Background

In October 2010, the New York City Transit Authority entered into a design-build contract with Silverite Construction for the construction of a bus depot on Lenox Avenue in Manhattan. In April 2012, Silverite entered into a subcontract with Providence Construction for Providence to perform the masonry work at the project and lay 120,000 square feet of regular concrete masonry units (“CMU”) at $41 per square foot, and 70,000 square feet of glazed CMUs at $30.25 per square foot, for a “total lump sum price” of $6.55 million. The contract provided that this “lump sum” price was subject to addition or reduction from that price, at the indicated unit prices, based on actual job quantities. Certified as a minority business enterprise, Providence had its contract utilized in Silverite’s W/MBE utilization plan for the full contract value.

Providence worked on the project between May 2012 and September 2013, and Providence’s records indicated that it installed 198,000 square feet  of CMUs, which was 5,700 square feet more than was contracted for. Silverite’s records did not agree, so it hired an independent 3-D modeling company to determine the quantity actually installed; the 3-D modeling showed only 172,000 square feet installed. Providence sought payment for the extra quantity, while Sliverite wanted a credit for the uninstalled quantity (and withheld the last couple of Providence’s payment requisitions to secure this credit). The difference was $1.1 million.

Providence sued Silverite to recover for the additional materials and unpaid requisitions, and Silverite counterclaimed for the remainder of the sought credit. After a lengthy litigation, both Providence and Silverite moved for summary judgment. In support of its motion, Providence argued that the contract was a lump sum based on the language (and the specific use of those words), thus negating Silverite’s ability to claim a credit based on actual square footage. Providence also argued that evidence of the lump sum nature of the contract was that Silverite never modified its W/MBE utilization plan to reflect any changes from the lump sum number. Silverite, in opposition and in support of its competing motion, argued that the inclusion of the unit prices, and the language that the price was subject to adjustment based on the quantity installed, compelled the conclusion that this was a unit price contract. Accordingly, Silverite argued, Providence was not entitled to any additional funds, and Silverite was entitled to a credit for the uninstalled quantity.

Decision

The court denied both motions, finding numerous issues of fact which needed to resolved by a jury. The first issue of fact was with regard to the contract itself. While the court acknowledged the presence of the term “lump sum” in the contract, it noted that in a traditional lump sum agreement, there is no adjustment for the quantity installed. Because this contract contained such a provision, it was not clear that it was actually a lump sum agreement.

Conversely, because the contract contained the “lump sum” language, it was not clear that it was a unit price agreement either. Accordingly, this dispute had to be resolved by a jury. Similarly, the issue of how much CMU square footage was installed (the 198,000 square feet claimed by Providence, or the 172,000 square feet claimed by Silverite) also had to be resolved by the jury.

Comment

Because of the conflicting language in the contract, what should have been something that was resolvable as a matter of simple math—and likely would not have even been the subject of a lawsuit—engendered 11 years of litigation so far, with more to come (including a trial). Truly, a waste of resources when all that was needed here was language clearly indicating either that the contract was a unit price agreement or a lump sum agreement.

Last month we wrote about the average construction subcontract now being more than 30 pages (and, ironically, advocated for a longer document there because it would have clarified what provisions were incorporated into that contract by reference). With longer and more complicated construction contracts becoming the norm, it is easier for ambiguous language to creep into the document. What the parties may think is clear may only be clear from their perspective, and could be the subject of reasonable disagreement or, in legalese, a triable issue of fact sufficient to deny summary judgment to a party and require a (very expensive) trial. Unfortunately, this is not the first time we have come across a contract where the parties disagreed as to whether it was Lump Sum or Unit Price. We have even seen this where a standard AIA A101 Lump Sum form was used because of careless modifications to the form. While the facts of Providence are rather dramatic, it is easy for less stark, but equally ambiguous language to creep into a contract document. In order to avoid the consequences of ambiguities such as these, and in order to ensure that the words of the contract truly express the terms agreed to by the parties in the clearest fashion, contracting parties would be advised to consult with experienced construction counsel.

About the authors: Thomas H. Welby, an attorney and licensed professional engineer, is General Counsel to the Construction Industry Council of Westchester & Hudson Valley, Inc., and the Building Contractors Association, and is the Founder of and Senior Counsel to the law firm of Welby, Brady & Greenblatt, LLP. Gregory J. Spaun is General Counsel to the Queens and Bronx Building Association and an attorney and a partner with the firm, co-authors this series with Mr. Welby.