Clauses Granting Discretion to Reschedule or Resequence Work: Are There Limits?
Construction managers and general contractors frequently include provisions in trade contracts and subcontracts granting the construction manager and general contractor discretion to modify the schedule and sequence of the trade contractors’ or subcontractors’ work.
Those provisions usually then go on to preclude or limit any additional compensation for the change in schedule or sequence.
As one court recently observed: “It is completely reasonable that a construction manager should have total and complete control over a project schedule, along with the ability to change the schedules of trade contractors so as to effectively manage the project.” Electric Machinery Enterprises Inc. v. Hunt Construction Group Inc. (In re Electrical Machinery Enterprises Inc.), 416 B.R. 801, 2009 Bankr. LEXIS 2374, *212 (Bankr. Ct. M.D. Fla. 2009).
Yet, that same court concluded the construction manager’s “total and complete control,” in fact, was not limitless. The EME court’s analysis is instructive for understanding the boundaries of that discretion.
In EME, a joint venture of Hunt Construction Group Inc., The Clark Construction Group Inc. and Construction Two Construction Manager Inc. was the construction manager for Phase V of the Orange County Convention Center in Florida. One of the three major electrical subcontractors was Electric Machinery Enterprises Inc. with an original subcontract price of $14,386,827. (The EME court refers to the “subcontractor” but also to the “Trade Contract” so it is unclear from the decision whether the construction manager was acting as “constructor” or as “advisor.”)
“... the construction manager’s ‘total and complete control,’ in fact, was not limitless. The limitations of the Rescheduling Clause cannot shield the construction manager from liability for its breach of its contractual obligations to schedule and coordinate the work.”
The initial project schedule was dated November 2000. In August 2001, three days after the electrical subcontractor signed its subcontract, the construction manager issued a revised, compressed schedule.
Although the construction manager thereafter issued new schedule updates, the construction manager began to coordinate the work through short-term look-ahead schedules rather than by the overall project schedule.
As early as three months after the electrical subcontractor signed the subcontract, correspondence began about possible additional compensation because of schedule and coordination issues. The electrical subcontractor objected to the construction manager’s schedules and forwarded a schedule analysis comparing the construction manager’s update to the original schedule, advising of compression, logic changes and logic irregularities.
Disputes grew. Eventually, after completion, electrical subcontractor sued for $538,280 in unpaid contract balance and approximately $11 million in damages for delays and impacts to labor productivity.
The case resulted in a 39-day trial with a 256-page trial court opinion.
We discuss only one issue in this article: the construction manager’s claimed contractual discretion to modify the sequence and schedule of the subcontractors’ work.
For the defense that the subcontract gave the construction manager discretion to modify the schedule and sequence of subcontractors’ work, the construction manager relied on the following provision (the Rescheduling Clause):
“Priority of Work: [Construction Manager] shall have the right at any and all times to modify the project schedule, to...