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Method of payment oversight results in loss to contractor


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Fisher

By Chase Fisher

The last straw
The contract at issue in the case was for a contractor to add an Alzheimer’s wing onto a customer’s nursing home facility.  While collecting bids on the project, the contractor submitted a $50,000 bid, which was better than the other six bids received.  The customer accepted the offer, and the contractor began working on the project.  Throughout the project, the contractor would periodically present bills to the customer showing how much the labor and materials cost for given periods of time.

As the contractor would present the bills, the customer would pay the invoiced amounts.  Yet, after receiving a bill for roughly $15,000 towards the end of the project, the customer pulled out her calculator to figure out how much she had spent to date.  At that point, the customer discovered that she had already paid $63,000, so she refused to pay the new bill in light of the existing overpayments.  The contractor sued the customer for breach of contract and was countersued by the customer for breach of contract as well.

Just a guesstimate, right?

The primary issue before the court was whether the parties had an enforceable contract, and, if so, what the payment terms were.  Here, the court found that there was indeed a contract, as the evidence showed that the contractor’s bid was on his letterhead, quoted a price of $50,000, and even noted that the total price would not be exceeded absent changes to the project by the customer.

While the customer in fact made changes to the plan, the court found that those changes did not result in increase costs for the contractor, as the customer paid for the additional costs herself (such as upgrading the windows to be installed).  Further, the contractor even presented the customer with several changes that saved her money.

The contractor argued that his course of performance of periodically remitting bills to the customer established that the contract was a time-and-materials contract, as opposed to one for a fixed price.  The court, however, was not persuaded.  The court found that their performance established the appropriate manner that payments should be made (since the periodic billing practice was different than the contract requirement of payment every 30 days).  Yet, the court found that such course of performance did not change the fact that the parties clearly agreed to a fixed-price contract.  The court found that any reasonably prudent person would have understood there to be a fixed-price contract, especially, due to the bid’s quoted $50,000 price.

Takeaway

Submitting bids is often a hectic process where shortcuts may be taken, including agreeing to important terms such as payment.  A basic tenet of contract law you should always keep in mind is that ambiguities are often interpreted in favor of the party that did not draft the agreement.  Thus, take care when making your own contract.

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