CITY OF PERTH AMBOY VS. INTERSTATE INDUSTRIAL CORP. VS. IMPERIAL CONSTRUCTION GROUP, INC.(L-2745-06, L-3789-07 AND L-7861-07, MIDDLESEX COUNTY AND STATEWIDE)(CONSOLIDATED)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court."
Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R.1:36-3.

SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0778-14T4
A-0842-14T4

CITY OF PERTH AMBOY,

Plaintiff-Respondent/
Cross-Appellant,

v.

INTERSTATE INDUSTRIAL CORP.,

Defendant-Respondent/
Cross-Appellant,
and

XL SPECIALTY INSURANCE COMPANY
and S.M. ELECTRIC COMPANY, INC.,

Defendants,
and

TAK CONSTRUCTION, INC.,
SAFECO INSURANCE COMPANY
OF AMERICA,

Defendants-Appellants/
Cross-Respondents,
and

XL SPECIALTY INSURANCE COMPANY,

Third-Party-Plaintiff,

v.

IMPERIAL CONSTRUCTION GROUP,
INC.,

Third-Party-
Defendant-Respondent,

and

MICHAEL ZEMSKY, A.I.A.,
ARCHITECTS AND PLANNERS,

Third-Party Defendants.
________________________________________

Argued November 29, 2016 – Decided May 17, 2017

Before Judges Messano, Espinosa and Guadagno.

On appeal from the Superior Court of New
Jersey, Law Division, Middlesex County, Docket
Nos. L-2745-06, L-3789-07 and L-7861-07.

Benjamin D. Lentz argued the cause for
appellant/cross-respondent Safeco Insurance
Company of America (Torre, Lentz, Gamell, Gary
& Rittmaster, L.L.P., attorneys; Kevin M.
Gary, on the briefs).

Geoffrey J. Hill argued the cause for
appellant/cross-respondent TAK Construction,
Inc. (Law Offices of Steve M. Kalebic, P.C.,
attorneys; Steve M. Kalebic, of counsel and
on the briefs).

Timothy D. Cedrone argued the cause for
respondent/cross-appellant City of Perth
Amboy (Apruzzese, McDermott, Mastro & Murphy,
attorneys; Mark J. Blunda, of counsel and on
the brief; Mr. Cedrone, on the briefs).

Robert S. Cosgrove argued the cause for
respondent/cross-appellant Interstate
Industrial Corp. (Durkin & Durkin, L.L.P.,
attorneys; Mr. Cosgrove, on the briefs).

2 A-0778-14T4
 James J. Ross argued the cause for respondent
Imperial Construction Group, Inc. (Carroll,
McNulty & Kull, L.L.C., attorneys; Joseph P.
McNulty, of counsel and on the brief; Mr.
Ross, of counsel and on the brief; Michael S.
Kerr, on the brief).

PER CURIAM

These consolidated appeals arise from the construction of a

municipal complex in the City of Perth Amboy (the City). The

project envisioned a free-standing building housing the fire

department and emergency medical services (the first building),

and a second building containing the public safety department,

municipal court and community center, which included swimming

pools and a gymnasium. The City intended to expedite completion

of the project within one year. It decided not to hire a general

contractor, but rather have its business administrator serve as

project manager and contemporaneously award contracts to a number

of prime contractors. The process was delayed, and the City

opted to begin awarding contracts seriatim, even though, in some

instances, plans and specifications were not complete.

The City awarded multiple contracts, including those to:

Michael Zemsky, A.I.A., Architects & Planners (Zemsky), for

architectural services; Imperial Construction Group (Imperial),

for construction management; Interstate Industrial Corp.

(Interstate), for concrete work; and TAK Construction Co. (TAK),

3 A-0778-14T4
the largest contract — $19.774 million — for general construction.

Safeco Insurance Company of America (Safeco) was TAK's surety, and

XL Specialty Insurance Company (XL) was Interstate's surety.

Zemsky was to supply "normal" structural, mechanical and

electrical "engineering services" for all project phases, from

design through construction. He was required to prepare all design

and construction drawings and specifications.

Imperial was the project's construction manager, with

responsibility to monitor the quality of contractor work and

coordinate all work and other activity. It was to review change

orders, make recommendations to the City and Zemsky, and negotiate

final terms with the contractors. Imperial was charged with

"immediately causing the remediation of any incorrect work," and

notifying the City and Zemsky of such deviations or other

deficiencies, as well as "any situation" that might increase the

project's cost or delay its completion.

The contract with Interstate included a time of the essence

provision that subjected the company to per diem liquidated damages

if Interstate did not finish on time. Interstate was subject to

Imperial's direction about the sequencing of work, but Imperial

had no authority over Interstate's "means, methods, techniques,

sequences or procedures of construction."

4 A-0778-14T4
 The contract specified that additional time for completion

was Interstate's only relief against the City, Zemsky, or Imperial

for the effect of any "delay, obstruction or hindrance for any act

or omission of" those parties or other contractors, including

changes in work schedules or sequencing. Additionally, the

contract allowed the City, at its convenience, to terminate

Interstate "for any reason" upon seven days' written notice. The

City could also terminate Interstate for cause within forty-eight

hours of its failure to begin whatever corrective measures Imperial

might demand in order to cure or mitigate insufficient progress

or other defaults on Interstate's contractual obligations. Those

other defaults included the failure to furnish sufficient skilled

labor or, "in the sole opinion of" Imperial, "in any respect to

prosecute the work, to insure its completion in the manner and

within the time determined by [Imperial] or the [City]."

