• Preventing Proposal Promises from Becoming Binding
  • January 29, 2010 | Author: Joseph A. Cleves
  • Law Firm: Dressman Benzinger LaVelle psc - Cincinnati Office
  • The initial writing presented by a contractor to an owner is usually in the form of a proposal. Based on an optimistic mindset and incorporating elements of salesmanship, it can lead to a good dialogue regarding the project. However, it generally contains promises and is based on expectations that are revised as design concepts become construction documents, and as materials, labor costs and timelines are finalized. Especially in today’s dismal economic environment, owners are beginning to assert claims against contractors for not living up to promises set out in initial proposals. Rising costs, labor scarcity or delays or defects in materials delivered can all undermine the optimistic statements set forth in proposals.

    Problems arise when the contractor’s proposal is incorporated in the construction contract by reference or as an exhibit. This is frequently done because the proposal often contains information relevant to the scope of work or other elements of the project’s performance. Incorporating the proposal is an easy way to bring important concepts or terms into the contract. It avoids the labor of separating valuable substance from sales prose, and making the terminology consistent with the contracts’ terms.

    Proposals create friction and ambiguity Here’s the watch-out: Adding the sales-driven prose of a proposal to the precisely drafted terms of a commercial construction contract is almost certain to create points of friction. First of all, proposal statements contain vague terms and concepts that create ambiguity regarding the intent of the parties. That ambiguity can often be turned against the drafting party. Secondly, and not infrequently, some language in the proposal will directly contradict the express language of the contract. Project schedule is one area where the initial commitment often evolves and the target date for completion is extended. Lastly, the proposal may contain commitments which seemed realistic to the sales team, but were never effectively communicated to the project manager or superintendent. When a project turns sour, each of these points of friction can be used by the owner as a wedge in a legal claim against the contractor.

    There are certain guidelines that should be followed as the parties move from the conceptual proposal to the actual contract, and its plans and specifications. This, in turn, can prevent misunderstandings and help keep projects on track.

    1. Avoid incorporating a proposal into the construction contract. Most, if not all, of the proposal is superseded by the contract, its general conditions, plans and specifications. If it is important to preserve parts of the proposal, those elements should be set forth in a separate exhibit to the contract, as opposed to attaching the entire proposal.

    2. Clarify vague language. The legal terms of the contract are generally carefully drafted and closely reviewed. Exhibits do not receive the same level of attention and review. The parties should carefully review the exhibits to ensure the terms are consistent with their intent.

    3. Document all changes. As the project design evolves from concept to construction drawings, the scope of work and performance specifications become highly detailed. There should be complete documentation of all changes. Such documentation helps both parties understand and requires that they approve adjustments to the original concepts.

    Even the most well conceived project will undergo changes as it moves from concept to execution. By limiting the carry-over of proposal promises into the contract, the contractor ensures clarity as to its contractual commitments, and avoids sales-driven language from becoming a binding contractual requirement.