LEGALLY SPEAKING When Is It Ok to Say ‘No’? The Duty to Proceed and Right to Stop Work At some point, virtually every contractor and subcontractor will face the situation of being directed to proceed with the per- formance of contract, extra or corrective work about which there is serious dispute. Most commonly, the dispute is over whether the work is a change to the contract and/or how much the work is worth. The question of whether the contractor or subcontractor should pro- ceed with such work is one fraught with great risk and potential peril. Whether a contractor has a legal duty to proceed with the performance of work is determined primarily by the terms of the contract. Many, if not most, construction contracts and subcontracts contain a clause requiring the contractor to proceed with work despite, and during the pendency of, a dispute over the very work in question. For example, the AIA A201 form contract contains the following provision: § 15.1.4.1 Continuing Contract Perfor- mance. Pending final resolution of a Claim, except as otherwise agreed in writing or as provided in Section 9.7 and Article 14, the Contractor shall proceed diligently with performance of the Contract and the Owner shall continue to make payments in accordance with the Contract Documents. This obligation virtually mirrors the obli- gation of contractors on projects for the federal government. Federal Acquisition Regulation 52.233-1, the “disputes” clause, dictates that: (i) The Contractor shall proceed diligently with performance of this contract, pending final resolution of any request for relief, claim, appeal, or action arising under the contract, and comply with any decision of the Contracting Officer. The intent of these clauses is to ensure that projects do not stop while differences between the parties are resolved. Impor- tantly, courts and boards of contract appeals have consistent ly enforced “duty to proceed” clauses and upheld declarations of default and terminations resulting from a party’s failure or refusal to proceed with work. For this reason, a contractor or subcontractor faced with a dispute over whether a change exists or similar issues is generally well advised to proceed with the work under protest and file a claim for the extra, changed or otherwise impacted work. “Contractors and subcontractors should also be mindful about the language they use during discussions about changes and proceeding with work.” The ramifications of refusing to proceed with work are serious. They can include termination for default, liability for premiums to substitute and complete the work, seizure of the contractor’s materials and equipment, delay damages and, in some cases, consequential damages. Critically, the breach of the duty to proceed can even absolve the terminating party of liability for an incorrect decision or position in the underlying initial dispute. For example, in the 2018 case, Sampson Construction Co., Inc. v. Martin, a Nebraska court upheld the termination of a plumbing subcontractor who stopped work over a dispute about welds in its piping. In the liti- gation over the termination, the plumbing subcontractor focused its defense solely on challenging the contractor’s determination that the plumbing work was defective, without addressing the issue of con- Brian Wood Partner Smith, Currie and Hancock tinuation of work. The court’s decision, however, turned on the subcontractor’s failure to follow the contractor’s directives to proceed with the repairs and follow the contractual requirements, irrespective of whether the allegations of defective work were correct. The court held: The contract further set forth the manner in which replacement of allegedly defec- tive work was to be corrected. There is no question that Aqua Plumbing failed to abide by these requirements, regardless of whether its work was, in fact, defec- tive. (emphasis added) In other words, refusing to proceed with work can bail the other party out of a mistake. The duty to proceed is not absolute. Courts and boards of contract appeals have recognized exceptions to the duty to proceed where: • The party directing the contractor to proceed materially breaches the contract. • The contract and specifications are so defective that performance will result in failure. • The contractor requires a clarification or information from the other party to proceed. Material breaches can include nonpayment of undisputed amounts without reasonable justification or making changes so sub- stantial in nature and/or magnitude that they fundamentally change the purpose or scope of the contract. These changes are commonly referred to as “cardinal” DEEP FOUNDATIONS • MAY/JUNE 2019 • 107
