Tag Archives: construction contract

DISPUTE RESOLUTION IN YOUR CONSTRUCTION CONTRACT

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There are important provisions in your construction contract that are geared towards dispute resolution.  These are provisions you want to understand – not when a dispute arises, but BEFORE the dispute ever occurs.

Many times, dispute resolution provisions are cast aside or not appreciated until a dispute rears its ugly head.  This can put you in a reactive stance versus a proactive stance, which you want to be in, because you want to proactively make sure all rights are preserved relative to the dispute.  You want to proactively make strategic decisions based on the dispute resolution provisions and process in your contract.

Before your contract even gets signed, you may want to negotiate aspects of the dispute resolution process for many reasons.  The process could be one-sided.  It could be onerous.  It could be complex.  It could be unfavorable or costly with respect to how you want to progress a dispute.   If you appreciate the dispute resolution process from the get-go, you will be in a more effective position to navigate the process while ensuring you are preserving your rights moving forward

Here are considerations when negotiating and entering a construction contract when it comes to dispute resolution that should not be overlooked:

(i) How does the contract address the submission and resolution of claims for additional money and/or time?

(ii) Is their an initial decision maker or dispute resolution board serving as the person/board that resolves claims, and who is this person/board?

(iii) Is there a time period to submit claims; if so, what is that time period and is it reasonable?

(iv) What happens if a claim is denied and/or the initial decision maker/board denies the claim?

(v) Does the contract require mediation as a condition precedent to litigation or arbitration?

(vi) Does the contract require anything prior to mediation as an initial step in the dispute resolution process, such as a meeting with principals to occur within a set time period?

(vii) Does the contract require litigation or binding arbitration (and if arbitration, is there a body to administer the arbitration such as the American Arbitration Association)?

(viii) If litigation, does the contract specify an exclusive venue to file the dispute?

(ix) If litigation, does the contract include a waiver of jury trial?

(x) If binding arbitration, does the contract specify the number of arbitrators and/or the expected qualifications of the arbitrator(s)?

(xi) If binding arbitration, does the contract specify whether the arbitrator(s) can decide the arbitrability of any dispute?

(xii) Does the contract include a prevailing party attorney’s fees provision?

(xiii) Does the contract include a provision that would promote a stay of a dispute pending the outcome of another dispute or claim with another party?

(xiv) Is there a choice of law provision in the contract to reflect the law that governs the contract (and the dispute)?

(xv) Does the contract include a joinder provision that would allow you to be joined in disputes with others, regardless of the venue or the forum for the dispute?

There is no one-size-fits-all model when it comes to dispute resolution and a dispute resolution process.  The goal is to understand the process and negotiate those aspects of the process that are not in your interests and/or, at a minimum, factor that process into your strategic decisions moving forward in case you encounter a dispute.

Please make sure to work with experienced construction counsel if you need assistance with your construction contract, whether it is understanding the dispute resolution process, negotiating the dispute resolution process, or simply working on an equitable contract for your project or business.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

TERMINATING CONTRACTS FOR CONVENIENCE — “JUST BECAUSE”

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Termination for convenience provisions are important provisions to include in construction contracts.  These are provisions that allow a party to terminate the contract for ANY REASON.  No cause is needed to exercise the termination for convenience provision.  In other words, the terminating party does not have to demonstrate the other party breached the contract.  A termination for convenience can be exercised “just because.”

Typically, the party providing the service should not get to terminate for convenience.  However, the party receiving the service will want to be afforded this contractual right.

For example, an owner (receiving a service) will want to include a termination for convenience provision with its prime contractor (providing a service).  And, a general contractor (receiving a service) will want to include a termination for convenience provision in its subcontract with its subcontractor (providing a service).  However, a general contractor providing a service for an owner, or a subcontractor providing a service to a general contractor, should not be able to terminate the contract for their convenience “just because” a better opportunity comes along.

Consideration should be taken as to the required notice to exercise the termination for convenience and any fee associated with the termination for convenience.   A party providing a service that agrees to a contractual termination for convenience provision will want to consider and negotiate a termination for convenience fee in the event the other party exercises this right, which is a fee in addition to all costs incurred through the date of the termination for convenience, including any demobilization costs and any early return fees (i.e., costs associated with the termination for convenience).  Sometimes the fee included in the termination for convenience provision make it cost prohibitive for the other party to ever exercise this right.  But it should be a consideration and negotiation on the frontend because a termination for convenience provision is an enforceable contractual provision and, as quoted below, “difficult to argue around.”  There is flexibility to have the contractual right to terminate “just because” without having to establish the cause or breach supporting the termination.

