A Case Study Of Bad Faith Negotiations

Everyone has encountered difficult contractors. You may or may not have an idea of what would be the ideal contractor to work with, but everyone has at least one clear instance of a general contractor that seemed to be from some evil nether region.

In my law practice, I have represented general contractors as well as electrical subcontractors and have distinguished, broadly, four types of contractors that subcontractors can find ulcer-inducing.

1. Silent Sam

There are a raft of reported cases (that is, cases that end up in court with a judge’s written decision) involving contractors that do not respond to the stimulus of a subcontractor’s questions. Requests for information/clarification remain unanswered, and requests for extras and change orders go without reply. Demands for schedule updates, complaints of interferences and other needed communications—many of which are actually required to be sent by contract—seem to disappear into the void of the contractor’s inbox.

2. The Never-Write Guy

Equally troublesome are contractors who will not commit in writing. In person, he or she might say “Don’t worry; I’ll take care of you,” or use similar expressions to make you feel that your complaints will be resolved, but there is no formal written acknowledgment of your concerns. Instead, you get phone calls and have discussions at job meetings, and none of these communications ever get confirmed in writing.

3. Aggressive/Confrontational Type

At the other end of the spectrum are contractors that respond to your inquiries and complaints with hypercritical rejoinders. These might include notices that your manpower is insufficient, that your project management and scheduling is not competent, or that there will be backcharges for the disruptions you are causing. They say that, if you spend as much time managing the job as you did in writing complaints, the job would be done.

4. Mr. Put-You-Off

Another common variety of general contractor responses comes from those who continually request more information. Without admitting or denying the bases for your complaints or requests for extras, these contractors will say they need more supporting data before they can decide. When you provide this data, Mr. Put-You-Off will ask for more or demand that the data be in a different format. Then, they will ask for your bid documents or records from unrelated contract items.

A case in point

In a recent court case, Eagle Supply and Manufacturing LP v. Bechtel-Jacobs Co. LLC, the general contractor used a combination of these four styles. The judge held that the contractor’s use of these strategies for frustrating the subcontractor and for deferring action on the subcontractor’s claims amounted to bad faith.

After the subcontractor (Eagle) submitted its bid for the federal government project, the contractor (Bechtel) demanded a substantial reduction or the award would go to another, so Eagle dropped its price. The court referenced this coercion as an element of bad faith.

During the early phases of the work, Bechtel issued a directive that all of Eagle’s employees had to have government clearance to work on the project. Precontract, Bechtel had promised Eagle that these clearances would not be necessary. To meet the schedule, and given the amount of time that obtaining clearances would require, Eagle—at substantial added cost—had to hire a sub-sub that already had the clearances. Bechtel would not accept this circumstance as a basis for a change order.

Other loss-producing events followed, Bechtel failed to remove equipment and materials from the work areas, as promised, before Eagle could start. Bechtel also issued more than 60 modifications to mandatory subcontractor procedures concerning items such as health and safety, equipment operation, maintenance and inspection, hoisting and rigging, and personnel policies. Bechtel stated that changes in site procedures would not be considered an extra even though it acknowledged at trial that there were known cost impacts.

When Eagle submitted requests for extra compensation for these and other events, Bechtel’s first response was a claim that Eagle’s poor performance was the cause and that Eagle had failed to properly stage equipment and materials. Bechtel also threatened to terminate Eagle unless it overcame the delays. These allegations were proven to be untrue and without foundation. 

Near the project’s end, Eagle submitted a global claim for all of its extra costs. Given the nature of the claims, Eagle used a “total cost” approach to its calculation of damages. In response, Bechtel stated that Eagle’s bid was deficient, an unsupported allegation that was proven in court to be untrue. Bechtel also told Eagle that the documentation of the claims was inaccurate and inadequate, all without specifics.

Over the next months, Eagle prepared and sent to Bechtel, at Bechtel’s request, more and more documentation. Bechtel serially rejected this data and further demanded that the costs be broken down and assigned separately to each item of claim, for each delay, for each change in procedure, for each interference, etc. In every instance, Eagle tried to supply pricing information in the form demanded by Bechtel—nine separate times.

At trial, it was shown that Bechtel, in fact, had never reviewed or analyzed any of this data. Adding insult to injury, Bechtel argued at trial that Eagle’s claims were unreliable because there had been nine variations.

The following were found by the court to constitute bad faith negotiations by Bechtel:

  1. The threat not to award the subcontract unless there were price reductions
  2. Interferences with Eagle’s management of the project by meeting with and directing the work of Eagle’s subcontractor
  3. The termination threat
  4. The failure to review and analyze the claim documents

The court held that Bechtel “did not act in good faith, common fairness, or common equity, but acted with bad faith and reckless disregard for Eagle’s rights under the subcontract.”

Bechtel had used silence on the 60 procedural modifications, aggression/confrontation on its allegations of bid errors and poor management, unwritten threats of termination, and delay tactics in asking for more backup data. When added together, the court found that these tactics so impinged on Eagle’s contract expectations that Eagle was held to be entitled to recover its substantial attorney fees in prosecuting the claims in court. These fees were incurred by Eagle from the filing of the lawsuit in September 2010 until the trial court’s decision six years later in August 2016.

In future articles, I will suggest ways to deal with contractors that engage in these behaviors.

About the Author

Gerard W. Ittig

Legal Columnist
Gerard 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 .

Stay Informed Join our Newsletter

Having trouble finding time to sit down with the latest issue of
ELECTRICAL CONTRACTOR? Don't worry, we'll come to you.