ConstructionPro Week, Volume: Construction Advisor Today - Issue: 15 - 08/05/2009

Contractors and Suppliers -- Limitation of Liability: Waging the "Battle of Forms"

 Contractors purchasing materials or equipment for a project encounter the “standard,” pre-printed purchase order or sales agreement forms of the supplier. These forms contain language, authorized by the Uniform Commercial Code, which limits the supplier’s liability and disclaims much to the responsibility for the supplier’s product. Yet that product may very well have been specified by the project owner.

In a recent case, a contractor purchased steel reinforced concrete pipe from a supplier. The sales agreement included a “Limited One Year Warranty.” The supplier would repair or replace any defective goods, or make a full refund of the purchase price, within one year of delivery of the goods. This was the contractor’s exclusive remedy. Any other liability or responsibility was expressly disclaimed. Several years after project completion, a pipe failed and the project owner sued the contractor. The contractor then learned that the limitation of liability was enforceable under the UCC. The contractor had no recourse against the supplier.

I'd like input on how you respond to disclaimers in your suppliers’ paper work. Do you attempt to wage a “battle of the forms” in an effort to have your contract language supersede the supplier’s “standard,” nonnegotiable form? Any success in this regard?

As always, I welcome all comments below.

Don't miss, In the upcoming issues of Construction Claims Advisor . . . case summaries and articles covering:

  • Contractor Left Exposed after Supplier Limited Liability
  • Negative Performance Evaluation Cannot Be Set Aside
  • “Delivery Receipt” of Proposal Was Not Proof of Agency Receipt

Bruce Jervis, Esq., Senior Editor

 

Comments

As a supplier, I would say that the construction industry as a whole is very litigious. Contractors have increasingly placed requirements on suppliers that are VERY UNREASONABLE. That is why every Purchase Order agreement of consequence our company receives gets a lookover from our attorney. Our company will not be painted into a corner. And we are not afraid to walk away from an order.

We need to remember that we all need to work together in this industry. Many times the contractors alienate the suppliers and reduce the number of suppliers who would want to do business with the, thus driving up their costs.

 

There is a balance between the risk and the cost involve. If the owners wants to push down liabilities to the contractors and suppliers he will pay for it.

The party best suited to manage the risk should take it on.

There is also a responsibility to ensure that quality is delivered by both the owner in respct of quality control plans and the supplier in delivering what is stated and required and what is paid for. This should be covered by the liabilities in the agreements.

Depending on market conditions you see a shift from a balanced mix of riks, liaibility and costs and most of the times the party with the best leverage and negotiators coming of the best.

The value of the items also play a role as minor items on a billion dollar project would not receive the same focus and effort as multimillion or very critical items on a project.

Good negotiation and un understanding of the risks in execution and later operation is critical.

Hadn't those folks heard of the 2-207(3) "knock out" rule?

 

I agree that the fundamental issue in the contractor-supplier "battle of the forms" is the allocation of risk. How much risk/responsibility is appropriate in light of the supplier's role in the project and the amount of compensation the supplier will receive? Many contract terms submitted by both contractors and suppliers are one-sided in this regard.
Attorney Ogden raises a good point about the UCC 2-207(3) "knock out" rule. If a supplier performs (delivers) despite the exchange of forms containing incompatible terms, both terms are knocked out and the UCC terms govern. I ask Mr. Ogden, how is this rule utilized tactically when representing either a contractor or a supplier?

 

This reply is to Bruce’s 8/7/09 “Battle of the Forms” commentary. It is also strictly from the perspective of a former general contractor who built structures and mechanical facilities at various federal government installations throughout the southeast.

 

First, when buying out materials packages for new projects, I never encountered any “battle of the forms,” as I had my own purchase order form for materials. Being the buyer, I never let suppliers dictate the terms of quality or delivery, or, when possible, price. My form always contained the facility owner’s “flow down” quality assurance clauses and the federal-mandated one-year materials warranty clause found in the contract’s specifications. It also contained a “time is of the essence” clause with respect to delivery schedules, sometimes a deal-breaker, which merely drove me down to the second or third lowest-and-best quoter.

The last paragraph took care of the “forms” issue. Its language firmly asserted my order to be the only agreement existing between the parties, written or otherwise.
Finally, based strictly on the price of the lowest most responsible (my perception from “asking around,” or prior experience, etc.) quoter whose product appeared to clearly meet the specification, I incorporated his price beside the contract quantity into my form, ignoring all caveats embodied in his quotation about cost escalation, time extensions, strikes, and the like. I then faxed or mailed the completed agreement to the supplier with a 5-business day acceptance window. Upon my receipt of his signature, I affixed my own and mailed him his copy.

No contractor (the real, surety-bonded variety doing fixed price, fixed completion date contracts) will survive very long without this kind of control.

Glen L. Eaton
http://www.ConstructionClaimsExpert.com

 

 

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