the conclusion of their dispute. The Puerto Rico Supreme Court has adopted some of the

majoritarian views from the courts in the United States, in particular, the federal courts. The federal courts,

and in particular, the Court of Federal Claims, is clearly the most experienced legal system in the world for

the interpretation and adjudication of construction disputes. The vast federal and stateside jurisprudence and

regulatory framework interpreting construction contracts and related matters has brought a certain stability

and predictability to Owners, Contractors, and other participants in the Construction Industry in the United

States mainland. But the limited and often unpredictable guidance afforded by the Puerto Rico Civil Code

and the jurisprudence interpreting it for [*106] the resolution of contemporary disputes in our Construction

Industry leaves us yearning for thoughtful intervention by our Legislature.

Recent efforts to reform the laws and regulations governing public procurement and contract

administration in Puerto Rico--actually, to develop some meaningful laws and regulations--has proved

fruitless. In the face of a plethora of legislative activity, it is alarming that virtually nothing has been done by

our Legislature to improve the clearly inadequate treatment of the construction contract in the Puerto Rico

Civil Code. Modern methods of construction such as the Design-Build project, which basically requires the

use of two contracts in one, are not even mentioned in the Civil Code. There is, as yet, no jurisprudence from

our Supreme Court of much help in dealing with the Government's now often utilized method of negotiated

procurement. The interpretation of the law (or lack of it) customarily employed by government agencies and

instrumentalities (and their lawyers) administering Design-Build projects when a problem is brought to its

attention by a design/builder is simple: "You're the designer; it's your problem." What about when the

contract documents contain a combination of design and performance specifications?

How can we strive for an effective allocation of risks between Owners and Contractors if there is no

support in the law? Where can they find predictors of outcomes? How can they plan effectively for the

ultimate financial implications of their contracts? Without statutory support, too much burden is put on the

shoulders of the professionals--architects, engineers, attorneys, government officials and Contractors--who

are constantly called upon to make the critical (and often expensive) judgment calls. That, in turn, raises the

cost of construction as Contractors employ higher safety factors and increased contingencies, even before the

first stone of a project is laid.

The Minnesota Supreme Court in the case of City of Mounds View v. Warlijarvi, n301 very eloquently

expressed the burden of the decisions laid by legislative and judicial neglect at the feet of our society's

Construction Industry professionals:

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Architects, doctors, engineers, attorneys and others deal in somewhat inexact sciences and are continually

called [*107] upon to exercise their skilled judgment in order to anticipate and provide for random factors

which are incapable of precise measurement.... Because of the inescapable possibility of error which inheres

in these services, the law has traditionally required, not perfect results, but rather the exercise of that skill and

judgment which can be reasonably expected from similarly situated professionals. n302

To the cadre of the professionals in the Construction Industry in Puerto Rico, it is clear that the Industry

demands a strong, understandable, and predictable body of law to guide decision makers. Our Legislature

must involve itself in the revision of the outdated Puerto Rico Civil Code as it pertains to construction

contracts in order to ensure that these professionals are empowered with the tools necessary to exercise their

best professional judgments without having to constantly look over their shoulders at the consequences of the

potential post-hoc misinterpretations and misapplications of their decisions.

The article dealing with vicios del suelo, n303 is a clear example of the need for explicit standards,

given the myriad problems associated with Differing Site Conditions (as explained ante), and the

corresponding controversy over who bears the risk of encountering them. Today, government owners are

often perceived as abusive in their application and interpretation of contract terms. Contractors are often

timid and confused by the terms of their contracts. Hence, care must be exercised by the Legislature so that

the balance is not unduly shifted to the Contractors or design professionals, leaving Owners hesitant to tackle

such highly complex endeavors.

As we have noted throughout this article, there are numerous and various contractual clauses that deal

with the allocation of risk between and among the contracting parties. There is need, though, for further

standardization of the construction contract which will surely result in more cost-effective construction,

minimal contingencies incorporated by bidders and Contractors, [*108] and maximum predictability, and

therefore protection, for all of the parties involved.

These are a number of ways to make the navigation of the waters of our Construction Industry an easier

task, despite such confusing decisions as the Puerto Rico Supreme Court's ruling in Levy. The negative

notions abounding in our jurisdiction need to be dispersed, and a more proactive approach should be taken.

Contractors generally understand that they are compelled to sign adhesion contracts in order to be able to

work, and that anything that goes wrong should be interpreted in their favor. As a result, not much attention

is paid to the contract clauses that serve to allocate the risks among the various contracting parties, often to

the chagrin of the Contractor. Owners and Contractors need to use their experience to be able to come to

terms in an equitable manner. The nature of the business dictates that seldom will a highly complex endeavor

such as a construction project be completed smoothly, with no apparent snags.

Much room exists for sensible legislation. The authors respectfully recommend that the Legislature and

the Governor consider the promulgation of a new Procurement Code, along the lines (or by simply adopting

as many other jurisdictions have done) the Model Procurement Code. A number of judges, professors, public

servants, attorneys, and other professionals around the United States and Puerto Rico have already offered

their assistance to the authors in consummating such a project. The adoption of standard contract clauses and

other regulations following the FARs, in particular its long list of standard Contract Clauses from which

government procurement officials can select and compose their contracts, is also highly recommended. It

would be a waste of resources for our Legislature to try and construct a body of law for the Construction

Industry utilizing outdated Civil Code concepts. The hard work has already been done by others and, as with

much of the governing law adopted in other areas by the Puerto Rico Legislature, can be adapted to suit

Puerto Rico's needs. Another great advantage of enacting such legislation from mainland sources is the vast

body of law that accompanies it. Courts and administrative tribunals have interpreted the FARs for decades,

and their interpretations bring precisely what the Puerto Rico Construction Industry so sincerely yearns for:

predictability.

[*109] It is the Construction Industry's challenge, then, to compel the Legislature to establish new

provisions in our Civil Code which will ensure intelligent bidding and cost-effective construction, and

ultimately result in what every party in the Construction Industry desires: projects which are completed on

time and within budget. Let the leaders in the Industry--the American Institute of Architects (A.I.A.), the

Associated General Contractors (A.G.C.), the National Association of Home Builders, the Colegio de

Ingenieros y Agrimensores of Puerto Rico (C.I.A.P.R.), and the many other professional organizations in the

Construction Industry--lead the way. The legal quagmire surrounding the Construction Industry is in need of

some new navigational rules and regulations, and the time for such advocacy is long overdue.

FOOTNOTES:

n11 § 3471. See Marina Industrial, Inc. v. Brown Bovery Corporation, 114 D.P.R. 64, 72 (1983).

n12 114 D.P.R. 64, 70 (1983). See also Flores v. Flores Toledo, 101 D.P.R. 61, 69 (1973); Merle v. West

Bend Co., 97 D.P.R. 403, 409-10 (1969); Caribbean Insurance Services v. American Bankers Life, 754 F.2d

2, 7 n.6 (1st Cir. 1985); Blinderman Construction Co., Inc. v. United States, 695 F.2d 552 (Fed. Cir. 1982).

