In  Commonwealth Construction Co. v. Cornerstone Fellowship Baptist Church, Inc., (Del. Super., Oct. 3, 2006), read opinion here, the Superior Court addressed core construction law issues. Every contractor should read this decision that contains extensive analysis of key provisions of a commonly used AIA Agreement.  In the decision, the court determined that the owner waived its right to sue for failing to give the proper notice pursuant to the terms of the Agreement.  Moreover, the court found that the contractor was within its rights to file a mechanics lien, as well as a breach of contract claim (as part of the same lawsuit) because the contractor did follow the procedures set forth in the Agreement.  Although the court’s decision is 44 pages long, and space does not permit me to include all of the extensive details in this short summary, I will try to highlight what I view as some of the key aspects of the decision. 

The court addressed issues arising out of a 1997 version of the Standard Form of Agreement Between Owner and Contractor (“Agreement”) (A101) promulgated by the American Institute of Architects (“AIA”).  Also included in the court’s decision was a discussion of the General Conditions of the Contract, AIA document A201-1997.  Of course, the contract documents included drawings, specifications and other modifications or amendments.  The court gave an extensive analysis of Change Orders (“CO”) which of course initially began as Change Order Proposals (“COP”).  The court noted that the Agreement required that Change Order Proposals were initiated by the contractor by sending a Request For Information (“RFI”) to the design professional, who in this case was a P.E.  The RFI was submitted when the contractor thought that the drawings or the intent of the design were not clear, or where changes to the design were necessary during actual construction.  When the contractor received a response to the RFI that required a change to the scope of work, the contractor drafted a COP which was sent to the design professional for review.  Once the owner approved the COP it became a final Change Order, which would formally modify the Agreement. 


            The total contract price involved was approximately $2.3 million and the court observed that there were a total of 181 RFI’s; 155 COP’s which resulted in 119 CO’s.  One witness testified at trial that a project of similar size would generally have only approximately 60 RFI’s; 50 COP’s and perhaps 20 CO’s.


            The key procedures required under the Agreement regarding disputes began with Section 4.4.1 of the General Conditions which required that any claims arising under the Agreement should be submitted first to the architect.  The court noted that even though the architect was considered the representative of the owner, there were safeguards in Section 4.2.12 against abuse by the architect.  Section 4.4.1 also provided that an initial decision by the architect was required as a condition precedent to mediation, arbitration or litigation of any claims between the contractor and the owner arising prior to the date final payment was due.  Although the contractor submitted several claims for non-payment, the court noted the special treatment given to mechanics’ liens under Section 4.4.8 which allowed a party to file a mechanics’ lien prior to the resolution of any claims by the architect.


            The court noted that Section 9.7.1 allowed the contractor to stop work when it was not being paid if certain provisions were met.  Section 2.2.1 also allowed the contractor to stop work if the owner did not provide reasonable evidence of financial ability to make future payments under the Agreement.  This was key here because the contractor heard that the owner was having financial trouble and the owner was not reassuring.


            The court summarized the key requirements under the mechanics’ lien law pursuant to 25 Del. C. Section 2712(b).  The court cited other decisions that recognized some flexibility in the requirements by noting that even though the statute is strictly construed, the court will not “unreasonably interpret” the statute if it was substantially complied with when suit was filed.  (However, in my view, one would not be well-served to rely too heavily on a broad application of that comment.)  The court observed that demolition work is usually not with the scope of a mechanics’ lien, and there also were issues about the proper commencement date for the work, which is a trigger for the timetable when a lien must be filed.  The owner waived these defenses, however, due to the failure of the owner to raise those issues until after the non-jury trial.


            One of the most noteworthy aspects of this decision is that the court construed the failure to first submit a claim to the architect pursuant to Section 4.4.1 of the AIA Agreement to be a material breach of the Agreement that, therefore, barred the party failing to comply with that provision from pursuing any remedies in a lawsuit.


            The court recited the basic principle of contract law which is that in order for a party to seek damages for breach of contract, that party must first establish its own substantial compliance with the contract.  This is unlike a small or minor breach.  If a breach is material, however, it will excuse a non-breaching party from performance.


            There are many more facts and details in the lengthy decision by the court, but in this very small space available I have summarized the key aspects which should be remembered by any contractor who wants to be prepared to collect on a job where it is not paid by the owner.