This past May we looked at impacts and increased costs on construction projects due to COVID-19, including the results of research performed by Compass International's John McConville. In this issue, we follow up with additional reporting by McConville as well as resources from the Sheet Metal Contractor's association (SMACNA). Click here for this issue's COVID-19 article.
This Week's Cases
Construction contracts commonly establish procedures for obtaining written change orders, as well as reserving claim rights when applying for progress payments. These formalities, however, may clash with the chaotic realities in the field. Then, the enforceability of the formalities is called into question.
An Arizona appeals court recently grappled with a subcontract dispute that presented these elements. The contract drawings presented to the sub were riddled with omissions and conflicts – “thousands,” according to the court. The contractor issued oral field directives to the subcontractor on a daily basis. Sometimes written change orders were issued, sometimes not. The subcontractor submitted progress payment invoices without reserving any claim rights.
The court viewed the formalities in the subcontract in the context of what had occurred in the field. In light of the horrific contract drawings, the daily oral directives, and the contractor’s failure to consistently follow the change order procedures, the sub’s failure to insist on written change orders and its failure to reserve its claim rights when requesting progress payments were not material. The sub could recover anyway.
Another case in this issue involved responsibility for differing site conditions. A federal appeals court ruled a site inspection clause placed that risk squarely with a subcontractor. Under Texas law, the sub could not recover despite an affirmative misrepresentation of the condition of the site in the contract documents.
The final case addressed a statutory claim limitation period. The running of the 12-month period to sue was suspended when the contractor elected to demand nonbinding mediation, which was authorized under the terms of the contract.
