International Production Specialists, Inc. v. Schwing America, Inc. - delay, contract, damages and the 7th Circuit

Posted on September 9, 2009 by Ashley Brandt

It’s not that often that we get to see an in depth analysis of a factual scenario in a construction dispute case. It is even less often that such an analysis is performed by the 7th Circuit.

In the recent case of International Production Specialists, Inc. v. Schwing America, Inc. (Doc. No. 07-3632) the facts were an integral part of the appellate court’s decision to uphold a district court’s determination regarding delay.

A full recitation of the unique situation can be found in the opinion linked above. In short, IPS sued Schwing after Schwing terminated a contract with IPS under which IPS was to supply several silos for a waste treatment facility. Schwing terminated alleging delay on IPS’ part. The contracts had been negotiated and even suspended for a period of time over the course of three years. However, once the contracts were negotiated for a final time and work resumed, Schwing was correct in assuming certain negotiated time-frames and rightfully terminated the contract when IPS failed to perform within time-frames that, while not specifically delineated in the final contract, were at least feasible under previous iterations of the parties’ agreements.

The court upheld the decision in favor of Schwing and also reduced a breach of contract damages award under a theory of betterment for money Schwing was awarded that it hadn’t actually lost through payment to IPS.

The decision is important for anyone looking to understand a nuanced delay scenario and will be of interest to parties looking to re-negotiate terms after suspension or through a mutual decision to alter material terms. What’s most important is the consideration of previous performance obligations under an altered construction contract to determined unspecified altered or corrected present obligations. Again, delay is often a basis for terminating a contract and the damages resulting from delay can be steep, but as we’ve said before, the point of the action against another for breach of contract is not putting a party in a better position than it would have been if there was no delay and no breach.

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Is Time Really of the Essence in Construction Contracting?

Posted on March 10, 2009 by Ashley Brandt

 

Ken Adams over at Adams Drafting has continued his discussion regarding “time is of the essence” clauses in contracts. Today’s entry is an excellent discussion of the application of these clauses in the construction contracting where it is understood that delays are going to occur and are, quite possibly, just the natural course of any project.

His point is well suited to Illinois as well. While we see these provisions can have enforcement in real estate and other transactions:

“Third, we find that the trial court properly held that defendants' enforcement of the “timeis of the essence” provision in condition 7 of the contract was proper. Parties to a contract may make “timeis of the essence” a provision of the contract. A court will give effect to this provision when no peculiar circumstances have intervened to prevent or excuse strict compliance. The extent to which a court will enforce a timeis of the essence provision depends upon the intent of the parties as determined by language used in the contract and the circumstances surrounding the agreement.” Maywood Proviso State Bank v. York State Bank and Trust Co., 252 Ill.App.3d 164, 625 N.E.2d 83 (1 Dist.,1993).

Illinois courts tend to recognize and accept the arguments that construction contracts are different beasts in this realm and that some delay in projects is inherently reasonable:

“The Claimant, TWC, has argued that it should receive $91,795 for damages on the site utilities contract, $399,988 on the heating contract, and $218,146 on the ventilation contract. Most, if not all, construction projects will have some delays. Projects with multiple contractors requiring coordinated efforts are more likely to have delays. In this case, the majority of the delays are attributable to the architect-engineer and CDB. Much less delay is attributable to the contractors. For a delay to be tolerated, it must be reasonable under the circumstances. Much of the delay on this project was beyond reasonable.  As this Court [has previously found]we do not believe that the damages are computable to the penny as Claimants have tried to show. With the fact that some delay is reasonable and inevitable and the inherent speculative nature of computing losses in construction cases, we must try to find a fair figure for damages after weighing the evidence as is the Court's responsibility.”McCarthy Bros. Co. v. State, 47 Ill.Ct.Cl. 15, (1995).

Given the inherent nature of delay it is no wonder that many contracts now advance certain steps or actions as the marking points for different phases of completion and allow for an Architect or other actor to certify substantial completion. The current method is by far preferable to all parties involved and means we don’t have to bother courts with re-hashing the understanding that the construction process is different from other arenas.

However, Ken’s point about the lack of utility in these provisions is well taken, especially when many manuscript contracts contain the sentence.

 

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