- 31 -

n13 Flores Toledo, 101 D.P.R. at 69. ("La ley puede servir, existiendo omisiones o intencion confusa de

los contratantes, de base supletoria para interpretacion de los contratos."). See also Acevedo v. Sucesion

Caballero, 9 D.P.R. 424 (1905).

n14 Ceccanti, Inc. v. United States, 6 Cl. Ct. 526, 528 (1984).

n15 Seville Constr., Inc. v. United States, 35 Fed.Cl. 242 (1996), aff'd. 108 F.3d 1395 (Fed. Cir. 1997)

(alleged conflicts between drawings and specifications were so glaring that they should have been easily

apparent to contractor at time of bid, and contractor's reliance on ambiguity was improper).

n16 Art. 1234 P.R. CIVIL CODE, 31 L.P.R.A. § 3472 (1990). See Marina Industrial v. Brown Bovery

Corporation, 114 D.P.R. 64, 70-71; Rutledge v. Gill, 78 D.P.R. 698, 706 (1955); Parachini v. Vila, 23

D.P.R. 149, 157 (1915). See also Press Machinery Corporation v. Smith R.P.M. Corporation, 727 F.2d 781

(8th Cir. 1984); State of Arizona v. United States, 575 F.2d 855, 863 (Ct.Cl. 1978).

n17 See Hoffman v. Cuadrado, 14 D.P.R. 590, 595 (1908). See also Julius Goldman's Egg City v. United

States, 697 F.2d 1051 (Fed. Cir. 1983), cert. den., 464 U.S. 814 (1984); Blinderman Construction, 695 F.2d

552 (Fed. Cir. 1982).

n18 31 L.P.R.A. § 3478 (1990).

n19 Zequeira v. Corporacion de Renovacion Urbana y Vivienda, 83 D.P.R. 878, 880 (1961).

n20 Id. at 880. See also Cooperativa La Sagrada Familia v. Castillo, 107 D.P.R. 405, 418 (1978);

Ulpiano Casal, Inc. v. Totty Mfg. Corp., 90 D.P.R. 739, 744 (1964) (affirming the decision of the Superior

Court, the Puerto Rico Supreme Court held: "Cuando surge una controversia sobre el significado o alcance

de los terminos de un contrato, el mismo debe ser interpretado mas fuertemente contra la parte que lo

preparo".); Caez v. U.S. Casualty Co., 80 D.P.R. 754, 763 (1958); Torres v. Puerto Rico Racing

Corporation, 40 D.P.R. 441, 444 (1930). See also LFC Lessors v. Pacific Sewer Maintenance Corp., 739

F.2d 4 (1st Cir. 1984); Tibshraeny Brothers Construction, Inc. v. United States, 6 Cl.Ct. 463 (1984); Paul N.

Howard Company v. Puerto Rico Aqueduct and Sewer Authority (PRASA), No. 80-0743(RA), slip. op. (D.

P.R. 1983), aff'd, 744 F.2d 880 (1st Cir. 1984), cert. den., 409 U.S. 1191 (1985); In re N-5000L Cases, 517

F. Supp. 816, 820 (D. P.R. 1981).

n21 444 F.2d 547 (Ct.Cl. 1971).

n22 Id. at 551.

n23 Id. (citations omitted).

n24 Id. (extensive citations omitted).

n25 427 F.2d 1187 (Ct.Cl. 1970).

n26 Id. at 1193 (citations omitted).

n27 Id. (emphasis added). See also Morrison-Knudsen Co. v. United States, 427 F.2d 1181 (Ct.Cl. 1970),

and the cases cited therein.

n28 Morrison-Knudsen Co., 427 F.2d at 1193. See also WPC Enterprises, Inc. v. United States, 323 F.2d

874, 876-80 (Ct.Cl. 1963).

n29 Morrison-Knudsen Co., 427 F.2d at 1193; But see Strum v. United States, 421 F.2d 723, 727 (Ct.Cl.

1970).

n30 461 F.2d 1330 (Ct.Cl. 1972).

n31 Id. at 1336 (emphasis added) (citations omitted).

n32 Id. For a couple of good cases discussing contract interpretation principles see A.S. McGaughan v.

Barram, 113 F.3d 1256 (Fed. Cir. 1997), and Inslaw, Inc. v. United States, 35 Fed.Cl. 295 (1996). (Clearly,

therefore, if a contractor's interpretation of a contract is reasonable, it will prevail.); Ceccanti, Inc. v. United

States, 6 Cl.Ct. 526 (1984). (The contractor's interpretation need not be the only reasonable interpretation.); A

& K Plumbing & Mechanical, Inc. v. United States, 1 Cl.Ct. 716 (1983). (The general rule is that: "Where the

government draws specifications which are susceptible of a certain construction and the contractor actually

and reasonably so construes them, justice and equity require that that construction be adopted."); Gorn v.

United States, 424 F.2d 588 (Ct.Cl. 1970).

n33 O.M. BEZZI, EL CONTRATO DE OBRA PUBLICA 192-93 (2d ed.).

n34 2 ALBERTO G. SPOTA, TRATADO DE LOCACION DE OBRA 527 (3rd ed. 1976).

n35 3 JOSE CASTAN TOBENAS, DERECHO CIVIL ESPANOL COMUN Y FORAL, DERECHO DE

OBLIGACIONES 581 (ed. 1983) (emphasis added).

n36 BRUTAU, supra note 6.

n37 The elements and consequences of a breach of contract are succinctly discussed in Joseph T. Casey,

Jr., Breach of Contract: Elements & Consequences, CONSTRUCTION BRIEFINGS No. 89-10 (Fed. Pub'ns.

1989).

- 32 -

n38 See, e.g., FEDERAL ACQUISITION REGULATIONS (FARs), in particular FAR 14.406. See

generally McBRIDE & TOUHEY, GOVERNMENT CONTRACTS (hereafter "McBride & Touhey");

Bruner, Mistakes in Bids, CONSTRUCTION BRIEFINGS No. 78-4 (Fed. Pub'ns. 1978).

n39 See, e.g., National Line Co. v. United States, 607 F.2d 978 (Ct.Cl. 1979) (contractor's error

concerning the production capabilities of its own plant, equipment, and personnel was a mistake of judgment

from which no relief was warranted).

n40 See Moffett, Hodgkins & Clarke Co. v. City of Rochester, 178 U.S. 373 (1900).

n41 See, e.g., FARs, in particular FAR 14.406-2.

n42 See, e.g., State v. Hensel Phelps Construction Co., 634 S.W. 2d 168 (Mo. 1982) (failure to anticipate

unusual labor condition); Balaban-Gordon Co., Inc. v. Brighton Sewer District No. 2, 41 A.D. 2d 246, 342

N.Y.S.2d 435 (S.Ct. N.Y. 1973); School District of Scottsbluff v. Olson Construction Co., 45 N.W. 2d 164

(1950).

n43 342 N.Y.S.2d 435, 441 (S. Ct. N.Y. 1973).

n44 See Reiman Corp. v. City of Cheyenne, 838 P.2d 1182 (Wyo. 1992).

n45 See Timber Investors, Inc. v. United States, 587 F.2d 472 (Ct.Cl. 1978).

n46 See Tony Downs Food Co. v. United States, 530 F.2d 367 (Ct.Cl. 1976).

n47 See 2 A.L.R.4TH 991 (1980) at § 3; Bruner, supra note 38.

n48 364 U.S. 520 (1961).

n49 Id. at 565.

n50 M. Steinthal & Co. v. Seamans, 455 F.2d 1289 (D.C. Cir. 1971).

n51 Id. at 1305-06.

n52 See generally 64 AM.JUR.2D, Public Works & Contracts § 83 (1972); 10 McQUILLIN,

MUNICIPAL CORPORATIONS § 29.67 (3d ed. 1966); 2 A.L.R.4TH 991 (1980).

n53 Hanover Area School District v. Sarkisian Brothers, Inc., 514 F. Supp. 697 (M.D. Pa. 1981).

n54 See Bromley Contracting Co., Inc. v. United States, 596 F.2d 448 (Ct.Cl. 1979).

n55 See generally FAR 14.406-4.

n56 See, e.g., School District of Scottsbluff v. Olson Construction Co., 45 N.W. 2d 164 (1950).

n57 See, e.g., State of Connecticut v. F.H. McGraw & Co., 41 F. Supp. 369 (D. Conn. 1941); Kenneth E.

Curran, Inc. v. State, 215 A.2d 702 (1965).

n58 See generally Berger, Mistakes in Bids/Edition II, in GOVERNMENT CONTRACTOR BRIEFING

PAPER NO. 76-5 (Fed. Pub'ns. 1976).

n59 See In re Boston Shipyard Corp., 886 F.2d 451, 457 (1st Cir. 1989); Southeastern Airways Corp. v.

United States, 673 F.2d 368, 377-78 (1982).

n60 See Bradley Const. Inc. v. United States, 30 Fed.Cl. 507 (1994).

n61 Paul N. Howard Company v. PRASA, No. 80-0743(RA), slip. op. (D. P.R. August 23, 1983), aff'd

744 F.2d 880 (1st Cir. 1984), cert. denied, 105 S.Ct. 965 (1985), at 37b; Caribe General Constructors, Inc. v.

Municipio de San Juan, Puerto Rico, Civil No. 84-562 (908) (P.R. Super.Ct., May 2, 1988), cert. den., Num.

