When is a Deal Not a Deal?
Kegler Brown Construction Newsletter January 1, 2008
It is common for subcontractors to be told that they “have the job” and to start work before they receive a signed subcontract from the contractor. A recent case out of New York demonstrates the risk of doing so. Jordan Panel Systems v. Turner Construction, 841 N.Y.S. 2d 561 (App. Div. 2007).
In this case, the contractor sent the subcontractor a “term sheet,” which said that while the subcontractor could not withdraw his bid, the contractor reserved the right not to execute the subcontract “pending an internal review and prior approval by the owner where appropriate.”
Later the contractor told the subcontractor he had been awarded the subcontract and to proceed with design development. However, the contractor subsequently told the subcontractor that his involvement was terminated and the work given to a competitor. When the unhappy subcontractor sued, the Court ruled for the contractor saying that the subcontractor voluntarily assumed the risk by beginning work without a signed subcontract.
While this case revolved around a contractor’s not standing behind his oral promises and hiding behind his written disclaimers, subcontractors have been similarly successful when they put disclaimers in their bids. For example, in applying New Jersey law, a subcontractor prevailed when he walked away from his bid because the bid provided that it was for informational purposes only and not a firm offer. Fletcher-Harlee Corp. v. Pote Concrete Contractors, 482 F.3d 247 (3d Cir. 2007).
These cases demonstrate the risk of the legal fine print and the perils that occur when project team members do not keep their commitments to each other.