Client Alerts
December 19, 2011

A Sobering Lesson: "Don't Worry, Be Happy" Not a Formula for Profitability

Stites & Harbison, PLLC, Client Alert, December 19, 2011

An October 2011 decision by a U.S. District Court in Virginia reminds us of the perils of not following change order and claim procedures.

Claims are common with construction projects and change orders are even more frequent. It is not surprising, therefore, that contracts and subcontracts routinely establish requirements and procedures for adjusting compensation or time for performance. These provisions typically require written notice and, sometimes, agreement as prerequisites for adjustment.

It is surprising how often such prerequisites are ignored. For whatever reason – carelessness, misplaced trust or misunderstanding, to name a few – claimants who perform extra work or who work under unexpected conditions fail to adhere to claim preservation requirements. As a result, they lose their claims.

The decision in Carolina Conduit Systems, Inc. v. MasTec North America, Inc., No. 3:11CV133 (E.D. Va. 2011), is another example. A Virginia utility retained MasTec, the general contractor, to relocate and improve existing underground conduit. MasTec and Carolina entered into a subcontract whereby Carolina agreed to perform underground construction.

Carolina began work before signing the subcontract and soon encountered subsurface field conditions that differed from conditions represented by the design. Additional flowable fill was needed to remedy the inconsistencies. MasTec told Carolina “not to worry” about excess fill costs because plenty of funds were available. Similar “don’t worry” assurances were repeated after signing. Reality set in at the close of the project. MasTec refused to pay for excess fill.

The subcontract was for a fixed price and provided that “any additional work outside the original scope of work shall be handled through a change order specifying pricing and/or unit prices approved by [the owner].” Relying on verbal assurances, Carolina placed the additional fill without obtaining a written change order. This omission proved fatal to Carolina’s claim.

The subcontract was governed by Virginia law. Virginia courts are notorious for strict contract interpretation. Carolina’s complaints about deficient design and its arguments that the parties orally modified the subcontract were found wanting. Summary judgment was entered in MasTec’s favor; Carolina’s claims were dismissed without a trial.

This decision is a sobering lesson, but a lesson that some contractors inexplicably fail to absorb. After many years of practicing construction law, we are still amazed to see contractors who fail to dot their “i’s” and cross their “t’s,” either forgetting or ignoring requirements stated in plain English.

The Virginia court's decision must have been especially aggravating for Carolina, who had worked with MasTec on several previous jobs. In fact, Carolina had worked on MasTec projects without a signed contract. Perhaps that is why Carolina accepted MasTec’s “don’t worry” assurances.

Whatever Carolina’s reasoning, its loss is a stark reminder. Contractors must understand that their contracts mean what they say and administer their contracts accordingly. “Don’t Worry, By Happy” is not a formula for profitability.

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This construction E-Alert is our last for 2011. We hope you find our E-Alerts helpful and we look forward to bringing more to you in 2012. We invite your comments and suggestions.

2011 was another challenging year, as the construction industry continued to face economic and financial uncertainties. We are, nevertheless, continually impressed by the resilience of our clients and friends.

The Stites & Harbison Construction Service Group extends its best wishes for the Holidays and wishes you a Happy New Year.

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