In May 2022, an Appellate Court overturned an award of $40 Million in delay damages to a subcontractor, for delays incurred on a City project, on the basis that they were improperly calculated. Five Star Electric Corp. v. A.J. Pegno Construction Co., Inc./Tully Construction Co., Inc., 2022 NY Slip Op 3345 (1st Dept. 2022).
First, as to the subcontractor’s claim of $9.8 million in additional labor costs, the appellate court dismissed them outright stating “[i]n general, it is impermissible to calculate delay damages for additional labor costs based on a comparison of the contractor's precontract estimate of what its labor cost would be and what it claimed its labor cost actually turned out to be.”
Next, as to the balance of the $40 Million award for extended general conditions, labor/material escalation and extended home office overhead, the appellate court vacated the award and remanded it back to trial because the trial court based the delay damages solely on delays caused by the general contractor while failing to consider those caused by the City.
Comment:
Generally, under New York law, a contractor may not use pre-bid estimates to prove delay damages for the simple reason that estimates are inherently unreliable. Also, it is well settled that a general contractor is not liable to a subcontractor for delays caused by an owner, since the general contractor has no control over such delays. Instead, a subcontractor must prove that its delay damages are directly attributable to delays caused by the general contractor, while accounting for any delays caused by the Owner. While never a perfect science, contractors should refrain from using their pre-bid estimates to prove delay costs. Likewise, subcontractors in particular must do their best to establish a causal link between an additional cost due to delays to an act or omission of the general contractor, while making sure to address any delays caused by the owner.
About the author: George Marco is an attorney practicing in the field of construction law. He also holds a Bachelor of Science in Mechanical Engineering and was previously employed as a Project Manager for a public improvement contractor.
If you would like more information regarding this topic or any other related to construction law please contact George Marco at george@gmarcolaw.com or call (516) 464-2320.
Disclaimer: This article is for informational purposes only and not intended to serve as legal counsel.