The contract with TAK included identical provisions

permitting termination for convenience and for cause, as well as

time of the essence and liquidated damages provisions. TAK was

to "furnish all labor, materials, equipment, tools and services

necessary to perform and complete the Project in strict compliance

with the Contract Documents." That included the bulk of

construction work following site preparation, except for work done

by other contractors providing structural steel, concrete building

5 A-0778-14T4
foundations and floor slabs, climate control, plumbing, general

electrical work, and the alarm and building management systems,

all of which TAK was responsible for coordinating as "project

coordinator," subject nonetheless to Imperial's direction.

As with Interstate, Imperial would decide questions about the

timelines of TAK's work and satisfaction of its contractual

obligations, and Imperial had no authority over TAK's means or

methods of performance. TAK also waived delay damages for any

additional costs that arose from Imperial's direction and

acknowledged an extension of time would be its sole remedy against

the City, Zemsky, or Imperial for delays that resulted from their

negligence or that of another contractor.

The project rapidly fell behind schedule. The City held TAK

responsible for the delays, and the parties mediated their dispute.

In October 2006, TAK and the City executed a memorandum of

understanding (MOU), also designated as a stipulation of

settlement. The MOU was "a supplement to" TAK's contract and

stated that, "[e]xcept as set forth herein, all other terms and

conditions of [TAK's] Contract remain[ed] in full force and

effect." The MOU set October 31, 2006, as the date for substantial

completion of the first building, and May 15, 2007, as the

completion date for the second building. As to each building, the

City agreed to pay additional sums as "change orders," subject to

6 A-0778-14T4
the right to impose penalties upon TAK for failure to meet

completion dates.

Although TAK substantially completed the first building in

December 2006, disputes over TAK's performance regarding the

second building continued. On March 26, 2007, Imperial sent TAK

the forty-eight-hour notice required by the contract before any

take-over of TAK's work. It cited scheduling failures and advised

TAK that the City was taking control of unspecified "portions" of

TAK's obligations. It instructed TAK "to increase [its] work

force, work hours [and] workdays" and "to work two shifts."

TAK responded the same day, asserting that any delays were

beyond its control and caused by delays and errors of other prime

contractors, design changes, and delayed responses to TAK's

requests for "decisions, approvals, and answers to" requests for

information. Additional disputes arose over the payment of TAK's

invoices. In May, TAK notified Imperial that the City was in

"material breach" of the contract for failing to pay requisitions

for work TAK completed earlier in the year.

On May 16, 2007, Imperial sent TAK a notice listing ten

specific grounds of default. The letter stated that TAK would be

terminated "[i]f [it] fail[ed] to correct this default within the

next seven days." TAK responded by asserting its work was adequate

and any delays were caused by other contractors. The City

7 A-0778-14T4
terminated the contract with TAK on May 23, 2007. Safeco assumed

TAK's contractual responsibilities in June and completed the

project.

More problems arose regarding the second building,

particularly as to a trench drain for the proposed pool deck area.

Imperial believed Interstate had clearly indicated its intention

to mobilize and address the issue, but Interstate adamantly

indicated that Imperial had not supplied necessary documentation

and specifications to address an admittedly plain design error in

Zemsky's plans.

On September 23, 2008, Imperial sent Interstate written

notice of default for its alleged failure "to mobilize and schedule

labor and material as required to proceed with the installation

of rebar and concrete in order to complete the pool deck area."

The letter gave Interstate seven days to cure the default to avoid

being terminated on September 30. Nonetheless, at a project

meeting held on September 25, the City's representatives told

Interstate's representatives the company had been terminated.

Another contractor finished Interstate's remaining work and was

paid $43,000.

The City filed the first action in the Law Division against

Interstate, seeking a declaration that Interstate was not entitled

to delay damages. Interstate answered and asserted a counterclaim

8 A-0778-14T4
for wrongful termination and damages. In the second action, TAK

filed a complaint in lieu of prerogative writs challenging the

City's termination of its contract. As expected, the parties

asserted cross-claims and counterclaims against each other, and

other contractors and sub-contractors were added to the suits,

which were then consolidated.1

The judge dismissed certain claims asserted by TAK and

Interstate against Imperial on summary judgment. The bench trial

began in March 2014, with the only remaining parties being the

City, Interstate, TAK and Safeco, plus Imperial on the City's

claim for indemnification. The testimony did not conclude until

June.

In a comprehensive written opinion, which we discuss more

fully below, the trial judge reviewed the evidence. As summarized

in his June 30, 2014 order for judgment, the judge concluded the

City properly terminated the contract with TAK, but its termination

of Interstate's contract was for the City's convenience and not

because of Interstate's default. The judge further determined the

City suffered no delay damages from TAK's failure to perform

because of Zemsky's "concurrent delay in . . . redesigning the

1
A third action, brought by the electrical contractor, S.M.
Electric Company, Inc., was also consolidated with the other
two, but, prior to trial, all claims by all parties involving
S.M. Electric were dismissed by stipulation.

9 A-0778-14T4
trench drain and the pool deck structural slab . . . ." He

concluded, however, the City suffered damages from "Interstate's

failure to provide certain work in compliance with the contract

. . . ."

The judge determined Safeco was entitled only to the "full

contract balance," concluding Safeco was "barred by the . . . the

Contract . . . from asserting damages for . . . delays . . . ."

He also found TAK was not entitled to any damages, and Interstate

failed to prove "it suffered measurable damages as a result of the

City's termination of its contract for default rather than

convenience." Lastly, the judge concluded the City failed to

prove that Imperial breached its contract.

