Tag Archives: scope of work dispute

GENERAL CONTRACTOR SUPPORTING A SUBCONTRACTOR’S CHANGE ORDER ONLY FOR OWNER TO REJECT THE CHANGE

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The opinion in Westchester Fire Ins. Co, LLC v. Kesoki Painting, LLC, 260 So.3d 546 (Fla. 3d DCA 2018) leads to a worthy discussion because it involves a common scope of work occurrence on construction projects involving a general contractor and subcontractor.  The contractor submits a subcontractor’s change order request to the owner and the owner rejects the change order.   What happens next is a scope of work payment dispute between the general contractor and subcontractor.   Yep, a common occurrence.

In this case, a general contractor hired a subcontractor to perform waterproofing and painting.  A scope of work issue arose because the specifications did not address how the window gaskets should be cut and then sealed. The owner wanted the window gaskets cut at a 45-degree angle and the subcontractor claimed this resulted in increased extra work.    The general contractor agreed and submitted a change order to the owner to cover these costs.  The owner rejected the change order claiming it was part of the general contractor’s scope of work even though the cutting of window gaskets at a 45-degree angle was not detailed in the specifications.

After the subcontractor filed a suit against the general contractor’s payment bond surety, the project architect further rejected the change order because gasket cutting was part of the specification requirements.  (Duh! What else was the architect going to say?  It was not going to concede there was an omission that resulted in a change order to the owner, right?)

Importantly, the subcontract agreement stated that, “If a dispute arises between the Contractor and the Subcontractor regarding the Scope of Work, or in the interpretation of the Contract Documents, and the parties hereto do not resolve that dispute, the decision of the [Architect] shall be final.”   As it pertains to this provision, while the appellate court noted the enforceability of the provision, it found that it did not apply because there was not a scope of work dispute between the general contractor and its subcontractor.  The general contractor agreed that this resulted in a change order condition, i.e., that there was a change to the subcontractor’s scope of work, and submitted a change order to the owner for the scope of work change.  Ouch!  The payment bond surety was on the hook to pay for this change order.

A few things that I find noteworthy.

First, the opinion does not include a lot of discussion on language in the subcontract. This tells me that there may not have been great language in the subcontract dealing with the subcontractor’s scope of work.  It is not uncommon to hear that a specification does not include every single detail so if the subcontractor was always required to cut gaskets in performing its scope of waterproofing work then there may be an argument there is not a scope of work change.  Either way, detailing the scope of work in the subcontract is important to account for the inevitable scope of work dispute.

Second, I understand the logic from the general contractor’s perspective of having the architect decide scope of work disputes between a general contractor and subcontractor because the architect is going to naturally disfavor scope of work changes or changes of work associated with its plans and specifications.  This will benefit the general contractor as a rejection of a scope of work change will support the denial of a change order.  With that said, I am generally not in favor of the finality of such a decision from an architect, particularly when addressing the scope of work dispute may warrant a detailed analysis of the governing subcontract. Also, the court in this case seemed to dismiss such language because the general contractor supported the subcontractor’s change.

Third, just because a general contractor supports a subcontractor’s change order request does not mean that it and its surety should automatically be bound by the change and finance the change.  Again, there was little discussion as to language in the subcontract and it does not appear the surety tried to make an argument under the pay-when-paid clause. While such defense is generally not applicable to payment bond sureties, the (creative) argument could be different when dealing with a change order to preclude the effect of a surety and general contractor being on the hook for every change order submitted to the owner that the owner rejects.

And, fourth, this opinion does not address how the general contractor handled or pursued this with the owner.  That is important because if the general contractor agreed and supported the change, there should have been an effort to collect this amount from the owner.  This leads to another important consideration.  In this scenario, the subcontract could include language that any claim the subcontractor initiates stemming from a dispute involving the owner should be stayed pending the resolution of the dispute with the owner.  On the other hand, if the general contractor elects not to pursue the dispute with the owner but recognized the change, then it having to pay for the change makes sense based on the business decision it made.

What are your thoughts?

 

 

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 DRAFT AN AMBIGUOUS SCOPE OF WORK IN YOUR CONSTRUCTION CONTRACT

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images9DHJ23URContractors should spend time carefully drafting and agreeing to a detailed scope of work.  Otherwise, a dispute may arise relating to that scope of work.  This dispute can take the form of a change order dispute where the contractor argues that the subcontractor’s change order request was base contract work and, thus, does not entitle the subcontractor to additional compensation. Or, the dispute can take the form of a defect claim where the subcontractor argues that the defect being asserted against it was never within its scope of work to begin with.