The Middle District of Florida discussed termination for convenience provisions in a non-construction case:

Termination-for-convenience clauses are difficult to argue around. The only plausible exceptions under federal andFlorida law are: (1) bad faith, or possibly (2) lack of consideration. As to the latter exception, Florida courts have heldthat “proper notice” is sufficient consideration. And “proper” notice does not mean that the language of the contractmust provide for “advance” notice—contemporaneous notice will suffice.

Oakes Farms Food and Distributions Services, LLC v. The School District of Lee County, Florida, 2021 WL 2186457, *11 (M.D.Fla. 2021) (internal citations omitted).

It is unclear whether Florida recognizes a “bad faith” exception to exercising a termination for convenience.  See id.  This is an exception applied in the federal context in limited circumstances where the government-owner acts with malice towards the contractor or with intent to harm the contract by exercising the termination for convenience.  See id.  Clearly, a difficult exception to prevail upon!  However, it is doubtful this exception would support a a basis to argue around the properness of a termination for convenience.

Keep in mind that termination for convenience provisions are enforceable.  This is why when reviewing a contract–and hopefully you are working with construction counsel–that includes such language (and this will be included in many construction contracts), negotiating the notice provision and costs/fees in the event such provision is exercised should not be overlooked.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

HOW ARE YOU DEALING WITH MATERIAL DELAYS / SUPPLY CHAIN IMPACTS?

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In a prior article I discussed a material escalation provision in your construction contract to account for the volatility of the material price market.  While including such a provision may not have been much of a forethought before, it is now!

What about concerns with the actual supply chain that impacts the availability of and the lead time of materials?  How are you addressing this concern in your construction contract?

The pandemic has raised awareness to this issue as certain material availability has been impacted by the pandemic.  As a result, parties in construction have tried to forecast those materials where delivery issues may occur including those materials with longer than expected lead times.  But equally important is how this issue is being addressed in your construction contract including how you want to negotiate this risk in future construction contracts.

Start with the force majeure provision.  Does this force majeure provision address supply chain impacts?  It may touch upon it but you may want more clarification dealing with delivery delays that impact a project’s schedule and identifying that this includes a supply chain impact attributable to a specific occurrence, such as the pandemic.  Generally touching upon an issue is not the same as specifically addressing an issue for practical purposes to avoid any dispute down the road.

One way is to include or address certain supply chain impacts caused by the COVID-19 pandemic, any future pandemic, and other potential factors based on the current economic climate.  If one thing COVID-19 taught us is that we need to fully address the risk of pandemics moving forward, both from a time standpoint and a cost standpoint.  Another thing COVID-19 taught is to precisely word force majeure and other provisions so that parties are on the same page when it comes to a foreseeable risk.

The provision can be broad enough to include any supply chain impacts caused by the pandemic and any future pandemic and/or can include specificity based on certain materials that are known as of the date of the contract that have anticipated supply chain concerns and long lead times.  While a contractor does its best to account for materials with long lead times, there are factors that can come into play associated with when that material is procured including the construction documents, the approval of shop drawings, deposits for fabricated items, transportation including where the material is being shipped from, and storage and staging issues.  In other words, there are factors that can lead to delays in deliveries that simply occur regardless of the planning.

When preparing and negotiating your construction contract, consider the issues associated with material escalation and supply chain impacts.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

MATERIAL PRICES CLIMB…AND CLIMB…ARE YOU CONSIDERING A MATERIAL ESCALATION PROVISION?

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As you may know, material prices have been climbing.  And they continue to climb based on the volatility of the material market.  On top of that, there are lead times in getting material due to supply chain and other related concerns.   The question is, how are you addressing these risks?  These are risks that need to be addressed in your contract.

As it relates to climbing material prices, one consideration is a material escalation provision.  The objective of this provision is to address the volatility of the material market in economic climates, such as today’s climate, where the price of material continues to climb.  Locking down a material price today will be different than locking down the same price months from today.  This volatility and risk impacts pricing and budgets.  Naturally, an owner and contractor would like to be in a position to lock down supplier prices as soon as possible—both to secure pricing and to account for items with long lead times or that recent data forecasts a long lead time due to supply chain concerns.  However, this is not always possible or practical and can depend on numerous issues such as when the owner contracts with the contractor, when the owner issues the notice to proceed (and permits are issued), final construction documents and revisions to the construction documents, the type of material, whether there is staging or storage available for the materials, and the current status including climitazation of the project.

