No contractor ‒ prime, sub, or lower-tier sub ‒ should ever be allowed on a jobsite without a written agreement. Fundamentally, that contract defines contractual responsibilities and allocates risk. A summary of the many things that can go wrong under an informal, oral arrangement would take paragraphs. A recent appellate court decision from Illinois added a new wrinkle.
A prime contractor on a commercial restaurant project “brought in” an electrical contractor and a plumbing contractor with whom it had previously done business. There were no written agreements between the prime and the trade contractors. Nor were there agreements between the project owner and the trades. The trades submitted payment requisitions to the prime, who passed them through to the owner who paid the trades.
A nonpayment problem developed. The prime filed a mechanic’s lien on the project. The lien covered money owed the prime contractor and the trade contractors. The prime said it had functioned as a de facto general contractor and feared it might ultimately be held liable for paying the trades. The court rejected that argument. Without a written agreement establishing prime contractor responsibility for paying the trades, the prime’s mechanic’s lien was willfully overstated and constructively fraudulent.
The other case in this issue involved a limitation of liability clause in an engineering firm’s agreement to provide construction monitoring services. A Florida appeals court said the cost of repairing defective construction work, allegedly not detected by the engineer, constituted “consequential” damages, which had been expressly disclaimed in the agreement. Noting the lack of precedent on this issue, however, the court certified the question for a ruling by the Florida Supreme Court.