RE-88-339 (September 8, 1988); Bagwell Coatings, Inc. v. Middle South Energy, Inc., 797 F.2d 1298 (5th

Cir. 1986); United States v. Klingensmith, Inc., 670 F.2d 1227 (D.C. Cir. 1982); Burgess Construction

Company v. M. Morrin & Son Company, Inc., 526 F.2d 108 (10th Cir. 1975); Peter Kiewit Sons' Company v.

Summit Construction Company, 422 F.2d 242 (8th Cir. 1969); Gardner Displays Company v. United States,

346 F.2d 585 (Ct.Cl. 1965). See also Guy James Construction Company v. Trinity Industries, Inc., 644 F.2d

525 (5th Cir. 1981); J.L. Simmons v. U.S., 412 F.2d 1360 (Ct.Cl. 1969); Robert E. McKee, Inc. v. City of

Atlanta, 414 F.Supp. 957 (N.D. Ga. 1976). See generally Laburnum Construction Corporation v. U.S., 325

F.2d 451 (Ct.Cl. 1963); 5 ALBERTO G. SPOTA, INSTITUCIONES DE DERECHO CIVIL: CONTRATOS

332-33 (1st ed. 1979).

n62 Paul N. Howard Company v. PRASA, No. 80-0743(RA), slip op. at 37b; See also Caribe General

Constructors, Inc. v. Municipio de San Juan, Puerto Rico, Civil No. 84-562 (908) (P.R. Super.Ct., May 2,

1988), cert. denied, Num. RE-88-339 (September 8, 1988); J.A. Ross & Co. v. United States, 115 F.Supp.

187, 191 (Ct. Cl. 1953); Holpuch Corp. v. United States, 67 F.Supp. 945 (Ct. Cl. 1945).

n63 See Burgess Construction v. M. Morrin & Sons Co., Inc., 526 F.2d 108, 113 (10th Cir. 1975).

n64 Paul N. Howard Company, slip op. at 37b; Caribe Constructors, Civ. No. 84562 at 18-19; W.G.

Cornell Company of Washington, D.C. v. Ceramic Coating Company, Inc., 626 F.2d 990 (D.C. Cir. 1980);

Maurice Mandel, Inc. v. United States, 424 F.2d 1252 (8th Cir. 1970); Laburnum Construction Corporation

v. U.S., 325 F.2d 451 (Ct.Cl. 1963); Burgess Construction, 526 F.2d at 114; Robert E. McKee, Inc., 414 F.

- 33 -

Supp. 957 (N.D. Ga. 1976). See generally S. Leo Harmany, Inc. v. Binks Manufacturing Company, 597

F.Supp. 1014 (S.D.N.Y. 1984). See also 31 L.P.R.A. § 3018 (1990); SPOTA, supra note 34, at 332-33; 2

WALTER H. E. JAEGER, WILLISTON, CONTRACTS, § 1316 (3rd ed. 1967); Bagwell Coatings Inc. v.

Middle South Energy, Inc., 797 F.2d 1298 (5th Cir. 1986); U.S. v. Klingensmith, 670 F.2d 1227 (D.C. Cir.

1982); Peter Kiewit Sons' v. Summit, 422 F.2d 242 (8th Cir. 1969).

n65 Whitbeck v. United States, 77 Ct.Cl. 309 (1933), cert. denied, 290 U.S. 671 (1933); Brooklyn &

Queens Screen Mfg. Co. v. United States, 97 Ct.Cl. 532 (1942); Suburban Contracting Co. v. United States,

76 Ct.Cl. 533 (1932); Northern Helix Co. v. United States, 455 F.2d 546 (Ct.Cl. 1972) (citations omitted).

n66 See 31 L.P.R.A. § § 3017, 3052 (1990).

n67 922 F.2d 826 (Fed. Cir. 1991).

n68 Cf., Sage Street Assoc. v. Northdale Const. Co., 809 S.W.2d 775 (Tex. Ct. App. 1991); White River

Dev. Co. v. Meco Systems, Inc., 806 S.W.2d 735 (Mo. Ct.App. 1991). See also In re Boston Shipyard, 886

F.2d 451, 457 (1st Cir. 1989) ("Thus, if the financial problems are caused by factors beyond the contractor's

control, or by the government's actions themselves, then the contractor's default may be justified."); National

Eastern Corp. v. United States, 477 F.2d 1347, 1356 (Ct.Cl. 1973).

n69 ASBCA 3117, 56-2 BCA P1150 (1956).

n70 Appeal of Nexus Construction Company, Inc., ASBCA 31070, 91-3 BCA P24,303 (1991), aff'd on

reconsideration, ASBCA 31070, 92-1 BCA P24,577 (1991).

n71 ASBCA 40499, 93-2 BCA P25,579 (1992).

n72 49 Fed. Cl. 110 (2001).

n73 Id. at 140 (citing D.W. Sandau Dredging, ENGBCA No. 5812, 96-1 BCA P28,064 (1995)).

n74 Id. at 141 (citing Jones Plumbing & Heating, Inc., VABCA No. 1845, 1869, 86-1 BCA P18,659 at

93,857 (1985) (quoting General Dynamics Corp., DOTCAB No. 1232, 83-1 BCA P16,386 (1983)).

n75 Id. (citing Northern Helex Co. v. United States, 455 F.2d 546, 550 (1972)).

n76 See id. at 141-42.

n77 96-1 BCA P28,064, at 140, 161 (1995) (emphasis added).

n78 86-1 BCA P18,659 (1985) (emphasis added).

n79 Id. at 93,858.

n80 178 F.3d 1260 (Fed. Cir. 1999).

n81 See generally Stone Forest Indus., Inc. v. United States, 973 F.2d 1548, 1552 (Fed. Cir. 1992); In re

Boston Shipyard Corp., 886 F.2d 451, 456 (1st Cir. 1989).

n82 31 L.P.R.A. § 3052 (1990).

n83 Municipio v. Vidal, 65 D.P.R. 370, 375 (1945) (authors' translation).

n84 Ramirez v. Club Cala de Palmas, 123 D.P.R. 339, 348-49 (1989).

n85 See generally Article 14 of the AIA General Conditions, AIA Document A201-1997.

n86 303 F.2d 655 (6th Cir. 1962).

n87 Dyer, 303 F.2d at 660-61 (emphasis added).

n88 See, e.g., Byler v. Great American Insurance Company, 395 F.2d 273 (10th Cir. 1968).

n89 Havens Steel Company v. Randolph Engineering Company, 613 F. Supp. 514, 539 (W.D. Mo. 1985)

(emphasis added). See also Lane Construction Corp. v. Brown & Root, Inc., 29 F.Supp.2d 707 (E.D. Va.

1998); Architectural Systems, Inc. v. Gilbane Building Company, 760 F.Supp. 79 (D. Md. 1991); Statesville

Roofing & Heating Co., Inc. v. Duncan, 702 F. Supp. 118 (W.D. N.C. 1988).

n90 See, e.g., L. Harvey Concrete, Inc. v. Agro Construction & Supply Company, 939 P.2d 811 (Ariz.

App. Div. 1 1997); DeCarlo and Doll, Inc. v. Dilozir, 698 A.2d 318 (Conn. App. 1997) (refusal to pay an

outstanding amount after a reasonable period of time is a breach of contract); Seal Tite Corp v. Ehret, Inc.,

589 F.Supp. 701 (D. N.J. 1984).

n91 613 F. Supp. 514 (D.C. Mo. 1985). It is also clear that a contractor's surety is obliged to make

payments due from a contractor to a subcontractor after a reasonable time has passed without payment by the

contractor. See Pacific Lining Co., Inc. v. Algernon-Blair Construction Company, 819 F.2d 602 (5th Cir.

1987) (pay-when-paid provisions "are simply time of payment provisions, and the general contractors and

their sureties are obligated for the full amount to the Subcontractors"); Aesco Steel, Inc. v. J.A. Jones

Construction Company, 621 F.Supp. 1576 (E.D. La. 1985); Blakeslee Arpaia Chapman, Inc. v. EI

Constructors, 687 A.2d 506 (Conn. 1997); Koch v. Construction Technology, Inc., 924 S.W.2d 68 (Tenn.