With a material escalation provision, you are negotiating the risk of material escalations based on how this risk is addressed in your construction contract.  This allows parties to be on the same page when a material escalation claim or price adjustment is submitted. Please make sure you work with construction counsel to draft, negotiate, and explain the material escalation provision to you.

If you entered into a fixed sum contract, the reality is that within that fixed sum the contractor should be factoring in this risk into the fixed sum.  Under a fix sum contract, the sentiment is an owner is paying “X” for its project and whether the contractor can deliver the project for well under “X” or well over “X” is of no moment because the owner agreed to pay the fixed sum of “X” for the project.  As a result, the contractor should bear the risk in a traditional fixed sum contract.  However, contractors are trying to address this risk with allowance items by identifying in the contract certain items that constitute an allowance.  If a contractor does this, they need to understand that they need to demonstrate the costs for the allowance items because if the cost is less than the allowance item, that amount is credited to the owner.  If the cost is greater than the allowance item, than that overage would increase the fixed sum.

A cost-plus contract, on the other hand, is different because there is more transparency in costs than a traditional fixed sum contract.  In a cost-plus arrangement, an owner is paying the cost of the work (inclusive of a contractor’s overhead-related items) plus a mark-up for profit.  If the cost-plus contract does not contain a cap, known as the guaranteed maximum price, than the owner is going to pay the actual costs so that if there are demonstrated material escalations, that will be a cost passed on to the owner.  A prudent owner however shall still require the contractor to demonstrate actual escalation costs (from time of contract to time of procurement) because the escalations should impact the contractor’s control estimate that forms the basis of the cost-plus without a guaranteed maximum price contract.

If there is guaranteed maximum price, then a material escalation provision is a must.  (In my opinion, it is good to address this risk even without a guaranteed maximum price.)

There are numerous ways a material escalation clause can be addressed because it involves a negotiation on the frontend as to how the parties will address this risk.   Here are some considerations:

  • Do you want to address the specific materials / items subject to material escalations (e.g., lumber, PVC, steel, aluminum, copper, etc.)? This way the parties understand those materials / items where the provision can apply. In other words, how specific do you want to be in the material escalation provision?
  • Do you want to consider certain pricing for materials? For instance, this contract is based on the specific pricing set forth in Exhibit “A,” and pricing that increases “Y”%  from this pricing shall support the basis of a change order.  The specified pricing is the budgeted pricing that forms that basis of the contract but any increase over that pricing over a certain percentage will result in a change order.
  • Similar to the above bullet point, do you want to include an exhibit for certain material pricing and identify that this pricing is secured through a set date. Any material price increase beyond this date (or above a certain percentage) shall result in a change order.
  • Similar to the above bullet points, if you are identifying certain pricing for materials for which the contract is based, what if the material prices decrease? Is the owner entitled to a credit?
  • Is there a contingency in the contract and are buy-out savings rolled into the contingency? If so, does the contractor have full discretion to use the contingency to fund material escalations up to the balance of the contingency?  Or, is there a separate contingency solely for purposes of material escalations that reverts 100% to the owner if there are no escalations?
  • Does the contractor include allowances for certain materials such that there will be a decrease or increase in the contract amount based on the allowance items?
  • Is the material escalations provision tied to delay?

A material escalation provision is grounded in fairness and allocating risk in an equitable manner. Do not neglect this discussion and including a material escalation provision in the construction contract.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

WORKING WITH CONSTRUCTION COUNSEL ON YOUR CONSTRUCTION CONTRACT IS VALUE-ADDED

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It is always good practice to have construction counsel assist you with your construction contract.  This may mean drafting your contract.  This may mean negotiating your contract.  This may mean advising you as to provisions in your contract that shift risk to you.  This may mean providing red-lined suggestions to the contract.   Or, this may mean all of the above, or a combination.   The point is having construction counsel work with you will allow you to appreciate risk you are assuming and risk you are allocating to the other party.    It will also allow you to consider provisions or language to provisions you should consider.  I cannot emphasize the importance of working with construction counsel when it comes to your construction contracts.  This is a value-added service.