The court entered final judgment for $221,074.41 in favor of

the City against Interstate, ordering an offset for the amount of

the settlement the City reached with XL. It also entered judgment

for Safeco for $927,547.38 against the City. The court entered

judgments of no cause on Safeco's counterclaim for improper

termination of TAK and delay damages against the City, and on

TAK's and Interstate's counterclaims and cross-claims. The court

dismissed all other claims, and subsequently denied Safeco's and

TAK's motions for reconsideration.

In A-778-14, Safeco argues that, for various reasons, the

court erred in concluding the City legally terminated TAK's

10 A-0778-14T4
contract. It also contends that even if termination was proper,

the judge should have awarded pre-judgment interest on the contract

balance and delay damages, despite the contract's exculpatory

clause.

In A-842-14, TAK argues its termination was improper for a

number of reasons. Interstate cross-appeals, arguing the City

terminated its contract wrongfully and in bad faith, the

exculpatory clause is unenforceable and it is entitled to delay

damages. Interstate also argues the judge erred by granting

summary judgment to Imperial on Interstate's indemnification

claim. The City filed a defensive cross-appeal, arguing its

indemnification claims against Imperial should survive in the

event we grant relief to Safeco, TAK or Interstate.

We have considered these arguments in light of the record and

applicable legal standards. We affirm.

I.

We set forth the standards that guide our consideration of

the issues raised on appeal. "We review the trial court's

determinations, premised on the testimony of witnesses and written

evidence at a bench trial, in accordance with a deferential

standard." D'Agostino v. Maldonado, 216 N.J. 168, 182 (2013).

"[W]e do not disturb the factual findings and legal conclusions

of the trial judge unless we are convinced that they are so

11 A-0778-14T4
manifestly unsupported by or inconsistent with the competent,

relevant and reasonably credible evidence as to offend the

interests of justice . . . ." Ibid. (quoting Seidman v. Clifton

Sav. Bank, S.L.A., 205 N.J. 150, 169 (2011)).

"[W]e do not weigh the evidence, assess the credibility of

witnesses, or make conclusions about the evidence." Mountain

Hill, L.L.C. v. Twp. of Middletown, 399 N.J. Super. 486, 498 (App.

Div. 2008) (quoting State v. Barone, 147 N.J. 599, 615 (1997)).

"To the extent that the trial court's decision constitutes a legal

determination, we review it de novo." D'Agostino, supra, 216 N.J.

at 182 (citing Manalapan Realty, L.P. v. Twp. Comm. of Manalapan,

140 N.J. 366, 378 (1995)).

With these standards in mind, we first address the substantive

arguments raised by Safeco and TAK.

II.

In his written opinion, the trial judge found that Imperial

repeatedly warned TAK that its performance was deficient. The

judge noted that in September 2006, Imperial recommended the City

terminate TAK because it failed to complete tasks on schedule, and

it "would not and could not reasonably fulfill [its] obligations

in the near future." Instead, the City negotiated the MOU with

TAK, but "neglected to include any of the other prime contractors

in the negotiating process."

12 A-0778-14T4
 The judge found that in November 2006, Imperial attempted to

bring together all the prime contractors with responsibilities for

the pool area in an attempt to reach the May 2007 target completion

date for the second building. The judge found, "this was not

Imperial's responsibility; it was TAK's." The judge also concluded

that beginning in January 2007, Imperial began notifying TAK of

its obligations to submit shop drawings and schedules to meet the

May deadline, and in March, Imperial directed TAK to increase its

work force and hours. The judge detailed the numerous inadequacies

Imperial found in TAK's performance and manpower commitment during

April 2007.

The judge reviewed the contract's termination provisions and

the ten reasons listed in the May 16, 2007 notice of termination.

The judge found "this notice is the culmination of a series of

notices all related to [Imperial's] opinion, expressed in writing

and in meeting minutes, that TAK [was] not manning, scheduling or

coordinating the work properly." He concluded, "the notice

comports with the procedural requirements of the contract . . . .

There is nothing in the evidence to support any notion that TAK

attempted to cure the ongoing issues, or provide a detailed

response to evidence a cure."

The judge also found that the MOU did not "preclude the City

from exercising its right of termination for cause." He noted

13 A-0778-14T4
that the City based the termination on more than TAK's inability

to complete the second building by May 15, 2007.

The judge also rejected Safeco's and TAK's claim that the

termination was improper because delays attributable to TAK were

not on the "critical path" to the project's completion. The judge

found "the parties had evidenced a clear intention that the

completion of the disparate areas of the [second] building was to

be sequenced." He cited testimony from "multiple witnesses . . .

that the City urgently wanted beneficial use of the police area

first, the courthouse second, and the recreational area last."

The judge found "other parties [in addition to TAK] bear

responsibility for the project being abysmally behind schedule."

However, he specifically noted TAK's failure to challenge

Imperial's "litany of over thirty pieces of correspondence

detailing the lack of manpower, coordination and scheduling needed

to move the project . . . ." In detailed fact-finding implicitly

rejecting the credibility of TAK's principal and expressly

rejecting TAK's expert's testimony, the judge found the City

properly terminated TAK for failure to employ sufficient skilled

craftsmen and complete the project in a timely manner; TAK failed

to make timely submittals for stone work, which denied the City

"beneficial use of the police and court . . . areas"; and TAK

failed to "schedule and coordinate all activities at the site."

