August 14, 2018
Author: Richard O. Hamilton, Jr.
Organization: Robbins, Kelly, Patterson & Tucker, LPA
I. CHANGE PROVISIONS
Few if any construction projects are completed without at least some deviation from the original plans and specifications. A. Silberman, Beyond Changes: Abandonment and Cardinal Change, 22 Construction Lawyer 9 (Fall 2002). Accordingly change clauses are important and necessary provisions in every construction contract. Typical construction contracts contain clauses which allow changes either with or without the agreement of the parties at the time the change is made. When the parties to the contract are in agreement as to the scope and effect of the modification (on price and time) a “change order” will result.
Change provisions should specify whether the change order must be in writing. Other provisions apply when the parties cannot agree on the modification or the effect that it will have on price and time. In such situations, change clauses often permit either an owner or a design professional to direct that the change in work be performed notwithstanding the lack of agreement between the parties as to the impact of the modification. The manner in which the parties address these situations depends upon the contract provisions. As illustration, we will consider the structure of two commonly used construction form contracts – the AIA A201 and the Consensus Doc Form 200. The AIA A201 is produced by the American Institute of Architects (“AIA”). Consensus Doc Form 200 is produced by the Associated General Contractors of America (“AGC”)
a. Classification of Changes
Contracts typically distinguish between changes which are major enough to impact the contract price or time and changes that do not. Often, changes that do not impact contract price or time require a less formal change process. Both the American Institute of Architect Form A201 and Consensus Docs Form 200 make this distinction. Under the AIA’s form, changes that do not impact contract price or time are called “incidental changes.” Under the AGC’s form, changes that do not impact contract price or time are called “minor changes.
b. Process for Making Changes
When the change does not impact contract price or time, no formally agreed upon change order is required. Under the AIA’s form, the architect can issue a change order unilaterally for incidental changes. AIA Form A201 § 4.2.8 & 7.4. The change order must still be in writing. Id. Under the AGC’s form, the owner can issue a change order unilaterally for minor changes. Consensus Doc Form 200 § 8.5. The change order must be in writing and signed by the owner. Id.
When the change impacts the contract price or time, a more formal process is required. Under the AIA’s form, the contractor is not obligated to perform changes until either a “construction change directive” or a “change order” has been issued. AIA Form A201 § 7.3.10. If everyone agrees on the change and the associated adjustments to contract price and time a change order will be signed by all parties involved (Owner, Architect, and Contractor). Id. If not everyone agrees on the adjustments, the architect and owner can issue a construction change directive. AIA Form A201 § 7.3.1 & 7.3.2.
Under the AGC’s form, the contractor is not obligated to perform changes until either an “interim directed change” or a “change order” has been issued. Consensus Doc Form 200 § 8.1.3. If everyone agrees on the change and the associated adjustments a change order will be signed by the owner and the contractor. Consensus Doc Form 200 § 8.2.3. If not everyone agrees on the adjustments, the owner can unilaterally issue an Interim Directed Change. Consensus Doc Form 200 § 8.2.1.
c. Determining Adjustments in Contract Price
The AIA contracts and AGC Contracts differ in the manner in which adjustments in contract price are determined when no mutually agreed upon “change order” is issued. Under the AIA contracts, the architect or design professional is actively involved in the process of determining the amount the appropriate adjustment in contract price. When an AGC contract is used, the architect or design professional has no involvement in this process.
Under the AIA’s form, architects may provide in change directives that the amount of the price modification will be determined using one of four methods. AIA Form A201 § 7.3.3. First, the architect can specify in the change directive that the contractor will provide an itemized list of all additional costs. Id. The owner will pay the contractor a lump sum for all additional costs that are agreed upon and supported by substantiating data. Id. Second, the change directive can state that change in price will be determined using “unit prices.” Id. Third, the change directive may require that the contract price be changed based upon agreed method for calculating the change in costs. Id. That amount, along with an additional mutually acceptable fixed or percentage fee, will be the new contract price. Id. Finally, the change directive may state that change in contract price will be determined using the AIA’s default procedure for calculated costs. Id.
