LAW: The Contractor's Side

Interpretation of scope of work

Article December 28, 2000
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In my column last month, I discussed various issues involving innovative contracting. Frequently those contracts
involve proposals to RFPs rather than bids. After the proposals are received, the terms of the contract are negotiated.
Public owners frequently demand that the RFP provisions take precedence over the contractor's proposal in the event of
conflict. If disputes later arise over scope of work issues, contractors will seek to have their proposals considered
by the court to interpret the terms of the contract. In this column, I will provide an analysis of arguments
contractors may raise.

In construing a written contract, the controlling consideration is the intention of the parties as derived from all the
terms of the contract. Legally, a written contract to which both parties have assented as a complete and accurate
expression of their agreement, may not be varied or contradicted by understandings and negotiations, which occurred
prior to signing the contract. Thus, as a general rule, a proposal by a contractor cannot be used to vary or contradict
the signed contract.

Parol evidence

On the other hand, parol evidence will be admitted when a contract between parties is so ambiguous that its meaning is
unclear. A contract is considered ambiguous "when it is reasonably susceptible to more than one meaning." As a result,
if the contractor can show that the scope of work specified in the contract is ambiguous, then the contractor's
proposal may be used to explain the meaning of the contract.

Public owners will likely argue that the scope of work specified in the contract is readily apparent and, therefore,
the contractor should not be permitted to introduce its proposal as evidence on the issue of ambiguity. However, a
court may conditionally consider extrinsic evidence, including the proposal, for the purpose of determining whether a
contract is ambiguous. The courts would likely consider the public owner's interpretation of the scope of work and the
contractor's proposal to determine if the signed contract is reasonably susceptible of two or more meanings. If the
scope of the work described in the contract is ambiguous, then the contractor would likely be permitted to argue that
its proposal is indicative of the parties' intent when they entered into the contract.

Cases involving ambiguous scope of work descriptions in specifications are abundant. For example, in a case involving a
contract for the installation of communication systems, the United States Court of Claims held that the parol evidence
rule was not a bar to the use of statements made by the parties during negotiations "in aid of the interpretation of
ambiguous or uncertain clauses in written agreements." Sylvania Electric Products, Inc. v. United States, 458 F.2d 994,
1005 (Ct. Cl. 1972). The court also said that expressions of the parties made during negotiations for a contract are a
"frequent source for interpretation" of the contract.

Disputes over scope of work questions frequently arise in subcontracts. In a case involving a federal construction
contract, the prime contractor and a subcontractor agreed during negotiations that the subcontractor's bid would not
include certain work, which was indicated in some of the contract documents but not in others. The trial court allowed
the subcontractor to testify to the agreements reached during the negotiations. The Ninth Circuit Court of Appeals
affirmed, and held that the parol evidence rule did not bar the use of extrinsic evidence in this case. The court
stated that the rule "has no application where an ambiguity exists in connection with the requirements of the contract,
its specifications and drawings. If a contract is obscure, or ambiguous in its terms, then its meaning is a question of
fact and extrinsic evidence may be received in aid of its interpretation. Where a contract is ambiguous and where it
has been interpreted by the parties themselves, then the contract should be enforced in accordance with such
interpretation." United States v. F.D. Rich Co., Inc., 434 F.2d 855, 859 (9th Cir. 1970).

In a case involving a bridge painting contract in Missouri, the specifications were unclear as to the amount of
sandblasting required to prepare for painting. The court recognized an established set of principles to be applied
when the contract is found to be ambiguous, including determination of the intent of the parties.

Conclusions

In construing ambiguous contracts the objective is to ascertain and render effective the mutual intent of the parties;
and to achieve this objective the court will consider the entire contract, subsidiary agreements, the relationship of
the parties, the subject matter of the contract, the facts and circumstances surrounding the execution of the contract,
the practical construction the parties themselves have placed on the contract by their acts and deeds, and other
external circumstances, which cast light on the intent of the parties . . . so long as that evidence is not
contradictory of, repugnant to, or inconsistent with the terms of the contract. Busch & Latta Painting Corp. v.
State Highway Comm., 597 S.W.2d 189, 197-8 (Mo. Ct. App. 1980).

Clearly, the actual proposal of the contractor or subcontractor, as presented prior to the award of the contract and a
ccepted by the other party, is a strong indication of the intent of the parties and would fall squarely into the list
of acceptable evidence as cited above.

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