14 A-0778-14T4
 The judge addressed Safeco's claims, finding it was entitled

to the "full contract balance due and owing," $927,547.38. Based

on his earlier findings, he rejected any damages for the City's

"improper termination" of TAK. The judge then addressed Safeco's

"own claim for delay damages based on the time for completion as

the completing contractor . . . ." The judge concluded that TAK,

Interstate and Zemsky all played a part in causing the delays, but

the exculpatory clause "extend[ed] the protections sought for the

benefit of the City to the negligence of its retained

professionals."

A.

Safeco and TAK both argue that termination was improper

because TAK's remaining work at the time was not on the "critical

path" for completion of the project. Safeco claims that delays

in work not on the critical path are not sufficiently material to

justify the severe remedy of termination. It also argues that the

judge constructed other "critical paths" that never existed by

concluding, contrary to the contract and the MOU, that the second

building was to be completed in stages. We reject these arguments

without extensive discussion. R. 2:11-3(e)(1)(E).

Safeco and TAK cite a number of federal precedents for

support. See Decker & Co. v. West, 76 F.3d 1573, 1580 (Fed. Cir.

1996); Devito v. United States, 413 F.2d 1147, 1153 (Ct. Cl. 1969);

15 A-0778-14T4
J.D. Hedin Constr. Co. v. United States, 408 F.2d 424, 431 (Ct.

Cl. 1969); Sterling Millwrights, Inc. v. United States, 26 Cl. Ct.

49, 75, 92 (1992). While these cases hold termination is akin to

a forfeiture and should not be imposed lightly, they do not hold

that delay in work off a critical path can never justify

termination. Rather, the decisions may be summarized as holding

critical path analysis to be useful in determining delay damages.

See G.M. Shupe, Inc. v. United States, 5 Cl. Ct. 662, 728 (1984)

("The reason that the determination of the critical path is crucial

to the calculation of delay damages is that only construction work

on the critical path had an impact upon the time in which the

project was completed." (emphasis added)).

Only a handful of published cases from our courts even discuss

the concept of critical path scheduling. See, e.g., P.T. & L.

Constr. v. State, Dep't of Transp., 108 N.J. 539, 544 (1987);

Broadway Maint. Corp. v. Rutgers, State Univ., 90 N.J. 253, 261

(1982); Utica Mut. Ins. Co. v. DiDonato, 187 N.J. Super. 30, 34

(App. Div. 1982); Am. Sanitary Sales Co. v. State, Dep't of Treas.,

178 N.J. Super. 429, 433-34 (App. Div.), certif. denied, 87 N.J.

420 (1981); Edwin J. Dobson, Jr., Inc. v. Rutgers, State Univ.,

157 N.J. Super. 357, 367-68 (Law Div. 1978), aff'd sub nom.

Broadway Maint. Corp. v. Rutgers, State Univ., 180 N.J. Super. 350

(App. Div. 1981), aff'd, 90 N.J. 253 (1982); Buckley & Co. v.

16 A-0778-14T4
State, 140 N.J. Super. 289, 294 (Law Div. 1975). None of them

support the proposition that a contract cannot be terminated unless

there is delay to work on the critical path to completion.

B.

Safeco contends there was no evidence that TAK's alleged

failure to provide sufficient manpower actually delayed completion

of the public safety and municipal court sections of the second

building for the City's "beneficial use," and the judge effectively

"re-wrote" the contract by ignoring the intended unitary nature

of the project. It contends Zemsky and others caused the delays,

which continued even after Safeco assumed the work. Finally,

Safeco claims the judge ignored the City's failure to give TAK

forty-eight hours to cure defaults. TAK makes similar arguments,

stating there was no basis for the judge to conclude the parties

intended the second building be delivered in piecemeal fashion.2

2
TAK also argues that, during the City's earlier motion for
partial summary judgment, the judge concluded the contract was a
unitary contract and rejected the City's argument that there were
differing completion dates for the second building. We have only
the transcript of the argument, but, in any event, an interlocutory
"order denying summary judgment . . . decides nothing and merely
reserves issues for future disposition." Gonzalez v. Ideal Tile
Importing Co., Inc., 371 N.J. Super. 349, 356 (App. Div. 2004),
aff'd, 184 N.J. 415 (2005), cert. denied sub nom. Gonzalez v.
Komatsu Forklift, U.S.A., Inc., 546 U.S. 1092, 126 S. Ct. 1042,
163 L. Ed. 2d 857 (2006).

17 A-0778-14T4
 In essence, these arguments require us to reject the judge's

factual findings, which we refuse to do. The evidence demonstrates

TAK acknowledged the anticipated delivery of the public safety and

court portions of the second building would precede the troubled

pool deck area. On June 28, 2006, TAK sent Imperial a schedule

and sequencing update for the entire project. TAK noted this

comported with Imperial's request to bifurcate the work on the

second building, with separate completion dates "to meet the

Owner's recently desired priorities of the Police and Court areas

followed by the Recreation [portion's] Daycare, Gymnasium, and

Pool areas." Each of the more than 350 items in the update had its

own schedule and completion date, with final completion projected

for March 27, 2007, and a certificate of occupancy to be issued

on April 10, 2007. This alone supports the judge's conclusion

that the parties anticipated the City's earlier beneficial use of

the public safety and municipal court portions of the second

building.

As to TAK's failure to supply adequate skilled labor, the

judge relied on Imperial's repeated and specific requests in March

and April 2007, particularly in areas where there would be no

disruption of ongoing work or its completion. To the extent we

have not specifically addressed Safeco's and TAK's other claims

18 A-0778-14T4
in this regard, they lack sufficient merit to warrant discussion

in a written opinion. R. 2:11-3(e)(1)(E).