If the contractor disagrees with the manner of adjustment, proposed by the architect in the change directive, the contractor must promptly advise the architecture in writing. AIA Form A201 § 7.3.5. If the change directive does not provide for the method of price modification or if the contractor objects to the modification method, the default procedure for calculating costs is used. Id; See also AIA Form A201 § 7.3.7. Under this process, the Architect determines the method and the adjustment on the basis of reasonable expenditures and savings of those performing the Work attributable to the change, including, in case of an increase in the Contract Sum, an amount for overhead and profit as set forth in the Agreement, or if no such amount is set forth in the Agreement, a reasonable amount. AIA Form A201 § 7.3.7. Costs are limited to: (1) Costs of labor; (2) Cost of materials, supplies and equipment; (3) Cost of premiums for all bonds and insurance, permit fees, and sales, use or similar taxes related to the Work; and; and (4) Additional costs of supervision and field office personnel directly and attributable to the change. Id. When a disagreement ensues the AIA’s dispute resolution process is triggered.
Under the AIA’s dispute resolution process the Initial Decision Maker (IDM) acts as the initial authority for resolving claims and disputes. The IDM can either reject a claim or recommend approval of the claim by the other party. A party has ten days to notify the IDM that it contests the IDM’s decision. The IDM is then responsible for providing a final decision regarding the dispute. This decision is binding on the parties subject to mediation or review by arbitration. By default, the IDM is the architect.
Parties, however, can agree to have a consultant serve as the IDM. Under the AGC’s form, the Owner and Contractor have an obligation to negotiation expeditiously and in good faith for appropriate adjustments in contract time and price. Consensus Doc Form 200 § 8.2.2. Like the AIA, the change in price can be determined by unit prices or by a mutually accepted itemized lump sum. Consensus Doc Form 200 § 8.3.1. When the price change cannot be determined by unit prices or a mutually accepted itemized lump sum, the contractor calculates the contract price using the following formula:
Contract Price = Cost of Work + Overhead (__ % of Cost) + Profit ( __% of Costs)
When utilizing this formula, overhead and profit should not be adjusted downward unless 10% or more of the project is deleted. The contract should specify what percentage is being used to calculate overhead and profit. When determining the Cost of work, the following costs are included: (1) Labor (job site work and field office work as needed); (2) Transportation/travel costs; (3) Materials, supplies, and equipment costs; (4) Payments to subcontractors; (5) Taxes, permits, and fees; and (6) Water, power, and fuel costs. Consensus Doc Form 200 § 184.108.40.206. The Contractor shall make record of costs available to owner. Id.
The AGC’s Forms anticipate initial alternative dispute resolution through the use of a mediator or nonbinding “project neutral.” The AGC Forms do not contain a default dispute resolution process for handling disputes that persist past negotiations and mediation. Rather AGC Forms use a “check the blank” approach, requiring the parties to make an affirmative selection that at least in theory forces the contracting parties to discuss the merits of arbitration and litigation.
d. Interim Relief
When disputes arise over the cost of changes, the AIA heavily favors owners. While contractors can dispute the architect’s decision with respect to cost determinations, it may be left having to fund the entire cost of the directed change until resolution is reached. AIA Form A201 § 7.3.9 provides:
Pending final determination of the total cost of a Construction Change Direct to the Owner, the Contractor may request payment for Work completed under the Construction Change Directive in Application for Payment. The Architect will make an interim determination for purposes of monthly certification for payment for those costs and certify for payment the amount that the Architect determines, in the Architects professional judgment, to be reasonably justified.
Thus, interim relief is entirely left up to the discretion of the architect.1 In contrast, the AGC forms expressly allow for interim relief. Owners are required to pay the contractor 50% of its estimated cost to perform the work while the parties dispute the remaining amount.