1996); Power & Pollution Services, Inc. v. Suburban Power Piping Corp., 598 N.E.2d 69 (App. Ohio 1991);

- 34 -

Southern States Masonry, Inc. v. J.A. Jones Construction Company, 507 So.2d 198 (La. 1987); AA Conte,

Inc. v. Campbell-Lowrie-Lautermilch Corp., 477 N.E. 2d 30 (Ill. App. 1985) (only plain and unambiguous

condition precedent controls); American Drilling Service Company v. City of Springfield, 614 S.W.2d 266

(Mo. App. 1981); Peacock Construction Company, Inc. v. Modern Air Conditioning, Inc., 353 So.2d 840

(Fla. 1977); Elk & Jacobs Drywall v. Town Contractors, Inc., 229 S.E.2d 260 (S.C. 1976); A.J. Wolfe

Company v. Baltimore Contractors, Inc., 244 N.E.2d 717 (Mass. 1969).

n92 243 F.3d 25 (1st Cir. 2001).

n93 243 F.3d at 40 (citing Restatement (Second) of Contracts § 245 (1981) and 13 RICHARD A.

LORD, WILLISTON ON CONTRACTS § 39:4 (4th ed. 2000) ("Where one improperly prevents the

performance or the happening of a condition of his or her own promissory duty, the offending party thereby

eliminates it as a conditions")).

n94 243 F.3d at 40.

n95 207 F.3d 717, 724-26 (4th Cir. 2000).

n96 243 F.3d at 40.

n97 Ruby-Collins, Inc. v. City of Charlotte, 740 F. Supp. 1159 (W.D.N.C. 1990).

n98 Article 1.2.2 of the AIA General Conditions, AIA Document A201-1997.

n99 FAR 52.236-3(a).

n100 See, e.g., A.S. McGaughan Co. v. United States, 24 Cl.Ct. 659 (1991).

n101 493 F.2d 629, 631 (Ct.Cl. 1974),

n102 See also Pacific Alaska Contractors, Inc. v. United States, 436 F.2d 461 (Ct.Cl. 1971); and the

discussion in Section III of this publication.

n103 A.S. McGaughan v. United States, 24 Cl.Ct. 659 (1991), aff'd, 980 F.2d 744 (Fed. Cir. 1992).

n104 See Bradley Const. Co., Inc. v. United States 30 Fed.Cl. 507 (1994).

n105 See Pacific Alaska Contractors, Inc. 436 F.2d at 469, (holding that "the express representations as

to the nature of conditions to be encountered in contract performance are not essential to the establishment of

an entitlement to an equitable adjustment for changed conditions ..., at least insofar as subsurface or latent

conditions are concerned.") But see Round Place, Inc. v. United States, 31 Fed.Cl. 749 (1994) (contractor's

knowledge determined by specific facts).

n106 See, e.g., U.S. for the Use of Yonkers Construction Company v. Western Contr., 935 F.2d 936 (8th

Cir. 1991).

n107 See, e.g., J. Parr Construction & Design, Inc. v. United States, 23 Cl.Ct. 228 (1991) (where a claim

was barred for lack of timely notice).

n108 See, e.g., Linda Newman Construction Co. v. United States, 48 Fed.Cl. 231 (2000).

n109 See Coatesville Contractors & Engineers, Inc. v. Borough of Ridley Park, 506 A.2d 862 (Pa. 1986).

n110 See, e.g., Robert E. McKee, Inc. v. City of Atlanta, 414 F. Supp. 957 (D. Ga. 1976).

n111 See Puerto Rico Highways and Transportation Authority, Phase I of Tren Urbano Contract No.

500006-RB, Article 14.9 (July 15, 1996).

n112 Green Construction Company v. Kansas Power & Light Company, 1 F.3d 1005 (10th Cir. 1993).

n113 See Round Place, Inc. v. United States, 31 Fed.Cl. 749, 751-52 (1994) ("An express representation

in a contract specification or drawing furnished by the government to the contractor depicting specific

conditions on a site can result in Type I Differing Site Conditions, if other conditions are encountered during

construction," even when exculpatory provisions are included to relieve the government of liability for such

representations).

n114 See generally, Gregory H. McClure, Differing Site Conditions: evaluating the material difference,

15 PUB. CONT. L. J. 138 (1984); C.C.M. Corporation v. United States, 20 Cl.Ct. 649 (1990).

n115 EBCA No. C-9304172, 97-2 BCA 29,207 (1997).

n116 See generally Youngdale & Sons Constr. Co. v. United States, 27 Fed. Cl. 516 (1993) amended by

31 Fed.Cl. 167 (1994).

n117 See Servidore Construction Corp. v. United States, 19 Cl.Ct. 346 (1990).

n118 AIA Document A201-1997.

n119 See Port Chester Elec. Const. Corp. v. H.B.E. Corp., 894 F.2d 47 (2nd Cir. 1990) (holding delay

clause was not enforced).

- 35 -

n120 See Whiteoak Corp. v. Department of Transportation, 585 A.2d 1199 (Conn. 1991) (holding clause

enforced). Cf. Newbury Square Dev. Corp. v. Southern Landmark, Inc., 578 So.2d 750 (Fla. Dist. Ct. App.

1991) (holding clause not enforced). See also Spearin, Preston & Burrows, Inc. v. City of New York, 553

N.Y.S.2d 372 (App. Div. 1990) (exolaining bad faith and holding clause not enforced); Crawford Painting &

Drywall Co. v. J.W. Bateson Co., 850 F.2d 981 (5th Cir. 1988) (holding clause enforced). Compare U.S. ex

rel Pertun Construction Co. v. Harvesburg Group, Inc., 918 F.2d 915 (11th Cir. 1990) (holding contractor's

receipt of time extension was condition precedent to enforcement of no damages for delay clause; clause not

enforced).

n121 26 F.3d 1057 (11th Cir. 1994).

n122 See, e.g., Vann v. United States, 420 F.2d 968 (Ct. Cl. 1970). See also Chico v. Editorial Ponce,

Inc., 101 D.P.R. 759 (1973); Carrasquillo v. Am. Missionary Association, 61 D.P.R. 867, (1943); Cabrera v.

Doval, 76 D.P.R. 777 (1954); Rivera v. San Juan Racing, 90 D.P.R. 414 (1964); Castro v. Supermercado de

Descuentos, 99 D.P.R. 851 (1971).

n123 248 U.S. 132 (1918).

n124 Id. at 166. See also Liles Construction Co., Inc. v. United States, 455 F.2d 527, 538 (Ct.Cl. 1972)

("it is not necessary, ... to poke a hole in the ceiling to discover latent defects."). Accord Maurice Mandel,

Inc. v. United States, 424 F.2d 1252, 1255-56 (8th Cir. 1970) ("Caveatory and exculpatory contractual

provisions will not shift the liability flowing from an express or implied representation made by the

Government and reasonably relied upon by the contractor."); Robert E. McKee, Inc. v. City of Atlanta, 414 F.

Supp. 957, 959-60 (D. Ga. 1976) (citing Spearin) ("If every bidder were required to perform all the

investigations, even though the chance of receiving the bid was remote, the number of bids would decrease

and the dollar amount of the bids would increase ... it would be unrealistic to expect each bidder to perform

the boring himself"); Condon-Cunningham, Inc. v. Day, 258 N.E.2d 264 (Ct.C.P. Ohio 1969).

n125 101 D.P.R. 759 (1973).

n126 See Concrete Placing Co., Inc. v. United States, 25 Cl.Ct. 369, 376 (1992) ("To best ensure that

future contractors are willing to bid at the lowest possible price and the highest possible quality, government

must willingly compensate where it bears the risk"); Shank-Artukovich v. United States, 13 Cl.Ct. 346, 355

(1987), aff'd, 848 F.2d 1245 (Fed. Cir. 1988).

n127 Chico, 101 D.P.R. at 778 (authors' translation).

n128 Id. (citations omitted) (emphasis added) (authors' translation).

n129 See Municipio de Ponce v. Rossello, 138 D.P.R. 431 (1995); Garriga v. Cond. Marbella, 143

D.P.R. 927 (1997).

n130 99 T.S.P.R. 66, 99 J.T.S. 72.

n131 2 L.P.R.A. § 97. (This is contained in the Act of October 30, 1975, Pub. L. No. 18 as amended).

n132 99 T.S.P.R. 26, 99 J.T.S. 31.

n133 Id. at 8.

n134 134 D.P.R. 1001 (1994).

n135 Id. at 1011-12.

n136 United States v. Spearin, 248 U.S. 132 (1918).

n137 237 U.S. 234 (1915).

n138 Id. at 239.

n139 See, infra, Section IV of this publication; Levy v. Autoridad de Edificios Publicos, 135 D.P.R. 382

(1994).

n140 See generally Kantor and McGeehin, Recent Developments in the Spearin Doctrine: Federal and

State, 14 THE CONSTRUCTION LAWYER, No.3, (Aug. 1994).

n141 135 D.P.R. 382 (1994).

n142 See also Brasher v. City of Alexandria, 41 So.2d 819, 829 (La. 1949). Cf. however, LA. REV.