Safeco also contends the judge found a basis for termination

that the City never asserted, namely, TAK's alleged failure to

coordinate the work of other prime contractors. However, the

City's notice of termination cited TAK's breach of various articles

of the contract, including Article VIII, which placed upon Imperial

the obligation to settle "all questions concerning the acceptable

fulfillment of the Contract by [TAK]." In its contract, TAK was

the designated "project coordinator" with responsibility to

"[p]rovide overall coordination of the [w]ork of all other

[c]ontractors." The judge cited the cumulative effect of TAK's

failure to coordinate and schedule the work of other prime and

subcontractors.

Safeco and TAK argue the judge erred in concluding TAK's

delay in furnishing certain stone samples caused a significant

delay in the public safety and municipal court portions of the

second building. TAK also argues that the judge's finding that

Zemsky was negligent precluded the conclusion that TAK materially

breached the contract, and it also contends that, under the terms

of the MOU, the City's remedy was limited to liquidated damages.

These arguments lack sufficient merit to warrant extensive

discussion. R. 2:11-3(e)(1)(E).

19 A-0778-14T4
 The judge did not find that TAK's delay in submitting samples

was a breach. Rather, the judge noted Imperial's concern that TAK

was not taking into account the long lead time for the stone

materials to arrive once ordered. In any event, for the reasons

already stated, there was sufficient, credible evidence in the

record to support the judge's conclusion that delays attributable

to TAK's breaches justified its termination.

We construe the legal import of the MOU de novo. See e.g.,

Fastenberg v. Prudential Ins. Co. of Am., 309 N.J. Super. 415, 420

(App. Div. 1998) ("Interpretation and construction of a contract

is [sic] a matter of law for the court subject to de novo review.").

By its express terms, the MOU supplemented the original agreement

and expressly continued the contract's other terms. We reject

TAK's argument that the MOU modified them.

Lastly, TAK cites no authority for the proposition that other

concurrent causes for delay barred the City's right to terminate

the contract. We have not recognized such an "all-or-nothing"

approach and, instead, have held that even as between owner and

contractor, the appropriate solution is an apportionment of

damages occasioned by concurrent delays. Am. Sanitary Sales,

supra, 178 N.J. Super. at 434.

20 A-0778-14T4
 C.

Safeco and TAK also argue the judge did not consider that the

City's failure to pay TAK's early-2007 requisitions was a material

breach barring the City from declaring TAK's default. TAK

additionally argues the failure to pay evinces the City's bad

faith. The City contends TAK was not "entitled" to payment of the

submitted requisitions in spring 2007, nor was it permitted by the

contract to delay or withhold required performance over disputes

about payment. We agree with the City.

"When there is a breach of a material term of an agreement,

the non-breaching party is relieved of its obligations under the

agreement." Nolan v. Lee Ho, 120 N.J. 465, 472 (1990) (citing

Stamato & Co. v. Borough of Lodi, 4 N.J. 14 (1950)). Failure to

pay may be a material breach under the common law even if the

contract fails to name it as a ground of default and termination.

Ingrassia Constr. Co. v. Vernon Twp. Bd. of Educ., 345 N.J. Super.

130, 136-37 (App. Div. 2001). If the shortcomings in a

contractor's work are not significant enough to justify

withholding payment, then the owner's failure to make payments as

required is such a breach. Zulla Steel, Inc. v. A & M Gregos,

Inc., 174 N.J. Super. 124, 131 (App. Div. 1980). However, a

statement by the contractor of its "implied . . . willingness to

resume service upon payment . . . waive[s] the materiality of the

21 A-0778-14T4
breach." Magnet Res., Inc. v. Summit MRI, Inc., 318 N.J. Super.

275, 287 (App. Div. 1998).

Although the judge did not address the issue directly, he

specifically rejected TAK's claim that the City had earlier delayed

payments because of political reasons, noting the evidence

revealed TAK received its payments at that time without delay.

The unpaid requisitions TAK asserted as evidence of the City's

material breach were the subject of significant controversy at

trial.

For example, Zemsky suggested checks be drawn but not

tendered, citing pages of inadequacies in TAK's submissions. TAK's

principal testified that despite serving the May 15, 2007 letter

alleging the City's breach for non-payment, the company continued

to pay subcontractors so as not to slow the completion of TAK's

work. Imperial's representative testified at trial that, despite

TAK's claim, the items requisitioned for payment were incomplete,

there was still work TAK needed to do and some of it was unaffected

by disputes with other prime contractors. In short, there was

substantial, credible evidence in the record to support the judge's

implicit conclusion that the City's failure to pay previously

requisitioned work was not a material breach of the contract and

did not foreclose the City from legally terminating TAK's contract.

22 A-0778-14T4
 We also reject TAK's assertion of bad faith by the City. As

Judge Skillman wrote, "To show bad faith, the claimant must

establish that the alleged breaching party had an 'improper

motive.'" Capital Safety, Inc. v. State, Div. of Bldgs. & Constr.,

369 N.J. Super. 295, 301 (App. Div. 2004) (quoting Wilson v.

Amerada Hess Corp., 168 N.J. 236, 251 (2001)). The judge clearly

rejected any claim that the City acted in bad faith, and the record

evidence provides no reason to conclude otherwise.

D.

Safeco contends the judge erred in denying pre-judgment

interest on the damage award. The judge did not address the issue

in the order for judgment or in his written opinion. The judge's

September 19, 2014 order that denied Safeco's motion for

reconsideration also denied pre-judgment interest.