II. PAY-WHEN-PAID AND PAY-IF-PAID PROVISIONS
Pay-when-paid provisions favor subcontractors. Pay-if-paid provisions favor contractors. As a general rule a contractor bares the risk of loss of an owner not paying. This means that a contractor is still responsible for paying subcontractors even when the contractor does not receive payment from the owner. Generally, the owner’s failure to pay has no effect on the contractor’s obligations to subcontractors. Contractors can use “pay-when-paid” or “pay-if-paid” provisions to modify this default rule. It is important to understand the subtle differences between these provisions since they have drastically different implications
a. Implications of each provision
Pay-when-paid provisions are not interpreted to transfer the risk of loss to the subcontractor. Instead they are interpreted to mean that the contractor’s obligation to make payment is suspended for a reasonable period of time for the contractor to receive payment from the owner. After a reasonable period of time passes the contractor is still obligated to pay the subcontractor irrespective of whether the contractor has actually been paid. Evans, Mechwart, Hambleton & Tilton, Inc. v. Triad Architects, Ltd., 196 Ohio App. 3d 784, 791 (10th Dist.2011).
Pay-if-paid provisions, on the hand, transfer the risk of loss to the subcontractor. This means that if the contractor is not paid, it has no obligation to pay its subcontractors. Some courts have held that pay-if-paid provisions are unenforceable. For example, in West-Fair Electrical Contractors v. Aetna Casualty & Surety Co., a New York court reasoned that “pay-if-paid” provisions contravened mechanic liens statutes. 661 N.E.2d 967 (N.Y. 1995). The court reasoned that mechanics lien statutes afford protection to those who furnishes work, labor and services but that “pay-if-paid” provisions put their utility at risk. In order to enforce a mechanics lien a subcontractor or material provider must be “owed and unpaid.” Given the “pay-if-paid” provision, however, a subcontractor is never “owed and unpaid” until the contractor is paid. Thus if enforceable, the New York Court reasoned, the “pay-if-paid” provision would drastically effect mechanic lien rights. Id. Similarly, in William R. Clarke Corp. v. Safeco Insurance Company of America, a California court also determined “pay-if-paid” provisions are void as against public policy. Interestingly, the California decision did not base its analysis on its mechanics lien statute.2
“Pay-if-paid” provisions are still enforceable in Ohio. Furthermore, in Ohio “paid-if-paid” provisions do not affect mechanics lien rights. Subcontractors can still seek recovery from owners by foreclosing on a properly placed a mechanic’s lien even if the contractor has not been paid. See R.C. 4113.62(E); See Evans, Mechwart, Hambleton & Tilton, Inc. v. Triad Architects, Ltd., 196 Ohio App. 3d 784, 791 (10th Dist.2011).
b. Determining whether a provision is a “pay-if-paid” or “paywhen- paid” provision.
What language renders a provision a “pay-if-paid” provision? A provision must be unambiguous to be construed as a “pay-if-paid” provision. The provision should contain two elements. First, the provision should explicitly make the contractor’s receipt of payment from the owner a “condition precedent” to the contractor’s obligations to pay the subcontractor. See Evans, Mechwart, Hambleton & Tilton, Inc. v. Triad Architects, Ltd., 196 Ohio App. 3d 784, 791 (10th Dist.2011). Second, the provision should explicitly state that the subcontractor “assumes the risk of the owner’s nonpayment.” Id. Example “Pay-if-paid” Provision: Contractor’s receipt of payment from the owner is a condition precedent to contractor’s obligation to make payment to the subcontract; the subcontractor expressly assumes the risk of the owner’s nonpayment and the subcontractor’s price includes the risk. Example “Pay-when-paid” Provision: Contractor shall pay subcontractor within seven days of contractor’s receipt of payment from owner.