STAT. ANN. § 771 (West 1990), (which now allocates certain risks of defects in owner-supplied

specifications to the owner. Such statutes have also been passed in California and Massachusetts).

n143 See generally Laburnam Construction Corporation v. United States, 325 F.2d 451 (Ct. Cl. 1963);

Paul N. Howard v. PRASA, No. 80-0743(RA), slip. op. (D. P.R. August 23, 1983), aff'd 744 F.2d 800 (1st

Cir. 1984), cert. denied, 105 S.Ct. 965 (1985). (A contractor who bids for work has the right to rely on the

plans and specifications submitted to him for bidding purposes.); Hensel Phelps Construction v. United

States, 413 F.2d 701, 704 (10th Cir. 1969); Wunderlich Contracting Company v. United States, 240 F.2d

201 (10th Cir. 1957), cert. denied, 353 U.S. 950 (1958). As to a contractor's warranty for owner-specified

materials, see generally Hugh E. Reynolds, What Is a Contractor's Warranty Responsibility for Owner-

- 36 -

Specified Materials--Trustees of Indiana University v. Aetna Casualty & Surety, 11-OCT CONSLAW 1

(1991) (extending the Spearin Doctrine to ownersupplied materials).

n144 Liles Construction Company v. United States, 455 F.2d 527, 538 (Ct.Cl. 1972). See generally

James E. Harrington, Robert B. Thum & John B. Clark, The Owner's Warranty of Plans and Specifications

for a Construction Project, 14 PUB. CONT. L.J. 240 (1985).

n145 See, e.g., Philadelphia Housing Authority v. Turner Constr. Co., 343 Pa. 512 (1942).

n146 See generally Hawaiian Bitumuls & Paving Co. v. United States, 26 Cl.Ct. 1234 (1992). Some

recent cases which provide guidance include Concrete Placing, Inc. v. United States, 25 Cl.Ct. 369 (1992);

Aleutian Contractors v. United States, 24 Cl.Ct. 372 (1991).

n147 United States v. Spearin, 248 U.S. 132 (1918). See also Tyger Construction Co., Inc. v. United

States, 31 Fed.Cl. 177, 240-243 (1994); Hawaiian Bitumuls, 26 Cl.Ct. at 1240; Neal & Co., Inc. v. United

States, 19 Cl.Ct. 463, 467-68 (1990), aff'd, 945 F.2d 385 (Fed. Cir. 1991) (Deficiency in design specification

requires owner to bear reasonable additional costs incurred by contractor.) (Obviously, the defect in question

would have to be a latent defect (vicio oculto)).

n148 See Stuyvestant Dredging Co. v. United States, 834 F.2d 1576, 1582 (Fed. Cir. 1987). See also

Tyger Const. v. U.S., 31 Fed.Cl. 177 (1994).

n149 Robert E. McKee, Inc. v. City of Atlanta, 414 F. Supp 957, 959 (N.D. Ga. 1976). See also Condon-

Cunningham, Inc. v. Day, 258 N.E.2d 264 (Ct. C.P. Ohio 1969).

n150 See, e.g., Vann v. United States, 420 F.2d 968 (Ct. Cl. 1970).

n151 Pacific Alaska Contractors, Inc. v. United States, 436 F.2d 461 (Ct.Cl. 1971).

n152 See, e.g., J.L. Simmons Company v. United States, 412 F.2d 1360 (Ct.Cl. 1969); Littlefield Mfg.

Corp. v. United States, 338 F.2d 94 (Ct.Cl. 1964); Paul N. Howard v. P.R.A.S.A., No. 80-0743(RA), slip.

op. (D. P.R. August 23, 1983), aff'd 744 F. 2d 880 (1st Cir. 1984), cert. denied, 469 U.S. 1191 (1985). But

see Levy v. Autoridad de Edificios Publicos, 135 D.P.R. 382 (1994).

n153 See Coatesville Contractors & Engineers, Inc. v. Borough of Ridley Park, 506 A.2d 862, 865 (Pa.

1986). Accord Maurice Mandel, Inc. v. United States, 424 F.2d 1252, 1255 (8th Cir. 1970) ("Caveatory and

exculpatory contractual provisions will not shift the liability flowing from an express or implied

representation made by the Government and reasonably relied upon by the contractor."); Robert E. McKee,

Inc. v. City of Atlanta, 414 F. Supp. 957 (D. Ga. 1976) (citing Spearin).

n154 See also Morris, Inc. v. South Dakota Department of Transportation, 598 N.W.2d 520 (S.D. 1999),

(holding that the government's disclaimer of soil information was unenforceable because it included material

misrepresentations).

n155 See Round Place, Inc. v. United States, 31 Fed. Cl. 749 (1994) (granting no recovery although

specifications were erroneous because contractor had personal knowledge of conditions).

n156 Art. 1483. P.R. CIVIL CODE, 31 L.P.R.A. § 4124 (1990).

n157 See generally Pereira v. IBEC, 95 D.P.R. 28 (1967).

n158 85 D.P.R. 46 (1962).

n159 Id. at 50-51 (authors' translation).

n160 See also De Jesus v. Ponce Housing Corp., 104 D.P.R. 885, 888 n. 2 (1976).

n161 115 D.P.R. 654 (1984).

n162 See Rossello Cruz v. Garcia, 116 D.P.R. 511 (1985); See also Richmond Steel, Inc. v. Legal and

General Assurance Society, Ltd., 825 F. Supp. 443 (D. P.R. 1993) (ruin of building caused by defects in

design or construction creates a rebuttable presumption of contractor or architect liability).

n163 For a discussion of the standards for apportioning liability, see generally Corp. Presiding Bishop

CJC of LDS v. Purcell, 117 D.P.R. 714, 725 (1986).

n164 136 D.P.R. 316 (1994).

n165 See generally Mega Construction Co., Inc. v. United States, 29 Fed.Cl. 396 (1993) (which is a

virtual primer on numerous aspects of the law governing construction contracts with the federal government).

n166 135 D.P.R. 382 (1994).

n167 Id.

n168 427 F.2d 1187, 1193 (Ct.Cl. 1970).

n169 444 F.2d 547, 551 (Ct.Cl. 1971).

n170 461 F.2d 1330, 1336 (Ct.Cl. 1972).

n171 6 Cl.Ct. 526 (1984).

