R&R, INC. OF LOUISVILLE v. COMMONWEALTH OF KENTUCKY, FINANCE AND ADMINISTRATION CABINET and APEX INDUSTRIES, INC. v. COMMONWEALTH OF KENTUCKY, FINANCE AND ADMINISTRATION CABINET
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RENDERED: MARCH 18, 2005; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2004-CA-000691-MR
R&R, INC. OF LOUISVILLE
v.
APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE WILLIAM L. GRAHAM, JUDGE
ACTION NOS. 00-CI-00100 & 00-CI-00296
COMMONWEALTH OF KENTUCKY,
FINANCE AND ADMINISTRATION CABINET
AND:
NO.
2004-CA-000723-MR
APEX INDUSTRIES, INC.
v.
APPELLEE
APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE WILLIAM L. GRAHAM, JUDGE
ACTION NOS. 00-CI-00100 & 00-CI-00296
COMMONWEALTH OF KENTUCKY,
FINANCE AND ADMINISTRATION CABINET
OPINION
AFFIRMING
** ** ** ** ** ** ** **
APPELLEE
BEFORE: TACKETT AND VANMETER, JUDGES; MILLER, SENIOR JUDGE.1
MILLER, SENIOR JUDGE:
R&R, Inc. of Louisville (R&R) and Apex
Industries (Apex) appeal from an opinion and order of the
Franklin Circuit Court granting summary judgment to the
Commonwealth of Kentucky, Finance and Administration Cabinet
(Cabinet), in a contract dispute in which R&R and Apex seek
compensation for delays in a construction project.
Because
compensation to the appellants for such delays are explicitly
excluded under their contract with the Cabinet, we affirm.
This action arises from a contractual dispute related
to the construction of the Commonwealth Convention Center
Expansion Project in Louisville, Kentucky (Expansion Project).
The Expansion Project entailed the use of multiple contractors.
To expedite the bidding process, the Project was slated for
“fast track” bidding – a practice in which the separate
components of the Project would be submitted for bids in “Bid
Packages.”
This bidding methodology allowed specific portions
of the project to be awarded while others were still in earlier
stages.
On October 31, 1997, Apex entered into a contract with
the Cabinet for the installation of a “fire sprinkler system” in
1
Senior Judge John D. Miller sitting as Special Judge by assignment of the
Chief Justice pursuant to Section 110.(5)(b) of the Kentucky Constitution and
KRS 21.580.
2
the Convention Center Expansion Project.
On November 7, 1997,
R&R entered into a contract with the Cabinet to provide “labor
and material” for Phase I construction of the Expansion Project.
Both contracts established an initial project completion date
for Apex’s and R&R’s work of March 14, 1999.
Service Fabrication, Inc. was awarded the contract for
erection of the structural steel for the Project.
Pursuant to
its contract with the Cabinet, it was to complete its work on or
before July 31, 1998.
Unfortunately, Service Fabrication fell
substantially behind schedule.
Without the structural steel in
place, neither Apex nor R&R could carry out its required work.
On December 3, 1998, the Cabinet issued an “Advice of
Change” order advising the appellants that the Phase I
completion date had been extended until June 25, 1999, in order
to allow Service Fabrication to “catch up” with its work.
The
Change Order stated that the revised completion date would not
result in any increase to the contract amount for the
contractors, such as the appellants, who were affected by the
delay.
As a result of the delays, the actual contract final
completion date for Apex did not occur until August 14, 1999,
and the final completion date for R&R did not occur until
November 30, 1999.
As a result of the delays, Apex and R&R requested
additional compensation from the Cabinet, which was denied.
3
The
appellants subsequently filed actions in Franklin Circuit Court
seeking damages for the delays.
The appellants claimed damages
related to extended job site costs, added labor costs, lost
productivity, acceleration costs, and forfeiture of other
business opportunities.
On January 15, 2004, the circuit court
entered an order granting summary judgment to the Cabinet.
The standard of review on appeal when a trial court
grants a motion for summary judgment is whether the trial court
correctly found there were no genuine issues as to any material
fact and that the moving party was entitled to judgment as a
matter of law.
