In my July 2007 article, I posed six problems and named the piece “Lady or the Lion?” The title comes from tales of King Arthur’s court, and it refers a knight who was given a choice between opening one of two doors. Behind one was the promise of happiness; behind the other was the promise of being eaten alive. Fortunately (or unfortunately), your conclusions about how the problems should be solved, right or wrong, will not lead to such a dramatic outcome.
Situation 1: Help
A job is running late for a hundred reasons. The general contractor wants it finished and asks if you could use some help. You say “yes.” Two of the GC’s employees then show up and work with you for a month. At final payment, the GC deducts $40,000 as a backcharge for the two men. You are surprised.
Informality in addressing serious construction difficulties can blur lines of contract obligations. It is not recommended. Under these facts, a brief conversation between a subcontractor and the general contractor created the potential for a claim.
Most contracts do not permit a backcharge for incomplete or delayed work without prior notice of a default, and often there is a “cure” period before the default takes effect. A strict application of a default clause would doom the backcharge here, where the general contractor volunteered the services of its employees to perform a portion of the subcontractor’s work.
Were a fine point to be made, the subcontractor might not be able to bill for the work it did not do, but still would be entitled to its markup for that work. The evaluation of the volunteered effort would be the value to the subcontractor, based on its budgeted amounts and not on the actual costs to the volunteer.
But, what about the subcontractor’s acquiescence? It observed the volunteered work, after agreeing to it, and made no effort to stop the assistance. Same result as above: There was no default. In addition, it is plain that there was no contract modification, even orally, as there had been no agreement on price or on the extent of the work to be provided by the general.
The correct answer is B. You don’t owe the money. The GC was voluntarily accelerating the work for his own benefit.
Situation 2: Fair compensation
The construction manager sends you a subcontract. You reply—without signing—with a three-page list of the terms you think are unacceptable. However, you proceed with the work and get paid. Halfway through the job, the owner proposes to replace the construction manager and sends you his own contract form. You do not sign it, but respond with a four-page list of proposed modifications. You continue to work to completion. During the job, you sent regular notices of claims for extra work.
Unsigned contracts, particularly where the parties have raised objections to each other’s contract clauses, always raise peculiar legal disputes, with at least two parts: 1. Was a contract ever formed? 2. If so, what are its terms?
As a general rule, if there is not enough agreement on basic terms, a contract is not created. For work performed, recovery is not based on contract law, but on equity under the concept of quantum meruit (literally, the amount it is worth).
Problems with a disputed contract can be corrected by acquiescence of the parties or adoption of the contract by future statements. A court may find that there was subsequent acceptance of the written contract by the party’s signing change orders, pay requisitions or partial lien waivers that acknowledge the contract. However, the exact terms of the agreement may remain in dispute.
In short, none of the four options presented as the answer to the problem is correct, nor is any plainly wrong.
Situation 3: Stick to the plan
After contract award, the owner changes the specification for lighting. You submit revised shop drawings and a proposed price increase. A few months pass, and the owner finally inquires about the lighting fixtures. The manufacturer informs you that there is an 18-week lead time as the materials are coming from Europe.
A regular problem for the courts is what to do with a delay event when the owner causes it, but the contractor ignored the written notice clause for delays and time extensions. Where a change order creates the delay, the owner has an argument that, had he known of the impact, something could have been done to avoid or lessen it.
Typically, a written change order contains language that all other terms of the contract remain except those noted, which means no time extension unless requested and granted. Where time may be an issue or the impact is not then known, reservation of rights language should be placed in the change order.
Under the facts as presented, the contractor had the responsibility of determining the projected delivery schedule and to request a time extension if necessary.
The correct answer is C. You are liable for the delay because your proposed change order did not ask for time.
Situation 4: Back to the roots
The drawings show the routing for underground cable to run power to the homeowner’s new pool house. You trench for the cable as indicated and, in the process, cut through the roots of a 100-year-old tree. A year later, the tree falls in a storm because of its weakened root system.
Under the Spearin doctrine, a contractor has met his responsibilities under the contract if he builds in accordance with the plans and specifications. Barring contract language placing additional obligations on the contractor, his cutting the roots is not a breach of contract.
The correct answer is A. You are not liable for the damage. By performing in accordance with the plans, you have fulfilled your contractual obligations.
The inquiry does not end there. The contractor still may be liable in negligence by helping create a dangerous condition. Therefore, the correct answer also may be D. You are liable. By cutting the roots, you created a risk of serious personal injury and property damage. I’m sorry to say this is for a judge to decide.
Situation 5: Safe or sorry
Your contract requires you to install cable tray in an existing warehouse. You decide to connect the tray to support columns. The contract leaves routing to you, and there is no requirement to notify the owner of how you intend to install the cable tray. As you begin installation, the owner demands your certification that the columns are capable of handling the added weight. To save time, you install separate supports instead and make a claim for the added costs.
No matter how thoroughly a contract is drafted, it always will rest on assumptions about the project. The courts then decide whether those assumptions were reasonable or whether contract clauses make those assumptions invalid.
The owner’s arguments: 1. It is not unreasonable to request the contractor to affirm that its use of the columns is workable and safe. 2. Other means of supporting the cable tray were available, and the owner had no way of knowing the contractor’s plan for using the columns. 3. The contractor had to know that the columns were not originally designed for holding the weight because cable trays and cable were not part of the original design.
The contractor’s arguments: 1. Use of the columns was an industry standard and was predictable, and the owner gave no indication of any restriction on their use. 2. If the columns cannot hold the added weight, a change order should be issued for a differing site condition. 3. The owner’s structural engineer erred by not requiring that testing by the contractor be part of the contract.
Practically speaking, the contractor might have been in a better legal posture by testing the columns and requesting reimbursement for the extra costs of the test. The columns may have been sound. Without testing, the contractor has left itself open to a defense that the costs of the extra supports were unnecessary.
The correct answer is A. You cannot recover. The owner’s request is reasonable that you certify your work will be safe.
Situation 6: The essence of time
The CPM schedule shows plumbing work and electrical work as co-critical. The mechanical sub is slow and inefficient, so you wait to start your work until the mechanical sub is well ahead. The plumbing is completed 100 days late, and you finish 30 days after.
In CPM language, this problem is an example of the “99 bolt theory.” That theory is as follows: There are 100 bolts to install, and the work will take two days. On Monday, 99 bolts arrive. The 100th bolt arrives Friday. Should you have installed the 99, and then demobilized, or did you have a right to wait for full delivery on Friday before starting? The question really is: Did you mitigate your damages by the decision you made?
Strictly speaking, the electrical contractor did not have the decision-making authority over postponing its work. However, the problem indicates that you would have been 100 days late whether you postponed your start or proceeded, perhaps inefficiently, and overlapped your efforts with the mechanical subcontractor. By your postponed start, you saved money, but added 30 days of delay for which you may be liable. The inefficiencies of the mechanical subcontractor took you off the critical path for the first 100 days, even though you began on a co-critical path.
The correct answer is C. You are liable for only 30 days of delay. EC