One consideration is the forum selection provision.  This is the provision in the construction contract that may dictate the exclusive venue for disputes.  The forum selection provision is not a provision that should be cast aside because if there is a dispute it will be one of the first provisions your attorney will want to review.   Dismissing this provision could result in you being required to litigate your dispute or portions thereof in a non-preferred destination, as seen in this non-construction case, that may be more costly or disadvantageous to you for a variety of reasons.  A forum selection provision and the provisions in your contract dealing with dispute resolution are important provisions as these provisions advise you how to navigate disputes that may occur during the performance of the construction contract.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

DON’T SIGN A CONTRACT THAT DOESN’T ADDRESS COVID-19 (OR PANDEMICS AND EPIDEMICS)

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Do yourself a favor: Don’t sign a construction contract that doesn’t address COVID-19 or any pandemic or epidemic from this point forward!

As the number of COVID-19 numbers rise, it would be reasonable to think this could have an impact on ongoing or future construction projects.   For this reason, I want to revisit the subject of addressing COVID-19 (and any pandemic or epidemic) in your construction contract.

The potential impact caused by COVID-19 could result from governmental regulations that impact construction of the project, shutdowns due to affected workers, owners’ decisions to suspend performance or adjust the way the project is being constructed, increased deep cleaning requirements, and increased measures associated with social distancing and re-sequencing of shifts.  This all plays into the timeliness of performance and the productivity of manpower and equipment usage.  When submitting a price, a lot of these considerations may not be factored in because doing so could lead to a price that will never get accepted.

The question then becomes, how do you deal with this?

The answer is easy.

Be prudent when entering into a contract to make sure you address this risk.  Now that we know about COVID-19 and the ramifications, the last thing you want to do is not address it at all and create the argument that you have assumed all of the risk for COVID-19.   The best thing is to specifically address this in the contract, whether in the force majeure provision or another provision along with what specifically requires a contractor to equitable adjustment of the contract sum and contract time due to COVID-19.   I am not suggesting that this contractual provision is used as a tool to avoid proof of the impact caused by COVID-19.   Demonstrating the impact absolutely needs to occur, but pretending that COVID-19 will never result in an impact (or increased direct costs to keep the site sanitized) and, thus, does not need to be addressed in the contract is naïve.

Contingency language in the contract could be included with a specified amount to cover certain direct costs (e.g., masks, temperature screening, having a dedicated safety person ensuring masks are being worn, hand washing stations, frequent deep cleaning) and delays or inefficiencies caused by COVID-19.  This way this money is not necessarily built into the price, but can be utilized to cover the “contingency.”

Language in the contract could be included to demonstrate the type of proof a party must submit to demonstrate the COVID-19 impact or the lost productivity  / inefficiency caused by COVID-19.

Language in the contract could also specify what, in particular, about COVID-19 constitutes a force majeure issue (e.g., shutdown) and whether a party is entitled to money if there is a COVID-19 issue, or just time.

Language in the contract could further address how long a job can be suspended before a party may terminate the contract.

Regardless of the specific negotiated language, the key is simply to be PROACTIVE and address the risk in the contract.  As mentioned, with rising numbers, do NOT neglect this consideration.  Indeed, this consideration should be broader than just COVID-19 and cover any pandemic or epidemic as this concern becomes  more prevalent in contract drafting from this point forward.   Prior to COVID-19, addressing pandemics or epidemics in most contracts was an afterthought.  That should not be the case anymore!

If you need assistance drafting or negotiating contractual language regarding COVID-19, work with construction counsel that has experience factoring in this risk.   I have dealt with a variety of language in the last few months that accounts for this risk where the parties understand the language, have accepted any risk allocation, and have made the business decision associated with the risk.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

GENERAL TIPS WHEN IT COMES TO CONSTRUCTION CONTRACT DRAFTING AND NEGOTIATION

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When it comes to construction contracts, there are many good industry form templates that can be used.   All are templates and all are designed to be modified to conform to the jurisdiction’s law and, of course, the parameters of the project.  There are industry form templates from the American Institute of Architects, ConsensusDocs, Engineers Joint Contract Documents Committee, and Design-Build Institute of America.  All include good provisions.  Regardless of the industry form template utilized, or whether your own template is utilized, contract drafting and negotiation is all about assessing risk and allocating risk to the party best equipped to manage that risk.  Oftentimes, management of the risk is considered in conjunction with insurance coverage to cover that associated risk.  Construction contract drafting and negotiation should not be taken lightly because “you want to know what you are getting into” so that you can best manage and address issues that arise, and you know issues always arise in construction.

Here are some general tips when it comes to construction contract drafting and negotiation:

  • Work with a construction attorney. Yes, I had to go there, because too frequently parties want to draft the contract without legal assistance, or negotiate without legal assistance, and this is not always fruitful.  Working with a construction attorney can at least help you assess the risk and ensure that a contract is sufficiently drafted or negotiated based on your understanding and appreciation of risk. I am routinely involved in some capacity when it comes to construction contract drafting and negotiation.