The City correctly notes that Safeco did not include that

order in its notice of appeal, and only orders included in the

notice of appeal are subject to our review. 30 River Court E.

Urban Renewal Co. v. Capograsso, 383 N.J. Super. 470, 473-74 (App.

Div. 2006).3 Safeco counters by stating in its reply brief that

a demand for pre-judgment interest was "inherent in its claim for

the contract balance."

3
TAK included the order denying reconsideration in its notice of
appeal.

23 A-0778-14T4
 "Although prejudgment interest in a tort action is expressly

governed by R. 4:42-11(b), 'the award of prejudgment interest on

contract and equitable claims is based on equitable principles.'"

Litton Indus., Inc. v. IMO Indus., Inc., 200 N.J. 372, 390 (2009)

(quoting Cty. of Essex v. First Union Nat'l Bank, 186 N.J. 46, 61

(2006)). "Thus the award of prejudgment interest in a contract

case is within the sound discretion of the trial court." Ibid.

Here, the sparse record hampers our ability to review Safeco's

contention. Safeco did not raise the issue in its post-trial/pre-

judgment brief, which is in the appellate record, and the issue

was not raised at oral argument on Safeco's motion for

reconsideration. In short, there is no basis for us to conclude

Safeco ever argued the point, much less that the judge mistakenly

exercised his discretion by denying pre-judgment interest.

III.

Turning to the issues raised in its cross-appeal, the judge

found that Interstate was "one of the first contractors to begin

its work," was given a one-hundred day timetable for completion

and rightly assumed "other prime contracts would be issued

contemporaneous with its contract." By January 2005, Interstate

had completed most of its work on the first building and signaled

an intention to demobilize for lack of work. Interstate completed

most of its work on the second building before it became apparent,

24 A-0778-14T4
in fall 2005, that Zemsky's design specifications were wrong, and

the flooring subcontractors could not make their installations

upon the concrete slabs Interstate poured. The judge concluded

other design flaws were discovered when Interstate mobilized to

work at the pool deck area.

The judge considered the four grounds for termination in

Imperial's September 2008 notice. He concluded the City failed

to demonstrate it paid Safeco or other contractors to remediate

Interstate's unsatisfactory work after termination. Instead, any

additional work was "necessary to harmonize the discrepancies in

the tolerances inherent in the contract documents." The judge

also concluded the City failed to permit Interstate to cure any

alleged defaults, and therefore, the "termination . . . was not

for cause."

Instead, he construed the termination as one for the City's

convenience, and, pursuant to the contract, Interstate was

entitled to "compensation 'for . . . authorized services rendered

. . . up to that date, and for all reasonable shutdown costs as

agreed to by both parties.'" The judge found it was undisputed

that the contract's unpaid balance was $43,000, and "the remaining

work . . . exceeded this amount." The judge concluded Interstate's

other damage claims were speculative.

25 A-0778-14T4
 In its cross-appeal, Interstate claims the judge erred by

concluding the City properly terminated the contract for

convenience. It argues the City's attempted termination for cause

evidenced bad faith, entitling Interstate to delay damages,

despite the exculpatory clause in the contract.4

We have followed the decisions of federal courts, which "have

broadly construed termination for convenience provisions to

authorize termination for any reason that is in the best interests

of the government so long as the contracting agency does not act

in bad faith." Capital Safety, supra, 369 N.J. Super. at 300

(citations omitted). "Mere error on the part of the Government,

even if it would constitute sufficient ground for contractual

breach were the termination clause inapplicable, is insufficient

to overcome the presumption of regularity inherent in the

invocation of the termination for convenience." Ibid. (quoting

Kalvar Corp. v. United States, 543 F.2d 1298, 1303 (Ct. Cl. 1976),

cert. denied, 434 U.S. 830, 98 S. Ct. 112, 54 L. Ed. 2d 89 (1977)).

The contractor's burden to prove bad faith is "very weighty." Id.

at 301 (quoting Krygoski Constr. Co. v. United States, 94 F.3d

4
The judge's opinion did not explain in any detail the reasons
for, or calculation of, the judgment of $221,071.41 in favor of
the City, subject to an offset for the amount of the City's
settlement with XL. However, Interstate has not appealed from
that portion of the judgment.

26 A-0778-14T4
1537, 1541 (Fed. Cir. 1996), cert. denied, 520 U.S. 1210, 117 S.

Ct. 1691, 137 L. Ed. 2d 819 (1997)).

Interstate does not challenge the City's ability to terminate

the contract for convenience. Rather, it contends the City's

attempted termination for cause, as well as other conduct,

demonstrates the City intended to make Interstate a "scapegoat"

for delays occasioned by others. Interstate argues it proved the

City acted in bad faith.

The circumstances are unusual in that, even at trial, the

City argued it properly terminated Interstate for cause. The

judge rejected that argument and concluded the termination was

properly for the City's convenience. In any event, the judge

entered judgment for the City against Interstate, and Interstate

has not challenged that portion of the judgment on appeal.

Implicit in that finding was the judge's rejection of any claim

that the City acted in bad faith. Moreover, in addressing the

impact of the exculpatory clauses, the judge explicitly found the

City did not act in bad faith. We therefore reject Interstate's

argument the termination for convenience was improper.

Interstate also contends the judge erred by dismissing its

cross-claim against Imperial on summary judgment. Interstate

argues it was an intended third-party beneficiary of Imperial's

contract, and Imperial's contractual duties of proper management

27 A-0778-14T4
and coordination of the project flowed to Interstate as well as

to the City. Interstate contends the web of contracts for the

project gave Imperial an enforceable duty to supervise, manage,

and coordinate the project. We disagree.

