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An Unsigned Contract with a Twist

Alan L. Stefaniak

In the January issue of this newsletter my article dealt with a trial I won that involved an unsigned contract. The trial court found in my client’s favor based upon the facts. Currently I have another situation involving an unsigned contract but this time there’s a twist.

My client gave a proposal based upon a bid set of drawings. The proposal was accepted via an email “intent to award contract.” The general contractor is a design build firm and proceeded to send my client its form subcontract agreement. The subcontract listed the plans and specifications on three pages referring to the bid set of drawings all of which were dated in May and June, 2013. My client never signed the subcontract nor did the gc.

About a month after receiving the subcontract a scope review meeting was held in the field and certain items were pointed out that were not on the drawings. It was agreed this work would be done and a price given and accepted. My client then proceeded to do certain of the preliminary work. At this point if the story ended you might think my client is bound by the subcontract even though not signed. Remember from the January article, the parties conduct can show that an unsigned contract is binding. But wait, there’s more.

In December of last year my client and all the other subs received an email from the gc advising that the “construction” drawings are now on line and that from that point forward they are to be used. The “construction” drawings are dated October 30, 2013. As I said the gc is design build and its architectural division prepared the “construction” drawings. Contrary to industry standard the changes to the “construction” drawings were not clouded so picking up where these plans differed from those listed in the subcontract and upon which my client’s bid was based was not easy.

My client’s estimator made a detailed review of the new drawings and found they required additional work that would cost $36,000 more. The gc was notified of the price increase and because the work was now to be done per different plans my client requested a new contract. The gc responded by asking my client to give a breakdown of the additional cost. This was done and again a request was made for a new contract. This second request was ignored and the gc responded to my client’s breakdown by saying the request for additional compensation would be considered. In addition many items were just referred to as being on hold. My client became suspicious and decided to walk off the job and ceased performance. This action was not met favorably by the gc.

Once my client refused to return to work the gc’s project manager threatened to replace my client and hold my client responsible for the additional costs incurred. After a few telephone conversations and email exchanges the gc issued a formal letter of termination and advised my client that it would be held responsible for the additional costs being incurred plus liquidated damages for project delay. At this point my client asked me to get involved and respond to the gc’s threats.

Based upon these facts I have taken the position that no contract exists. The difference in this situation and the one I wrote about in my January article is this time a basic element of contract law is missing, “a meeting of the minds.” How can there be a contract if the gc changes the plans?

I advised the gc the termination notice is meaningless since no contract exists. Also I advised them it didn’t take a genius to figure out what they were trying to do by issuing a “construction” set of drawings after my client began performance which were not clouded and then insisting that they continue performance under a new set of plans while the issue of what would be paid for was worked out. Not surprisingly the form subcontract agreement provides that if the sub does extra work without a signed change order it won’t be paid for.

I also advised the gc if a lawsuit is filed it will be vigorously defended and a counterclaim asserted for lost profits, fraud, misrepresentation and punitive damages. As you can see whether an unsigned contract is binding depends on the facts. In this case there is no contract because how the work was to be done and what it consisted of was not agreed upon. As of the writing of this article no response has been received from the gc or its legal counsel. Stay tuned.

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