MROWIEC

Most construction contracts or construction supply agreements contain required completion or delivery dates. Some also incorporate a construction schedule. But some contracts neither provide a specific, firm completion date nor expressly incorporate any construction schedule.

If an agreement does not provide a completion date or does not incorporate a schedule, may a construction schedule nevertheless assist in determining a party’s timeliness obligation? That issue was addressed in the recent case of International Production Specialists, Inc. v. Schwing America, Inc., 2009 U.S. App. LEXIS 19842 (7th Cir. Sept. 2, 2009).

In Schwing America, Volst-Alpine Industries, Inc. acted as general contractor to the North Shore Sanitary District to build a wastewater treatment facility in Waukegan, Ill. The general contractor hired Schwing America, Inc. to fabricate and install five silos and other equipment to store and treat sludge at the facility. In turn, the subcontractor hired International Production Specialists, Inc. to fabricate and install only the silos for $666,372.

Initially, the purchase order for the silos included a delivery date of December 28, 2001, to meet three approximate installation dates for the five silos, depending on the type of silo. The fabricator began fabrication and the subcontractor made progress payments of $595,692.

Before any of the silos were completely fabricated, the owner suspended work. The subcontractor instructed the fabricator to continue fabricating the first two of the five silos but to cease on-site work. The subcontractor also advised the fabricator to continue to deliver materials to the site but not to install anything.

Five months later, the general contractor inspected the fabricated work. The general contractor identified fifteen problems with the fabricated silos including improper welding and painting. After the inspection, the project remained suspended for two years. Eventually, the owner selected a new site in Zion, Ill., for the project.

The subcontractor and fabricator signed a change order increasing the purchase order price and containing other terms. The change order’s only reference to completion was an “expected” date for completion of the “majority” of the work on three of the five silos.

On the day the change order was signed, the subcontractor sent the fabricator a 400-activitity project schedule. The project schedule listed early start and early finish installation dates for the five silos.

The fabricator installed two of the silos timely but did not meet the dates contained in the construction schedule for the remainder. When the subcontractor inspected the in-fabrication silos, it reportedly found that two of the silos were only 50% complete and another had not been assembled because pieces of it remained at the prior construction site. Nevertheless, the subcontractor paid another of the fabricator’s invoices.

The fabricator then invoiced for alleged costs of delay arising from what the fabricator contended were unsuitable conditions at the new site. Thereafter, the subcontractor found paint problems on silos in fabrication.

The subcontractor then terminated the purchase order. The subcontractor incurred $545,000 to complete and correct the work.

The fabricator sued, claiming a wrongful termination and damages for extra costs. The subcontractor counterclaimed alleging damages for delays and deficient performance.

After a two-day trial, the trial court ruled in favor of the subcontractor, holding that the termination was justified and awarding $467,140 in damages against the fabricator. The fabricator appealed.

On appeal, the primary question was what performance timing was required under the purchase order as modified by the change order. The original purchase order did contain delivery and approximate installation dates. Those dates were superseded by the long suspension. But the appellate court still found them relevant because they showed the expected duration between delivery dates and installation dates.

The change order contained no firm delivery and installation dates—only dates for completion of the majority of the work on three of the five silos. The Schwing America court noted that where a contract does not contain a time for performance, a “reasonable time” is implied by law. What is a “reasonable time” is a “question of fact” for determination by the trial court. The fabricator argued that the schedule was not an incorporated contract document and, thus, should not be considered.

The appellate court asked how a trial court would determine what was a “reasonable time” for performance on a complex construction project. “The logical place to begin is by looking at the highly detailed document that sets forth all the various time frames for the project ­the layout schedule.” Indeed, the fabricator even had referenced the schedule when the subcontractor once requested delivery on dates long prior to the schedule’s installation dates.

Admittedly, the “schedule is the beginning, and not the end of the consideration.” A court also must “consider the circumstances, bearing in mind normal delays of construction, whether [subcontractor] or other contractors or subcontractors bore responsibility for the delays, and the benefit [subcontractor] could reasonably expect.”

The Schwing America court reasoned that it really did not matter in that case whether the schedule was or was not incorporated as part of the purchase order. In either case, the schedule’s durations could be read consistently with the original purchase order to project “reasonable” delivery and installation dates after the change order had been signed. The fabricator did not meet the dates and had no valid excuse. The appellate court affirmed the holding for the subcontractor against fabricator.

Schwing America teaches that even where a schedule is not an incorporated contract document, it might have significant value as a starting point for determining timeliness obligations where the contract is lacking in detail. However, other circumstances of the project also might be relevant.