In granting Imperial summary judgment, the judge reasoned the

various contracts made clear that Imperial did not have "any

authority or any responsibility for means, methods, sequences

procedures. And [it was] not . . . responsible for it." Under

the circumstances, the judge concluded none of the prime

contractors had a cause of action against Imperial as implied

third-party beneficiaries of Imperial's contract with the City.

"The principle that determines the existence of a third party

beneficiary status focuses on whether the parties to the contract

intended others to benefit from the existence of the contract, or

whether the benefit so derived arises merely as an unintended

incident of the agreement." Broadway Maint., supra, 90 N.J. at

259. "The contractual intent to recognize a right to performance

in the third person is the key. If that intent does not exist,

then the third person is only an incidental beneficiary, having no

contractual standing." Ibid.

In Broadway Maintenance, which involved a multi-prime

contract with a general contractor, the owner allocated all

coordination duties to the general contractor in order to insulate

28 A-0778-14T4
itself from liability for damages to any contractor arising from

lack of coordination. Id. at 256-58. The Court upheld that

arrangement and ruled that the prime contractors could assert such

claims only against the general contractor. Id. at 266-68.

The Court explained how the provisions of the various

contracts "expressly" created mutual expectations that "failure

to comply could cause damages to other prime contractors," damages

would "be paid by other prime contractors whose improper

performance caused delay," and "[i]f a contractor were the

wrongdoer, [it would] pay those damages" itself. Id. at 261-62.

Such a "promise to pay the damages of a fellow prime contractor"

was "strong evidence that the injured prime contractor is an

intended beneficiary who may enforce that promise." Id. at 262.

Imperial's contract in this case was devoid of similar

obligations to other contractors. By the terms of its contract,

Imperial was required to cooperate only with the City and Zemsky,

it provided express indemnification only to them and the contract

disclaimed liability for the harm that any contractor might sustain

from another contractor's failure to coordinate. In short,

regardless of the extent of Imperial's responsibility to

coordinate, it plainly was not an enforceable duty running to the

contractors. The judge properly granted Imperial summary

judgment.

29 A-0778-14T4
 IV.

Citing Broadway Maintenance, the judge concluded the

exculpatory clauses in Safeco's and Interstate's contracts were

enforceable unless they violated public policy. He construed the

contracts in this case to "extend the protections sought for the

benefit of the City to the negligence of its retained

professionals." The judge concluded Zemsky was negligent and the

City "persisted in its belief . . . [Zemsky] was properly handling

the issues . . . ." Although in "hindsight" the City was wrong,

its error was not based upon bad faith or unfair dealing. He

rejected any argument that Zemsky's negligence was unforeseen by

the contractors. The judge concluded the exculpatory clauses were

enforceable and barred any claim for delay damages.

Both Safeco and Interstate argue it was error to enforce the

exculpatory clauses. Safeco contends it was entitled to recover

the fees it paid to FAA, a construction manager it hired to

complete TAK's work, because Zemsky's negligence was imputed to

the City and precludes enforcement of the exculpatory clause. It

also argues the City acted in bad faith and the delays were

unanticipated when TAK entered into the contract.

Interstate contends its contract was ambiguous and the

exculpatory clause should not be enforced because of the City's

bad faith in endeavoring to avoid the consequences of Zemsky's

30 A-0778-14T4
negligence. It also argues the City's decision to award contracts

without complete plans was an independent source of negligence.

When the Local Public Contracts Act, N.J.S.A. 40A:11-1 to -39,

was enacted in 1971, L. 1971, c. 198, §§ 1-39, the Legislature

allowed publicly bid, local government contracts to include

exculpatory clauses denying delay damages and limiting

contractors' remedies to extensions of time. N.J.S.A. 40A:11-19

(2000). However, in 2001, the Legislature declared it was "void,

unenforceable and against public policy . . . to limit a

contractor's remedy for the contracting unit's negligence, bad

faith, active interference, tortious conduct, or other reasons

uncontemplated by the parties that delay the contractor's

performance, to giving the contractor an extension of time."

Ibid.; L. 2001, c. 206, § 1. No reported cases have construed the

amended provision. Cf. Broadway Maintenance, supra, 90 N.J. at

269-70 (addressing only non-local government agencies or claims

that predated the amendment).

"The fundamental objective of statutory interpretation is to

identify and promote the Legislature's intent." Parsons ex rel.

Parsons v. Mullica Twp. Bd. of Educ., 226 N.J. 297, 307 (2016)

(citing State v. Gelman, 195 N.J. 475, 482 (2008) (citing

DiProspero v. Penn, 183 N.J. 477, 492 (2005))). "In construing

any statute, we must give words 'their ordinary meaning and

31 A-0778-14T4
significance,' recognizing that generally the statutory language

is 'the best indicator of [the Legislature's] intent.'" Tumpson

v. Farina, 218 N.J. 450, 467 (2014) (alteration in original)

(quoting DiProspero, supra, 183 N.J. at 492). "However, not every

statute is a model of clarity. When the statutory language is

sufficiently ambiguous that it may be susceptible to more than one

plausible interpretation, we may turn to such extrinsic guides as

legislative history, including sponsor statements and committee

reports." Wilson ex rel. Manzano v. City of Jersey City, 209 N.J.

558, 572 (2012) (citing Burns v. Belafsky, 166 N.J. 466, 473

(2001)).