Palmer v. International Ass’n of Machinists, 882
S.W.2d 117, 120 (Ky. 1994); Stewart v. University of Louisville,
65 S.W.3d 536, 540 (Ky. App. 2001); Kentucky Rules of Civil
Procedure (CR) 56.03.
The movant bears the initial burden of
convincing the court by evidence of record that no genuine issue
of fact is in dispute, and then the burden shifts to the party
opposing summary judgment to present "at least some affirmative
evidence showing that there is a genuine issue of material fact
for trial."
Steelvest, Inc. v. Scansteel Service Center, Inc.,
807 S.W.2d 476, 482 (Ky. 1991); see also City of Florence,
Kentucky v. Chipman, 38 S.W.3d 387, 390 (Ky. 2001).
"The party
opposing summary judgment cannot rely on their own claims or
arguments without significant evidence in order to prevent a
summary judgment."
Wymer v. JH Properties, Inc., 50 S.W.3d 195,
4
199 (Ky. 2001)(citing Harker v. Federal Land Bank of Louisville,
679 S.W.2d 226 (Ky. 1984)).
The court must view the record in
the light most favorable to the non-movant and resolve all
doubts in his favor.
Commonwealth v. Whitworth, 74 S.W.3d 695,
698 (Ky. 2002); Lipsteuer v. CSX Transportation, Inc., 37 S.W.3d
732, 736 (Ky. 2000).
"The inquiry should be whether, from the
evidence of record, facts exist which would make it possible for
the nonmoving party to prevail.
In the analysis, the focus
should be on what is of record rather than what might be
presented at trial."
Welch v. American Publishing Co. of
Kentucky, 3 S.W.3d 724, 730 (Ky. 1999); see also Murphy v.
Second Street Corp., 48 S.W.3d 571, 573 (Ky. App. 2001).
An
appellate court need not defer to the trial court's decision on
summary judgment and will review the issue de novo because only
legal questions are involved.
See Lewis v. B & R Corp., 56
S.W.3d 432, 436 (Ky. App. 2001); Barnette v. Hospital of Louisa,
Inc., 64 S.W.3d 828, 829 (Ky. App. 2002); Hallahan v. The
Courier Journal, 138 S.W.3d 699, 704-705 (Ky. App. 2004).
The construction and interpretation of a contract,
including questions regarding ambiguity, are questions of law to
be decided by the court.
Hibbitts v. Cumberland Valley National
Bank & Trust Company, 977 S.W.2d 252, 254 (Ky. App. 1998); First
Commonwealth Bank of Prestonsburg v. West, 55 S.W.3d 829, 835
(Ky. App. 2000).
The cardinal rule of contract interpretation
5
is that all words and phrases in the contract are to be given
their ordinary meanings.
O'Bryan v. Massey-Ferguson, Inc., 413
S.W.2d 891 (Ky. 1966); Fay E. Sams Money Purchase Pension Plan
v. Jansen, 3 S.W.3d 753, 757 (Ky. App. 1999).
Any contract or
agreement must be construed as a whole, giving effect to all
parts and every word in it if possible.
The legal
interpretation of a contract should be made in such a way as to
make the promises mutually binding on all parties unless such a
construction is wholly negated by the language used.
See
Association of Army & Navy Stores v. Young, 296 Ky. 61, 176
S.W.2d 136 (Ky. 1944); City of Louisa v. Newland, 705 S.W.2d
916, 919 (Ky. 1986).
In the absence of ambiguity a written
instrument will be enforced strictly according to its terms, and
a “court will interpret the contract's terms by assigning
language its ordinary meaning and without resort to extrinsic
Frear v. P.T.A. Industries, Inc., Ky., 103 S.W.3d
evidence.”
106 (Ky. 2003).
The appellants’ principal argument is that Article 14
of their contract with the Cabinet, rather than Article 16,
applies in the present situation.
Article 16, the provision of
the appellants’ contract with the Cabinet which directly
addresses issues of delays and extensions of time, states as
follows:
Article 16 - Delays and Extensions of Time
6
It is agreed that time is of essence for
each and every portion of this contract and
where under the contract an additional time
is allowed for the completion of any work,
the new time limit fixed by such extension
shall be of the essence of this contract.
