A concrete sub-subcontractor breached its contract by refusing for perform extra work as directed by its contractor unless the contractor agreed upon the compensation amount to be paid and executed a change order. The court held that the language of the subcontract required the subcontractor to perform when directed by the contractor even if the amount to be paid might be disputed, and that the contractor was not required to execute a change order before the subcontractor would start performing the required work. McCarthy Concrete, Inc., v. Banton Construction, 203 A.D.3d 1496 (New York 2022).
For purposes of ease of reading, we are going to all the sub-subcontractor the “Plaintiff” or “Subcontractor”, and we The court explained the background as follows:
Plaintiff performed work on the project until the summer of 2015, when an “overall work suspension” by Amtrak caused Banton to demobilize plaintiff, estimating that the project would resume in the spring of 2016. After being unable to resolve …. Thereafter, Banton indicated that Amtrak desired to make changes to the concrete work including, as relevant here, using a concrete pumping method and installing tactile warning strips, and requested that plaintiff provide proposals for the costs of said modifications. Plaintiff sent proposals for some of the modifications, but they were not agreeable to Banton, and plaintiff was concerned about going forward without reaching an agreement as to compensation that accounted for plaintiff’s increased labor and risk. On September 23, 2016, Banton directed plaintiff to return to the project site and proceed with the remaining work, despite having not yet reached an agreement as to compensation. Banton stated that it was “willing to fund the alleged added costs for concrete pumping and added reinforcing, under a reservation of rights.” Banton also stated that if plaintiff did not commence and continue work within three days, Banton would terminate plaintiff for default as well as seek costs. After plaintiff did not commence work, on September 27, 2016, Banton notified plaintiff that, because plaintiff breached the contract and did not proceed with the work, Banton was “forced to contract with another subcontractor to complete [plaintiff’s] work.”
The issue to be decided by the court was whether the contract was breached by the contractor for refusing to issue a change order, or whether it was breached by the subcontractor for refusing to perform the additional work without first receiving a change order. The subcontract in question contained language typical of what is found in standard form contracts like those issued by the American Institute of Architects and others that require subcontractors to continue performing work so long as directed to do so by the contractor – even though no change order has been issued. The relevant language in this particular contract was quoted by the court as follows:
The subcontract between Banton and plaintiff provides that plaintiff “shall perform and provide all labor, materials, tools, equipment … and any other item necessary to complete the [w]ork described below for the [p]roject” and provides a list of tasks that are “excluded from the subcontract,” including concrete pumping, winter conditions and tactile. With respect to changes and claims, the subcontract states that “[Banton] may, at any time, unilaterally or by agreement with [plaintiff], and without notice to the sureties, make changes in the [w]ork. Any unilateral order, or agreement under this [p]aragraph … shall be in writing, unless an emergency requires [plaintiff] to proceed without a written order. [Plaintiff] shall immediately perform the work as changed without delay ” (emphasis added). The subcontract also provides that, “[f]or changes ordered by [Banton] independent of [Middlesex], [Amtrak] or the [c]ontract [d]ocuments, [plaintiff] shall be entitled to equitable adjustment of the [s]ubcontract [p]rice or [p]roject [s]chedule, or both to the extent that impact can be substantiated to [Banton’s] satisfaction…. Pending resolution of any claim, dispute or other controversy, nothing shall excuse [plaintiff] from proceeding with prosecution of the [w]ork ” (emphasis added).
Although the court agrees with the subcontractor that the changes involved in the additional work were “material changes” the court stated that these changes did not constitute “cardinal” changes. A cardinal change is one that affects the essential identity or main purpose of the contract such that it constitutes a new undertaking. The main purpose of this contract was complete concrete work and the court concluded that the changes requested did not fundamentally change that purpose.
The court concluded its analysis as follows:
That said, we also do not agree with Supreme Court that plaintiff’s performance under the subcontract was excused because there was no promise from Banton to compensate plaintiff for the changed work. Banton established that it had agreed not only to pay for the costs of the equipment needed to pump the concrete, but also agreed to pay some increased costs to plaintiff for the concrete pumping.3 Indeed, Banton’s agreement to pay plaintiff for the changed work went above what Banton was required to do by way of the subcontract, wherein plaintiff agreed that “nothing shall excuse [plaintiff] from proceeding” with the work.4 The subcontract also specifically detailed the process to be followed by plaintiff to seek renumeration for increased costs due to changed work, and, if not satisfied, nothing would preclude plaintiff from commencing suit to seek damages. Further, it is clear from the subcontract that time was of the essence. Plaintiff’s refusal to perform the changed work without an express agreement as to increased costs had the effect of holding Banton hostage in that the work,5 which was part of a much larger project, was stalled. Given that plaintiff had agreed, pursuant to the subcontract, to continue the work while pursing dispute resolution, its failure to perform the work amounted to a breach of the subcontract. Thus, we disagree with Supreme Court that Banton breached the contract based upon terminating the subcontract when plaintiff refused to perform absent an express agreement as to costs for the increased work. Accordingly, we reverse Supreme Court’s determination that Banton breached the subcontract and wrongfully terminated plaintiff and vacate the judgment as to any damages and counsel fees awarded to plaintiff based upon that breach. Rather, we find that plaintiff breached the subcontract by refusing to perform the work as it was required to do under the subcontract and, as such, grant Banton’s counterclaim for breach of contract.
About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk Report, Vol. 25, No. 1 (January 2023).
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