by James R. Keller
This article appeared in St. Louis Construction News & Review, p. 9, January-February, 2002.
The Forsyth R-III School District recently discovered that dirt is not dirt cheap. The case is Textor Construction v Forsyth R-III, Case No. 23744 (Mo.App. S.D. 2001), decided October 11, 2001.
The dispute was over missing topsoil for the District's ball fields. The appellate court, interpreting conflicting provisions in a modified AIA contract, upheld a contractor's claim to recover more money for grading work on the fields, even though the District claimed "foul" because the contractor did not provide the topsoil or complete the job on time.
Further, the District could not recover liquidated damages for the contractor's 84-day delay in completion. Apparently, the architect's representative told the contractor "on several occasions" that the District waived this claim due to its own delay in timely starting the project. Thus, the contractor concluded that it was not required to file a written request for an extension of time. The appellate court agreed.
The appellate court ordered the District to pay Textor an additional $38,000 for work under the contract. The District's only consolation was that it did not have to pay interest on this $38,000.
The appellate court decided that the trial court erred in awarding interest under Missouri's Prompt Payment Act, 34.057.1(8). The Act requires that before an owner has to pay statutory interest for late or non-payment, the contractor must show at least one of several events. One of them is that the architect certified the project as complete, "including the filing of all documentation and certificates required by the contracts in complete and acceptable form."
Textor could not show this. In fact, this requirement snares many contractors, even those who ultimately recover more money that the owner had improperly withheld.
Both the trial and appellate courts concluded that Textor should receive, by contract, another $38,000, and the District should not have withheld this money. However, the architect did not issue the final certificate of payment (as specified under Missouri's Prompt Payment Act). Hence, interest, initially awarded by the trial court at 18%, was not recoverable. This case reinforces the importance of following exactly the requirements of the Prompt Payment Act before a contractor can recover interest, even on money otherwise due.
The appellate decision also points out the problems when a contract contains conflicting scope-of-work requirements. The contract, before modifications, was an AIA "Standard Form of Agreement Between Owner and Contractor where the Basis of Payment is a Stipulated Sum." The general specifications provided for four inches of topsoil, if necessary, to be furnished by the contractor. Another provision, labeled an Addendum, stated that it superceded other provisions. It required that the ball fields "can be lowered as required to avoid bringing in any fill dirt."
The court resolved this conflict by enforcing the Addendum, on the basis that the contract's more specific language trumped the general language in the specifications. Given this finding, the architect had misconstrued the contract by not certifying payment of the remaining $38,000 to Textor as final payment.
In reaching this decision, the court also considered that the District had intended to install an irrigation system, with someone other than Textor, after Textor left the job but before topsoil was placed on the site. The court interpreted this action as evidence that the contractor was not required, initially, to place topsoil on ball fields that would then be torn up to install this irrigation system.
The District had counter-sued, alleging delay damages, failure to substantially perform, and that the contractor had never requested, much less received, a time extension. The District claimed $79,000 for the missing topsoil, which after deducting the $38,000 owed to Textor, left the District with damages of $40,950. The court concluded otherwise.
The District struck out on its claim for liquidated damages because of the statements from the architect's representative to the contractor that the District waived the claim. Assuming the parties had a typical AIA contract, it would have required that modifications to it had to be in writing. Regardless, the court noted that parties to a contract, through their actions, can modify or waive its provisions, even those in writing, and this is exactly what happened in this case.
Contractors and owners often make oral changes to their written contract as work progresses, sometimes on a daily basis. If every change had to be in writing, many projects would never be completed on time. Perhaps some would never be completed at all. This case offers caution that such conduct, while widely practiced in the construction industry, may have serious adverse legal consequences.
James R. Keller is a partner at HERZOG, CREBS & McGHEE, LLP, where he concentrates his practice on construction law and business litigation. He also is an arbitrator with the American Arbitration Association and a court-certified mediator.