LAW: THE CONTRACTOR'S SIDE: Proper supervision

Court sides with subcontractor on final payment issue

Blog Entry December 06, 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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Prime contractors and their subcontractors often proceed through several iterations of pricing and “scoping out” the work before settling on a final deal and allowing work to start before these terms are finalized, and more often than not it leads to problems.

As the case of L&H Constr. Co., Inc. v. Circle Redmont, Inc., 55 So.3d 630 (Fla. 2011) illustrates, courts must intervene in these instances and attempt to determine what the parties intended, thus leaving their fate to what amounts to mere chance.  

In L&H Construction, the subcontractor provided two separate quotes for “engineering, fabrication and installation” of a cast-iron staircase and a glass-panel flooring system to a prime contractor on a renovation project for the National Park Service. The subcontractor’s proposals specified that final payment would be due at “Completion of Installation.”  
In response to the prime contractor’s request for a lower price, the subcontractor resubmitted the proposals with a slightly modified stair design and without installation. However, the subcontractor included supervision of the installation in its price and it specified that final payment would be due upon “Supervision of Installation” rather than “Completion of Installation.”

The prime requested one final round of pricing. This time, the subcontractor was to combine the two proposals into one, return to the original stair design and include all installation labor. The subcontractor complied and the final proposal included the “design, fabrication and installation” language of the original proposal. However, the final payment language remained unchanged and specified that it was due upon “Supervision of Installation” rather than “Completion of Installation.”  

The prime issued its standard subcontract to the subcontractor, which mirrored the scope of work contained in the latest proposal, but stated that final payment would be “due upon completion.” At first, the subcontractor informed the prime that it was not its practice to sign customers’ subcontracts or purchase orders, but the subcontractor nevertheless signed the subcontract and returned it to the prime with the following notation: “[c]onditionally accepted in accordance with the terms and conditions of [our] proposal/order . . . all terms and conditions contrary thereto or not included therein are expressly rejected.”

Not surprisingly, at trial the court determined that the subcontractor’s notation became part of the subcontract because the prime contractor failed to object and allowed the subcontractor to proceed with performance. With the proposal now part of the subcontract, the language concerning installation conflicted since the proposal provided that payment is due “Upon Supervision of Installation” whereas the contract and the proposal indicated that the subcontractor’s scope of work included the “design, fabrication and installation” of the stairs and the flooring system.  

As we have discussed in previous columns, neither party to a contractual dispute may introduce evidence outside the four corners of the contract unless the court deems the contract language ambiguous on a particular matter. Since the court determined that the subcontract was ambiguous on the question of installation, it allowed both parties to present evidence concerning the negotiations. The subcontractor prevailed by showing that its price included only supervision and not the labor associated with the installation.  
Based upon the facts the court recited in its opinion, it seems clear that the subcontractor’s final proposal was submitted in response to a specific request by the prime for it to reinsert installation back into the scope of work. It seems equally clear that the term “design, fabricate and install” the subcontractor used in the proposal showed that understanding, and its failure to revise the payment language to mirror the scope of work language was a mere oversight. R&B

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