Volume: 22, Issue: 3 - 02/15/2024
Most individuals involved in the construction process recognize the importance of signing documents only in their capacity as authorized agent of the entity they represent. The responsibilities and liabilities are not being assumed by the individual, but by the corporation, LLC, limited partnership, public agency, etc. A recent case from Tennessee provides an instructive scenario where an individual signed a construction contract only once, clearly in his capacity as an authorized representative of the construction corporation, and still found himself with personal liability exposure.
The AIA contract form included a box where the “Contractor” was named. Someone entered the name of the corporation and the name of the individual. The appellate court reasoned that as a named party to the contract, the individual could have become bound despite the lack of any signature in his individual capacity. The court additionally noted parties can indicate assent through their actions, inactions or spoken words.
The second case in this issue involves a contractor’s $369,990 bid preparation error when transposing a subcontractor price quotation. The contractor demanded a price reformation of the contract. The federal agency should have recognized that a clerical mistake had occurred, yet the project owner never sought verification of bid accuracy prior to contract award. Unfortunately for the contractor, the agency never had access to the bid preparation worksheets, which would have alerted it to the error.
The third case addresses the limitations of enforceability of broad “flow-down” clauses in subcontracts. When the sub agreed to assume toward the contractor all the obligations the contractor had assumed toward the project owner, did the subcontractor simply agree to construct its work in accordance with the technical specifications? Or, did the sub agree to all the general conditions incorporated into the prime contract?
Although an individual signed a construction contract only in his capacity as authorized representative of a corporation, that individual was identified as a “Contractor” in the agreement. The individual could become bound to the contract even in the absence of an individual signature.
A contractor’s bid error in transposing a subcontractor price did not entitle the contractor to a reformation of the contract price. The government had no constructive knowledge of the mistake and was not required to seek verification of the accuracy of the bid.
A New York appeals court has ruled that a broad “flow-down” clause in a subcontract incorporated the sub’s portion of the work requirements from the prime contract, but not general conditions such as an FAA handbook.
Volume: 22, Issue: 2 - 02/01/2024
The role of an “owner’s representative” on a construction project varies according to the scope and nature of the work as well as the resources of the project owner. The role may be limited to basic administrative functions or involve sophisticated inspection and testing for compliance with technical specifications. The agreement between the owner and representative defines the responsibilities of the rep, but when the owner elects to retain a licensed design professional to serve as the owner’s representative, are all the rep’s services viewed as professional?
A Texas appeals court recently answered this question in the negative. An owner’s rep agreement can be hybrid, calling for both professional and non-professional services. And, the provision for non-professional services will not be viewed through the same lens as the provision for professional services, regardless of the licensing status of the representative.
The other case in this issue involved a subcontractor’s agreement to pass any claims up the contractual chain for resolution by the prime contractor and project owner. In so doing, the sub inadvertently waived its rights against the public works payment bond.
A licensed professional engineer’s services as project owner’s representative can be of a hybrid professional and non-professional nature. Where a function does not require engineering skills, it is not considered a professional service.
Where a subcontractor had agreed to (1) “pass-through” any claims for resolution between the prime contractor and public project owner; (2) be bound by that resolution; and (3) forego any independent litigation pending resolution, the subcontractor waived its right to bring claims against statutory public works payment bonds.
Volume: 22, Issue: 1 - 01/17/2024
A comprehensive, unambiguous written contract is presumed to speak for itself. Extrinsic evidence cannot be used to modify or explain the terms of the agreement. This is known as the “parol evidence rule.” However, limits to the scope of the rule have led to some surprises in its application.
The U.S. Navy issued a contract modification, signed by both parties, granting the contractor a price increase. The contract modification stated it was issued pursuant to the contract’s Differing Site Conditions clause, which allowed for compensation for differing site conditions encountered on the project. The Court of Federal Claims allowed into evidence an internal Navy memorandum to establish the Navy never really acknowledged the existence of a differing site condition at the project site. The appellate ruling by the Federal Circuit was interesting.
The second case in this issue involved the statutory procedure for “bonding off” or “bonding around” a mechanic’s lien. Subject to court approval, a bond is furnished as payment security in lieu of the lien and the lien is discharged. The Idaho Supreme Court was asked to decide whether a lien claimant was required to seek recovery against the bond within the statutory period for suing to foreclose lien rights.
The third case addressed the reasonableness of a fixed-price construction contract awarded under a “most advantageous to the State” procurement statute. Was an $8.2 million price premium really in the best interest of the public?
Although a contract modification stated it was settling the contractor’s claim under the Differing Site Condition clause of the contract, this was not a government acknowledgment that a differing site condition existed. Extrinsic evidence in the form of an internal government memo was allowed to establish that the government questioned the existence of a differing site condition.
A state agency followed its published bid evaluation scheme. The procurement could not be considered a gross abuse of discretion even though it resulted in taxpayers paying an $8.2 million price premium.