Masonry Magazine March 2008 Page. 62
Legal Issues
Subcontractors Beware:
Bid Conditions Matter
By Timothy R. Hughes and Alison R. Mullins
Subcontractors bidding on projects must thoroughly review and understand the terms of the bid documents. A failure to read and understand the conditions can have incredibly harsh results. A recent decision issued by an intermediate appellate court in New York State had harsh implications for a subcontractor who proceeded with work without having a signed contract. The court ruled that, under the bid documents, the subcontractor was entitled to nothing, despite properly performing significant work.
Not bound until set in stone
In Jordan Panel Systems, Corp. v. Turner Construction Co., the general contractor solicited bids from several subcontractors to design and construct a steel hanger at an airport. The subcontractor submitted a bid to the contractor. During the contract negotiations, the general contractor sent the subcontractor a term sheet.
The term sheet included a provision which stated that, "unless and until [the general contractor] executes this Subcontract, [the general contractor] shall not be bound by any of the terms or conditions herein." The term sheet also included language to the effect that if the general contractor had not signed the subcontract by a certain date, "...neither [the general contractor) nor the Subcontractor shall have any liability to the other and [the general contractor] shall have no liability to make payments for Work performed by Subcontractor, if any, or for anticipated profits." These two sentences proved damning to the subcontractor.
The subcontractor claimed that a few days after receipt of the term sheet, there was a phone call between the general contractor and the subcontractor. The subcontractor claimed the parties agreed to a subcontract price. During the same phone call, the general contractor informed the subcontractor that they had been awarded the subcontract and directed the subcontractor to begin the design work in order to accommodate the project's fast track schedule. There was a subsequent kick-off meeting including the subcontractor, general contractor and additional parties.
Just two short days after the kick-off meeting, the subcontractor was informed that the general contractor was terminating the subcontractor's involvement in the project. The subcontractor brought suit against the contractor to enforce the contract and to receive payment for work performed. The court rejected all of the subcontractor's claims based on the contract provision above. A failure to understand conditions of document terms can have incredibly harsh results.