OWNERS MUST ACT IN GOOD FAITH WITH RESPECT TO EXTRA WORK CLAIMS
In April 2022, the Southern District of New York refused to dismiss a contractor’s claim that Verizon breached the good faith covenant with respect to items of extra work. Henkels & McCoy Group, Inc. v. Verizon Sourcing, LLC, No. 21-CV-9576 (S.D.N.Y. 2022).
The contractor alleged that Verizon “negotiated agreements to compensate H&M for its increased costs then willfully, intentionally and in bad faith delayed finalizing those agreements” and that “these delays were caused by Verizon intentionally so that H&M would continue to work on the Projects on the assurances it would be paid, even though Verizon had no intention of compensating H&M for its costs.”
Based on the nature of the contractor’s claim, the court rejected Verizon’s argument that breach of the implied covenant of good faith was duplicative of the contractor’s breach of contract claim and therefore should be dismissed.
At times, an owner’s management team may promise that a change order will be issued so that the contractor commits to performing the work. On occasion the owner’s team may even negotiate a price for the change order work but then fail to issue a final binding change order after the contractor has completed the work. In T. Moriarty & Son, Inc. v. New York City DEP, 2016 NY Slip Op 31540(U) (Sup. Ct. NY 2016), a case I handled, this is precisely what happened.
In T. Moriarty, I argued that the DEP’s management team acted in bad faith by negotiating an acceleration change order in the amount of $1,762,310.07, only to reduce it to $1,027,565.00 after T. Moriarty had completed the work. The DEP’s bad faith was supported by internal documents recovered in discovery which confirmed that although the management team knew that the change order would be reduced, they failed to disclose this fact to T. Moriarty until after it completed accelerating the work.
The bottom line is that while the terms and conditions of a written contract will generally govern disputes concerning items of extra work, parties are still required to act in good faith in their dealings with each other.
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.
Disclaimer: This article is for informational purposes only and not intended to serve as legal counsel.