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n172 6 Cl.Ct. 526, 528 (1984).

n173 1 Cl.Ct. 716 (1983).

n174 424 F.2d 588, 592 (Ct.Cl. 1970) (citing Peter Kiewit Son's Co. v. United States, 109 Ct.Cl. 390,

418 (1947)).

n175 The Powerlite of P. R. v. C.R.U.V., 115 D.P.R. 654 (1984).

n176 42 Fed. Cl. 94, 99 (1998).

n177 19 Cl. Ct. 463, 469 (1990).

n178 42 Fed. Cl. at 99.

n179 135 D.P.R. 382 (1994).

n180 Id.

n181 The Powerlite of P. R. v. C.R.U.V., 115 D.P.R. 654 (1984).

n182 See, e.g. Levy v. A.E.P, 135 D.P.R. 382 (1994).

n183 See, e.g., Miller Elevator Company, Inc. v. United States, 30 Fed. Cl. 662, 677 (1994), and Section

III(B)(2) of this publication, infra, for a discussion of cardinal changes.

n184 Al Johnson Constr. Co. v. United States, 20 Cl.Ct. 184, 204 (1990).

n185 Miller Elevator Company, Inc. v. United States, 30 Fed.Cl. 662, 678-79 (1994).

n186 Id. at 701-08.

n187 See, e.g., R.M. Taylor, Inc. v. GMC, 187 F.3d 809 (8th Cir. 1999) (held, no abandonment of

contract: (a) proof of contract abandonment must be clear and evidence mutual intent, rather than continued

performance; (b) Owner had not abused change order process; (c) parties contemplated changes; and (d) no

evidence of intent to abandon contract change procedure.).

n188 In re Boston Shipyard Corp., 886 F.2d 451 (1st Cir. 1989). See also Air-A-Plane Corp. v. United

States, 408 F.2d 1030 (1969).

n189 See Miller Elevator Company, Inc. v. United States, 30 Fed.Cl. 662 (1994), (for a good discussion

of cardinal changes). See generally Airprep Technology, Inc. v. United States, 30 Fed.Cl. 488 (1994)

(contractor's default excused by cardinal change).

n190 Miller Elevator Company, Inc., 30 Fed. Cl. at 693-94.

n191 Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384 (1947).

n192 Miller Elevator Coompany, Inc., 30 Fed. Cl. at 693-94.

n193 See generally, McBRIDE & TOUHEY, GOVERNMENT CONTRACTS, 4:28.30[1].

n194 See generally, Pittman Construction Co. v. U.S., 81-1 BCA P14,847, aff'd, 81-1 BCA P15,111,

aff'd, 2 Cl.Ct. 211 (1983).

n195 Cases in which this effect has been recognized include Freuhauf Corp., 74-1 BCA P10,596 at

50,231 (PSBCA 1974); and Bechtel National, Inc., 90-1 BCA P22,549 (NASA BCA 1989).

n196 See also McMillin Bros, ENG BCA, 91-1 BCA P23,351, at 117,102, (328-10-04) aff'd, 91-1 BCA §

23,574, aff'd, 949 F.2d 403 (Fed Cir. 1991).

n197 Bechtel National, Inc., 90-1 BCA P22,549 (NASA BCA 1989).

n198 ASBCA 51939 (December 14, 2000).

n199 Allied Materials & Equipment Co., Inc. v. United States, 569 F.2d 562 (Ct.Cl. 1978) (cited in

McBRIDE & TOUHEY, GOVERNMENT CONTRACTS, 4:28.30[1]) (emphasis added).

n200 See, e.g., Meva Corp. v. United States, 511 F.2d 548 (Ct. Cl. 1975).

n201 P.L. Saddler v. United States, 287 F.2d 411 (Ct. Cl. 1961).

n202 Paul N. Howard v. P.R.A.S.A., No. 80-0743(RA), slip op. (D. P.R. August 23, 1983) at 37b, aff'd

744 F. 2d 880 (1st Cir. 1984), cert. denied, 469 U.S. 1191 (1985) (emphasis added).

n203 Allied Contractors, Inc. v. United States, 124 F. Supp. 366 (Ct.Cl. 1954) (cardinal change is one

which cannot be redressed within the contract by an equitable adjustment).

n204 Luria Bros. & Co. v. United States, 369 F.2d 701 (Ct.Cl. 1966).

n205 United States v. Rice, 317 U.S. 61 (1942) (allowing reasonable changes to a contract without

breaching it).

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n206 Magoba Construction Co. v. United States, 99 Ct.Cl. 662 (1943); See also Severin v. United States,

102 Ct.Cl. 74 (1943) (The very age of the foregoing cases, not reversed, makes it clear that this is a long-

standing principle of construction contract law).

n207 See, e.g., Foley Co. v. United States, 11 F.3d 1032 (Fed. Cir. 1993) (discussing the variation in

quantities clause).

n208 Appeal of Modern Foods, Inc., 57-1 BCA P1229 (ASBCA 1957).

n209 See, e.g., Meva Corp. v. United States, 511 F.2d 548 (Ct.Cl. 1975).

n210 Vanlar Construction v. County of Los Angeles, 217 Cal. Rptr. 53 (Cal. App. 1985) (withdrawn

from publication).

n211 NRM Corporation v. Hercules, Inc., 758 F.2d 676 (D.C. Cir. 1985).

n212 E.F. Matelich Constr. Co. v. Goodfellow Brothers, Inc., 702 P.2d 967 (Mont. 1985).

n213 12 F.3d 465 (5th Cir. 1994).

n214 Mega Construction Corp. v. U.S., 29 Fed.Cl. 396 (1993). See also Coastal Industries, Inc. v.

United States, 32 Fed.Cl. 368 (1994) (contractor voluntarily executed waiver and release; judgment for

government); Vulcan Painters, Inc. v. MCI Constructors, Inc., 41 F.3d 1457 (11th Cir. 1995)

(subcontractor's execution of release barred claim on change order).

n215 AT&T v. United States, 32 Fed. Cl. 672 (1995). (The Contract Disputes Act of 1978 is in 41 U.S.C.

§ 601-13).

n216 See Linda Newman Const. Co. v. United States, 48 Fed.Cl. 231, 233 (2000) (citing ITT Fed. Servs.

Corp. v. Widnall, 132 F.3d 1448, 1451 (Fed. Cir. 1997), and Dalton v. Cessna Aircraft Co., 98 F.3d 1298,

1304 (Fed. Cir. 1996)).

n217 Young-Montenay, Inc. v. United States, 13 FPD P9 (Fed. Cir. 1994).

n218 See, e.g., Haney v. United States, 676 F.2d 584 (1982) (describing CPM scheduling as "an efficient

way of organizing and scheduling a complex project").

n219 See, e.g., Fortec Constructors Inc. v. United States, 8 Cl.Ct. 490 (1985) (rejecting an inadequately

implemented CPM analysis).

n220 Caribe General Constructors, Inc. v. Municipio de San Juan, Puerto Rico, Civil No. 84-562 (908)

(P.R. Super. Ct., May 2, 1988), cert. den., Num. RE-88-339 (September 8, 1988)

n221 United States v. Spearin, 248 U.S. 132 (1918).

n222 135 D.P.R. 382 (1994) (hereafter Levy).

n223 Id.

n224 Id. at 385-86

n225 Id. at 389 (emphasis added) (authors' translation). See also the discussion relating to the abatement

of damages awarded to Caribe Constructors in Caribe General Constructors, Inc. v. Municipio de San Juan,

Puerto Rico, Civil No. 84-562 (908) (P.R. Super. Ct., May 2, 1988), cert. den., Num. RE-88-339 (September

8, 1988).

n226 Id. at 396.

n227 Id. at 403.

n228 Id. at 389 (quoting BARRY B. BRAMBLE AND MICHAEL T. CALLAHAN, CONSTRUCTION

DELAY CLAIMS § 2.1, at 14 (2d ed. 1987)).

n229 BARRY B. BRAMBLE AND MICHAEL T. CALLAHAN, CONSTRUCTION DELAY CLAIMS

§ 2.1, at 20 (2d ed. 1987).

n230 Levy v. Autoridad de Edificios Publicos, 135 D.P.R.382, 390 (1994).

n231 Id. at 398. (authors' translation from: "Ni el tribunal de instancia, como tampoco nosotros,

pretendemos establecer una regla general").

n232 See generally United States v. William F. Klingensmith Inc., 670 F.2d 1227 (D.C. Cir. 1982) (cited

approvingly by the Supreme Court in Levy v. AEP, regarding the implications of construction delays).

n233 135 D.P.R. 382, 391 (emphasis added).

n234 Id. at 396.

n235 Id. at 397 (emphasis added).

n236 Id. at 398 (emphasis added).

n237 670 F.2d 1227 (D.C. Cir. 1982).