What happens, however, if a contract contains the “condition precedent” language without the “express assumption of risk” language, or vice versa? The Ohio Supreme Court is considering this issue right now in Transtar Elec. v. A.E.M. Elec. Servs. Corp., Case No. 2013-0148. In Transtar, a subcontractor performed electrical work worth approximately $187,000. The Contractor paid more than $142,000 but did not pay the remainder claiming it was not paid the full contract balance by the owner. When the subcontractor sued for the remainder, the contractor pointed to “condition precedent” language within the contract. The subcontractor argued that the provision should not be interpreted as a “pay-if-paid” provision since it did not also contain “express assumption of risk” language. The trial court agreed granted summary judgment to the contractor finding that the provision was a “pay-if-paid” provision even though the provision did not also contain the “express assumption of risk” language.
The appellate court found that the trial court erred and that without “express assumption of risk” language the provision cannot be interpreted as a “pay-if-paid” provision. While the Ohio Supreme Court heard oral arguments in November, 2013, it has not issued a decision yet. This decision could drastically alter the “pay-if-paid” analysis. The Ohio Supreme Court could even follow New York and California and find “pay-if-paid” provisions are unenforceable as against public policy. In the meantime, contractors wishing to transfer the risk of non-payment, should make sure that their contracts include both the “condition precedent” and “express assumption of risk” language. Conversely, subcontractors wishing the risk of loss to remain upon the contractor should seek contracts with neither the “condition precedent” nor “express assumption of risk” language.
c. Provisions in Standard Forms
The AIA’s form agreements contain “pay-when-paid” provisions rather than a “pay-if-paid” provision. AIA contracts state:
The Contractor shall pay the subcontractor each progress payment within three working days after the Contractor receives payment from the Owner. If the Architect does not issue a certificate for payment or the Contractor does not receive payment for any cause which is not the fault of the Subcontractor, the Contractor shall pay the Subcontractor, on demand. The AGC’s agreements also contain a “pay-when-paid” provision rather than a “pay-ifpaid” provision. Concensus Docs contracts state:
TIME OF PAYMENT Final payment of the balance due on the Subcontract Amount shall be made to the Subcontractor within seven (7) Days after receipt by the Constructor of final payment from the Owner for such Subcontract Work.
FINAL PAYMENT DELAY If the Owner or its designated agent does not issue a certificate for final payment or the Constructor does not receive such payment for any cause which is not the fault of the Subcontractor, the Constructor shall promptly inform the Subcontractor in writing. If final payment from the Owner for such Subcontract Work is not received by the Constructor, through no fault of the Subcontractor, the Constructor will make payment to the Subcontractor within a reasonable time. Parties wishing to replace these standard provisions with “pay-if-paid” provisions should refer to the AIA and Consensus Doc instructions for model “pay-if-paid” language. For example, AIA instructions give parties the option of replacing the standard “pay-when-paid” language with the following model “pay-if-paid” provision:
It is specifically understood and agreed that the payment to the Subcontractor is dependent, as a condition precedent, upon the Contractor’s receipt of payment from the Owner. Subcontractor acknowledges the risk of non-payment to the Contractor by the Owner which may result in non- payment to the Subcontractor by the Contractor. This example provision contains both the “condition precedent” and “transfer of risk” language that is necessary.
III. NO DAMAGE FOR DELAY PROVISIONS
A contractor can recover damages from an owner when the contractor suffers damages as a result of delays caused by the owner. Conversely, an owner can recover damages from a contractor when the owner suffers damages as result of delays caused by the contractor. Similarly, a subcontractor can recover for delay damages caused by owners and contractors.
A “No Damage for Delay” provision attempts to preclude parties from recovering delay damages. Generally, No Damage for Delay provisions favor owners who want to protect themselves from overblown and unjustified reimbursement requests or extravagantly high delay claims from contractors and their subcontractors. No damage for Delay provisions in contracts between contractors and subcontractors benefit contractors in allowing them to avoid paying numerous subcontractors when the owners issue defective plans or otherwise delay the project. “No Damage for Delay” provisions, on the other hand, are a detriment to subcontractors.
