Remedies Available to Contractor for Additional Work

Increase in payment disputes is a trend seen in construction industry over the past couple of years.  There are varieties of reasons for the dispute; it can be simple disagreements about the scope of work in a contract, to a party leaving its subcontractors with no payment and little remedies.  One of the common issues in the construction industry is changes brought to scope of work during construction.  Such changes result in additional costs to the contractor.

In a situation where a contractor requires performing additional work due to changes ordered by the owner, the contractor is entitled to additional costs incurred in performing such works.  Usually, the contract between the parties would have a clause for an equitable adjustment in contract price for certain changes.  Recoverable extra costs may include the costs of material, labor, subcontracts, overtime, and additional equipment.

If extra work is not covered in the contract, the contractor also may recover in quantum meruit for the reasonable value of services and material benefits provided to the owner.  Quantum meruit is a method used to determine the exact amount owed to a person.  A court may measure this amount either by determining how much the defendant has benefited from the transaction or by determining how much the plaintiff has expended in materials and services.

Some courts may allow quantum meruit recovery for extra cost even when a contract exists fixing a price.  In S. Bell Tel. & Tel. Co. v. Acme Elec. Contractors, 418 So. 2d 1187 (Fla. Dist. Ct. App. 4th Dist. 1982), it was held by the District Court of Appeal of Florida that defendant corporation was obligated under an implied contract to pay plaintiff for the additional work plaintiff performed in addition to the amount stipulated in the original contract.

Every contractor has to take certain steps to ensure prompt payment on their contracts.  When you enter in to a contract with a company it is better to inquire in to how it operates, its financial stability, its track record of making payments, how it handles change orders, etc.  You should be a little more diligent and more selective with whom you worked.  It is better to enter into a contract with a developer, general contractor, or subcontractor you are familiar with or you feel completely comfortable to work with.

It is always safe to execute surety bonds to protect the investments you make in construction industry.  Sometimes a party simply cannot or will not make payments for various reasons.  Payment bonds are very important in such a situation to get payments for the work done.  Mechanics liens are also one of the easiest ways to ensure payment on a construction project.  A contractor has to file liens promptly within the limitation period.  Limitation period varies from state to state, but generally, a contractor must first issue a notice to the original contractor and property owner within a couple months of the work or materials being furnished.  They must also file a lien affidavit with the county clerk of the county in which the property is located.

When additional work is performed, send out regular notices every month.  Send a demand letter for the amount owed and if possible send a lawyer’s notice which helps in conveying the message that you are serious.  Take appropriate steps to protect your interests promptly and diligently.

Sources:

http://texasconstructionlaw.blogspot.com/

http://legal-dictionary.thefreedictionary.com/quantum+meruit

http://books.google.co.in/books?id=rlqG2hhmaH8C&pg=PA134&lpg=PA134&dq=remedies+available+to+contractor+for+additional+work+done&source=bl&ots=Jck6AnXn1j&sig=3vX7FmBHRGOBmMocu-T9C4QXGjE&hl=en&ei=nca_TLXaLIy2vQOR-MWmCA&sa=X&oi=book_result&ct=result&resnum=1&ved=0CAYQ6AEwAA#v=onepage&q&f=false

Documentation and Record-Keeping by a Contractor in a Claim for Damages

Construction claims are on the increase in the recent past.  Claims begin with a dispute between the parties involved in a construction contract and usually involve monetary relief.  All parties to a construction contract should have a thorough knowledge of the claim process and an understanding that a claim is more complex than just a dispute over monetary relief.  A contractor may make claims with regard to changes to the work, work schedule, or method of work.  The relief sought in a contractor’s claim often involves receiving additional time or costs to complete the work.

The contractors must be aware of the significance of the documents they were creating or the consequences if they were not done correctly.  Claims usually arise in relation to the terms of a contract.  Hence, a contractor should enter into a contract that clearly define the duties and obligations of all the parties and eliminate any ambiguities.  When the contract value is larger and the construction project is complex, the contract should be more detailed to address all the potential ambiguities.

Contractors must understand the contract and possess knowledge of different claims so that they can recognize the problem or dispute early and begin the required notification and documentation processes.  Recognizing potential claim conditions can protect contractors from losing their ability to file a claim or allow them to recover the compensation to which they are entitled.

