Tag Archives: implied in fact contract

SUBCONTRACTOR STRIKES OUT IN ITS CLAIMS AGAINST FEDERAL GOVERNMENT

Posted on by

Is it a good idea for a subcontractor to sue the federal government? A recent case would suggest NO–way too many huge hurdles for the subcontractor to overcome.  No matter how creative the arguments may be, it’s a high mountain to climb.

In Fox Logistics & Construction Co. v. U.S., 2024 WL 2807677 (Fed.Cl. 2024), a subcontractor sued the federal government when it was not paid by the prime contractor.  The subcontractor claimed it was a third-party beneficiary under the government’s modifications to the prime contractor’s payment procedure, or alternatively it had an implied-in-fact contract with the government.  The Court of Federal Claims granted summary judgment in favor of the government. The subcontractor, while creative, struck out in its claims based on the hurdles in a subcontractor suing the federal government.

This case involved upgrading an air force base. The subcontractor performed most of the work. The prime contractor had cash flow problems and did not pay the subcontractor. The government got involved to enforce provisions of its contract to force the prime contractor to pay subcontractors and even modified the payment procedure by having future payments to the prime contractor deposited into a new bank account that government could monitor.  This ultimately did not work, and the prime contractor filed for bankruptcy. The subcontractor claimed it was owed millions–apparently, it was not able to recover the money through the prime contractor’s bankruptcy—and pursued claims against the federal government in an effort to recover money it was owed.

Regarding the subcontractor’s implied-in-fact contract, the Court of Federal Claims explained:

An implied-in-fact contract is one inferred by a court when the surrounding circumstances demonstrate a meeting of the minds between the parties, even if the agreement was never formalized in writing. A subcontractor seeking to establish an implied-in-fact contract must prove the same elements of an express contract: (1) mutuality of intent, (2) consideration, (3) an unambiguous offer and acceptance, and (4) actual authority on the party of the Government’s representative to bind the Government in contract. Thus, a plaintiff must prove by objective evidence, the existence of an offer and a reciprocal acceptance to show the mutuality of intent necessary for the formation of an implied-in-fact contract”

Fox Logistics, supra, at *8 (internal citations and quotations omitted).

Here, the subcontractor did not have evidence to support the elements of an implied-in-fact contract. While the subcontractor demanded payment from the government, the government refused to pay the subcontractor directly or control the payments from the prime contractor to subcontractors.  “In the end, the only evidence that [subcontractor] has put before the court is that it demanded certain things from the Air Force as a condition of returning to work. The fact that [subcontractor] returned to work despite knowing that the Air Force did not agree to [subcontractor’s] demands precludes an implied-in-fact contract based on those demands.”  Fox Logistics, supra, at *10.

Regarding subcontractor’s third-party beneficiary claim, the Court of Federal Claims explained:

[T]hird-party beneficiary status is an exceptional privilege, which should not be granted liberally. In order to prove third party beneficiary status, a party must demonstrate that the contract not only reflects the express or implied intention to benefit the party, but that it reflects an intention to benefit the party directly. In addition, the intent must be fairly attributable to the contracting officer.

[F]or a subcontractor to obtain the status of an intended third-party beneficiary, it must provide clear evidence that an authorized government official approved a contract provision for the express purpose of effectuating payment from the government to the subcontractor(s)… The court will not, however, infer that the government intended to directly benefit the subcontractor merely because an authorized government official (1) oversees the activities of the prime contractor; (2) becomes aware that the prime contractor has failed to timely pay its subcontractors, and/or (3) makes funds available to the prime contractor in order for the prime contractor to pay its subcontractors…

Fox Logistics, supra, at *10 (internal citations and quotations omitted).

Here, the subcontractor could not support that the prime contractor’s failure to pay subcontractors, or any modification to the prime contractor’s payment procedure due to concerns of the prime contractor’s cash flow problems, made the subcontractor a third-party beneficiary of any payment arrangement.  The new payment procedure was merely a means of curing the prime contractor’s default. Moreover, even if the subcontractor was a third-party beneficiary, the government did not breach the new payment procedure – it complied with it faithfully.