In Ohio, No Damage for Delay provisions are unenforceable as against public policy when the party seeking to enforce the provision is the cause of the delay (as long as the contract was executed after 1998). R.C. 4113.62(C)(1)&(2). See also Dugan & Meyers Constr. Co. v. Ohio Dep't of Admin. Servs., 113 Ohio St. 3d 226 (2007). Such provisions are currently still enforceable in Indiana and Kentucky. Indiana Dept. Of Transp. v. Shelly & Sands, Inc., 756 N.E.2d 1063 (Ind. App. 2001); Humphreys v. J. B. Michael & Co., 341 S.W.2d 229 (Ky. 1960).
What about a provision that indirectly affects the remedies available upon delay?
Would such a provision be enforceable in Ohio? The answer to this question is “it depends.” When provisions have the effect of insulating a contractor from all liability caused by its own action or inaction, the provision will be unenforceable. For example, in Cleveland Constr., Inc. v. Ohio Public Employees Retirement System, a provision that made an extension of time the only available remedy upon delay was found to be unenforceable. 2008 Ohio 1630, P21 (10th Dist.). The Court reasoned that R.C. 4113.62(c) not only prohibits provisions that waive liability but also provisions that limit any remedy for delay. Accordingly, the provision was unenforceable. Id. The Sixth Circuit adopted this same reasoning in Acme Construction v. TolTest. 370 Fed. Appx. 647, 654 (6th Cir. 2010). A subcontractor challenged a provision that allowed only for delay damages resulting from delays exceeding four months. The Sixth Circuit reasoned that R.C. 4113.62(c) recognizes the public policy that contractors should not be allowed to escape or limit liability caused by their own acts or failures to act. The provision was unenforceable since its effect was to entirely foreclose on delay remedies available. Id. Contractual provisions that only limit the process for recovering delay damages are enforceable in certain situations. In B.I Chippings Co. v. R.F. Scurlock, a contractor entered into a contract with the Ohio Department of Transportation (ODOT). 2005 Ohio 6748 (10th Dist.). When ODOT caused delays the contractor sought and recovered minimal damages from ODOT. A subcontract was not satisfied with the minimal delay damages the contractor passed along and brought suit against the contractor. The court considered whether a provision in the contract between the subcontractor and contractor precluded the subcontractor’s further recovery or whether the provision was unenforceable. The provision provided that the subcontractor agreed to accept only those delay damages that the contractor recovered from ODOT via the ODOT claims process. The provision authorized the contractor to act on the subcontractor’s behalf in the claims process. The B.I. Chippings court found this provision to be enforceable since it limited the process for recovery rather than the type of damages that were recoverable. The Courts analysis does not mean that any provision that solely affects the process is automatically enforceable. Acme Construction, 370 Fed. Appx. at 654. In fact, the B.I. Chippings provision would be unenforceable in other contexts. For example, if the contractor caused the delay rather than ODOT, limiting delay damages to that which could be recovered from the ODOT claims process would completely foreclose on all delay remedies available to the subcontractor. Id. Accordingly even provisions that only regulate the process are unenforceable when their effect is to foreclose on delay remedies.
Moreover, parties may negotiate a maximum monetary amount for delay claims. In Inland Waters Pollution Controls, v. Marra/Majestic Joint Venture, a change order provided that a subcontractor could receive compensation for delays up to 4.4 million dollars. 2009 U.S. Dist. LEXIS 20228 (N.D. Ohio). When the subcontractor experienced damages exceeding 4.4 million dollars, it argued that the provision was unenforceable. The court disagreed reasoning that R.C. 4113.62 does not preclude parties from negotiating monetary limits on delay damages. Id. Considering these examples holistically, parties should expect that any provision that “entirely foreclose[s] on delay damages” will be unenforceable. Acme Contr., 370 Fed. Appx. at 654. When the provision does not entirely foreclose on delay damages, the provision is enforceable if the provision merely limits the process for recovering delay damages or the amount of delay damages which are recoverable.