Documentation is a very important construction management function and organized documentation must be a rule of the company.  It is very important to create and retain records and must be created at the time of trouble.  Records must be kept on any developments formed on the basis of the contract.  Letters must be written to record compliance with the contract, confirm verbal requests or instructions, report unforeseen events or conditions, record disagreements with statements or positions written by others, and give timely notice of requests for additional time or compensation.

It is vital to maintain a sound record-keeping and project documentation system.  It will be very useful if negotiations are held long after the work was performed.  Such negotiations may be conducted by individuals not personally involved in the events that gave rise to the request for additional compensation.  Proving the occurrence and sequence of events and the causes of problems is essential to resolving change orders and avoiding construction claims.  It is crucial for contractors to retain essential records and a systematic record retention policy provides the documentation necessary when disputes arise.  Courts and arbitrators tend to give weight to written documentation than to testimony.

The important files to be kept as part of record are the original estimate, site investigation report, contracts and specifications, documents of correspondence, bid documents including any pre-bid conferences, meeting minutes, daily logs or diaries, periodic reports, photographs, engineering drawings, project submittals, quality assurance records, schedules/planning documents, project cost records and payroll records, equipment assignment and utilization records, and weather data.

The required documents detailed above should be collected for any project and the contractor should add relevant documents in accordance with the nature of the project.  Nowadays there are construction management software programs to support and maintain such project documentation.  The documents contained and managed by these programs can also support a contractor’s claim.

Good record-keeping plays a key role in submitting payment applications, documenting compliance with scope of work and code requirements, and proving claims or defenses if litigation arises.  Accurate and proper documentation is also essential when the contractor proceeds to protect its rights to payment through liens.  Contractors can avoid future problems such as payment delays, liquidated damages, or even litigation, by precisely documenting their work.

Sources:

http://www.interface-consulting.com/en/art/177/

http://texasconstructionlaw.blogspot.com/

Battle of Forms

Battle of forms can be defined generally as two persons intending to contract but tender different form contracts, making it difficult to ascertain the terms of contract or determine as to whether there exist a contract.  When each party seeks to impose its terms upon the other and seeks to avoid being bound by the other’s terms, the court's task is to decide what each party to an alleged contract would reasonably conclude from the utterances, writings or conduct of the other.

In the context of construction law, battle of forms exists when a there exist conflict in the terms of a contract or supply agreement between contractor and subcontractor.  When a subcontractor edits and signs a form and the contractor refuse to sign the revised form battle of forms arises.  According to New York law, a defective acceptance can only amount to a counteroffer, and the only way a contract can be formed is by acceptance of the counteroffer in the same way as if it were an original offer.  Bridge v. O'Callahan, 118 N.Y.S.2d 837, 838 (N.Y. City Ct. 1953).

In Northrop Corp. v. Litronic Indus., 29 F.3d 1173 (7th Cir. Ill. 1994), it was observed by Posner, Chief Judge, "Battle of the forms" refers to the not uncommon situation in which one business firm makes an offer in the form of a preprinted form contract and the offeree responds with its own form contract.  At common law, any discrepancy between the forms would prevent the offeree's response from operating as an acceptance.  So there would be no contract in such a case.  This was the "mirror image" rule, which Article 2 of the Uniform Commercial Code jettisoned by providing that "a definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is made conditional on assent to the additional or different terms."

Where both parties’ forms insist on their own terms, and no other terms, they have invoked the “mirror image rule.”  Then, no contract is formed because neither form exactly matches the other.  If the parties’ conduct however impliedly recognizes the existence of a contract, then the terms of the contract include those terms on which the forms do agree, plus the “gap fillers” provided by the UCC.

There is another rule called the last shot doctrine adopted while construing the terms of a contract in a battle of forms.  It was observed in Butler Machine Tool Co. v. Ex-Cell-O Corp. 1 WLR 401 (1979) that, "... where there is a battle of the forms, there is a contract as soon as the last of the forms is sent and received without taking objection to it.  In some cases, the battle is won by the person who fires the last shot.  He is the person who puts forward the latest term and conditions; and, if they are not objected to by the other party, he may be taken to have agreed with them."

In supply contracts of significant value, in order to avoid battle of forms, buyers and sellers are well advised to compare forms to understand what they are, or are not, getting.  It is more preferable to negotiate a contract by the parties on a supply contract of consequence rather than simply relying on forms that may not get the job done and end up in battle of forms.

Sources:

http://www.hollandhart.com/articles/COLawSubcontractMaterial.pdf

http://www.duhaime.org/LegalDictionary/B/BattleoftheForms.aspx