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?