IV. ATTORNEY FEE PROVISIONS
Generally parties in litigation are required to pay their own attorneys fees. Construction contracts, however, can contain provisions that require that require one party to pay another’s attorney fees should litigation ensue. The nature of attorney fee provisions can vary. They can be one-sided (i.e. only the general contractor can collect attorney fees if he prevails, but the subcontractor cannot) or two-sided (i.e. the prevailing party can collect attorney fees, regardless of who the prevailing party is). Unambiguous attorney fee provisions in construction contracts are enforceable in Ohio. Fabrication Group LLC v. Willowick Partners LLC, 2012 Ohio 4460, P33 (11th Dist. 2012).
In addition to contractual attorney fee provisions, there is a statutory attorney fee provision available to subcontractors and material providers. Under Ohio’s Prompt Pay Act, codified in R.C. 4113.61, subcontractors and material providers can recover attorney fees plus 18% interest when higher tiered contractors fail to pay within ten days of being paid for the subcontractors work or for the materials supplied. In order to succeed in a claim under Ohio’s Prompt Pay Act, the subcontractor or supplier must: (1) prove a valid and enforceable contract claim; (2) prove that an accurate invoice was submitted to the contractor for payment; (3) prove that the subcontractor or supplier allowed the contractor sufficient time to include the invoice in the contractor's invoice to the owner; (4) prove that the contractor was paid for the invoice submitted for work or materials set forth in the subcontractor's or supplier's invoice; (5) prove that the contractor refused to timely pay the subcontractor or supplier an amount equal to the percentage of completion allowed by the owner; and (6) prove there is no valid reasons for the contractor to withhold any amount necessary to resolve disputed claims involving the work or materials.
V. TERMINATION PROVISIONS
There are two types of termination provisions commonly used in construction contracts. First, there are “termination for cause” clauses which allow either party to terminate the contract for cause. Typical cases include: (1) contractor’s failure to properly man the job or keep up with project schedule; (2) contractor’s failure to follow the project plans/specifications; (3) repeated failed inspections; (4) contractor’s failure to pay subcontractors; and (5) owner’s failure to pay contractor.
Since for cause clauses are highly litigated more and more owners are terminating their contracts “for convenience” even when they believe there is sufficient justification to terminate the contract for cause. Termination for convenience clauses are recognized in Ohio. Daniel E. Terreri & Sons v. Bd. of Mahoning County Comm'rs, 152 Ohio App. 3d 95 (7th Dist. 2003). Before terminating for cause a party must usually comply with a written notice requirement. A party’s failure to follow written notice provisions is deemed harmless, and is excused, if there is evidence that the nonterminating party had constructive or actual notice of the termination. Daniel E. Terreri & Sons v. Bd. of Mahoning County Comm'rs, 152 Ohio App. 3d 95 (7th Dist. 2003).
Usually the termination for convenience clauses will require the terminating party to pay certain consequential damages (cost for work performed; termination/wind up costs). Some provisions require the owner to also pay for lost profits and overhead.
VI. ENFORCEABILITY OF SUBCONTRACTOR’S BID
In the construction industry general contractors often solicit bids from subcontractors. The general contractors use these bids from subcontractors in their own bids for the prime contract. What happens if the general contractor wins the bid for the prime contract? Is the general contractor obligated to use the subcontractor whose sub-bid it based its prime contract price on? Is the subcontractor bound by his bid to the general contractor? Ohio Courts have resolved these questions in a way that is favorable to general contractors.
