By QUINN MURPHY
Few events strike fear into captains and sailors like a perfect storm. In sailing parlance, the perfect storm happens on rare occasions when warm air approaches from one direction, cool dry air approaches from another and both combine with an existing tropical hurricane. While typical hurricane winds can average 50+ mph, the combination of these three elements can result in winds exceeding 150+ mph. A captain attempting to navigate a perfect storm has few options. Death and destruction are virtual certainties.
One such event took place in 1991 off the cost of Massachusetts that was detailed in Sebastian Junger’s hit novel The Perfect Storm. For several weeks, storm trackers and hurricane enthusiasts had been tracking an approaching hurricane, but they did not anticipate the simultaneous combination of conditions that resulted in a catastrophic hurricane for the record books. Once combined, this super-hurricane yielded winds over 75 mph and 100-foot waves, destroying ships and everything else in its path. The event eventually gave birth to what is now called the perfect storm.
Construction projects are rife with their own storms. Experienced contractors know that the ability to adjust to changing project conditions separates average contractors from those that can consistently deliver for owners. Competing objectives and project conditions often change in real time with little warning. Navigating weather storms is no task for the faint of heart. Neither is project management. And yet, some of the most common storms that contractors encounter have their genesis in very common contract provisions agreed to long before ground is ever broken. Proficiently navigating project conditions that trigger these two contractual provisions can ultimately determine both project and business viability.
The Contract Provisions
Most construction contracts contain provisions that require contractors to expeditiously prosecute changes in the work as instructed by the upstream contractor. These same contracts also contain provisions requiring changes in the work to be memorialized by change order and, where there is disagreement about price or deadline extension, through a dispute resolution process.
The Perfect Storm
When a change in the work is instructed, the contractor has no choice but to proceed expeditiously as it has contractually agreed to do. But often the upstream contractor does not agree on price or extension, and there simply is no time to resolve their disagreement and keep the project on track. This problem is only exacerbated if payments are already late and contractors find themselves in the crosshairs of an instruction to proceed notwithstanding no written agreement as to the resulting time and cost. In these instances, the contractor faces a catch 22 in which it must decide whether to prosecute the work and risk non-payment or refuse to prosecute the work and risk a claim for delay. For the unfortunate contractor, this is the perfect storm.
Navigating the Perfect Storm
If there were a simple answer to the perfect project storm, it wouldn’t be perfect. But a contractor seeking to minimize its risk and preserve its legal entitlement to full payment should employ the following five strategies:
Preemptively revise the contract. Require expedited approvals for changes taking place after mobilization and require such approvals to “not be unreasonably withheld” to secure legal footing to claim an increase in the contract sum or extension of the completion deadline.
Communicate early and often. Request an immediate meeting with your upstream contractor and ask for all decision makers to be present for efficiency. Document your meeting requests, and draft meeting notes and circulate to all persons in attendance. If an agreement is not reached, the documentation you created will support your good faith and strengthen your claim in litigation.
Document your non-delay. Through email, letter, project notes or otherwise, create documentation of your non-delay. Consistently confirm readiness to proceed with work and your commitment to timely project completion. Understand that documentation created at the time of a disagreement is often valued more by juries than testimony at trial.
Maintain your mechanics lien rights. No matter what, maintain your lien rights. If you have to file your lien before the project (or your work) is complete, do it. Your lien rights are your most powerful form of security for payment. Do not allow your lien rights to expire based on “promises to pay” that may not come to fruition. You can always negotiate a lien release as part of an acceptable payment resolution.
Document Prior Breach. If you are going to refuse to proceed with the instruction without an agreement, simultaneously document prior breaches by the upstream contractor as well. In most states, a previously breaching party is prohibited from strictly enforcing the provisions of a contract it has already breached, so a properly documented prior breach (untimely payment for example) can potentially justify your refusal to proceed.
There are no simple solutions to addressing the contractual risk associated with instructions to proceed without full agreement. But by utilizing these five strategic methodologies, experienced contractors may safely navigate deep waters and survive the perfect storm.
Quinn Murphy heads both the construction and receivable recovery industry teams at Sandberg Phoenix & von Gontard P.C. He represents contractors in non-payment claims in all 50 states and in helping contractors create internal collections policies that maximize net recovery. Murphy can be reached at firstname.lastname@example.org.