Many disputes between prime contractors and subcontractors result from their failure to accurately memorialize the terms and conditions of the offer and acceptance within the governing subcontract documents.
This was the case in John T. Jones Constr. Co. v. Hoot Gen. Constr., 613 F.2d 778 (8th Cir. 2010), which involved a project for improvements to a wastewater treatment facility owned by the Des Moines Metropolitan Wastewater Reclamation Authority (WRA).
The dispute involves a portion of the project involving installation of a liner system inside of a concrete wastewater holding tank. The specifications called for a Linabond-brand liner system “or equal.” John T. Jones Construction Co. submitted the lowest bid and was awarded the project. Jones subcontracted the liner work to Hoot General Construction Co. Inc., a company specializing in liner systems with which Jones had worked previously.
When Jones contacted Hoot prior to the bid to request a quote, Hoot expressed its concern that the specifications required a Linabond-brand liner because Hoot installs only an Ameron-brand liner system. Hoot advised Jones that it would be proceeding on the “or equal” basis if it bid the project. Hoot submitted a quote to Jones which conditioned its price on approval of Ameron, and Jones used Hoot’s price in the bid to WRA.
On July 19, 2004, Jones sent to Hoot an unsigned subcontract. On Aug. 4, 2004, Hoot made a minor alteration in the price language and returned the signed subcontract to Jones for Jones to execute. On Aug. 11, 2004, Hoot sent to Jones by facsimile a copy of its original quote and requested that Jones include it with the subcontract. As a follow-up, Hoot’s project administrator telephoned Jones’ project manager to reiterate the request. Hoot was informed that Jones would include the quote as an exhibit and after executing the subcontract would return Hoot’s copy via mail.
Hoot received the fully executed subcontract on Aug. 23, 2004, but it did not contain a reference to or include Hoot’s quote. Hoot did not pursue the matter, and on Aug. 25, it mailed the liner system submittal to Jones, which forwarded it to the owner.
When Jones demanded that Hoot proceed with the Linabond system, Hoot refused and Jones hired another subcontractor. A few months later, Jones filed suit against Hoot seeking reimbursement of its costs and the trial court ruled in Jones’ favor. Hoot appealed.
On appeal, Hoot argued that no contract existed because it never agreed to install anything but an Ameron liner. Alternatively, Hoot argued that by verbal agreement, the subcontract includes Hoot’s quote, which was conditioned upon approval of the Ameron system.
The appeals court sided with Jones and ruled that a contract existed. It also ruled that the quote was not a part of the subcontract. According to the court, Hoot’s original quote constituted the first offer to which Jones counter offered by virtue of returning a subcontract that did not consist of a mirror image of the quote. The final counteroffer was made by Jones when it returned the fully executed subcontract without the quote. By proceeding with performance instead of insisting that the subcontract include the quote, Hoot essentially accepted Jones’ counteroffer and the subcontract consisted of the document as last tendered by Jones.
Like most subcontracts, the subcontract between Jones and Hoot contained an integration clause providing that all prior negotiations were merged into the written agreement. Accordingly, the appeals court ruled that the trial properly refused to hear testimony by Hoot that the omission of the quote from the subcontract was a mistake and that the parties intended to do so.
The Jones Construction case serves as a valuable reminder for prime contractors and subcontractors to ensure their written subcontracts accurately memorialize all material terms of the subcontractor quote.
Larry Caudle is a principal in Kraftson Caudle LLC, a law firm in McLean, Va., specializing in heavy-highway and transportation construction.