Construction contract disputes do not reach the federal appeals court level on a frequent basis. When they do, the rulings can immediately impact federal construction contracting and can be influential in subsequent state court decisions. This issue features two rulings by the U.S. Court of Appeals.
The Eighth Circuit addressed a subcontracting limitation, versions of which are common in public works contracts. The purpose of these provisions is to prevent low bidders/prime contractors from becoming mere brokers of the work, subbing it out at a profit while performing little work with their own forces. The court ruled that a percentage limitation clause could not be applied as a simple mathematical calculation based on subcontract amounts. It had to be based on actual expenditures for personnel over the life of the project.
In the other case, the federal circuit court considered the interpretation of subsurface site information. When determining entitlement under a differing site conditions clause, the focus had to be on the reasonableness of the contractor’s interpretation and reliance. The finding that the contractor’s interpretation was less unreasonable than the government’s did not justify contractor recovery.