 

  • Obtain documents that are incorporated or flowed-down into the contract. Most contracts will either incorporate other documents or, in the case of a subcontract, contain flow-down provisions that flow-down obligations from the prime contract into the subcontract.  To best understand and appreciate the risk you are accepting, including risk associated with your scope of work, obtain these documents incorporated or flowed-down into the contract.   Not doing so is a mistake when these documents will impose obligations or requirements on you.

 

  • Review the insurance coverage language and consult with your insurance broker to make sure you have the required insurance. Insurance coverage is key.  Many times, contracts require heightened insurance coverage requirements that, realistically, are not available to a certain contractor.  Consider the insurance coverage requirements and consult with your insurance broker (and your construction attorney, if possible) regarding the insurance coverage, additional premium associated with the coverage, whether the coverage is available to you, and whether there is additional insurance coverage you should consider based on your scope of work.

 

  • Have an appreciation of the following driving provisions that will be important no matter the project:
    • Indemnification
    • Insurance coverage
    • Dispute resolution including forum selection, prevailing party attorney’s fees, joinder, and abatement or staying of certain disputes or claims
    • Termination for default and for convenience
    • Default and notification of default and any cure period
    • Suspension of work
    • Payment timing and requirements including any pay-if-paid language and conditions precedent to payment
    • Claims procedures including timing requirements when to submit claims and the waiver of claims
    • Change orders and directives
    • Scope of work to make sure you understand the scope of work in the contract as it will likely include work and risk not included in your proposal
    • No-damage-for-delay and all schedule-based language (since time is money)

The construction contract serves as the backbone governing your relationship with the project.  Do not neglect the importance of the construction contract or deprioritize its importance.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

 

WHICH CONSTRUCTION CONTRACT SHOULD I USE?

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In the previous article I posted a chart that includes a side-by-side comparison of common risk allocation and risk assumption provisions in industry form construction contracts (the general conditions between the owner and contractor in the AIA, EJCDC, and ConsensusDocs industry form contracts).   This chart was used to illustrate various contractual provisions in industry form contracts in a presentation I recently did on construction contracts. The point of the presentation was to summarize many of the common risk allocation and risk assumption provisions in construction contracts that need to be considered when selecting and finalizing an industry form construction contract.  A portion of that presentation is below.  

 

[gview file=”https://floridaconstru.wpengine.com/wp-content/uploads/2016/10/Advanced-Construction-Contracts.pptx”]

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

INDUSTRY FORM CONTRACTS SERVE AS A TEMPLATE FOR YOUR CONSTRUCTION CONTRACT

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Recently, I put on a presentation on construction contracts–considerations when using an industry form contract as the template for your construction contract.  There are good industry form contracts that contemplate many different project delivery methods and objectives.  These industry form contracts are promulgated by widely respectable organizations including the AIA, ConsensusDocs, EJCDC, and DBIA.  Based on your needs, these associations also promulgate industry form exhibits to use with your contract (e.g, payment application, schedule of values, payment bond, performance bond, dispute review board, electronic communications protocol, BIM, certificate of substantial completion, change order, construction change directive, green building, RFI, and many more!).    

 

Below is a chart I put together of a comparison of some of the common risk allocation provisions in the standard general conditions between an owner and contractor in the AIA, ConsensusDocs, and EJCDC as a frame of reference.  All of these standard form agreements serve as valuable templates, but they still require modifications based on the objectives of the parties and the preferred project delivery method.

 

[gview file=”https://floridaconstru.wpengine.com/wp-content/uploads/2016/10/AIA-Consensus-EJCDC-Comp..pdf”]

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

CONSTRUCTION CONTRACTS AND APPLICATION OF PAROL EVIDENCE RULE TO CLARIFY LATENT AMBIGUITY

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The parol evidence rule is a need-to-know rule of law when it comes to cases that involve the rights, liabilities, and remedies of parties under a written agreement.  As explained in this article, the parol evidence rule is designed to exclude the admissibility of extrinsic / parol evidence (agreements and discussions) made before or at the time a contract is executed that are used to modify or alter the actual written agreement.  This is because what the parties agreed to should be embodied in the written agreement and there should be no need for parol evidence to guide the court in its interpretation of contractual provisions.  Now, as explained in this article, there are exceptions to this rule.  One such exception is when there is a latent ambiguity in the contract which is an ambiguity that is not clear from the face of the contract, but concerns language reasonably interpreted in more than one way, particularly when the contract fails to specify rights of parties in certain situations.

