LAW: The Contractor's Side

Jan. 4, 2002

There are only a limited number of ways a contractor can lose a contract interpretation battle. In the case discussed below, the contractor lost for just about every possible reason. The court essentially found the contractor’s interpretation converted the word “or” into “and” that was in conflict with the Standard Specifications, was precluded by exculpatory language in the standard specifications, should have been raised with the state DOT prior to bidding and was in conflict with the interpretation of other bidders.

There are only a limited number of ways a contractor can lose a contract interpretation battle. In the case discussed below, the contractor lost for just about every possible reason. The court essentially found the contractor’s interpretation converted the word “or” into “and” that was in conflict with the Standard Specifications, was precluded by exculpatory language in the standard specifications, should have been raised with the state DOT prior to bidding and was in conflict with the interpretation of other bidders.

The contractor was the low bidder on a project to construct part of Route M in Jefferson City, Mo. The Missouri Standard Specifications state that all hauling within 2,000 ft is “free-haul” and not included as a “pay item,” while hauling that exceeds 2,000 ft is “overhaul.” Prior to bidding, the contractor was aware overhaul was needed. Even though there was no pay item or quantity of overhaul stated in the contract, nor were there any notes about overhaul on the plans, the contractor did not include any costs of overhaul in the bid. The contractor believed that overhaul would be compensated under a change order.

The contractor submitted a claim for the overhaul that MoDOT’s claims committee denied. The contractor subsequently filed suit seeking compensation in the amount of $1,164,234, and claimed it ultimately provided 16,468,000 station yards of overhaul in completing the project. Relying on the statement in the Standard Specifications that if the plans show no overhaul quantities or note that it will not be paid for as a separate item, then no direct payment will be made for such work, the Circuit Court entered a summary judgment denying the contractor’s claim. The contractor appealed.

And/or

The Court of Appeals stated that the case is fundamentally governed by the primary purpose of contract interpretation—to ascertain the intent of the parties and to give effect to that intent by reading the contract as a whole and construing each term to avoid an effect which renders other terms meaningless.

Citing previous cases, the Court of Appeals stated that summary judgment is proper when the meaning of that portion of the contract in issue is so clear that it may be determined from the four corners of the contract. The trial judge found no contract ambiguity. The trial court also held that because the overhaul on the project was not computed, the plans did not show overhaul quantities (Section 205.1.1 of the Standard Specifications).

The contractor’s interpretation of Section 205.1.1 assumed the disjunctive “and” had been used rather than the disjunctive “or.” Because the plans showed no overhaul quantities, the court concluded that the first prong of Section 205.1.1 alone disproved the contractor’s claim that the commission owed them for the overhaul.

The Court of Appeals also agreed with the trial court’s judgment that the Standard Specifications themselves told the contractor that the cost of overhauling required by the contract was to be included in the unclassified excavation unit price. Overhaul is defined in the Standard Specifications as “a written order from the engineer to the contractor, as authorized by the contract, directing changes in the work as made necessary or desirable by unforeseen conditions or events discovered or occurring during the progress of the work.” This definition in itself contradicts the contractor’s argument in that the contract provisions above clearly indicate that the contractor was responsible for any overhaul.

If that was not enough, the court also relied on some Standard Specifications exculpatory language, the substance of which is used by every state DOT. Included were the familiarity with the local conditions and contract documents clause, the agreement to do or furnish all labor, materials and equipment called for in the proposal clause, the agreement to accept as “full” payment clause and the clause stating the contractor shall take no advantage of any errors or omissions in the plans. The court believed that pursuant to the last listed section, the contractor had a duty prior to submitting its bid to inquire of the engineer whether overhaul was to be separately bid or paid under the contract.

Why did the contractor not ask a question of the state DOT prior to bid?

As I travel throughout the country, contractors in each state tell me that when they raise questions such as these prior to bid they are consistently told to “bid it as you see it.” Engineers use exactly the same response throughout the country. I believe the response fosters claims and disputes that are unnecessary.