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ConstructionPro Week, Volume: 5 - Issue: 18 - 05/06/2016

Are Oral Construction Contracts Enforceable?

By Bruce Jervis

 

Any agreement worth making is worth putting in writing. This is particularly true of a construction contract, with its intricate web of risks, rights and responsibilities. Yet sometimes oral, unwritten agreements evolve. The question becomes – are unwritten agreements enforceable?

 

The simple answer is yes, if supported by sufficient evidence of reciprocal consideration and a “meeting of the minds.” Partial performance by both parties is persuasive evidence. The more difficult question becomes – how complete must the terms of the agreement be in order for there to be a meeting of the minds?

 

A Utah court recently addressed this question. The conclusion was that the absence of a defined scope of work and the absence of a total or maximum price did not render an oral cost-plus construction contract unenforceable. The million-dollar contract was enforced against the project owner.

 

Obviously, it is never advisable to work under an oral agreement. It is inexplicable that two parties did so in a situation involving a million dollars’ worth of construction services. However, sometimes large things evolve slowly from small beginnings and the informality of the relationship remains in place. Have you seen situations in which substantial construction work was performed under oral agreements? Your comments are welcomed.

 

COMMENTS

In Louisiana, under Napoleonic Law, oral agreements are enforceable
Posted by: Wayne Fletcher - Friday, May 06, 2016 11:20 AM


While not related to an oral contract issue, there are numerous instances where two parties enter a written agreement, but one party (often the owner) has a limited understanding of just what it has agreed to. This can happen when naive owners fail to hire appropriate representation and/or project management capacity. Architects, engineers, consultants and contractors work in the industry everyday. Many owners undertake one-off or infrequent projects, leaving them exposed to their own ignorance.
Posted by: Andreas Aalhus - Friday, May 06, 2016 11:53 AM


Our company is in the midst of a $1.5m construction project with only a proposal and list of Owner/ GC responsibilities. This also evolved from small beginnings. there was a trust component between the two parties at the beginning and it is eroding due to cost overruns. We (G.C.) have continued on with the project despite the overruns (20%) and are looking for some support from the owner who now remembers little of the original agreements. Any suggestions? We're sinking!
Posted by: Kevin - Friday, May 06, 2016 12:20 PM


It is my understanding that in the state of Florida, a written contract is enforceable for five years and an oral contract is enforceable for four years. Having said that, It's always easier to prove what the agreement was if its written down with no "he said, she said" problems. The best contract is one that doesn't have to be "enforced". I am going through a situation where I took over a project a contractor abandoned, It was almost complete and we have a verbal contract. The Project is now complete so, I am about to see if i did the right thing when it come to getting paid.
Posted by: Tommy McCormick - Friday, May 06, 2016 1:41 PM


I have seen situations where a subcontractor commences work prior to signing a subcontract with the prime. The prime and sub had worked together (off and on) for about 20 years. A proposed subcontract existed but had not been signed. This created difficulty for the subcontractor, when after incurring substantial cost overruns, it didn't have a signed contract. The subcontractor eventually signed the contract (it needed paid). The issue then became: Did the subcontractor's knowledge of jobsite conditions, unknown at the time the subcontractor began work, but known at the time the subcontractor signed the subcontract, preclude its recovery. The case ended up in lengthy litigation to the detriment of both parties.
Posted by: David Anderson - Friday, May 06, 2016 2:44 PM










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