Contracting drafting is an art that is often underappreciated by both owners and contractors. When submitting bids for construction work, the words used in the bidding documents matter and the use of imprecise language can leave much to the imagination of the reader, which is not helpful when a dispute arises that results in litigation.
A recent case out of the U.S. District Court for the Western District of Pennsylvania illustrates what can happen when laypersons engaged in a bidding process enter into a multi-million dollar construction project without refining their agreement through a negotiated construction contract. In the case of CNX Midstream Devco I LP v. Applied Construction Solutions, Inc., U.S. District Court, Western District of Pennsylvania, Case No. 20-0290, the owner solicited bids for the construction of a natural gas compressor station. As part of the bid solicitation process, the owner – CNX – posted a “Q&A Document” which contained questions from bidders and the owner’s answers to those questions. The Q&A Document included questions and answers that indicated the bid solicitation was for a time and material (“T&M”) proposal with a “not to exceed” price based on a submitted budget. ACS – a bidder for the project – submitted a bid for $14,108,760 that was inclusive of “contingencies” for things like schedule delays, weather delays, and equipment and material delays. In response to the owner’s request, ACS clarified that its number could be reduced to $12,826,145.50 if those contingencies were removed. The owner then awarded the contract to ACS based on this revised bid by issuing an electronic purchase order through its “HUBWOO” system. The purchase order incorporated 150 documents by reference, including both the Q&A Document and ACS’s revised bid. ACS accepted the purchase order by checking a box on the HUBWOO system to acknowledge the purchase order.
During the course of construction, ACS submitted, and CNX acknowledged, at least in part, multiple change orders totaling between $2.8 million and $3.5 million. Adding the change orders brought the contract price to either $15.2 million or $15.9 million, depending on whose numbers you used. When the owner refused to pay more than the $15.2 million it calculated as the revised contract value after change orders, ACS threatened a lien. CNX then preemptively sued ACS, seeking a declaration that ACS could not file a lien on the project. It then moved for summary judgment, seeking a ruling that the contract was clearly a time and materials contract with a not to exceed price of $12,418.545.
The court denied CNX’s motion, finding the contract was ambiguous. The court was very critical of CNX and how it chose to put the contract together by issuing an “abbreviated” electronic purchase order incorporating hundreds of documents:
. . . Article 2 of the Purchase Order states that in the event of an inconsistency between a Contract Document and the Purchase Order, the Purchase Order controls. It further provides that “particular provisions” control over provisions in “general specifications or conditions incorporated by reference.” It does not, however, expressly contemplate . . . inconsistencies between the Contract Documents themselves as to provisions not controlled by the Purchase Order. This omission seems particularly unfortunate where CNX elects to supplement its rather abbreviated Purchase Order by simply rolling-in hundreds of additional pages as further contract terms for a multi-million dollar construction project.(Emphasis added).
The court goes on to describe other provisions in the contract documents as “inartful and ambiguous” and the result of “poor draftsmanship”, but the central criticism of the court – and the reason CNX was denied summary judgment – is that nowhere does the contract contain language which clearly states that the contract is or is not a “not to exceed” agreement. Instead, the purchase order incorporates two documents – the Q&A Document and ACS’s revised bid – which appear to directly contradict one another on this very basic term of the agreement. Had the owner or ACS asked its construction attorney to review the purchase order before it was issued or accepted, that basic contract term almost certainly would have been clarified one way or the other. In that regard, the court was also critical of ACS for submitting a revised bid that did not clearly state whether or not it was proposing a straight time and material contract or a T&M with a not-to-exceed price. The court rejected ACS’s argument that the contract was “unilaterally drafted by CNX without ACS’s input”, noting “the parties’ sophistication level and the eight-figure price tag of the project, opportunities for negotiation, and the parties’ course of conduct.” In other words, the court was in no mood to entertain ACS’s “woe is me” story.
The CNX decision is a wake-up call to the construction industry that the courts are there to grade your homework, not to re-write it so that it works the way you intended. If drafted properly, a contract should state the price terms sufficiently clearly that your attorney could obtain summary judgment declaring that the contract is fixed price instead of time and material. The reliance on electronic procurement processes has surely created efficiencies in the bidding process, but has also led to litigation over poorly worded – and sometimes contradictory – answers to Q&A questions and other contradictions between dozens of documents that are merely adopted by reference into a purchase order without any attempt to harmonize their provisions. It would behoove both owners and contractors to take the extra step – before sending or “clicking the box” on an electronic purchase order – to confirm in writing at least the essential terms of the contract (e.g., price terms, deadline for completion, etc.). Better yet, forward the proposed purchase order to your construction attorney for a final review before undertaking liability on an eight-figure construction contract.
Comments? Questions? Email me at email@example.com