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n238 MEANS ILLUSTRATED CONSTRUCTION DICTIONARY 132 (1985). See also D. Federico

Co., Inc. v. New Bedford Redevelopment Authority, 723 F.2d 122, 130 (1st Cir. 1983) (One who has

substantially complied with a contract is entitled to recover the contract price, with deductions for defects or

incompletion.); Stanley Consultants, Inc. v. H. Kalicak Construction Co., 383 F. Supp. 315 (D. Mo. 1974);

Worthington Corp. v. Consolidated Aluminum Corp., 544 F.2d 227 (5th Cir. 1976); Todd Shipyards Corp. v.

Jasper Elec. Service Co., 414 F.2d 8 (5th Cir. 1969); Ballou v. Basic Constr. Co., 407 F.2d 1137 (4th Cir.

1969).

n239 See AIA Document A201-1997.

n240 129 D.P.R. 579 (1991).

n241 Id. at 604.

n242 2000 T.S.P.R. 179, 2000 J.T.S. 192.

n243 Id.

n244 See, e.g., McDevitt & Street Co. v. Marriott Corp., 754 F. Supp. 513 (E.D. Va. 1991).

n245 See, e.g., Miami Heart Institute, Inc. v. Heery Architects & Engineering Inc., 765 F. Supp. 1083

(S.D. Fla. 1991).

n246 Some recent cases concerning non-compensable delay include Callanan Industries, Inc. v.

Olympian Dev. Ltd., 639 N.Y.S.2d 185 (N.Y. App. Div. 1996) (delays found excusable notwithstanding

request to suspend work by owner's attorney, who was found not to have been authorized agent of owner);

Bonacorso Constr. Corp. v. Commonwealth, 668 N.E.2d 366 (Mass. App. Ct. 1996) (delay claim rejected

because no written suspension of work issued by authorized agent). As to weather delays generally, see

Round Place v. United States, 31 Fed.Cl. 749, 752 (1994).

n247 As to weather delays generally, see Round Place v. U.S., 31 Fed.Cl. 749, 752 (1994); see also

Vicari v. United States, 47 Fed.Cl. 353, 359 (2000).

n248 31 L.P.R.A. § 3022 (1990).

n249 92 D.P.R. 289 (1965).

n250 100 D.P.R. 106 (1971).

n251 See Fru-Con Construction Corp. v. United States, 43 Fed.Cl. 306, 328 (1999) (citing Turnkey

Enters., Inc. v. United States, 20 Ct.Cl. 179, 186, 597 F.2d 750, 754 (1979)) (footnote omitted).

n252 Id.

n253 See Weaver-Bailey Contractors, Inc. v. United States, 19 Cl.Ct. 474 (1990).

n254 See Tyger Construction v. United States, 31 Fed.Cl. 177 (1994); Broome Construction, Inc. v.

United States, 492 F.2d 829, 833 (1974).

n255 Hensel Phelps v. United States, 413 F.2d 701 (10th Cir. 1969); Wunderlich Contracting v. United

States, 240 F.2d 201 (10th Cir. 1952); Wynne v. United States, 382 F.2d 699 (10th Cir. 1967). See generally

Paul N. Howard Co. v. PRASA, No. 80-0743(RA), slip op. (D. P.R. August 23, 1983) aff'd 744 F.2d 880 (1st

Cir. 1984), cert. denied, 469 U.S. 1191 (1985); S. Leo Harmany, Inc. v. Binks Mfg. Co., 597 F. Supp. 1014

(S.D.N.Y. 1984).

n256 See Guy James Construction Company v. Trinity Industries, Inc., 644 F.2d 525 (5th Cir. 1981).

n257 See generally Alan H. Kent and Richard C. Walters, Recovering Indirect Costs, CONSTRUCTION

BRIEFINGS No. 80-6 (Fed. Pub'ns 1980).

n258 Lee Electric Co., F.A.A. CAB No. 67-26- 67-1 P6263 (1967); Hardeman-Monier Hutcherson,

ASBCA No. 11785, 67-1 BCA P12392, 68-2 BCA P7220 (1968).

n259 See Capital Electric Co. v. United States, 729 F.2d 743 (Fed. Cir. 1984); See generally Herman M.

Braude, Joseph C. Kovars and Thomas J. Wingfield III, Extended Home Office Overhead,

CONSTRUCTION BRIEFINGS No. 84-6 (Fed. Pub'ns 1984). See also Williams Enterprises, Inc. v.

Sherman R. Smoot Co., 938 F.2d 230 (D.C. Cir. 1991); Southwest Engineering Co. v. Cajun Electric Power

Cooperative, Inc., 915 F.2d 972 (5th Cir. 1990).

n260 Eichleay Corp. ASBCA No. 5183, 60-2 BCA P2688 (1960), aff'd on reconsid., 61-1 BCA P28.94.

n261 Capital Electric Co. v. United States, 729 F.2d 743 (Fed. Cir. 1984).

n262 See generally Interstate General Government Contractors, Inc. v. West, 12 F.3d 1053 (Fed. Cir.

1993); C.B.C. Enterprises, Inc. v. United States, 978 F.2d 669 (Fed. Cir. 1992) (contractor must show that it

was on standby for the delay period and unable to take on other work); and Tyger Const. v. U.S., 31 Fed.Cl.

177, 261 (1994).

n263 See, e.g., Complete General Construction Co. v. Ohio Dept. of Transp., 2000 WL 674899 (Ohio Ct.

App. May 25, 2000); Safeco Credit v. United States, 44 Fed.Cl. 406 (1999) (where the Contractor was unable

- 40 -

to take on replacement work because of the undetermined period of delay and was obligated to stand by);

Fairfax County Redevelopment and Housing Authority v. Worcester Bros. Co., Inc., 514 S.E.2d 147 (Va.

1999); Melka Marine, Inc. v. United States, 187 F.3d 1370 (Fed. Cir. 1999) (where the Contractor was

delayed "for an indefinite period"); Wickham Contracting Co. v. Fischer, 12 F.3d 1574 (Fed. Cir. 1994) (but

it must be followed to the letter).

n264 See Interstate General Government Contractors, Inc. v. West, 12 F.3d 1053 (Fed. Cir. 1993) (no

showing that contractor unable to take on other work in stand-by period, therefore no recovery); Daly

Constr., Inc. v. Garrett, 5 F.3d 520 (Fed. Cir. 1993); see also American Renovation & Construction Co. v.

United States, 45 Fed. Cl. 44, 53, reh'g denied (1999) (holding "The uncertainty of the additional time

necessary to complete performance potentially prevents contractor from allocating its resources to another

project. Absent evidence that the contractor was on standby, the contractor is not entitled to Eichleay

damages.").

n265 American Renovation & Construction Co. v. United States, 45 Fed. Cl. 44 (1999) (citing Interstate

Gen. Gov't Contractors, Inc. v. West, 12 F.3d 1053 (Fed. Cir. 1993), C.B.C. Enterprises, Inc. v. United

States, 24 Cl. Ct. 187 (1991), aff'd, 978 F.2d 669 (Fed. Cir. 1992)).

n266 Id. (citing West v. All State Boiler, Inc., 146 F.3d 1368 (Fed. Cir. 1998)). See also Melka Marine,

Inc. v. United States, 41 Fed.Cl. 122 (1998) (no recovery allowed to Contractor because it was not on

standby.), reh'g denied, 187 F.3d 1370 (Fed. Cir. 1999) (no recovery allowed because government rebutted

Contractor's case by showing that it was not impractical for the Contractor to take on true replacement work);

Safeco Credit v. United States, 44 Fed.Cl. 406 (1999) (no recovery of Eichleay overhead because Contractor

able to take on other work, and did not stand ready to perform to the exclusion of other work).

n267 See Levy v. Autoridad de Edificios Publicos, 135 D.P.R. 382 (1994); Mega Construction Company

v. U.S., 29 Fed. Cl. 396 (1994); United States Steel Corporation v. Missouri Pacific Railroad Company, 668

F.2d 435 (8th Cir. 1982).

n268 See Freuhauf Corp., 74-1 BCA P10,596 at 50,231 (PSBCA 1974); and Bechtel National, Inc., 90-1

BCA P22,549 (NASA BCA 1989).

n269 See S. Leo Harmony v. Binks Manufacturing Co., 597 F. Supp. 1014 (S.D.N.Y. 1984); Ranier

Company, ASBCA 3565, 59-2 BCA P2413 (1959).

