Dont make court tell you what you agreed to do

A contractor in Idaho recently learned how easily some routine construction work can turn into a roulette game, all because he went forward without an agreement. In Fox v. Mountain West Electric Inc., 52 P. 3d 848 (Idaho 2002), the court had to rule on some dealings between an electrical contractor (Mountain West) and its fire alarm subcontractor (Fox). The two had decided to work as a team on a project

A contractor in Idaho recently learned how easily some routine construction work can turn into a roulette game, all because he went forward without an agreement.

In Fox v. Mountain West Electric Inc., 52 P. 3d 848 (Idaho 2002), the court had to rule on some dealings between an electrical contractor (Mountain West) and its fire alarm subcontractor (Fox). The two had decided to work as a team on a project for a general contractor, but later decided that Fox would just serve as a sub. They set out their agreement in a document entitled “Scope and Responsibilities.” They prepared a bid and were successful.

The problems arose during construction because many changes and modifications to the general contractor’s scope caused changes and modifications to the work of both Mountain West and Fox. Fox took the position that it would only be obligated to do the work if the price was agreed to in advance. Mountain West took the position that Fox would get what Mountain West got for Fox’s work, which was in turn dependent on what the general contractor got from the government for the same work. Since this hadn’t been discussed in the “Scope and Responsibilities” document up front, Fox refused to do the extra work without a firm deal on what it would be paid, which led to Fox walking off the job.

To no one’s surprise, Fox sued Mountain West and Mountain West counterclaimed. A trial court had to decide 1) what if any agreement was there on how the changes would be paid; and 2) was Fox justified in walking off the job? The evidence was, of course, “conflicting.”

The trial court found that there was an “implied-in-fact” contract, meaning one “wherein there is no express agreement but the conduct of the parties implies an agreement from which an obligation in contract exists.” (p.852). Despite finding that there was “no meeting of the minds,” the court decided to find for Mountain West on the basis of the fact that its position — that Fox had to accept the “flow down” clause of the government contract, and that Fox had to do the work for what the government ultimately paid — was more consistent with the “practices and standards of the industry.”

Having found in Mountain West’s favor, the court went on to find that Fox breached its contract by walking off. It awarded damages, costs and attorney’s fees to Mountain West.

The lesson here is that this case could easily have gone either way, and the issue could have been almost anything. It was clear that the parties disagreed from the start on how to deal with changes and, on this particular day, the judge who was hearing the trial liked what he heard from Mountain West more than what he heard from Fox, and Fox ended up paying Big Time.

If you want to avoid the roulette approach to business, it is in your interest to get an agreement on every important item up front, before you get in too far to get out. What can you do?

  • Make sure you attach your “terms and conditions” to your proposals. If your customer decides to use your bid, and later comes back to you to negotiate a subcontract, you have a much better chance of having your terms control if you can show that your price was conditioned on those terms.
  • Don’t do ANY work until you have an agreement. Your bargaining power will never be greater than before you have delivered goods or performed work that you then want to be paid for. In many states, if you have received terms that are not acceptable, but you went ahead and started work, it could be found that you did, in fact, accept the terms even if you refused to sign the contract.
  • Establish a means of resolving issues later. If you want to proceed with the work despite some disagreements over specific items, make clear, in writing, what those items are and how you and your customer will resolve them later: Will you put some money in escrow? Will you appoint a third party as arbitrator? Will you reserve the right to not do that work until the dispute over it is resolved?
  • Know what your legal rights are. It may be that when Mr. Fox decided to walk off the job because Mountain West would not pay him for extras until its dispute with the owner was resolved that he was not aware of the huge risk he was taking. That decision not only put him in breach of contract, jeopardizing payment for the work he had done, but it also exposed him to Mountain West’s charges for someone else to finish his work, as well as for for Mountain West’s attorney’s fees.

Any contractor has the right to take a gamble in a business situation, but it sure helps to know how much you stand to win or lose before you draw that line in the sand.

Susan McGreevy is a partner at Husch & Eppenberger, Kansas City, Mo., tel. 816/421-4800, e-mail to [email protected].