 

An example of the application of the ambiguity exception to the parol evidence rule in a construction contract can be found in the decision in Science Applications Intern. Corp. v. Environmental Risk Solutions, LLC, 132 A.D.3d 1161 (N.Y. 2015).   While this case did not concern Florida law, the application is still germane. 

 

In this case, a subcontractor sued a contractor and the owner of gas station sites concerning remediation of a spill / contamination it performed at the sites.  The subcontractor had an existing relationship with the contractor where they previously entered into a Professional Services Master Agreement governing general rights and obligations.  The subcontractor and contractor then entered into three Project Specific Scopes of Work that formed three separate subcontracts relating to the sites and contained the same remediation work for each site for a lump sum.   Noteworthy here, the Scopes of Work lump sum were fixed regardless of the actual cleanup costs required for each site to achieve the designated remediation standard.  At some point, the contractor terminated the subcontractor for convenience pursuant to the Professional Services Master Agreement.  The subcontractor submitted its final invoicing for remediation work but was not paid leading to this action.

 

On appeal, the court noted various ambiguities with the Professional Services Master Agreement and Scopes of Work relative to the subcontractor’s scope of work relating to the cleanup of the spill / contamination:

 

Here, we agree with Supreme Court that most of the disputed terms regarding SAIC’s [subcontractor] remediation obligations under the PSSWs [Scopes of Work] are ‘a compromised hodgepodge of conflicting proposals’ susceptible to several reasonable interpretations. As an example, Lehigh’s [owner] argument that section 5(a)(1) of the PSSWs [Scopes of Work] unambiguously required SAIC to, among other things, meet a stringent, contractually defined ‘Cleanup Standard’ is belied by section 5(a)(3) of the PSSWs, which—also unambiguously—permits SAIC to remediate the sites by, among other things, achieving regulatory closure of the spill numbers from DEC [Department of Environmental Conservation], as indicated by receipt of ‘no further action’ (hereinafter NFA) letters from DEC.

As an additional example, SAIC [subcontractor] argues that Lehigh’s [owner] consent to seek spill number closures pursuant to section 5(a)(3) of the PSSWs [Scopes of Work] could be obtained passively via the review and comment procedure set forth in section 5(p) of the PSSWs. Nowhere in the PSSWs, however, does it indicate that SAIC could rely on this subsection to obtain Lehigh’s consent—passively or otherwise—to proceed with regulatory closure pursuant to section 5(a)(3). Likewise, the PSSWs fail to provide any alternative mechanism or procedure for Lehigh to review and comment on SAIC’s submissions to DEC. This failure on the part of Lehigh and SAIC to articulate an adequately defined procedure for how SAIC was to obtain Lehigh’s consent to proceed with an alternate cleanup standard left the ultimate formation of such a procedure susceptible to the varied and subjective constructions of the parties, thus creating additional [latent] ambiguity.

 

Further ambiguity arose with regard to section 5(g) of the PSSWs [Scopes of Work], an inherently contradictory provision governing when SAIC’s remediation work at a given site could be considered complete. In its first clause, section 5(g) references SAIC’s [subcontractor] obligations pursuant to section 5(a)(1) of the PSSWs, stating that ‘SAIC’s remediation and monitoring obligations under this PSSW shall cease upon attainment of the Cleanup Standard and receipt of NFA Status from DEC for each site as defined in section 5(a)’ . However, the very next clause contradicts the prior one, stating that, ‘upon receipt of NFA Status confirmation from DEC, SAIC’s remediation and monitoring obligations shall cease, except for re-openers to the extent found to be due to SAIC’s negligence.’  In light of these ambiguities, we find that Supreme Court [of New York] appropriately considered parol evidence to determine both the intent of the parties and whether SAIC breached the PSSWs.

 

Science Applications Intern, supra, at 756-757.

 

 

The last sentence quoted above—that the trial court appropriately considered parol evidence to determine the parties’ intent and whether the subcontractor breached the Scopes of Work—is telling.  This was based on the court’s  finding that the scope of work was susceptible to more than one reasonable interpretation by, in part, omitting adequately defined procedures applicable to the remediation work.  The point of a written contract is to prevent parol evidence from being considered to determine the parties’ intent.  This is why it is important for the contract and the scope of work, in particular, to be clear and unambiguous!

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.