Wargo Builders v. Douglas L. Cox Plumbing & Heating is the seminal case on this issue in Ohio. 26 Ohio App. 2d 1 (8th Dist. 1971). In Wargo Builders, a general contractor solicited bids from subcontractors for the plumbing and heating portion of a school construction project. A subcontractor made an oral offer to perform the plumbing and heating work for $26,080. That same day, the general contractor submitted its bid to the school and included in his bid $26,080 for plumbing and heating. After the school awarded the general contractor the project, the contractor sent the subcontractor a telegram demanded that he begin performance. The subcontractor responded by notifying the contractor that it would not do the plumbing and heating work unless it were paid an additional $3,000 more than the original offer. The Wargo Builders court considered whether the subcontractor’s original bid was binding. The court reasoned that while the subcontractor did not bargain for the use of his bid he should have reasonably expected that it would be relied upon. Id. at 4. The general contractor’s reliance upon the subcontractor’s bid created a common law option contract whereby the subcontractor is required to keep his offer open for a reasonable time. Id.
Several important lessons can be learned from Wargo Builders and its progeny. First, an option contract is created, not a contract for performance. A subcontractor is only bound to perform if the general contractor, within a reasonable time, notifies the subcontractor that it is accepting its offer. The “reasonable time” period is measured from date the general contractor enters into a contract with the owner. Lichtenberg Constr. & Dev. v. Paul W. Wilson, Inc., 2000 Ohio App. LEXIS 862 (1st Dist.). While there is no set amount of time that is reasonable, Courts have consistently found that a contractor who accepts a subcontractors bid within 30 days of entering into the general contract has accepted within a reasonable time. E.g. Id.
A second lesson that can be learned from Wargo Builders is that it is the general contractor’s reliance that creates the option contract. If the subcontractor puts in his bid that the bid is not to be relied upon, there is no option contract. See Ward Builders, 26 Ohio app at 5. Similarly, if a subcontractor retracts its bid before the general contractor uses the subcontractor’s bid, there is no option contract. Id. citing James Baird Co. v. Gimbel Bros., Inc. (2d Cir., 1933).
Third, while a general contractor is not required to go with the subcontractor whose bid it relied upon, a general contractor is not free to delay acceptance by further bid shopping in the hope of getting a better price. Complete Gen. Constr. Co. v. Kard Welding, Inc., 182 Ohio App. 3d 119 (10th Dist. 2009). For example, in Complete General Construction v. Kard Welding, a contractor admitted that after obtaining a general contract it resumed negotiations with other subcontractors. Id. Because the contractor resumed negotiations, the subcontractor was no longer required to hold his original offer open. Id.
Finally, the subcontractor is only bound by the terms of his original offer. Contractor cannot accept the subcontractor original offer while simultaneously adding different or additional terms. Staffco Constr. v. Creative Sunroom Designs, Inc., 1999 Ohio App. LEXIS 4839, 7-9 (2nd Dist.). Notwithstanding this principle subcontractor’s should be cautious when making bids. In Staffco Construction v. Creative Sunroom Designs, a general contractor passed along the design professional’s specifications book, including particular product model numbers. The subcontractor issued its bid without any particular knowledge of what product was being identified by the model numbers. The subcontractor later found that the model numbers corresponded to products that were much more expensive than the products with was anticipating uses. The Staffco Construction court reasoned that after the general contractor accepted the offer, the subcontractor was bound by its original offer. The court reasoned that the very purpose of using subcontractors is the superior knowledge or expertise they offer and that if mistake must be bore, it should be borne by the subcontractor. Id. at 12-13.
1 Note that the AIA instructions indicate that because the Contractor is required to proceed with the performance of a change and will be incurring costs on account of it, it would be inequitable to withhold any payment until the price has been fully settled.
2 Commentators have noted that subcontractors may still avail the California mechanics lien process even when payment is not “owed an due” because of a “pay-if-paid” provision. See Margie Alsbrook, Contracting Away an Honest Day’s Pay: An Examination of Conditional Payment Clauses in Construction Contracts, 58 Ark. L. Rev. 353, 376 (2005).