Owner’s Interference on a Multi-Prime Construction Project

This is the fifth blog post in a six-part series about an owner’s duty to coordinate and cooperate on multi-prime construction projects. The purpose of this series is to provide awareness of the owner’s duties along with case examples on the subject. This post provides a case example of an owner’s unreasonable interference on a multi-prime construction project, which resulted in a contractor’s recovery of its increased costs.

Case Example No. 3 – Unreasonable Interference by the Owner
In United States Steel Corporation v. Missouri Pacific Railroad Company,¹ the United States Court of Appeals (the “USCA”) found active interference by the owner, Missouri Pacific Railroad (“Mopac”), that entitled the contractor, United States Steel Corporation’s American Bridge Division (“ABD”), to recover damages caused by the active interference. Mopac contracted with ABD for alterations to the superstructures of two bridges along the Arkansas River near Little Rock, Arkansas.

Mopac utilized multi-prime contracting for this fast-track project. Mopac contracted the substructure work in a separate prime contract with Al Johnson Construction Co. (“Johnson”). Elements of Johnson’s work were dependent on ABD’s work, and ABD’s work depended on the timely completion of certain substructure work by Johnson.

Johnson encountered unforeseen obstacles that caused repeated revisions and extensions to Johnson’s scheduled completion date. This delayed ABD’s site access and the startup of ABD’s work. ABD’s contractual commitments and planned performance were directly based on Mopac’s timely notice to proceed order. Because ABD was unable to follow through with its large commitments, ABD claimed that it was damaged by the delayed access to the site.

The USCA found that Mopac, by giving notice to proceed to ABD while knowing that delays to Johnson’s work were inevitable, actively interfered with ABD’s ability to maintain a flexible work schedule in the face of Johnson’s difficulties. The USCA declared that in order to find active interference, the following must be demonstrated:

There must be findings that the party committing the interference willfully acted in bad faith which unreasonably interfered with the contractor’s compliance with the contract.

The USCA concluded that Mopac’s actions constituted a willful act of bad faith and impacted ABD’s least-cost performance of its work. The USCA ordered Mopac to reimburse ABD.

¹     United States Steel Corporation v. Missouri Pacific Railroad Company, No. 80-1935 (1982).

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