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By John W. Ralls
Howrey LLP
A general contractor was hired to remove and replace the roof of a Treasury Department building. The general contractor subcontracted portions of the work. When the subcontractor found an unexpected roof deflection problem on the south side of Wing D, it submitted a cost proposal to the contractor that: (1) sought $131,033 for extra work and (2) explained that it was assuming the remaining roof conditions for the rest of project would be similar to those on the south side of Wing D.
The general contractor sent the owner a letter, including the subcontractor's cost proposal. After adding its own expected costs, the general contractor requested a change order for $174,242 and a time extension of 42 days.
The contract was modified as proposed. The modification specifically stated that the changes were made pursuant to the contractor's proposal, which incorporated the subcontractor's cost proposal. The modification further stated that it was a "complete equitable adjustment" and provided the following release language: "The contractor hereby releases the [owner] from any and all liability under this contract for further equitable adjustment due to this modification."
After continuing work, the subcontractor found that the remaining roof conditions were different than those on the south side of Wing D. The subcontractor sought another equitable adjustment based on its assumption that the roof conditions would be similar to those on the south side of Wing D. In response, the contractor submitted another change order request to the owner. This time the owner denied the request. The general contractor appealed to the General Services Administration Board of Contract Appeals on behalf of the subcontractor, seeking a second equitable adjustment.
The owner moved for summary relief, arguing that the claim for an equitable adjustment was barred because when the parties modified the contract, they also had reached an accord and satisfaction. The owner argued that the release language in the modification barred the contractor and subcontractor from seeking additional compensation arising from roof deflections.
In response, the general contractor argued that "its proposal incorporated [the subcontractor's] proposal, which specifically qualified the estimate, noting that it was predicated on the assumption that conditions elsewhere on the roof would be comparable to those on the south side of wing D." Thus, the general contractor argued that it never agreed to release its right to further compensation if the conditions were worse on other parts of the roof.
The BCA denied the owner's motion for summary relief. Corning Construction Corp., 03-2 BCA ¶32,367 (GSA 2003). The BCA explained that generally "when a modification does not contain any reservation of claims, the modification constitutes an accord and satisfaction as to the subject matter of the modification and the contractor cannot later narrow the scope of the modification.... The essential elements of an accord and satisfaction are competent parties, proper subject matter, consideration, and a meeting of the minds."
The BCA found that a genuine issue of material fact existed as to whether there was a meeting of the minds (i.e., whether the general contractor actually intended to release its right to seek an equitable adjustment on all future claims). The BCA based its decision on the affidavit submitted by the general contractor's president stating that the general contractor never intended to release any claims based on conditions different from those on the south side of Wing D and from the subcontractor's assumption in its proposal that the remaining roof conditions would be the same as those on the south side of Wing D.
The BCA later granted the contractor's appeal as to entitlement, rejecting the owner's accord and satisfaction defense, and denied the owner's motion for reconsideration. 2004-1 BCA ¶¶32,402, 32,508. The parties then settled, with the contractor receiving a time extension, equitable adjustment, interest and attorney fees. 2004 GSBCA Lexis 63.
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For more information about the issues covered in this report, please contact John Ralls in our San Francisco office at 415-848-3362 or at rallsj@howrey.com or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.
©2004 Howrey LLP
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