Unexpected construction delays often result in increased costs to a subcontractor. It is rare indeed to see a subcontractor dispute or claim that does not include a delay component. To be successful, a subcontractor must prove that its contract specified a schedule or completion date.
In Keeney Const. v. James Talcott Const. Co., Inc., 45 P.3d 19 (Mont. 2002), the Montana Supreme Court determined that a subcontractor that worked as directed by the general contractor could not recover delay damages. While the case involves building construction, highway contractors can still learn from it.
Keeney Construction submitted a quote for site work items to James Talcott Construction Co. Inc. for Phase II construction work on a University of Montana family housing project. The university awarded a contract to Talcott with project completion scheduled on May 31, 1997. Prior to entering into the subcontract, both Keeney and Talcott attended a preconstruction meeting. The meeting minutes indicated that Talcott’s project manager presented a preliminary bar chart identifying a December 1996 completion date.
Several days after the meeting, Keeney and Talcott executed a subcontract that did not include a specific completion date. Instead, the subcontract contained a clause stating that the subcontractor must “complete the work of this subcontract as required by job progress or . . . as directed by [the contractor]. Time is of the essence.”
Shortly after the parties signed the subcontract, the project architect advised Talcott that the university did not want an early completion date and asked for a schedule reflecting the full contract period. A subsequent change order extended the Phase II completion date to June 30, 1997, and added Phase III, resulting in an overall completion date of July 31, 1997.
The architect ultimately issued a Certificate of Substantial Completion on Oct. 1, 1997. On July 23, 1998, Keeney filed a complaint against Talcott alleging delay, disruption and extra work. Keeney argued that the December 1996 date in Talcott’s schedule was the Phase II completion date and that Talcott prevented Keeney from completing its work in a timely manner. Talcott countered that the subcontract allowed it to direct Keeney’s work without a fixed completion date.
This dispute presented a clear issue of law. Extrinsic evidence (in this case, the discussions at the preconstruction meeting) is generally used to determine the meaning of a term only if the language in the contract is ambiguous, or in other words susceptible to more than one reasonable meaning. Because the subcontract did not include the December 1996 date, the Montana Supreme Court had to decide whether the subcontract was ambiguous.
The court concluded that the “subcontract clearly authorized Talcott to set Keeney’s completion schedule” and sufficiently established Keeney’s performance obligation.
It did not matter that the subcontract set no limit on Talcott’s ability to direct Keeney’s work. Because Talcott could direct Keeney’s work, Keeney could not claim delay. The court, therefore, rejected Keeney’s argument that the preconstruction meeting minutes modified the subcontract. The unambiguous language of the subcontract determined the completion date for Keeney’s work. Even though the subcontract did not specify a date, it authorized Talcott to set the completion date.
The subcontract incorporated the general contract by reference. Some readers might ask why the completion date contained in Talcott’s contract did not apply to Keeney. Answer ing this question, the court noted the subcontract stated that the subcontract would govern if an inconsistency existed between the general contract and the subcontract. The subcontract requirement that Keeney complete the work “as directed” by Talcott, therefore, trumped the fixed completion date included in the general contract.
This decision reinforces the importance of carefully reading and evaluating the express language of any contract. Keeney thought they had a deal to finish the project in December 1996, but the subcontract they signed did not reflect that understanding. Many subcontracts include language binding the subcontractor to perform “as directed” by the general contractor. With that language subcontractors will find it difficult to recover for delays.