Provided, the Contractor shall not be
charged with liquidated damages or any
access cost when the delay in completion of
the work is due to:
(1) any preference, priority, or allocation
order duly issued by the government;
(2) unforeseeable cause beyond the control
and without the fault or negligence of the
Contractor, including but not restricted to,
acts of God, or of the public enemy, acts of
the Owner, acts of another Contractor in the
performance of a contract with the Owner,
fires, floods, epidemics, quarantine
restrictions, strikes, freight embargoes and
unusually severe weather; or
(3) any delays of subcontractors or
suppliers occasioned by any of the causes
specified in subsection (1) and (2) of this
article:
on condition that the Contractor shall,
within fifteen (15) calendar days of the
occurrence of the event, notify the
Architect in writing. The Architect shall
ascertain the facts and extent of the delay
and notify the Contractor within a
reasonable time of its decision in the
matter. Any change in the contract time
resulting from any such claim shall be
incorporated in a change order. An
extension of time shall not be construed as
cause for extra compensation under the
contract. Extensions of time relating to
concealed conditions as defined in Article
15 shall be governed by the provisions of
that article. (Emphasis added).
7
We believe the provision “[a]n extension of time shall
not be construed as cause for extra compensation under the
contract” is dispositive in this case.
Application of the
normal meaning of these words produces an interpretation that
contractors such as Apex and R&R are not entitled to additional
payment in the event of mere delays in the completion of work
schedule.
We believe the circuit court correctly analyzed the
distinction between Articles 14 and 16 of the contract, and
therefore adopt its reasoning:
In this [Article 16] and other articles, the
Owner means the [Cabinet] and the Contractor
means R&R and Apex. The [Cabinet] issued
change orders to R&R and Apex that extended
their contract completion dates. The
[Cabinet] maintains that R&R and Apex are
not entitled to additional compensation
because Article 16 states that ‘[a]n
extension of time shall not be construed as
cause for extra compensation.” The
[Cabinet] interprets this sentence to be a
“no damages for delay” clause. These
clauses, though harsh, are generally
enforced. See Humphreys v. J.B. Michael &
Co., 341 S.W.2d 229, 233 (Ky. 1960); Green
Plumbing & Heating Co. v. Turner Constr.
Co., 742 F.2d 965, 966 (6th Cir. 1984).
R&R and Apex assert that the sentence in
Article 16 is not a “no damages for delay”
provision. Apex reads the sentence to mean
that “if an extension of time is granted to
a particular contractor, then the extension
is not automatically deemed to warrant
additional compensation. [] Apex believes
that the sentence refers to situations where
a contractor needs extra time and when
extensions will not alter a critical
contract date or a completion date. [] R&R
8
refers to decisions in other jurisdictions
that strictly construe “no damage for delay”
clauses. See, e.g., E.C. Ernst, Inc. v.
Manhattan Constr. Co. of Tex., 551 F.2d
1026, 1026 (5th Cir. 1977). Both parties
argue that since Article 16 does not clearly
prohibit damage claims for delays, they can
recover delay-related damages from the
[Cabinet].
R&R and Apex also believe that Article 14 of
the contract mandates that the [Cabinet]
adjust their contract prices for the delay.
Article 14 is titled “Changes in the Work,”
and states in relevant part that:
The Owner, without invalidating the
contract, may as the need arises,
unilaterally order changes in the work
in the form of additions, deletions or
other revisions. Such changes in the
work shall be authorized by Change
Order signed by the Owner and
Architect. The Contract Sum and the
Contract Completion Time will be
adjusted accordingly.
Here, the [Cabinet] unilaterally revised its
contracts with R&R and Apex by extending
their contract completion dates. Pursuant
to Article 14, R&R and Apex argue that the
[Cabinet] Commonwealth then needed to adjust
the “Contract Sums” for R&R and Apex. The
[Cabinet] contends that Article 14 only
applies when it orders change orders for
extra work. But Article 14 allows change
orders for “additions, deletions, or other
revisions.” One or more of these categories
could be interpreted to include extending
the contract completion date. R&R and Apex
would then be entitled to additional
compensation from the [Cabinet].