n270 See L.L. Hall Construction Co. v. United States, 379 F.2d 559 (Ct. Cl. 1966). See also Layne-

Minnesota, Inc. v. Singer, 574 F.2d 429 (8th Cir. 1978); Nolan Brothers, Inc. v. United States, 437 F.2d

1371 (Ct.Cl. 1971). See generally Blaskey and Walters Recovery for Equipment Usage, CONSTRUCTION

BRIEFINGS No. 83-5 (Fed. Pub'ns. 1983). A good discussion of standby costs can be found in Interstate

General v. West, 12 F.3d 1053 (Fed. Cir. 1993).

n271 Interstate General Government Contractors v. West, 12 F.3d 1053, 1059 (Fed. Cir. 1993).

n272 See Williams Enterprises v. Strait Manufacturing & Welding, Inc., 728 F. Supp. 12 (D.D.C. 1990).

n273 Tyger Construction v. U.S., 31 Fed. Cl. 177 (1994); Mega Construction Company, Inc. v. United

States, 29 Fed. Cl. 396 (1994). See also The Triax Co. v. United States, 28 Fed.Cl. 733 (1993), aff'd Triax

Co. v. United States, 39 F.3d 1196 (Fed. Cir. 1994); William F. Klingensmith, Inc. v. United States, 731 F.2d

805 (Fed. Cir. 1984); Levy v. Autoridad de Edificios Publicos, 135 D.P.R. 382 (1994).

n274 See Wilner v. United States, 23 Cl. Ct. 241 (1991).

n275 See Norair Engineering Corp. v. United States, 666 F.2d 546 (Ct. Cl. 1981) ("Even an expression

of concern about lagging progress may have the same effect as an order [to accelerate]"); E.C. Ernst, Inc. v.

Koppers Co., Inc., 476 F. Supp. 729 (W.D. Pa. 1979), aff'd 626 F.2d 324 (1980). See also Tombigbee

Constructors v. United States, 420 F.2d 1037 (Ct. Cl. 1970); Electronic and Missile Facilities, Inc., ASBCA

No. 9031 1964 BCA P4338 at 20,959, (1964).

n276 Norair Engineering Corp. v. U.S., 666 F.2d at 549. See also Electronic & Missile Facilities, Inc.,

1964 BCA 4338 at 20, 989, ASBCA No. 9031.

n277 See Nello L. Teer Co. v. Washington Metropolitan Area Transit Authority, 695 F. Supp. 583 (D.

D.C. 1988); Envirotech Corp. v. Tennessee Valley Authority, 715 F. Supp. 190 (W.D. Ky. 1988).

n278 See, e.g., U.S. ex rel Pertun Construction Co. v. Hounester Group, Inc., 918 F.2d 915 (11th Cir.

1990).

n279 Affholder Inc. v. Southern Rock, Inc., 736 F.2d 1007 (5th Cir. 1984); Paul N. Howard Company,

No. 80-0743(RA), slip. op. (D. P.R. August 23, 1983), aff'd 744 F.2d 880 (1st Cir. 1984), cert. denied, 105 S.

Ct. 965 (1985) at 8b. See also Moorhead Construction Co., Inc. v. City of Grand Forks, 508 F.2d 1008, 1016

(8th Cir. 1975); Scherbenske Excavating Inc. v. North Dakota State Highway Departrment, 365 N.W.2d 485

(N.D. 1985). See generally, John B. Tieder, Jr., Julian F Hoffar and Robert K. Cox, Calculating and Proving

Construction Damages, CONSTRUCTION BRIEFINGS No. 82-3 (Fed. Pub'ns. 1982); Irv Richter and

Jeffrey B. Kozek, Proving Damages in Arbitration, CONSTRUCTION BRIEFINGS No. 79-4 (Fed. Pub'ns.

1979).

- 41 -

n280 Miller Elevator Company, Inc. v. United States, 30 Fed.Cl. 662, (1994); Whitbeck v. United States,

77 Ct. Cl. 309 (1933), cert. denied, 290 U.S. 671 (1933); Brooklyn & Queens Screen Manufacturing Co. v.

United States, 97 Ct.Cl. 532 (1942); Suburban Contracting Co. v. United States, 76 Ct.Cl. 533 (1932);

Northern Helex Co. v. United States, 455 F.2d 546 (1972).

n281 31 L.P.R.A. § § 3023-24 (1990).

n282 99 T.S.P.R. 184, 2000 J.T.S. 7.

n283 29 Fed.Cl. 396 (1993).

n284 641 A.2d 1056 (N.J. Super. App. Div. 1994).

n285 In re Boston Shipyards, 886 F.2d 451, 457 (1st Cir. 1989); Southeastern Airways Corp. v. United

States, 673 F.2d 368, 377-78 (1982).

n286 Whitbeck v. United States, 77 Ct.Cl. 309 (1933), cert. den., 290 U.S. 671 (1933); Brooklyn &

Queens Screen Mfg. Co. v. United States, 97 Ct. Cl. 532 (1942); Suburban Contracting Co. v. United States,

76 Ct.Cl. 533 (1932); Northern Helex Co. v. United States, 455 F.2d 546 (1972).

n287 See generally Phil Bruner, et al., The Surety's Response to the Obligee's Declaration of Default and

Termination: 'To Perform or Not to Perform--That is the Question', Terminating Your Contractor: Hasta la

Vista Baby, 17 THE CONSTRUCTION LAWYER No. 1 (American Bar Association 1997), at fn. 1;

Stephensen, Patin and Mitchell, Surety's Role in Default Terminations, CONSTRUCTION BRIEFINGS No.

90-4 (Fed. Pub'ns. 1990).

n288 15 Cl.Ct. 225 (1988).

n289 Olazabal v. United States Fidelity & Guaranty Company, 103 D.P.R. 448 (1975).

n290 See, e.g., AIA Document A201, Article 14.2.1.

n291 Martin J. Simko Const., Inc. v. U.S., 11 Cl. Ct. 257 (1986).

n292 See, e.g., U.S. v. Morano Const. Corp., 724 F. Supp. 88 (S.D. N.Y. 1989) (termination held

improper for lack of notice); McLain v. Kimbrouogh Const. Co., 806 S.W.2d 194 (Tenn. App. 1990). Cf.

Thomas H. Ross, Inc. v. Siegfreid, 592 A.2d 1353 (Pa. Super. Ct. 1991), 15 CC P356; L.K. Comstock & Co.

v. United Eng's. & Constructors, Inc., 880 F.2d 219 (9th Cir. 1989) (lack of cure notice did not bar

termination).

n293 See, e.g., McClain v. Kimbrough Constr. Co., 806 S.W.2d 194 (Tenn. App. 1990). Moreover, a

declaration of default sufficient to invoke the surety's obligations under a bond must be clear and

unequivocal.

n294 Streeper v. Victor Sewing Mach. Co., 112 U.S. 676 (1885); American Surety Company of New York

v. United States, 317 F.2d 652, 656 (8th Cir. 1963); American Surety Company of New York v. United States,

112 F.2d 903, 906 (10th Cir. 1940).

n295 101 D.P.R. 458 (1973).

n296 Stephenson, Patin, & Mitchell, Surety's Role in Default Terminations, CONSTRUCTION

BRIEFINGS No. 90-4,6 (Fed. Pub'ns., 1990).

n297 31 L.P.R.A. § 4127 (1990).

n298 See RBR v. Autoridad de Carreteras, 2000 J.T.S. 7.

n299 See H.P. Connor & Co., PSBCA 1358, 91-3 BCA P2470; Nexus Const. Co., ASBCA 31070, 91-3

BCA P24303.

n300 See, e.g., Caribbean Business (October 24, 2001).

n301 263 N.W. 2d 420 (Minn. 1978).

n302 City of Mounds View v. Warlijarvi, 263 N.W.2d 420, 423-24 (Minn. 1978), cited in Steven G.M.

Stein and Carl l. Popovsky, Design Professional Liability for Differing Site Conditions and the Risk-Sharing

Philosophy, THE CONSTRUCTION LAWYER, 14 (April 2000).

n303 Art. 1483 P.R. CIVIL CODE, 31 L.P.R.A. § 4124 (1990).