 

 

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.

 

UNJUST ENRICHMENT OR QUANTUM MERUIT CAN APPLY FOR EXTRA-CONTRACTUAL WORK IF THE EXPRESS CONTRACT DOES NOT CONCERN THE SAME SUBJECT MATTER

Posted on by

Can a subcontractor recover from a general contractor for extra-contractual work under an unjust enrichment or quantum meruit theory even though an express contract exists between the parties?   Can a general contractor recover from an owner for extra-contractual work under the same theories even though an express contract exists with the owner?    The case below answers this question in the affirmative IF the express contract does not concern the same subject matter.

In the preceding post, I discussed the case, F.H. Paschen, S.N. Nielsen & Associates, LLC v. B&B Site Development, Inc., 2021 WL 359487 (Fla. 4th DCA 2021), regarding the validity of a dispute resolution provision in a subcontract that allows an architect, engineer, or owner to render a final decision as to the interpretation of the plans, specifications, or contract documents.

This case involved a dispute between a subcontractor and general contractor as to whether the demolition of a 561 square yard asphalt area and replacement with concrete was included in the subcontractor’s scope of work.  The subcontractor performed the disputed work and filed suit against the general contractor.  In addition to suing the general contractor for breach of contract, the subcontractor also asserted equitable claims for unjust enrichment and quantum meruit, claims that generally fail when there is an express contract between the parties.  B&B Site Development, supra, at *6 (“As a general principle, a plaintiff cannot pursue an implied contract theory, such as unjust enrichment or quantum meruit, if an express contract exists.”).

Quantum meruit, known as a contract implied in fact, “imposes liability, in the absence of an express agreement, ‘based on a tacit promise, one that is inferred in whole or in part from the parties’ conduct, not solely from their words.’”  Id. at *6 (citation omitted).

Unjust enrichment, known as a contract implied in law, is also not based on the finding of an express agreement, and requires proof that “(1) the plaintiff has conferred a benefit on the defendant; (2) the defendant has knowledge of the benefit; (3) the defendant has accepted the benefit conferred; and (4) the circumstances are such that it would be inequitable for the defendant to retain the benefit without paying the fair value of it.”  Id. (citation omitted).

As the B&B Site Development Court explained, there are circumstances where such equitable theories, or implied contract theories, will apply even though there is an express contract between the parties. “Reliance upon a theory of implied contract is barred only if an express contract concerns the same subject matter as the implied contract.”  B&B Site Development, supra, at *7 (discussing cases where implied in contract theories applied for subcontractor to recover extra-contractual work).

Those equitable theories, or implied in contract theories, applied in this case to support a judgment in favor of the subcontractor against the general contractor for the extra-contractual work:

The GC and the Sub entered into a construction contract. While the Sub performed under the contract, the GC requested and accepted a change to the scope of work, an extra that the GC erroneously claimed was included within the work described in the subcontract. Under these circumstances, “the law implies an obligation to pay the reasonable costs thereof in addition to the stipulated sum named by the parties in the original agreement.”

The GC is also liable under a theory of unjust enrichment. The Sub conferred a benefit on the GC in the form of asphalt removal and replacement that was required under the master contract but not the subcontract. The GC accepted the benefit and the circumstances are such that it would be inequitable for the GC to retain the benefit without paying fair value for it. As the trial court ruled, “it would be both inequitable and unjust to allow [the GC] to retain the benefit without paying [the Sub] fair value for it, because it was [the GC’s] unilateral mistake and breach of the General Contract that created the problem.”

The existence of the subcontract did not defeat recovery under either implied contract theory of recovery, as the subcontract did not cover removal and replacement of the existing asphalt.

B&B Site Development, supra, at *7-8

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.