LAW: THE CONTRACTOR'S SIDE: More to follow

Subcontractor balks after scope of work expands

Blog Entry October 08, 2012

Larry Caudle is a principal in Kraftson Caudle LLC, a law firm in McLean, Va., specializing in heavy-highway and transportation construction.

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Quotes become more complicated when subcontractors commence work on a project without a written subcontract as was the case in Montana in AAA Constr. of Missoula, Inc. v. Choice Land Corp., 264 P.3d 709 (Mont. 2011), which involved a private-industry construction project.


The prime contractor in this case sought subcontractor pricing for concrete work and the companies’ principals met beforehand to discuss the proposed scope of work. The prime contractor instructed the subcontractor to exclude from its price certain work in the front of the building being constructed. The prime signed the proposal on the line provided, but (1) crossed out the words “Acceptance of Proposal” and (2) inserted a sentence stating “[p]ending contract with owner. Final scope/subcontract to follow. Thanks!”

 
The prime presented a subcontract to the subcontractor on May 17, 2007—two weeks after the subcontractor had commenced work. When the subcontractor reviewed the subcontract, it discovered that the scope of work was greater than that which it had described in its proposal. In response, the subcontractor submitted a revised higher price to the prime, which the prime rejected. The subcontractor informed the prime that it would not perform the additional work without compensation. The subcontractor then withdrew from the project for fear it would not be paid. At that time, the subcontractor had completed most of the work specified in its proposal and had received no payments.


In the litigation that ensued, the trial court held that the subcontractor’s proposal constituted the contract between the parties once the prime contractor signed it and returned it to the subcontractor. It thus held that the prime breached the contract when it sought to force the subcontractor to sign the subcontract containing different terms and threatened not to pay the subcontractor. The subcontractor received a judgment for the full amount it was seeking, and the prime contractor appealed.  


On appeal the prime argued that it effectively tendered a counteroffer by signing the proposal that contained terms varying from the subcontractor’s original proposal and that the subcontractor accepted the counteroffer by proceeding with work on the project without objection. The prime also contended that an admission at trial by the subcontractor’s principal that he had signed the subcontract—although he had not returned the document to the prime—meant that the subcontract, and not the original proposal, governs.

 
The court rejected the prime’s counteroffer argument because the terms included in the so-called counteroffer were unrelated to the dispute. In other words, the prime’s markups merely conditioned the prime’s acceptance on the award of the prime contract to the prime and stated that a subcontract will be forthcoming. The dispute in the case centered on whether the price applied to the scope of work contained in the proposal or the subcontract. The court held that the subcontractor’s commencement of work occurred before it received the subcontract containing the conflicting scope of work statement. Consequently, the subcontractor’s commencement of work cannot be construed as an implicit acceptance by the subcontractor of the terms of the subcontract. In fact, when the subcontractor received the subcontract, it immediately voiced its objection by repricing the new scope of work. On the prime’s second argument, the court noted that although the subcontractor may have accepted the subcontract by signing it, that acceptance was not communicated to the prime because it was never returned. The appeals thus affirmed the decision of the lower court.


Most of these disputes—if properly vetted—will surface during subcontract negotiations. If these negotiations are left to occur after work commences, nobody wins and it becomes a matter of who had the most leverage under the circumstances. R&B

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