In November 2004 (“What Did You Read, and What Did You See”), I posed a number of problems for resolution. The problems were derived from past articles on topics ranging from negotiation strategies to liquidated damages. You may have encountered situations like these in your company, and hopefully these solutions can be of assistance. The following is my analysis.

Question 1

There is a section in the specifications that refers to materials furnished by the electrical contractor. That section referenced a drawing that notes certain fixtures will be supplied by the owner.

a. Is there a patent ambiguity here?

b. Is there a difference between “furnished” and “supplied”?

c. Is there an “order of precedence” issue?

d. Should the designer's license be revoked?

Answer

The court actually made a distinction between the words “furnished” and “supplied,” reasoning that the parties used two words so they must have intended two meanings. That conclusion is silly. On the other hand, application of an “order of precedence” clause could have created an ambiguity in which case the result would have changed.

Question 2

The contract requires a notice, in writing, within 10 days of any cause of delay or the time extension request will be denied. You encounter delays and discuss them with the general contractor who tells you that a plan is being devised to recapture lost time. As a result of this conversation, you do not send the written notice because the delay may be recovered.

a. 10 days in writing means just that.

b. The oral notification substitutes for the writing.

c. The general contractor has waived the writing requirement.

d. Send a late note and hope the general contractor treats you fairly.

Answer

This case emphasizes the need to follow the contract. The notice was not sent in reliance on a vague promise. Plus, the promise was possibly to do something in the future. That is not close to creating an oral modification of the contract.

Question 3

The owner of a multimillion-dollar home is consistently late in making payments to your general contractor (you have a verbal cost-plus agreement with the general). About halfway through the project, the owner is not only late in paying, but is now starting to find fault with the electrical installation. The general contractor is on your side, but does not want to antagonize the owner.

a. Set up a meeting with all parties to discuss the problems.

b. Pull off the job and tell the general you will return once you are paid to date.

c. Your verbal subcontract is unenforceable.

d. Continue with your work and hope it works out in the end.

Answer

Discussions are always good, but protect yourself. An oral cost-plus agreement may or may not be enforceable, so confirm the agreement in writing and ask for a list of any claimed problems from the owner.

Question 4

You find that your job foreman has been embezzling funds by overcharging your clients for unperformed work. Some of your clients are becoming suspicious, given that the invoices do not match up with the amount of work done. The stolen funds have accumulated to more than $10,000.

a. Fire the general foreman immediately.

b. Meet with the clients individually, explain the problem and offer restitution.

c. Keep the fraud quiet, but adjust your books so your clients will not be overcharged.

d. Call the police.

Answer

Fire the bad guy. You do not want to appear to condone the fraud. Restitution is in order. Sit down with each customer, tell them of the invoicing discrepancies, and correct the files immediately. Unfortunately, you may already be in violation of a home improvement act prohibition.

Question 5

On a school project, the first electrical contractor was default terminated and your company has been asked by the owner to complete the work.

a. Make sure the first electrical's bonding company will stand behind your contract.

b. Perform a thorough investigation of the quality and quantity of work already performed and give your report to the owner.

c. Do not take the completion work as a lump-sum contract.

d.Start making vacation plans based on all the profits you will rake in.

Answer

Answers (a), (b) and (c) together are a good start. You should also get information on the details of the default. Was the first contractor incompetent or is the owner overly difficult? Also, distance yourself from possible hidden defects created by the first contractor.

Question 6

You and the owner had many disputes on the commercial project. There were criticisms of the quality of your work, your late completion and the validity and pricing of your proposed extra work items. Finally, the two of you reached an agreement and the owner sent you a check in final payment. Months later, the owner finds other problems for you to fix.

a. Tell the owner to pound sand-you have received final payment and it is over.

b. Go back for the fix and help preserve your company's reputation.

c. Go back, but only with a written purchase order for the “repairs.”

d. Do nothing. The owner will probably not pursue this.

Answer

Check your contract and the wording of your settlement. Final payment usually ends all issues except for hidden defects or warranties. Investigate complaints before making a decision on your course of action.

Question 7

Your company has a long-term “time and material” maintenance contract for an industrial facility, which provides for compensation for your equipment based on a depreciation and maintenance schedule. However, you billed your equipment at published rental rates as you found it more convenient. Three years have passed, but the owner, suspecting overcharges, now wants an audit.

a. The contract does not provide for an audit, so ignore the request.

b. Open your books, but explain that the difference in price was not substantial.

c. Open your books, but explain that the owner had to have known of your pricing method and so waived that part of the contract.

d. Talk to a lawyer because you might get sued for fraud.

Answer

I had this case, and it did not go to court. The position taken was (c). Had it gone to court, the results could have gone either way, depending on the degree of knowledge of the owner and the level of responsibility of the owner's representative who knew what was going on.

Question 8

Your contract contains a bonus clause, granting you $10,000 if you complete your work on or ahead of schedule and a $10,000 deduct if you are late in completion for any reason. You are late.

a. Because there is a balance between the bonus and the penalty, you are flat out of luck.

b. The $10,000 deduct is a “penalty” and unenforceable because it is not related to the owner's actual costs.

c. A schedule analysis should be performed to show why you are entitled to a time extension as well as the bonus.

d. Because the deduct/penalty is large in relation to contract value, it is unconscionable.

Answer

Upfront, the $10,000 looks like an unenforceable penalty. That conclusion, however, does not help solve the problem as the owner is still holding your money. If the delay is substantial and is largely your fault, the deduct maybe a cheap way out. If you want part of the money back, put together a simple bar chart analysis to explain why completion was late.

Question 9

You are the electrical subcontractor on a department store. A few months into the job, your general contractor changes its letterhead to show a new name on correspondence, checks, etc. Payments remain timely and there is no problem with the job.

a. Don't worry about it. Companies change their names all the time.

b. Accept the general contractor's explanation that the name change is just administrative.

c. Demand written assurances that the newly named company has accepted all obligations of the old company.

d. Walk off the job. You never agreed to contract with this new company.

Answer

Take nothing for granted. The safest course would be to ask for a letter confirming the reasons for the name change. Things that look peculiar often are.

Question 10

You signed a “partial waiver of lien” form every month during the entire job. The form contains language that you acknowledge payment in full to the date of the partial waiver and waive all mechanic's lien rights through that date.

a. This partial waiver does not cover unapproved changes and claims.

b. This partial waiver does not cover contract retention.

c. The form is ambiguous and waives nothing.

d. Sign up for a course on contract law.

Answer

My articles have discussed this “partial lien” issue. If you still do not know the answer, select (d). Otherwise, it depends on the exact language of the waiver and past practices of the parties. When old change proposals are accepted after the release is signed, some courts have found that the form language is ambiguous. That conclusion is a stretch by the courts and is not a safe basis for signing the form. The issue may not be ambiguity. You may have waived your right to lien, but not your right to sue for breach of contract.

Conclusion

How did you do? Grade yourself not on whether you got the right answer, but on whether you asked the right questions. How did the facts of the problems fit in with your knowledge of what a contract says and means? No matter what answer you selected, how will that answer affect you and the outcome you are seeking? Finally, the most important question: How could you have avoided the problem in the first place? EC

ITTIG, of Ittig & Ittig, P.C., in Washington, D.C., specializes in construction law. He can be contacted at 202.387.5508, USBuildlaw@aol.com or www.ittig-ittig.com.