We conclude the Legislature did not intend to broaden a public

entity's liability by permitting the negligence of its agents or

independent contractors to be imputed to the public entity. We

reach this conclusion for a number of reasons.

Initially, the plain language of the statute provides the

contractor's remedy cannot be limited to an extension to complete

the work because of the "contracting unit's negligence, bad faith,

active interference, tortious conduct, or other reasons

uncontemplated by the parties." N.J.S.A. 40A:11-19. N.J.S.A.

40A:11-2(1) defines a "contracting unit" as a county,

municipality, and certain local governmental boards, commissions,

authorities, and agencies. The definition does not include the

32 A-0778-14T4
agents or independent contractors of the "contracting unit." Ibid.

In other words, the exculpatory clauses in these contracts did not

violate public policy, except to the extent they exculpated the

City's own conduct. There is nothing to suggest that the

Legislature intended the negligent conduct of Zemsky or Imperial

could be imputed to the City so as to transform a contract that

did not violate public policy as to the City's agents into one

that violated public policy as to the City, thereby making

cognizable a damage claim against the City that otherwise did not

exist.

Additionally, the history accompanying the 2001 amendment

makes clear the Legislature never intended that contractors'

remedies could be broadened by imputing the negligence of others

to the contracting unit. The Assembly sponsor's statement

described the amendment as "allow[ing] contractors to submit

claims of delay caused by the contracting unit to the contracting

unit for consideration." Sponsor's Statement to A. 2913 (Nov. 9,

2000) (emphasis added). The purpose of the amendment was "to

create an incentive for the contracting unit to work cooperatively

with the contractor to resolve project issues in a timely manner."

Ibid.

The amendment was "modeled" after identical language in

L. 1994, c. 80, § 1, which amended N.J.S.A. 2A:58B-3. Assembly

33 A-0778-14T4
Local Gov't Comm., Statement to A. 2913 (Jan. 18, 2001). That

1994 enactment similarly prohibited contracts with state agencies

from having exculpatory clauses that barred delay damage claims

arising from a state agency's "negligence, bad faith, active

interference, or other tortious conduct." N.J.S.A. 2A:58B-3(b).

However, that amendment also expressly restricted delay damage

claims against a state agency based on the imputed negligence of

an agent: "Nothing in this section shall be deemed to void any

provisions in a contract, agreement or purchase order which limits

a contractor's remedy for delayed performance caused by reasons

contemplated by the parties nor shall the negligence of others be

imputed to the State." N.J.S.A. 2A:58B-3(c) (emphasis added); L.

1994, c. 80, § 1(c). The Senate sponsor's statement confirmed

that the prohibition barring delay damage claims "applies solely

to the public entity's use of these clauses to exculpate its own

negligence or intentional tort[i]ous acts but does not allow a

contractor to impute the sole negligence of third parties to the

public entity." Sponsor's Statement to S. 977 (May 5, 1994).

In short, although we disagree with the judge's reasoning,

we agree the exculpatory clauses in this case barred any claims

by Safeco or Interstate against the City for delay damages

occasioned by the negligence of Zemsky or other contractors. For

the reasons that follow, we also reject any claim that Safeco or

34 A-0778-14T4
Interstate may recover delay damages from the City based on the

City's independent "negligence, bad faith, active interference,

tortious conduct, or other reasons uncontemplated by the parties."

N.J.S.A. 40A:11-19.

In its brief, Interstate argues the City acted in bad faith,

a claim the judge rejected and we affirm, and Zemsky's negligence

should be imputed to the City, which we reject for the reasons

already stated. It also argues all delays were "uncontemplated"

and therefore not subject to the exculpation clause pursuant to

N.J.S.A. 40A:11-19. The judge, however, concluded the parties

could anticipate an architect's negligence. For the reasons that

follow, we need not address that specific conclusion by the judge.

Interstate's contract limited damages upon termination for

convenience to "all reasonable shutdown costs as agreed to by both

parties." Interstate fails to explain how, having been properly

terminated for convenience, it can nonetheless recover any kind

of damages beyond those permitted by the contract. Nor does

Interstate explain how it is entitled to delay damages, given the

court's final judgment against the company for $221,074.41 in

favor of the City, which Interstate has not challenged on appeal.

Interstate also fails to explain what consequence the settlement

reached by its surety, XL, which has not participated in these

appeals, has upon this argument.

35 A-0778-14T4
 Safeco contends it was entitled to delay damages both before

and after Safeco took over TAK's work because of Zemsky's

negligence, because of the City's lack of good faith and fair

dealing and because the delay was uncontemplated. As noted, we

reject the first argument and, in his findings and conclusions,

the judge rejected the second, which we affirm.

Safeco arguably asserted a claim that the City's own

negligence was responsible for uncontemplated delays, and the

judge found a project that was supposed to be completed in one

year was not completed for nearly four years. In its post-

trial/pre-judgment submission, citing certain treatises and cases

from other jurisdictions, Safeco contended it was entitled to

"recover its costs to complete and related damages if it can prove

a wrongful termination." In other words, Safeco premised its

delay damage claim on the assertion that the City had not properly

terminated TAK.

Safeco fails to supply us with any authority that supports

the position that a surety, whose insured has been properly

terminated, may assert a claim for delay damages occasioned, at

least in part, by the insured's failure to perform the contract.

Safeco also fails to explain how such a damage claim, even if

cognizable, should be apportioned to reflect the concurrent causes

36 A-0778-14T4
for the delay the judge found in this case. We therefore reject

Safeco's claim for delay damages.

Affirmed.

37 A-0778-14T4