Once again, the courts have been called upon to decide whether a GC and sub had a binding commitment – or not – after a failed negotiation while a project was underway. This time it was a curtain wall sub for an 18-story office building in Milwaukee. But it could have been a precast vendor for a bridge in Utah, or the sub installing equipment in a wastewater treatment plant in Hartford. The scenario is distressingly familiar.
The curtainwall sub provided a price to the GC before the GC had entered into a guaranteed maximum price with the owner. Nothing unusual about that. The pricing went through several iterations over a span of months. Still pretty typical. There was some value engineering, selection of alternates, adjustment of the schedule, and yet more re-pricing. Again – all activities common to large (and even not-so-large) construction projects. The draft subcontract incorporated the prime contract terms, which is standard.
When the GC wanted the sub to start production, the sub asked for a letter of intent. The GC sent a proposed letter of intent, unsigned and incorporating the prime contract terms which had not yet been finalized.
About one year after the initial sub bid, the GC finalized and signed the GMP contract with the owner, and provided a copy to the sub. The GMP had been based in part on the curtainwall sub’s pricing. Together with a copy of the prime contract, the GC offered yet another proposal. The sub at that point disengaged, citing manufacturing problems at its foreign facility due to civil unrest. (From the decision, it appears that civil unrest, in fact, had impacted the foreign operations.) The GC had to go to another vendor, at a much higher price, to get the curtainwall ordered and installed.
So was the sub on the hook for the cost overrun, or was the GC hung out to dry by events it had not foreseen and by its own failure to pin down the subcontract terms? Although the legal theory of promissory estoppel is well-established, and can bind parties to quotes or bids even in the absence of a signed agreement, the devil is almost always in some of the details. As was the case here.
The GC argued that the sub’s bid was an offer, the GC had accepted that offer, and so the parties had a binding agreement. But the paper trail was not so clear. The sub had repeatedly made clear in its communications that it would not be bound until it had reviewed the prime contract and had executed the subcontract with agreed language. The GC’s final counterproposal highlighted the fact that the negotiations had not yet ended. In other words, the parties at best had an agreement to agree at some point in the future. Under Wisconsin law, such agreements are not enforceable.
This case repeats a common problem, and emphasizes the need for parties to be clear about conditions for a full and final agreement. Here, the court found that the sub was sufficiently clear about the conditions for a subcontract, and those conditions had not been met. Thus, even though the GC had relied upon and used the sub’s pricing when entering into a GMP agreement, it had not reaching a binding agreement with the sub, and was thus exposed to a cost overrun when the sub backed out. The GC’s efforts to continue negotiating were, in part, its undoing.
The case is C.G. Schmidt v. Permasteelisa N. Amer., 2016 U.S. App. LEXIS 10920 (June 16, 2016).