ConstructionPro Week, Volume: 2 - Issue: 6 - 02/08/2013

What Happens When the Written Contract Deviates from the Solicitation?

By Bruce Jervis

Sometimes final written contract documents are not consistent with prior negotiations or solicitations. A private project owner may alter equipment specifications without calling the change to the attention of the contractor. A prime contractor may expand a subcontractor’s scope of work without mentioning the extra work to the sub. If a party signs a contract unaware of altered provisions, there is a problem.

The “parol evidence” rule mandates that an unambiguous written agreement must speak for itself. Extrinsic evidence, such as testimony regarding contract negotiations, cannot be used to alter the meaning. Buttressing this rule is standard boilerplate language stating that the written contract is the sole agreement between the parties, superseding all prior agreements, negotiations, representations, etc.

In a recent California case, a prime contractor solicited price quotations to furnish and erect pre-engineered metal buildings. The solicitation expressly excluded wall insulation. When the contractor presented the written subcontract to the successful bidder, however, the contractor had added the wall insulation back in. The subcontractor did not review the document carefully and signed it unaware.

The subcontractor in this situation was fortunate. When the contractor added the wall insulation, knowing the subcontractor had not included it in its price, and failed to call the sub’s attention to the alteration, the contractor committed constructive fraud. Extrinsic evidence used to prove fraud is an exception to the parol evidence rule. The subcontractor was not responsible for the cost of the wall insulation.

Now, obviously, an ethical business person would not alter the scope of work in this manner, just as a prudent business person would not sign a written agreement without careful review. But parties do not always follow best practices. Have you seen situations where the final written agreement was inconsistent with the solicitation or prior negotiations? Do you have procedures in place to catch these deviations? I welcome your comments.

COMMENTS

I have experienced the common reality that the folks administering the contract post-signing are often not those involved in the solicitation/bidding (who may even no longer be with the company), so the "institutional memory" is no longer available and the parties are stuck with the literal language.
Posted by: Carl Lothman - Friday, February 8, 2013 11:21 AM

I'm involved in a situation right now where the design team was inconsistent with the bid documents, so standard product was bid, submitted and approved. Now that same team is insisiting that we owe them a custom configuration because it was hinted at in the documents and regardless of what was approved, we are contractually obligated to provide their concept. Does this apply here? Approved submittals can be tossed out?
Posted by: Richard Dow - Friday, February 8, 2013 11:39 AM

My company submits 100s of quotes to prime contractors which work mostly in the heavy highway sector. Our quotes are conditioned by notes that are specific and clear. The unit prices are predicated on the conditions stated in the notes. If was are selected by the prime and a subcontract is issued if often either does not include the notes or the notes have been altered. I then add our notes or alter the notes on the subcontract back to the notes on the quote. There are a few prime contractors who refuse the corrections and threaten to award the work to another subcontractor. What would you do under those conditions?
Posted by: Jan - Friday, February 8, 2013 11:44 AM

This 'grey' area is assisted by the fact that the disadvantaged party tries to compromise whilst the other party is ensuring it gets its rights at all cost. There is a reasonable middle-ground which neither party wins or loses. But for this to happen, there must be a sense of fairness in both. That unfortunately is rarely the reality and that equity can only be enforced by use of standardised contract documents that try to be equitable to both.
Posted by: Andrew Wahome - Friday, February 8, 2013 1:28 PM

As owner's project managers, we observe this problem constantly. Contractors and subcontractors often do not take the time to read the contract, ignore bid requirements that the bid represent the complete project described in the documents without exception, and depend on their own offhand verbal comments as being contractual. There is no excuse for changing the bid requirements without contractor review, but there's also no excuse for not reading the contract.
Posted by: Eden Milroy - Friday, February 8, 2013 5:15 PM

This is a common problem seen in many part of the middle east that after the bid finalisation, the documents are altered just before signing the contract. The best solution to avoid troubles is to make the tender documents (solicitation)as the contract documents and do not include any external documents for it. Usually the tender documents are stamped and signed by the bidders, so this can stay as a reference at all time.The importance of "trust" is fading in the construction industry.

Kunjumon John
Posted by: Kunjumon John - Saturday, February 9, 2013 1:11 AM

As an owner's rep, it is my responsibility to ensure the scope, cost, schedule, and quality goals are clear to all parties. If I don't do that, and a problem like this occurs, the project will suffer and one or more of those goals will be compromised. So, prevent it early.
Posted by: david bentley - Monday, February 11, 2013 4:15 PM

Some owner's never quit negotiating, but if this practice is an obvious attempt to take unfair advantage and it is caught early on, it is probably prudent to ask if the project should move forward at all. Most projects that start badly seem to finish badly.... i.e. get even worse and end up in arbitration or court. Even if in the right, good firms often have reputations smeared in this way. It is very important to retain original bidding documents and records of negotiations for comparisons.
Posted by: Marshall Wilson - Wednesday, February 13, 2013 9:55 AM

In response to Jan, you have little leverage in that situation and are doing the best under the circumstances. At least if you do business with the prime contractor, you can later argue that your notes and conditions were intended to govern the transaction, not the prime's subcontract terms. It is the classic "battle of the forms."
Posted by: Bruce Jervis, Editor - Wednesday, February 13, 2013 10:31 AM

In response to Richard Dow: If the submittal deviated from the contract requirements, the deviation had to be called to the attention of the design team. Even if there was no deviation, submittals are frequently approved using qualified or ambiguous language. This is an attempt by the approving party to maintain flexibility. That may have been the case here. Regardless of the submittal approval, however, how can a custom configuration be directed based on a "hint" in the contract documents? If it wasn't clearly called for, the directive may be a constructive change in the work.
Posted by: Bruce Jervis, Editor - Wednesday, February 13, 2013 10:42 AM

My company recently tendered and was awarded a subcontract for the fabrication of vessels. The Asian client furnished assembly drawings during tender and was unable, and unwilling, to divulge fabrication details to allow for better scrutiny of the tooling and fabricaion methodology. Soon after the award, shop drawings was issued with details out of tender expectations. In a market where work is scarce, this is the type of situation one would face almost in every tender: competitive price vs level of uncertainty (or extent client's hidden agenda). Written qualifications in the quotation simply bears no effect of ruling out issues that cannot be described words, in particular where design is of proprietary nature.
Posted by: Henry Chen - Wednesday, February 13, 2013 8:16 PM