Often times, in my law practice, I come across re-occurring themes and issues with my clients. They come to me with similar issues that are sometimes unsettled by case law. Gregory M. Cokinos gave a presentation recently at the 24th Annual Construction Law Conference about the recent judicial decisions that have an effect on construction law in Texas. I thought it might be helpful to provide a brief summary of some of the cases that were discussed. For instance:
- What happens when you bid a contract but later find out that there are site conditions which were unforeseen at the time that you signed the contract? What if your contract says that you are responsible for these conditions and should discover them through your own on-site inspection?
- What if you have a disagreement about what should be included within your scope of work? How does the law normally handle these disagreements?
- What if you have a written contract but did not get your change orders confirmed through a written change order or new agreement? Are you able to recover in a lawsuit under Quantum Meruit (which basically is a fairness principle)?
- Under what circumstances can a contractor require you to sign a Release of Lien prior to getting paid?
- What happens if you are sued for an accident on the job that occurs long after you had control over that scope of the project? In what circumstances are you liable for the damages?
Contractors and subcontractors face at least one of these issues on practically every project. Hopefully, this overview will help give you the current status of where various courts stand on these issues within the State of Texas.
What is a Subcontractor’s Liability for Unforeseen Circumstances Not Discovered During Its On-Site Inspections:
MasTec North America, Inc. (“MasTec”) won a bid to replace gas pipelines owned by El Paso Field Services L.P. (“El Paso”). In the contract, El Paso implied that it had exercised due diligence in locating all foreign crossings within the right-of-way. However, MasTec still agreed to perform a site inspection and use its findings to prepare the bid.
El Paso prepared the specifications and listed 280 crossings. Using these specifications, MasTec inspected the right-of-way for foreign crossings before finalizing its bid. During construction, MasTec encountered approximately 794 foreign crossings. El Paso refused to compensate MasTec for the extra costs caused by the additional crossings, and MasTec subsequently filed suit. The jury found that El Paso failed to exercise due diligence as promised; however, the judge entered a judgment notwithstanding the verdict in favor of El Paso because of the lump sum bid submitted by MasTec and the fact that, according to contractual provisions, the assumption of risk fell on MasTec. MasTec appealed.
The court of appeals held that, under the contract, it was the responsibility of El Paso to exercise due diligence when locating and listing all the foreign crossings in the specifications and accordingly, MasTec was not required to assume the risk in this situation. MasTec’s representation that it was familiar with the site was limited by El Paso’s failure to exercise due diligence when preparing its specifications.
What Happens When the Language within the Scope of Work Section of a Construction Contract is Ambiguous?
General contractor C.A. Walker, Inc. (“Walker”) retained Total Roofing Services (“TRS”) to perform roofing work related to the construction of a grocery store. The section in the scope of work regarding composite metal panels referred to composite metal panels in general as well as tasks specific to roofing.
A dispute quickly arose about whether TRS was responsible for buying and installing all composite metal panels. Walker asserted that the scope of work required TRS to purchase and install all the composite metal panels for the structure, including the panels on the building facade. However, TRS took the position that it was only responsible for installing the panels related to the roofing system. In the end, Walker bought the composite metal panels for the building facade, and TRS installed them. After the project was completed, TRS filed suit against Walker because it had not been paid for installing the additional panels, which was outside its scope of work.
Walker filed a counterclaim, asserting TRS breached the contract first by not providing the composite metal panels for the building facade. During trial, TRS claimed the contract’s scope of work was ambiguous and extrinsic evidence showed the parties did not intend for TRS to provide the composite metal panels for the building facade.
The trial court agreed with TRS and Walker appealed. The court of appeals affirmed the decision of the trial court, finding the contract ambiguous. However, because the scope of work repeatedly mentioned “roofing,” it was reasonable to infer that the scope of work was limited to composite metal panels required to construct the roof.
Is a General Contractor Permitted to Withhold Payment because Subcontractor has not Submitted an Lien Release Affidavit?
Solar Applications Engineering, Inc. (“Solar”), the general contractor, entered into a contract with TA Operating Corporation (“TA”) for the construction of a truck stop. Section 14.07(A)(2) of the contract stated that the final Application for Payment should include “(i) … (iii) complete and legally effective releases or waivers (satisfactory to [TA]) of all Lien rights arising out of or Liens filed in connection with the Work.”
When the project was nearing completion, a dispute arose between TA and Solar, and TA soon terminated Solar because Solar had filed a lien on the project. Shortly thereafter, Solar submitted its “Application and Certification for Payment” to TA for the alleged balance. TA refused pay, asserting that Solar must submit a lien release affidavit in order for Solar to receive payment.
Solar filed suit for breach of contract on the basis of substantial performance. TA counterclaimed for delay and defective work. The trial court found mainly for Solar, but the court of appeals found that even though Solar had substantially performed, TA was not required to pay the balance because providing a lien release was a condition precedent to final payment.
The Texas Supreme Court of Texas disagreed with the court of appeals. In the absence of conditional language (e.g. “if,” “provided that,” or “on the condition that”), the terms of the contract should be interpreted as a covenant. Because Section 14.07(A)(2) lacked any conditional language, the Supreme Court held that the lien-release provision was a covenant rather than a condition precedent, and the failure to provide such a release could not prevent Solar from recovering.
Can Quantum Meruit be used as an alternative Method of Recovery of Damages in a Construction Situation where there is a Written Contract?
Spring Village Partners, Ltd. (“Spring Village”) hired Rasa Floors, L.P. (“Rasa”) to replace the floor in an apartment complex based on a bid quote of $1.50 per square foot. However, no formal agreement was executed. Rasa completed the work and submitted invoices for payment, but Spring Village refused payment on the belief that the invoices exceeded the bid amount. Rasa sued Spring Village on a sworn account, and alternatively for breach of contract or recovery in quantum meruit.
The jury awarded $5,000.00 to Spring Village based on its finding that Rasa breached its warranty and $30,000.00 to Rasa under its quantum meruit claim, finding that Rasa performed, and Spring Village accepted the work. The trial court rendered judgment on the breach of warranty claim, but ignored the jury’s quantum meruit findings. Both parties appealed.
On appeal, Spring Village claimed Rasa’s quantum meruit cause of action was disqualified by the jury’s finding that an express contract covered the claim. The court of appeals disagreed, noting that in construction cases, a breaching plaintiff can recover under quantum meruit for the value of services and materials provided, taking away the amount of damages caused by his breach, even if an express written contract between the parties existed. Thus, Rasa was granted the jury’s award less the $5,000.00 due to its breach of warranty.
When can a Subcontractor be Liable for Damages Resulting in Unsafe Site Conditions?
Allen Keller Co. (“Keller”) was hired by Gillespie County to carry out flood and erosion control work at a bridge. Before construction began, there was a small gap between the bridge’s guardrail and a river embankment. The specifications required the gap to be widened by ten feet, thereby extending the gap from five to fifteen feet. In June 2003, the Keller completed performance as specified, and the County inspected and accepted the work. In January 2004, a passenger was drowned when a car lost control and slid into the river through the newly extended gap created by the construction. The parents of the deceased sued Keller, alleging it created a dangerous condition by extending the gap. At trial, Keller was granted summary judgment on the basis that it owed no duty as a matter of law as the accident did not occur on the contractor’s property and the work was inspected and accepted by the county.
The court of appeals overturned the decision, citing that in Texas “one who creates a dangerous condition may owe a duty to make the premises safe, even if he is no longer in control of the property at the time of the injury,” and that “an independent contractor who has created a dangerous condition on real property is not relieved of any duty of care to the public merely because his work is accepted.”