 

If there is a scope of work dispute, a court will look to the contract and any applicable change orders in order to see what the contract requires.  If an ambiguity exists relating to the scope of work, the court will determine whether the ambiguity is a patent ambiguity or a latent ambiguity.  A patent ambiguity clearly exists on the face of the contract based on defective, insensible, or obscure language used in the contract whereas a latent ambiguity is not apparent from the face of the contract, but becomes apparent when extrinsic / parol evidence is introduced that leads to the contract being interpreted in two reasonably plausible manners.  See Barrington v. Gryphon Investments, Inc., 32 So.3d 668 (Fla. 2d DCA 2010).  With a patent ambiguity, parol evidence (extrinsic evidence used to clarify the intent of the parties relating to a contractual provision) is NOT allowed to clear up the ambiguity; rather, it is up to the trier of fact (judge or jury) to interpret the patent ambiguity without extrinsic evidence explaining the intent of the parties.  See, e.g., Barclays American Mortg. Corp. v. Bank of Central Florida, 629 So.2d 978 (Fla. 5th DCA 1993) (it was up to trier of fact to interpret letter of credit containing 2 different expiration dates).  On the other hand, with a latent ambiguity, parol evidence is allowed to be introduced relating to the parties’ intent to assist the trier of fact in clearing up the ambiguity.

 

r pondThe opinion in Macky Bluffs Development Corp. v. Advance Construction Services, Inc., 2008 WL 109390 (N.D.Fla. 2008) illustrates what can happen if there is an ambiguous scope of work.  Here, a developer entered into a change order with a contractor to fix the collapsed wall of a retention pond.  The change order required the contractor to haul off collapsed material from the bottom of the pond.  To fix the wall, the contractor hauled collapsed material and stockpiled the material on lot #8 (owned by the developer).  The contractor reused suitable material in reconstructing the wall in addition to material it excavated from lot #8.  The unsuitable material the contractor did not use in reconstructing the wall was spread out and compacted on lot #8 versus being hauled offsite to a dumping site.

 

Years later, the developer discovered the unsuitable materials had been buried on lot #8 that required it to excavate and remove this material and refill with suitable material.  The developer then sued the contractor for the costs it incurred in remediating this issue.  The contractor moved for summary judgment arguing that lot #8 was never part of its scope of work and it reconstructed the wall of the retention pond pursuant to the change order.   Unfortunately, the change order did not specify whether the contractor was required to haul off unsuitable material to an offsite dumping facility or it was required to leave that material on lot #8.  In fact, it does not appear the change order even mentioned that the contractor was going to stockpile collapsed material on lot #8 and reuse suitable material in reconstructing the wall.   The owner’s position was that while the contractor could use lot #8 as a temporary storage area, the contractor was always required to haul off unsuitable material to an offsite dumping facility.  The contractor disagreed stating it was always going to leave unsuitable material on lot #8 that it could not reuse to reduce the costs associated with fixing the wall.  Yet, the change order did not address this issue and was ambiguous as to what the contractor’s scope of work consisted of relative to reconstructing the wall with stockpiled suitable material and what it was required to do with unsuitable material it did not reuse.

 

The Northern District maintained that the scope of work in the change order contained a latent ambiguity because the change order did not identify where the contractor was required to haul off the collapsed material and both the contractor and owner’s interpretation of this scope of work was plausible and reasonable.   The court’s opinion includes a good discussion about the difference between a patent ambiguity and a latent ambiguity:

 

“Under Florida law, the interpretation of a contract is a matter of law for the court’s determination so long as the terms of the contract are unambiguous.  The existence of an ambiguity in a contract is also a matter of law.  There are two types of ambiguities that can exist in a contract: patent and latent.  A patent ambiguity is one that appears on the face of the contract.  A latent ambiguity, on the other hand, exists where the language employed is clear and intelligible and suggests but a single meaning, but some extrinsic / parol evidence creates a necessity for interpretation or a choice among two or more possible meanings.  If the ambiguity is patent, then parol evidence cannot be used to clarify the parties’ intent.  If the court finds, however, that there is a latent ambiguity in the contract, then parol evidence must be heard in order to explain the meaning of the ambiguous term.  After receiving parol evidence clarifying the latent ambiguity, if there is no genuine issue of material fact remaining, the court can resolve the ambiguity as a matter of law.  Where, however, the terms of the written instrument are disputed and reasonably susceptible to more than one construction, an issue of fact is presented as to the parties’ intent which cannot properly be resolved by summary judgment.”

Macky Bluffs Development Corp., supra, at *2 (internal citations and quotations omitted).

 

Had the parties clearly clarified the scope of work relating to how collapsed material was going to be stockpiled on lot #8 and reused and whether unsuitable material was going to be (a) hauled offsite or (b) left on lot #8, there probably would be no scope of work dispute.  But, because this issue was not truly defined, it presented an ambiguity that naturally resulted in a dispute when the developer needed to remove the unsuitable material on lot #8.  The key is to spend the effort to clearly articulate the scope of work, whether it is base contract work or change order work, to best support your argument when a scope of work dispute subsequently arises.

 

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.