All in Agreement: Supreme Court News
July 24, 2007
A General Contractor subcontracted the installation of pre-cast concrete panels. After the completion of the work the subcontractor filed a lawsuit against the GC based on two specific issues:
1. The GC delayed the subcontractor’s scheduled start date.
2. The subcontractor was not given ‘exclusive’ use of the tower crane.
In the Supreme Court of New York the subcontractor argued that the price was based on a start work date of May 1997 and that the GC delayed their start work date until September 1997. The subcontractor’s claim for additional compensation was for the additional cost of storing and transporting the panels at a date later than what the original schedule indicated.
The court ruled that the GC had the right to make such changes and such changes were anticipated by the parties. The most significant part of the court ruling is the fact that the “subcontract gave the GC the authority to set the schedule and placed no limits on its exercise of that authority.”
The court went on to say, “the subcontractor failed to reserve the right to limit changes in the schedule.” The Supreme Court of New York found that the GC’s postponement of the subcontractor’s start date did not constitute a breach of the subcontract.
In the same case the subcontractor had offered the GC a substantial credit if the GC allowed the subcontractor use of the tower crane. The GC accepted the credit; however, the court ruled there was no specific provision in the subcontract agreement allowing the subcontractor exclusive use of the tower crane.
The court is basically saying, “the subcontract language rules.” If a subcontract has language allowing the GC to modify the schedule whenever and for whatever reason, the subcontractor then will not have recourse against the GC for GC schedule changes.
As well, if a subcontractor enters into an agreement for the use of the GC’s equipment the subcontractor must spell out the agreement in the subcontract.
Here Comes the JudgeImagine having a two-hour lunch with a Supreme Court judge of your state and the last thing the judge says to you is, “make sure your contracts have a start and completion date as well as specific language for any special deals you make with the GC.” My question is: “Would you take the judge’s advice?” This ruling should make a huge impression on you.
I have a subcontractor friend who feels modifying a contract other than the scope of work is a waste of time. If the price and scope of work match his proposal he will sign the contract. He believes that going to court is not worth it even if he wins.
A good construction attorney will advise clients to stay out of the courtroom. However, a good attorney will also tell you to modify your subcontracts in order to get the best leverage you can in order to settle out of court. The goal is to modify your contracts to the point where a GC doesn’t want to risk going to court. In other words, “make sure your contracts have start and completion dates as well as specific language for any special deals you make with the GC.”
Start With Your ProposalWhen submitting a proposal it’s critical that you indicate the dates in which you estimate to start the work and complete the work no matter if the GC gave you a preliminary schedule or not.
Also include in your proposal “any and all” special proposal requests by the GC that are not indicated on the plans or specifications. If the GC tells you verbally they will provide a tower crane for your exclusive use, make sure this condition is clearly indicated in your proposal.
A good proposal should include the following information at minimum:
• Date Submitted
• Specification Sections You Are Bidding
• Plan and Revision Dates
• Project Architect-Engineering Company’s Name
• Any Qualifications-Clarifications.
• Reservation of Rights.
• Proposal Expiration Date
A “reservation of rights” clause may be new to many readers, so I want to explain what this term means. In your proposal you may want to ‘reserve your right to negotiate the final terms and conditions of any contract that may result from your proposal.’
You may want to “reserve your right to adjust your price, after review of any bidder-designed systems which may impact your work.” Additionally, you may want to “reserve your right to adjust your price for having to perform work beyond your proposed work durations.”
Reserving your rights in proposal form is simple and may look something like this:
your company , reserves the right to negotiate the final terms, and conditions of any contract resulting from this proposal.
Terms and ConditionsWhat terms and conditions are negotiable? As you know, nearly everything in a contract is negotiable depending upon your leverage at the time. If you priced the job cheap you may have some leverage. If you are the only company in town who can provide the manpower or expertise to do the job this may give you more leverage in negotiating your subcontract. GC’s who take a long time to send you a contract may be putting themselves in a position where time has become a critical issue and this may give you some leverage. Maybe your company included a scope of work that your competitors are unable to provide and this again may give you added leverage.
The following is a list of basic items you may want to consider negotiating before signing your next subcontract: payment terms, retention, bond fee, schedule, sequence, right to terminate contract, scope of work, layout dumpsters, waiver of any rights, indemnification, cost of drug testing, safety, warranty, protection of work, inspections and testing; additionally, the words, “related to,” “in connection with,” or, “arising out of,” and “but not limited to”; and incorporation of your proposal into the subcontract.
Most subcontractor claims for additional compensation for schedule delays caused by the GC may be dismissed, as every lawyer in the nation cites this New York Supreme Court ruling.
If you as a subcontractor make a claim in court for additional compensation as a result of the GC’s delay of the project the attorney for the GC will argue that, “The Supreme Court of New York found that the GC’s postponement of the subcontractor’s start date did not constitute a breach of the subcontract because the subcontractor didn’t limit the GC’s right to do so under the subcontract.”
Reduced leverageThis ruling greatly reduces any leverage subcontractors had under the law unless subcontractors modify their subcontract to include a specific start and completion date. In my opinion the courts were very smart in making this ruling since most cases having to do with GC delay will be thrown out before going to court.
A subcontractor’s ability to collect damages resulting from a GC delay will hinge upon proper subcontractor modifications to the subcontract. Those who don’t include the language in their proposals and contracts will lose and those who do will have much more leverage to settle a dispute out of court.
My question is whether or not a GC can reject the low-bidding subcontractor if the subcontractor refuses to sign the contract without a specific start date. If the Supreme Court ruled that a subcontract must have a “start date” in order to protect a subcontractor’s rights, I would think subcontractors would insist on having a start date in the contract because the law says, “a subcontractor must ‘limit the GC’s right to modify the schedule.’”
I’m sure there will be a case in which a GC refuses to enter into a contract with a subcontractor who insists a start date be included in the subcontract. Maybe it will be your company or mine. It will happen, and in the meantime, if all of us require or negotiate a start date in each subcontract we can be confident that we are complying with the Supreme Court Decision.
The Court is literally screaming at subcontractors to “limit the GC’s right to modify the schedule and make sure any special deals are incorporated into the subcontract.”
Remember: Teamwork begins with a fair contract!