R&R and Apex fail to convince the Court.
Article 16 applies because it is titled
“Delays and Extensions of Time” and is the
only contractual provision that addresses
9
these categories. The article addresses
delays caused by the [Cabinet] or other
contractors, and it states that time
extensions do not warrant additional
compensation. Since R&R and Apex received
time extensions due to delays allegedly
caused by the [Cabinet] and Service
Fabrication, R&R and Apex are not entitled
to extra compensation from the [Cabinet].
See Humphreys, 341 S.W.2d at 233; Green
Plumbing, 742 F.2d at 966.
Article 16 would have unequivocally
controlled the situation if R&R and Apex
initially requested time extensions. The
article provides that if a delay is caused
by the [Cabinet] or another contractor, such
as Service Fabrication, then the other
contractors, such as R&R and Apex, can
request time extensions if they will be
delayed. Although R&R and Apex did not
request extensions, the [Cabinet] apparently
knew that they would be delayed and
consequently extended their contract
completion dates. Had the correct Article
16 procedure been followed, R&R and Apex
would have learned about the delay and
requested time extensions, or they may have
been subject to liquidated damages.2
Undoubtedly the [Cabinet] would have granted
the time extensions since it unilaterally
extended their contract deadlines. The
Court would be elevating form over substance
if it found that because the correct Article
procedure was not followed to the letter,
Article 16 does not control.
Article 16 is more applicable than Article
14 because the latter does not address
2
Another way of interpreting Article 16 is that except for the first
sentence, the parties meant the article to solely address when contractors
may be subject to liquidated damages if delays occur at no fault of their
own. Since the sentence stating that time extensions do not merit extra
compensation is embedded in the liquidated damages provision, it could be
argued that the parties did not mean the sentence to be a “no damages for
delay” clause. The Court, nevertheless, believes that the parties meant
Article 16 to address delays and time extensions in situations besides the
liquidated damages context for the reasons set forth in the text.
10
delays and time extensions. Article 14
addresses when the [Cabinet] orders changes
in work, such as requesting additional work
or equipment changes, not changes in
contract completion times. Courts hold that
specific contractual provisions control “in
cases of ambiguity.” See State Auto. Mut.
Ins. Co. v. Ellis, 700 S.W.2d 801, 803 (Ky.
App. 1985). Article 16 controls because it
specifically addresses delays and time
extensions. The article also states that
the time extensions “shall be incorporated
in a change order,” and that a time
extension does not warrant additional
compensation. The article, therefore,
authorizes the issuance of change orders
that extend contract completion dates
without adjusting contract awards.
Apex asserts that the main reason for the
Article 16 provision that time extensions do
not warrant additional compensation is
because Article 14.2, titled Minor Changes,
authorizes the Architect to allow minor
changes that “do not involve additional
const.” The Court disagrees. The Architect
may only authorize minor changes under
Article 14.2 if the changes “do not involve
additional cost or extension of the Contract
Completion Date.” Since Article 16
authorizes the extension of contract
completion dates, the parties meant Article
16 to apply to different situations than the
situations that Article 14.2 addresses.
The appellants further contend that the contract
interpretation principles that the contract be construed as a
whole, that the contract be construed against the drafter, and
that the contract be interpreted so as to afford bilateral
protection to the parties compels an interpretation that they
are entitled to additional compensation as a result of the
11
delays.
However, as the cardinal rule is that contract terms be
given their ordinary meaning, and such interpretation of the
phrase “[a]n extension of time shall not be construed as cause
for extra compensation” produces a result that the appellants
are not entitled to additional compensation as a result of the
delays, these alternative principles are not operative in the
present case.
For the foregoing reasons the judgment of the Franklin
Circuit Court is affirmed.
ALL CONCUR.
BRIEF FOR APPELLANTS:
BRIEF FOR APPELLEE:
Timothy D. Martin
Jason B. Myers
Louisville, Kentucky
Stephen E. Smith
Jennifer Kaelin Luhrs
Louisville, Kentucky
Greg E. Mitchell
Robert S. Walker, III
Jan De Beer
Lexington, Kentucky
12
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