In construction contracting, hope for (and focus on) the best after planning for the worst.
In 2018, the New Mexico Department of Transportation (NMDOT) selected a prime contractor for construction of a bridge in Quay County, N.M. (The eastern border of Quay County is also the New Mexico/Texas border). The prime subcontracted for cast-in-place piers and other bridge components. NMDOT and the prime entered into a change order to alter the pier design, which increased the quantity of work and delayed the project. Ultimately, the prime paid sub for the direct costs of the increased quantity of work, but no subcontract change order was agreed as to delay costs.
The sub completed its work on the project. NMDOT denied the sub’s pass-through claim on procedural grounds, not relying upon the change order between the prime and NMDOT. The prime agreed to directly sue NMDOT for the sub, but only if the sub released the prime from liability. The sub did not release the prime and the prime did not sue NMDOT.
The sub sued the prime in Federal Court. Malcolm International, LLC v. Fisher Sand & Gravel-New Mexico, Inc., U.S. Dist. Ct., New Mexico, Case No. 1:23-cv-00188 (June 26, 2025). The sub argued the prime breached the subcontract by failing to pay the sub for a directed change. The subcontract changes clause provided in part that, “[a]ny changes in quantities . . . shall cause an adjustment in Subcontract price at the unit prices set forth. . . The [prime] will pay for extra work performed and materials furnished by the [sub].” However, the court held this portion of the clause covered only the direct costs for the work, which the prime had already paid to the sub.
Another portion of the changes clause stated that, “[if] the change is work not itemized [in the scope], any increase or decrease in the Subcontract price resulting from such changes shall be agreed upon in writing by the parties hereto prior to the performance of the work.” Another subcontract clause provided, the sub “shall not be entitled to any extra compensation from [prime] for any suspension, delay, or acceleration, regardless of who is responsible for same, unless specifically agreed to in writing by the [prime].” The court held the language in these subcontract clauses, regardless if read separately or together, precluded the sub’s recovery because there was no written agreement between the prime and sub for time-related costs due to the increased quantity of work.
Absent a written agreement to a directed change, there are often other subcontract clauses whereby the sub could notify the prime that the work is being performed under protest and that a claim will be submitted. Meanwhile, the project progresses, the disputed work is performed, and the parties reserve their rights to resolve the dispute later. If such clauses had existed in this case, the time-related costs could have been treated as a constructive change.
However, there is no discussion in the court’s opinion of whether such other clause existed in this subcontract. In this case, based solely on the court’s opinion, absent a written agreement before beginning performance of any changed work, all later recovery is precluded.
If the sub had a duty to continue performance of the work, either by an express subcontract clause or by the implication that a failure to progress the work could subject the sub to liability for delays, then the sub was caught between the proverbial rock and hard place. Not progressing the work would be as much (or more) of a problem as performing disputed work without a written agreement. The practical effect would be a waiver of claims and damages.
Alas, there is no discussion in the court’s opinion of the sub’s duty to continue performance, despite disagreement nor of the practical effects. Nevertheless, New Mexico does not statutorily prohibit prospective waivers of claims. RB
Jon Straw is a partner with Kraftson Caudle, PLC, a law firm in McLean, Va., specializing in heavy-highway and transportation construction. Straw can be contacted via email at [email protected].
About the Author
Jon Straw
Jon Straw is a partner with Kraftson Caudle, PLC, a law firm in McLean, Va., specializing in heavy-highway and transportation construction. Straw can be contacted via e-mail at [email protected].