When is a contractor entitled to payment for incomplete or defective work
A well drafted, written contract expresses the intent of the parties in clear language without any ambiguity. For that reason, when a court interprets a written contract, it seeks “to determine the intent of the parties from the language used interpreted in the light of the situation of the parties and the circumstances connected with the transaction.” MJM Indus. v. Henley Co., 2020 Conn. Super. LEXIS 427, *6. In fact, according to the “parol evidence rule,” if the written contract contains the full expression of the parties’ agreement, a court is generally not allowed to look beyond the language of the written agreement itself. The prior negotiations between the parties will be considered irrelevant. Anything that may have been said verbally or in writing during the parties’ contract negotiations that was not made part of the final written contract is typically not enforceable by either party.
A contract that contains the full agreement of the parties is referred to as a fully integrated agreement. Again, “[i]n order to determine whether a written agreement is integrated, a court must look to the intention of the parties.” Giorgio v. Nukem, Inc., 31 Conn. App.
It is not uncommon for a construction contract between an owner and a general contractor to state the owner may terminate the contract for convenience. In other words, the owner may be allowed to terminate the contract even if the contractor had not done anything wrong merely because the owner has had a change in circumstance that no longer makes it reasonable to continue with the subject project. General contractors often include similar provisions in their contracts with their subcontractors. The question is whether there are any limits on one party’s right to terminate a contract when the other party has done nothing wrong. In most jurisdictions, there is a limit to such a right but, unfortunately, not in all.
The general rule was expressed by a Maryland an appellate court, which held “that termination for convenience rights … may be enforceable, subject to the implied limitation that they be exercised in good faith and in accordance with fair dealing.” Questar Builders, Inc. v. CB Flooring, LLC, 410 Md. 241, 279 (Md. 2009). By quoting David A. Senter, Role of the Subcontractor, in FUNDAMENTALS OF CONSTRUCTION LAW 133 (italics added),
The Connecticut Superior Court recently decided a case of first impression regarding the right to file an application for discharge of mechanic’s liens. The court in Grade A Mkt., Inc. v. Surplus Contrs., LLC held that a lessee did not have “standing” to file an application for discharge of mechanic’s liens and dismissed the tenant’s application. Grade A Mkt., Inc. v. Surplus Contrs., LLC, 2015 Conn. Super LEXIS 1342 (Conn. Super. May 26, 2015). In layman’s terms, “standing” is the right to have the court decide your case. The Grade A Mkt decision is interesting because it limits the ability of a tenant to obtain a discharge of mechanic’s liens even though the tenant’s lease with the owner may require the tenant to obtain a discharge of mechanic’s liens filed by contractors performing work for the tenant.
Mechanic’s liens are a statutory right that the legislature created to provide contractors and/or suppliers that furnish labor, materials, and/or services to a property with security for the alleged debt but mechanic’s liens were not intended to prevent the free transfer of property rights. For that reason, the statutes provide a few different mechanisms by which an appropriate individual or company may obtain a release of the mechanic’s lien.
In 2003, I published an article in The Journal of Explosives Engineering entitled “The Laws Governing Blasting,” in which I explained that, despite the fact that blasting is the most widely used method for rock removal on construction projects, court decisions pertaining to blasting damage claims often wrongfully hold blasters liable for alleged damage their blasting could not have possibly caused. As my article explains, these decisions reach the wrong conclusion because of a general misunderstanding of the science governing blasting. By citing technical and legal sources, the article demonstrates that courts often ignore scientific evidence in favor of lay testimony that the blasting caused damage because cracks were noticed after the building shook. However, years of research by the United States Bureau of Mines (“USBM”) demonstrates that such anecdotal evidence is not reliable or accurate.
A fundamental principle from the USBM research stated in USBM Bulletin 8507 is that blast generated vibrations that are measured at the nearest structure at less than 2 inches per second at 40 Hz are not likely to cause damage to typical residential construction. (For a full discussion of the scientific information pertaining to the USBM research, see my earlier article).
It is no secret that public works construction is a difficult business. On any given project there are innumerable ways that things can go wrong. With any project involving excavation and underground utilities, encountering changed conditions should not be a surprise. Of course, such changed conditions are not the contractor’s responsibility. What is the contractor’s responsibility, however, is providing the public owner with proper notice of its claims in accordance with the subject agreement.
One of the reasons public works construction projects are more onerous than their private counterparts is because public owners rarely negotiate contract terms. Contracts that are slanted significantly in the public owner’s favor are the norm. Thus, as the contractor in a recent state Supreme Court decision learned, it is vitally important to read the contract and abide by its terms.
One of the lessons from Old Colony Cosntr., LLC v. Town of Southington, 316 Conn. 202 (Conn. April 21, 2015) is that general assertions of entitlement to damages and/or additional contract time is not sufficient when the contract requires more detail. During the long duration of the project, the contractor in Old Colony repeatedly indicated that each problem that occurred impacted its schedule and costs.
According to Conn. Gen. Stat. §31-53, all public works construction contracts require the wages paid on the project to “be at a rate equal to the rate customary or prevailing for the same work in the same trade or occupation in the town in which such public works project is being constructed. Any contractor who is not obligated by agreement to make payment or contribution on behalf of such persons to any such employee welfare fund shall pay to each mechanic, laborer or worker as part of such person’s wages the amount of payment or contribution for such person’s classification on each pay day.” The reason for the “prevailing wage” requirement is to level the playing field for those bidding on public projects by requiring non-union companies to pay the equivalent of union wages on such projects. In the last legislative session, Connecticut lawmakers considered an expansion of the prevailing wage law beyond projects owned by the state or its subdivisions.
The considered legislation expands the prevailing wage law so that it would apply to any project which receives financial assistance from the state. For example, if your project is funded—or even partially funded—by a loan or a grant from the State Department of Economic Development,
After a mechanic’s lien is filed, an owner has two options. The owner can wait because, if the lien is not foreclosed within a year, it evaporates by operation of law; or, the owner can file an application with the court seeking an order discharging the lien. If the owner files an application for discharge, the court will hold a hearing during which the contractor “shall first be required to establish that there is probable cause to sustain the validity of his lien,” and, if that occurs, the owner must “prove by clear and convincing evidence that the validity of the lien should not be sustained or the amount of the lien claimed is excessive and should be reduced.” Conn. Gen. Stat. §49-35b. Thus, if a lien is discharged, either there was not “probable cause” to sustain the lien or the owner was able to present “clear and convincing evidence” that the lien should be discharged. In either case, it is evidence that the contractor’s claim for the underlying debt was weak.
The question then is whether a contractor may commence its own action against the owner to the collects the amounts that had been secured by a mechanic’s lien that had been discharged after a hearing.
It is readily apparent that – if a project is delayed – the contractor is losing money. The increased direct costs associated with the labor and equipment on site are obvious. The more complex question arises when considering the effect a delayed project has on a contractor’s recovery of its home office overhead, where “home office overhead” is defined as the cost of the contractor’s main office including, but not limited to, rent, utilities, executive and management salaries, staff, office equipment, office supplies, taxes, insurance, etc. Everyone intuitively understands that a delayed project increases such costs in the same manner that that delays increase the project’s direct costs but increases in home office overhead cannot be directly correlated to any one project because a contractor typically has several projects with overlapping schedules underway at any given time. Over the years, courts have attempted to determine the damages necessary “to compensate a contractor for its indirect costs that cannot be allocated to a particular contract for the period during which the government has made contractual performance impossible.” Charles G. Williams Constr., Inc. v. White, 326 F.3d 1376, 1380-1381 (Fed. Cir. 2003). “As a result, there are at least nine formulas that have been used,