Tag: lump sum

Contractor Can Recover for Extra Work Under Time & Materials Contract – IL

untitled (photo credit: www.anp.com; google images (12.19.14)

 

 

 

This article highlights the importance of using proper terminology and clearly defining payment obligations in written construction agreements.

In Schmoldt & Daniels Masonry v. 723 S. Neil, LLC, 2014 IL App (4th) 140102-U, the court discusses the difference between a time-and-materials contract and a lump sum contract and examines what a contractor must show to recover “extras” from a property owner.

A masonry contractor plaintiff and the owner defendant signed a contract that required the plaintiff to complete masonry work on a time and material (T&M) basis “not to exceed $80,000.” Plaintiff sued after the owner failed to pay about $75,000 in extras.

After a bench trial, the court granted a money judgment to the masonry contractor for the full amount of the extras and the owner appealed.

Held: judgment affirmed.

Reasons:

The court agreed with the plaintiff’s testimony that the $80,000 cap was only an estimate and contingent on the owner performing preliminary masonry work.

In a lump-sum contract, the contractor assumes the risk that the job will go over budget. In a T&M contract, the parties share the risk.  A T&M contract can be open-ended (no price limit) or capped (it can’t exceed a stated amount).  Under basic Illinois contract law, where contract terms are clear and unambiguous, they will be enforced as written.

A contract is ambiguous where its terms are reasonably susceptible to more than one meaning.  But just because parties disagree on the meaning of certain contract terms doesn’t make the contract ambiguous.

A contractor seeking to recover additional payment for extra work must establish

  • that the work was outside the scope of the contract;
  • the extra items were ordered by the owner;
  •  the owner agreed to pay for the extra work – either by words or conduct;
  • the extras were not furnished by the contractor voluntarily; and
  •  the extras weren’t rendered necessary due to any fault of the contractor.

(¶¶ 23-24, 31).

The Court agreed that the contract was ambiguous. The “not to exceed $80,000” language could plausibly refer both to the specific Scope of Work items as well as to additional items stated in the architectural plans and owner-requested items.

Based on the ambiguity, the Court allowed the parties to testify concerning their intent in negotiating and consummating the $80,000 price term.

The Court found the plaintiff’s testimony that the $80,000 wasn’t a firm price cap more credible than the owner’s opposing testimony.

Affirming the extras damages award, the court found the plaintiff established all elements for recoverable extras: that  plaintiff performed extra work at the owner’s request, the owner tacitly agreed to pay, and the extras weren’t performed gratuitously and due to any fault of the contractor. ¶¶ 32-34.

Take-aways:

Where a writing has two or more equally plausible meanings, a court will find it ambiguous and allow the parties to testify as to the writing’s intended meaning.

 The case also illustrates the importance of precision in drafting.  If the contractual intent is to cap costs no matter what, the parties should so.  

The case also states the simple five-part test for a contractor proving up its claim for extras.

Consultant’s Quantum Meruit and Time-And-Materials Contract Claims Fail Against Contractor (IL 2d Dist)

Mostardi Platt Environmental, Inc. v. Power Holdings, LLC, 2014 IL App (2d) 130737-U shows the importance of clarity in contract drafting – particularly compensation terms.  The case also illustrates the crucial distinction between a time-and-expense (or time and materials) contract and a lump-sum payment contract.

Plaintiff was hired to perform environmental assessment services and to secure government permits for the defendant contractor who was building a gas facility in southern Illinois.  The parties’ original agreement was a time-and-expense contract and was later amended to a lump sum contract totaling about $100,000.

A dispute arose when the plaintiff realized that it underestimated the project’s scope and time commitment and sought additional monies from the defendant.  The defendant refused after the plaintiff failed to specify the needed extra work.  The plaintiff sued for damages and the defendant counterclaimed.  The trial court ruled against the plaintiff on all counts and for defendant on its counterclaim.

Held: Affirmed

Reasons:

The Court first rejected the consultant’s quantum meruit claim.  Quantum meruit is an equitable theory of recovery used by a party to obtain restitution for the unjust enrichment of the other party. 

Illinois law allows alternative pleading and quantum meruit is often pled as a fallback theory to a breach of contract claim.  It allows a plaintiff to recover the reasonable value of his work where there is no contract a contractual defect.  A quantum meruit claim can’t co-exist with an express contract. 

Here, the court found that the parties had an express contract – the environmental consulting agreement.  Because of this, the trial court properly denied plaintiff’s quantum meruit claim.  (¶¶ 75-78).

The Court also agreed that the plaintiff breached the consulting contract.  Under basic contract law, where parties reduce an agreement to writing, that writing is presumed to reflect the parties’ intent. 

The contract is interpreted as a whole and the court applies the plain and ordinary meaning of unambiguous contract terms.  A party who seeks to enforce a contract must establish “substantial performance” – that he substantially complied with the material terms of the agreement.  (¶¶ 81-82, 95).

The Court found that the plaintiff breached the contract in multiple respects.  Reading the original and amended consulting contracts together, the court found that the plaintiff was required but failed to provide itemized invoices for extra or “out-of-scope” work and also failed to complete its permitting tasks.  By walking off the job before it secured the required environmental permit, the plaintiff breached a material contract term. (¶¶  89-91).

The Court also rejected plaintiff’s impossibility defense, based on the claim that a substitute contractor (hired after the plaintiff walked off the job) changed the scope of the project and made it impossible for the plaintiff to perform.

Impossibility refers to situations where a contract’s purpose or subject matter has been destroyed; making performance impossible.  But the defense is applied sparingly since the purpose of contract law is to allow parties to freely allocate risks among themselves and a party’s performance should only be excused in extreme circumstances.  (¶ 97).

Finding no impossibility, the Court noted that the plaintiff only showed that the stated contract price was underbid and didn’t adequately compensate it for the needed extra work.  The Court held that impossibility of performance requires a litigant to show more than mere difficulty in performing or that he struck a bad bargain.  Performance must truly be rendered impossible due to factors beyond the party’s control.  ¶¶ 97-98.

 Take-aways: In the construction realm, some typical contractual compensation schemes include time-and-materials or time and expense, cost-plus arrangements or lump sum payment agreements.  Labeling a contract with the proper payment designation is critical; especially when a project’s scope and duration is uncertain.  This case makes it clear that in situations involving commercially sophisticated parties, a court will hold them to the clear language of their contract – even if has harsh results for one of the parties after the fact.