Subcontractor Recovers $220,435 from General Contractor on Oral Contract

by James R. Keller

This article appeared in St. Louis Construction News & Review, p. 21, July-August, 2004.

Missouri's Western District Court of Appeals recently affirmed a trial court's decision that subcontractor KC Excavating and Grading, Inc. could recover $220,435 from its general contractor Crane Construction Company for breach of an oral contract. The court looked to KC's bid, the plans and specifications and Crane's letter of acceptance in determining what they had agreed to do.

The case is KC Excavating and Grading, Inc. v. Crane Construction Company, No. WD 62271, decided June 29, 2004.

Construction projects frequently proceed on the basis of an oral conversation and a handshake. In fact, some contractors and subcontractors view the request for a written contract to be a showing of distrust. Others are in a hurry to get started and consider the process of obtaining an executed written contract to be an unnecessary delay.

This decision reinforces the need for written contacts to avoid misunderstandings and disputes and reaffirms that oral contracts in construction projects are enforceable. Without a written contract, the parties are subject to the court's interpretation of conflicting evidence as to the intentions of the subcontractor and the general.

Further, a judge's decision on such evidence will not be overturned on appeal absent an abuse of discretion by the trial court-a high standard to prove and overcome.

In this case, KC had not signed Crane's proposed written agreement, which KC asserted at trial it never received. The parties proceeded on the project based on an oral agreement, defined by KC's written bid, the plans and specifications and Crane's letter of acceptance of KC's bid.

The project was a building site in Warrensburg owned by the trust of William Koch and Phyllis Koch. The dispute started in 1997 when KC decided the contract documents did not specify properly the scope of KC's work and that KC would have to excavate more dirt than the contract documents required.

In response, Crane concluded that KC was not working fast enough to stay on schedule. Crane demanded that KC provide written assurances

that it would perform its work on time. KC did not provide such assurances.

Crane told KC not to continue its work until the dispute was resolved. Within one week, Crane terminated its contract with KC and obtained a replacement contractor to complete the excavation.

By then, however, KC had excavated 35,000 cubic yards of dirt beyond the specified contract documents. KC spread most of the dirt over the property at Crane's direction and stockpiled the rest for removal.

Crane did not pay for any of KC's work in excavating the 35,000 cubic yards of dirt. KC filed a mechanic's lien on the property and filed a lawsuit to enforce its lien, seeking damages from Crane for breach of contract.

Crane argued that KC was required to be on the job site during certain hours, attend to its burn pits and aerate the soil on a particular schedule. Even if this were true, the appellate court concluded that these failures were not material to the contract and thus they could not create a reason for Crane not to honor the contract.

KC's written bid called for structural excavation and backfill but was contingent on KC doing the total site-grading package. Crane interpreted this to mean all such work would be for the contract's lump-sum price of $98,297.

The trial and appellate courts, however, decided that a reference to "unit prices" in the contract documents referred to additional work not covered in the plans and specifications. Thus, the parties agreed to a separate method of payment for such work-on a unit price basis-and this work was beyond the contract's original lump-sum price.

The court concluded that KC was entitled to recover $220,435 for such additional excavation work.

Crane also argued that based on past occasions a change order was required for the additional excavation work. Rejecting this argument, the court reasoned that even if this were true, the absence of a change order in this case did not preclude KC's recovery because parties can waive the requirement of a change order by orally agreeing to do the work and to pay for it.

Evidence during trial showed that Crane's superintendent told KC to do the additional excavation work and a change order would follow. The court decided that this created an enforceable oral agreement and a waiver of the contract's requirement for a change order.

James R. Keller is a partner at Herzog Crebs LLP, where he concentrates his legal practice on complex business litigation, construction law and alternative dispute resolution. He also is an arbitrator with the American Arbitration Association and a mediator.