• Court of Appeals Warns -- Want to Get Paid?  Comply with Contract Terms!
  • January 25, 2016 | Author: Julia J. Nierengarten
  • Law Firm: Meagher & Geer, P.L.L.P. - Minneapolis Office
  • Storms, Inc. v. Mathy Const. Co., 2015 WL 7693550 (Minn. App. Nov. 30, 2015)

    The Minnesota Court of Appeals recently issued an opinion that is important to all contractors to understand, if they want to get full payment on a project. The Court's decision gave a very clear instruction to all parties on a construction project - follow the terms of the contract. Failure to comply with all terms will impact your ability to get paid.

    In this new case, Mathy Construction Company solicited bids from subcontractors in response to a MNDOT solicitation for bids for a road-repair project. In doing so, Mathy provided these subcontractors with MNDOT's statement of estimated quantities, identifying amounts of materials needed to perform certain aspects of the project. Storms submitted a bid to Mathy based on the MNDOT statement of estimated quantities and won the bid. Mathy secured the MNDOT contract. Storms and Mathy then entered into a subcontract.

    The road-repair project was completed in August 2011, and in May 2012, in response to a request by Mathy seeking payment, MNDOT issued a change order reducing the amount owed to Mathy by MNDOT. The reason for issuing the change order was that the planned quantity amounts for the project exceeded the actual amounts necessary to complete the project. Storms sought payment from Mathy, which refused to pay because of the change order and subsequent reduction in payment from MNDOT. Storms brought suit against Mathy, arguing that it was entitled to payment of the full subcontract amount because the change order came outside the time period prescribed by MNDOT specification 1402 (allowing MNDOT to change the details of the project at any time during the progress of the work).

    The district court found that Mathy breached its contract by not making modifications to the plan during the progress of the work. The court then held a hearing on damages only. At this hearing, the court concluded that Storms was not entitled to any payment under the contract because a MNDOT representative testified at the hearing that 1402 only applies to situations of unforeseen or significant changes and therefore did not apply in this situation.

    This opinion by the court of appeals reverses that district court opinion denying Storms damages for breach of the subcontract. The court of appeals determined that the language of the subcontract clearly indicated that "any changes made to the project must be made during the progress of the work because the [subcontract] language indicates that when the change is made, there is still work left to be completed." The court concluded that MNDOT's change order, issued nine months after completion of the project, was not valid under the subcontract agreement. Storms was therefore entitled to damages for breach of the subcontract.

    Overall, this opinion warns contractors that: (1) the Court will uphold the terms of your contract agreements; and (2) in order to get paid, contractors should comply with all contract terms.