The law contains many pitfalls for contractors. Important contractual rights and remedies can be lost, hard-won statutory protections waived, and serious liabilities incurred – all through ignorance of the law. This newsletter is designed to give you, in 60 seconds, some insight into legal problems faced by legal contractors, subcontractors, and suppliers in the construction industry, so that you do not repeat their mistakes. This is not legal advice and is not a substitute for consultation with a lawyer.
You Be the Judge
FACTS: A general contractor agreed to perform site work on a construction project that involved the excavation of rock. When the general contractor began the excavation, it encountered significantly more rock than expected.
Under the contract, the general contractor was entitled to be paid its additional costs for having to excavate the excess rock. The general contractor continued working on the entire site over the next month to determine the extent of the excess rock. About five weeks after discovering the excess rock, the general contractor notified the owner of the additional work required to complete the excavation and prepare the site.
The owner denied the claim on the ground that the parties’ contract had a clause requiring the general contractor to provide “notice for any and all claims… in writing immediately upon subcontractor’s first knowledge of the claim condition or first event giving rise to such claim and under no condition … later than seven days ….”
ISSUES: Can the general contractor recover the extra costs incurred to excavate the excess rock? Is the general contractor contractually obligated to excavate the excess rock and prepare the site?
RULING: The Judge determined that the general contractor was obligated to complete the excavation and could not recover for the additional work required to remove the excess rock. The general contractor was required to notify the owner within seven days of the first time it found excess rock and was not reasonable in waiting until after it had examined the conditions over the rest of the site. The Judge also determined that the general contractor was not saved by the owner’s geo-tech report that did not show the rock, because even if the geo-tech report was inaccurate the general contractor still had to notify the owner within seven days of discovering the excess rock.
LESSON: Promptly notify the owner upon discovering conditions that can lead to a change order. Delay can mean you work for free.
Faulconer Construction Company, Inc. v. Branch & Associates, Inc. (Rockbridge County).
Make sure your teaming agreements are enforceable. A Virginia federal judge recently reviewed a teaming agreement to bid for a federal project and found that after the project was awarded there was no obligation to enter into a subcontract. The teaming agreement stated the parties would negotiate certain additional terms of the subcontract. The judge ruled that was an unenforceable “agreement to agree.” To be enforceable, the obligations of a teaming agreement must be fixed and certain.
Cyberlock Consulting, Inc. v. Information Experts, Inc. (ED VA., Alexandria Division).
Alternative Dispute Resolution
Contracts can require mediation before any party can file a lawsuit or institute arbitration. In mediation, a retired judge and the lawyers can help the parties reach an agreement to resolve their dispute confidentially and without significant legal expense. Consider adding this requirement to your contracts.
Source: The 60-Second Construction Journal (February 2014)